FICHE NO 19 DELEGATED ACT ON THE CALCULATION OF NET REVENUE FOR REVENUE VERSION NO 2 20/09/2013

Transcription

1 FICHE NO 19 DELEGATED ACT ON THE CALCULATION OF NET REVENUE FOR REVENUE GENERATING OPERATIONS VERSION NO 2 20/09/2013 Regulation Common Provisions Regulation Article Article 54 (3) (b) Operations generating net revenue after completion This document is provisional, without prejudice to the on-going negotiations in the Trilogues between the European Parliament and the Council (in line with the principle that "nothing is agreed until everything is agreed"). This document is a draft that shall be adjusted following the expert meeting. It does not prejudge the final nature of the basic act, nor the content of any delegated or implementing act that may be prepared by the Commission. 1/10

2 1. EMPOWERMENT Article 54 (3) (b) of the CPR provides for the following empowerment. The Commission shall be empowered to adopt delegated acts, in accordance with Article 142 laying down the method referred to in point (b)" Point (b) refers to: / /"Calculation of discounted net revenue of the operation, taking into account the reference period appropriate to the sector or subsector applicable to the operation, the profitability normally expected of the category of investment concerned, application of the polluter-pays principle and, if appropriate, considerations of equity linked to the relative prosperity of the Member State or region concerned. This methodology was presented previously with the methodology for the cost benefit analysis of major projects (within Fiche no 13), as they are closely linked. As it has been proposed that these two methodologies should have different legal forms 1, separate fiches have now been elaborated. 2. MAIN OBJECTIVES AND SCOPE Article 54 on operations generating revenue after their completion applies, in addition to cohesion policy, also to operations under EAFRD and EMFF, and within cohesion policy both to operations below and above the major project threshold (with the exception of exemptions set out in Article 54 (7) and (8) of the CPR). Article 54 of the CPR sets out an empowerment for the Commission to adopt a methodology for the calculation of discounted net revenue. The application of this methodology is an alternative to the application of the flat rate revenue percentages established on the basis of the same Article. 3. MAIN ELEMENTS The acts will set out: Key steps required for defining the maximum contribution from the funds for revenue generating projects based on Article 54 (3) of the CPR; Classification of costs and revenues to be taken into account in the calculation of net revenues and reference to principles to be applied in this calculation Definition and conditions for the application of a residual value and financial discount rate 1 The legal form is still subject to legal scrutiny in the context of the Trilogues. 2/10

3 4. CONTENT The legal text should cover the following aspects of methodology. Determination of the maximum contribution according to the funding gap; Calculation of revenues and costs; Definition of the residual value, discounted cash flow, the reference period, the polluter pays and full cost recovery principle and affordability. 5. MAIN CHANGES COMPARED TO THE PERIOD (WHERE APPROPRIATE) Main elements of the COCOF guidance note on Article 55 of CR 1083/2006 have been developed for the future partly directly in the provisions of Article 54 CPR with further specification as regards the methodology to be applied for the calculation of discounted net revenue. Summary table of main changes in the methodology for calculation of net revenues Delegated Act on calculation of discounted net revenue Reference periods provided for all main sectors Definition of a 4% discount rate as an indicative benchmark COCOF Guidance note on Article 55 Reference periods missing for some sectors such as research and innovation, broadband Foot note 8 refers to CBA guidance and indicative benchmark of a 5% discount rate Reason for change Complete sectorial coverage Definition of a rate which is based on the current long term rate of return from an international portfolio of investments calculated as the mean of the returns from the assets of 3% adjusted upwards by 1% which equals the extent to which the average long term government bond yield in the EU area has fallen since the financial discount rate for the programming period was set. Legal act Guidance document Establish better legal certainty on guiding principles and calculation methods 3/10

4 6. ANNEXES Methodology for the calculation of discounted net revenue with reference to the provisions of Article 54(3) CPR 4/10

5 Methodology for the calculation of discounted net revenue Determination of the appropriate maximum contribution from the funds for revenue generating operations 1. Eligible expenditure on revenue-generating operations shall not exceed the funding gap which is the current value of the investment cost less the current value of the net revenue from the investment over a specific reference period as specified in Annex In the calculation, the managing authority shall take account of the reference period appropriate to the category of investment concerned, the profitability normally expected of the category of investment concerned, the application of the polluter-pays principle and full cost recovery principle, and, if appropriate, considerations of equity linked to the relative prosperity of the Member State concerned and the allocation pro-rata to eligible and non-eligible part in case that not all investment costs are eligible for co-financing. Calculation of revenues 1. The incremental method, involving a comparison of revenues in the scenario including the new investments with the revenues of in a scenario without the new investments, shall be used for the purposes of calculation of the revenues. 2. Only the revenues that are directly attributable to the operation shall be considered. 3. Where an operation adds new assets to complement a pre-existing service or infrastructure, both additional contributions from existing users and contributions from new users of the new service/infrastructure shall be taken into account. 4. Where an operation consists of a completely new asset in a case where there is no preexisting service or infrastructure, the incremental revenues shall be those of the withproject scenario. Calculation of costs 1. The incremental method, involving a comparison of costs in the scenario including the new investments with the costs in a scenario without the new investments, shall be used for the purposes of calculation of costs. 2. The following costs shall be taken into consideration in the calculation of the discounted net revenue for the purposes of determining a funding gap of revenue generating operations: (a) Investment costs meaning both eligible and ineligible capital costs incurred in the construction of the operation; (b) Operating and maintenance costs meaning costs incurred during the reference period for the operation of the revenue generating project, including: i. Replacement costs to assure technical functioning of the operation in the reference period, including replacement of short-life machinery and equipment; ii. Fixed operating and maintenance costs such as staff, maintenance and repair, general management and administration, insurance; and 5/10

6 iii. Variable operating and maintenance costs such as consumption of raw materials, energy, other process consumables, maintenance and repair if necessary to extent the live time of the project to the calculated reference period. 3. Only the costs that are directly attributable to the project should be considered. Residual value 1. For project assets with design lifetimes in excess of reference period, their residual value shall be determined by computing the net present value of cash flows in the remaining life-years of the project. Other methods to residual value calculation may be used in duly justified circumstances. 2. The residual value shall be taken into account in the funding gap calculation only if the revenues outweigh the operating costs. Discounted cash flow 1. Only cash flows paid out or received by the project, are considered by the methodology referred to in Article 54(3) of CPR. 2. Non-cash accounting items such as depreciation, any reserves for future replacement costs and contingency reserves, shall be excluded from the calculation. By derogation, contingencies can be included in the eligible cost for the calculation of the EU grant, without exceeding 10% of the total investment cost net of contingencies. 3. Cash flows shall be discounted back to the present using a financial discount rate of 4% in real terms as an indicative benchmark for public investment projects co-financed by the Funds. 4. Member States may establish benchmarks for the financial discount rate, which differ from 4% on the condition that: a) they provide justification for this benchmark; 1) ensure their consistent application across similar projects in the same country or sector. Values differing from the 4% benchmark may be justified on the grounds of: 1) the Member State s specific macroeconomic conditions and international macroeconomic trends and conjunctures; 2) the nature of the investor; 3) the sector concerned. 5. In order to establish their own country-specific financial discount rates Member States should estimate the average long term return from an alternative, risk-free, basket of investments, whether domestic or international, which they deem most relevant for the country. Information on the different benchmark shall be made available for beneficiaries at the start of the programming period. 6/10

7 Reference period 1. Cash flows must be considered in the year in which they occur and over a given reference period. As a general rule the reference periods by sector as set out in Annex 1, which include the implementation period of the operation, shall be used. 2. By way of derogation, a reference period different from those set out in Annex 1 may be used to ensure that it is suitable for the specific sector and the type of investment. 3. Where cash flow incurs in sectors not covered by Annex 1, the Member State shall ensure that that the reference period is suitable for the specific sector and the type of investment. Polluter-pay and full cost recovery principle 1. In sectors where this is relevant, including the environmental sector, tariffs shall be fixed in compliance with the polluter-pays and the full-cost recovery principles taking into account affordability limitations. 2. Compliance with the polluter-pays principle requires that: a) applied user charges and fees recover the full cost, including capital costs, of environmental services; b) the environmental costs of pollution and preventive measures are borne by those who cause pollution; b) charging systems are proportional to the social marginal production costs which include the full costs, including capital costs, of environmental services, the environmental costs of pollution and of the preventive measures implemented and the costs linked to the scarcity of the resources used. 3. Compliance with the full-cost recovery principle includes that: a) tariffs aim to recover the capital cost, the operating and maintenance cost, including environmental and resource costs; b) the tariff structure maximises the project s revenues before public subsidies, while taking affordability into account. Affordability 1. The tariffs used within the calculation of the funding gap of revenue generating projects shall respect the principle of affordability requiring that users do not pay more than what they can afford. 2. In order to ensure that the service or good is affordable for the most disadvantaged groups Member States may cap the level of charges or subsidise the tariff for these groups. 3. In sectors where affordability is a relevant aspect, the requirement for minimum-cost recovery should enable covering at least the operating and maintenance costs and the 7/10

8 cost of replacement of assets of the operation foreseen during the reference period to guarantee project sustainability. The affordability of fees charged for connections to a network, or other such fees, should be taken into account. 4. Member States shall consider providing in their guidance documents information on the affordability ratios for average and low-income groups to be used as a benchmark operations. 8/10

9 Annex 1: Reference periods Sector Reference period (years) Railways 30 Water supply/sanitation 30 Roads Waste management Ports and airports 25 Energy Research and Innovation Broadband Industry 10 9/10

10 Annex 2: Calculation of the funding gap The following formula shows the calculation of funding gap and the funding gap rate: DEE = DIC DNR = FG FGR = (DIC-DNR) / DIC = 1- DNR/DIC where DEE stands for discounted eligible expenditure FG is the funding gap DIC is discounted investment cost DNR is discounted net revenue FRG is the funding gap rate In order to establish the decisional amount and the Union contribution, the following standard calculation shall be used: DA = EC * (1- DNR/DIC)= EC*FGR where DA stands for decisional amount EC is the eligible cost where EU grant = DA * maxcfpa maxcfpa stands for maximum co-financing rate of the priority axis or measure(%) 10/10