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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.
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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 forms1, 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:
1

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
The legal form is still subject to legal scrutiny in the context of the Trilogues.
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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 2007-2013 (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
2014-2020 Delegated Act on 2007-2013
calculation of discounted net Guidance
revenue
Article 55
COCOF Reason for change
note
on
Reference periods provided for Reference periods
all main sectors
missing for some sectors
such as research and
innovation, broadband
Complete sectorial coverage
Definition of a 4% discount
rate as an indicative
benchmark
Foot note 8 refers to
CBA guidance and
indicative benchmark of
a 5% discount rate
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
2007-13 programming period
was set.
Legal act
Guidance document
Establish better legal certainty
on guiding principles and
calculation methods
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6.
ANNEXES
Methodology for the calculation of discounted net revenue with reference to the
provisions of Article 54(3) CPR
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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 1.
2. 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
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iii.
3.
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.
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
macroeconomic trends and conjunctures;
2) the nature of the investor;
3) the sector concerned.
international
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.
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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
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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.
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Annex 1: Reference periods
Sector
Railways
Water supply/sanitation
Roads
Waste management
Ports and airports
Energy
Research and Innovation
Broadband
Industry
Reference period (years)
30
30
25-30
15-30
25
15-25
15-25
15-20
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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 * (1DNR/DIC)= EC*FGR
where
DA stands for decisional amount
EC is the eligible cost
EU grant = DA *
maxCFpa
where
maxCFpa stands for maximum co-financing rate of the priority axis or measure(%)
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