Preparation of the cost-benefit analysis

Transcription

1 Preparation of the cost-benefit analysis Jornada informativa sobre fondos CEF-Transportes 16 March 2017 Gauthier CLAR INEA R1 Financial Engineering Senior Manager 1

2 Agenda The role of CBA in the CEF Transport calls CBA in practice Blending call specificities Recommendations 2

3 The role of CBA in the CEF Transport Calls 3

4 Why CBA is relevant? TEN-T Regulation Article 7.2.c "A project of common interest shall be economically viable on the basis of a socio-economic cost-benefit analysis." CEF Regulation Article 10.6 "The amount of financial assistance ( ) shall be modulated on the basis of a cost-benefit analysis of each project, availability of Union budget resources and the need to maximize the leverage of Union funding." 4

5 How is it used? Additional evidence of socio-economic performance (impact criterion) Economic analysis To identify cases of potential overfunding Financial analysis 5

6 Which methodology? The European Commission methodology developed for the Cohesion Policy (DG REGIO) RECOMMENDED 6

7 CBA in practice 7

8 Key components of the CBA According to the methodology of DG REGIO Technical feasibility (demand and option analysis) Environmental and climate change considerations Financial analysis Economic analysis Sensitivity analysis Risk assessment (including sensitivity analysis). The results of the technical feasibility and risk assessment should be at least summarised to substantiate the results of the Financial and economic analysis. 8

9 CBA: What does it mean in practice? A CBA is required for all proposals (with sectorial exceptions for pure compliance driven projects e.g. pure ERTMS, pure SESAR) Specific CBA assessment introduced in overall project proposal evaluations since the CEF 2015 call Specific CBA assessment by dedicated external CBA experts separately from the rest of the external evaluation 9

10 CBA: How is it used? Complementary input for the evaluation of the "Impact" criterion CBA experts prepare a separate CBA Assessment Report Findings of CBA Assessment Report taken into consideration by the external experts for the evaluation and scoring of the "Impact" criterion 10

11 What is it meant by "major weakness in CBA"? The impossibility to achieve one of the two objectives defined by the Regulations: When on the basis of the financial analysis it is not possible to conclude on whether CEF funding is needed or on the magnitude of such funding (cf. CEF Regulation Art 10.6) When on the basis of the economic analysis it is not possible to conclude on the socio-economic impact or if this impact is negative (cf. TEN-T Regulation Art 7.2.c) 11

12 CEF Blending Call specificities 12

13 New elements for this call Adaptation of methodology needed Different approach to the grant modulation than in classic calls Sensitivity requirement now with standard stress scenarios Additional guidance for PPP projects/concessions Requirement for affordability analysis for projects relying on availability payment schemes to justify EU support instead of funding gap 13

14 Application of the funding gap Different modulation than in classic calls The funding gap is the part of the (discounted) investment costs that are not covered by the (discounted) revenues generated by the project In the context of this call the "modulated EU cofunding amount" is the lowest of the following values: "funding gap amount" or "maximum co funding amount". 14

15 Modulation in practice Discounted Investment Cost Discounted Net Revenues Funding Residual Gap CEF grant Discounted Investment Cost Discounted Net Revenues No Funding residual Gap CEF grant SMALLEST Funding gap = 50 (50% of EC) Max Co-funding amount 20 (20% of EC) SMALLEST Funding gap = 10 (10% of EC) Max Co-funding amount 20 (20% of EC) For simplicity in this example Eligible costs (EC) = discounted investment costs 15

16 Funding and Financing EU offering Others FUNDING Area of intervention for grants CEF National/ regional grants FINANCING Capital contributions that can be reimbursed and remunerated EFSI Banks/ investors 16

17 Sensitivity analysis Projects shall demonstrate that their economic case is robust to downside scenarios To do so the performance indicators of the economic analysis shall be recalculated on the basis of the following scenarios: Increases of 25% on construction costs Delays to project completion of 6, 12 and 24 months Increases of 25% on annual operating costs over the reference period 17

18 Public-Private Partnerships Financial analysis A consolidated analysis of the costs and revenues covering both the granting and operating entities of the project should first be carried out in order to calculate the overall investment profitability. In the financial analysis of the operating entity the financial return on private equity shall be calculated to demonstrate that the profitability of the private capital is not unduly high following the EU support. 18

19 Availability payments Affordability analysis For PPPs using shadow tolls or availability payment schemes, such payment mechanisms should not be considered as revenues. For projects fully based on availability payments the funding gap calculation is therefore not relevant (as revenues are zero) and the EU co-funding requested shall be justified through an "affordability" analysis instead. Such analysis may cover The justification for use and the level of availability payments (e.g. no capacity or willingness to pay by users) and/or Sustainability for the public sector's budget to fully cover the availability payment obligations of the PPP contract over time. 19

20 Recommendations 20

21 Potential pitfalls Drawing upon lessons learned from previous calls CBA should be part of the project preparation process to improve projects (and not be treated solely as an obligation) The scope of the CBA cover the whole project including also the activities beyond the action for which the promoter is seeking EU finance Assumptions used for the CBA (and in particular the financial analysis) should be consistent with those of the Business Plan (Application Form part E) Cost savings are to be considered as revenues: Unless transferred to users by a reduction of fares or compensated by an equal reduction in the operating subsidy, cost savings affect the funding gap! 21

22 Look for INEA! 22