Blending EU grants with PPPs in the next financial perspective ( ) François Gaudet 25 th October, Zagreb

Transcription

1 Blending EU grants with PPPs in the next financial perspective ( ) François Gaudet 25 th October, Zagreb

2 Structure of the presentation The principles and challenges of blending PPP with EU Funds Next budgetary period : how to benefit from EU funding in PPPs? EPEC and Blending going forward 2

3 Possible benefits of PPPs? Professional project management and implementation Project delivery on time and on budget Improved asset and service quality Innovation in asset and service delivery Life-cycle approach with constant performance throughout concession/contract period Assets off-budget, (partially) financed by the private sector 3

4 What can EU funds bring to PPPs? Risk mitigation mechanisms Bridging market gaps Incentivising pro-european schemes Provision of additional liquidity Increasing financial viability EU funds can support the marketability of PPPs 4

5 A list of challenges to blended projects The capacity issue: Does the public sector have any experience with procurement of PPPs? Is the public sector familiar with EU Funds procedures? The limited public sector capacity to deliver complex structures is the single most important barriers The integration issue: Public Authorities can submit grant application (and have it approved) before financial close of the PPP OR they can decide to procure the PPP first The decision on when to submit the grant application will impact the PPP procurement process Impacts on the funding gap calculation! It is difficult to time the PPP process with EU funds grant application 5

6 A list of challenges to blended projects How is the grant amount determined (funding gap calculations) and how final is that amount: Complex calculations based on projections Risk of recalculations if projections are not accurate How and when is the grant injected into the project: Upfront capital contributions vs availability payments Cut-off date (no payment possible beyond the eligibility period) 6

7 Timing grant application and PPP procurement Timing critical for: Project preparation process PPP Tender process Interface between PPP process and SF application Calculation of funding gap for SF grant PPP Announcement Preliminary qualification Pre qualification evaluation Terms of reference Preliminary offers Selecting offers ERDF ERDF funding indication application Application preparation Informal EU consultation/ Consultation managing Authority SOPT Negotiation of offers Best and final offers Financial close Official application Financial close 7

8 Mind the gap What is the Funding Gap? Revenue generating projects will only receive an EU grant towards the funding gap. Can you calculate the gap before receiving the bids? Grant Private funding Private returns 8

9 Feeding the grant into the PPP project? Private National availability payments or user charges EU Grant Construction Operations Applies EU grant during construction period Moderately easy to structure Timing and size of grant funding critical State aid considerations 9

10 An alternative channeling of the grant Component 2 Private availability payments or user charges Component 1 EU Grant National Contract 1: Design-build Contract Construction 2: DBFO (including take over operation of Component Operations 1) Grant application only for Component 2 Separate construction contracts makes grant structuring easy Moderate interface transfer. DBFO tender difficult to structure Interface/integration challenges 10

11 A different approach EU grants (to cover capex part of availability payment) National availability payments Private Construction Contract: Design Build Finance and Operate (DBFO) Observes no service no payment principle High risk transfer Not yet confirmed as consistent with EC regulations Operations Need a way around grant funding cut off or grant will be very low Grant rate calculation difficult Could private partner be beneficiary? 11

12 Structure of the presentation The principles and challenges of blending PPP with EU Funds Next budgetary period : how to benefit from EU funding in PPPs? EPEC and Blending going forward 12

13 Themes of the next budgetary process Priorities for EU: implementing Europe 2020 agenda: knowledge economy, climate change, external policy etc. More emphasis on: PPPs: new articles Financial instruments not limited to SME, Urban Development and Climate Change Financial instruments Project bond initiative 13

14 New regulatory framework and Instruments for blending PPPs ESIF grants Shared management Co-funding requirement Financial instruments FI consisting for loans, guarantees or equity FI at EU level under direct management of the Commission FI at national/regional level under shared management (tailored and standardised instruments) CEF funds (separate CEF regulation) Direct management 14

15 New Recital, New Definition, New Chapter specifically related to PPPs! The addition of a recital and new chapter is powerful! Article 54/A makes it crystal clear to all that blending is possible PPPs may benefit from ESI funds The inclusion of the words implemented or intended to be implemented implies the support is available from an early stage of preparation Definition of PPP is quite broad and difficult to see what is not covered 15

16 Material changes in the new regulatory framework Mind the gap the vicious circle of the funding gap calculation Additional method to calculate the grant amount: flat rates Project planning and channeling the grant to the project how to structure the project / get the grant to the private partner Extension of the concept of the Beneficiary Usage of escrow accounts and eligible expenditures Major Projects Change in definition and decision process 16

17 Beneficiary under PPP operations the private partner can now become the beneficiary Art 54/B provides a clear contrasting definition from Art. 2(8): public body initiating the operation OR private partner selected or to be selected to implement Opens the door to granting authority applying for a grant for a private partner to be selected A conditional approval should be issued without the need to have selected the private partner PROVIDED the selected private partner assumes the obligations of a beneficiary 17

18 Beneficiary under PPP operations and can also be replaced Once selected as beneficiary, the private partner can be replaced during the implementation of the project when (Art 54/B/3): this is required under the terms and conditions of the PPP, or required under the terms and conditions of the financing agreement between the private partner and the financial institution co-financing the operation; and the MA satisfies itself that the replacement private partner or public law body fulfils and assumes all the corresponding obligations of a beneficiary. 18

19 Beneficiary under PPP operations and can also be replaced Provides comfort that, in case of exercise of step-in rights, the grant will remain available to the project Neutralises the potential effect of Art. 61 and the argument as to what constitutes an undue advantage 19

20 Revenue Generating Operations Definition of net revenues and their impact Definition of net revenues according to Art. 54 (1) Cash in-flows directly paid by users; less any operating costs and replacement costs of short-life equipment incurred during the corresponding period. Impact of net revenues Reduction of the eligible expenditure of the operation by the potential of net revenue generated (Art. 54 (2)) 20

21 Calculating the Grant amount for Revenue Generating Operations 2 options for the Managing Authorities Funding Gap calculation (Art. 54(3)) More or less the same as in the current financial perspective Flat Revenue Percentage(Art. 54(3) (a)) Ratio between Net Revenues / Investment Costs Co-funding rate of eligible expenditure = 100% - flat rate Derived from the old funding gap calculation 21

22 Flat rates for net Revenue Generating Operations Certain flat rates already established by sector in annex to the current Proposal of the Common Provisions Regulation, others to follow by means of delegated act. Sector Flat rates Road 30% Rail 20% Urban Transport 20% Water 25% Solid Waste 20% 22

23 Eligibility of Expenditure Expenses incurred and paid by the private sector considered incurred and paid by the public Beneficiary subject to: PPP agreement entered into; Managing authority exercises diligence; Payment into a dedicated escrow account; and Funds drawn from escrow used for payments are to be made under PPP agreement; including termination payment. 23

24 Major Projects in the new CPR Regulation Definition (Art 90) Total costs vs. total eligible costs Financial instruments not considered as major projects EUR 50M total eligible costs (EUR 75M for transport projects) Decision process regarding major projects Information required for approval (Art 91) Independent expert review (Art 92) Project deemed approved unless decision to refuse the project within two months of the date of notification (Art 92 (1) b) Specific conditionality of approval for PPP projects Signing of PPP contract within three years of the date of the approval 24

25 There is still homework for everybody before The EC has to clarify a number of open issues Member states have to set up networks facilitating PPP/grant blending (public-public partnerships) The Managing Authorities have to consider at early stage the potential for PPP procurement in the sectors covered by Operational Programmes The private sector has to learn about possible structures and support their development PPP/grant blending needs to be pushed at all levels! 25

26 Structure of the presentation The principles and challenges of blending PPP with EU Funds Next budgetary period : how to benefit from EU funding in PPPs? EPEC and Blending going forward 26

27 EPEC activities on blending EU funds and PPPs Main activities Extensive survey with different stakeholders to identify blended projects (stocktake) Through the survey, map challenges to blended projects Report and case study published Miscellaneous dissemination events Initiation of a blended pilot project case study scheme with JASPERS Active EPEC working group following legislative changes, formulation of proposed amendment, discussions on practices and experiences 27

28 EPEC s work for on combining EU funding and PPPs Engagement in elaboration of Operational Programmes Identification of sectors/priority axes for PPP procurement options Considerations about major projects to be outlined in OPs Reaching out to relevant authorities in Members jurisdictions Guidance note on blending EU funds in PPPs Raising awareness of PPP specific issues implied in the new (draft) regulations for EU funds Provide guidance for the combination of EU funds and PPPs as a means to leverage EU fund Focused advice for Managing Authorities and potential Beneficiaries on combining EU Funds and PPPs 28

29 EPEC s work for on combining EU funding and PPPs Workshops on combining EU funding and PPPs Dissemination of knowledge Reaching out to Managing Authorities Possible assistance for blended pilot projects PPP procurement strategy to permit/facilitate the utilisation of EU funds Likely embedded in JASPERS team Increasing the number of projects combining EU funds and PPPs in the next financial framework! 29

30 François Gaudet Telephone: European PPP Expertise Centre Twitter: EpecNews Telephone: Fax: