Regional Policy

The Legal Proposal for Financial Instruments

under the Common Strategic Framework

2014-2020

Presentation to: European Network for Rural Development – Brussels 26 October 2012

Regional Policy

Overview

1. Financial Instruments in Regional Policy 2007-2013 – state of play & experiences

2. Proposal for Financial Instruments under the CPR 2014-2020 – key novelties and improvements

3. Next steps

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Regional Policy

Financial Instruments in

Regional Policy

2007-2013

State of play & experiences

Regional Policy

Implementation in Regional Policy 2007-13

• Article 44 of the council Regulation 1083/2006 enables support through FEIs in

three thematic areas:

– Art 44 (a): Enterprises, including SMEs & micro enterprises

– Art 44 (b): Sustainable urban development

– Art 44 (c): EE & RES in the building sector, including existing housing

• Overall FEI Implementation progress in EU Member States (as per 31.12.2011):

ERDF + national contributions committed to FEIs: EUR 14.9 bn

ERDF contributions committed to FEIs: EUR 10.6 bn

• FEIs for enterprises (year end 2011): EUR 13.3 billion of ERDF & national resources committed to 52 HFs (investing in 145 funds) and 321 specific funds across 25 Member States

• FEIs for sustainable urban development (year end 2011): EUR 1.4 billion of ERDF and national resources committed to 16 HFs (investing in 26 funds) and 4 specific funds across 11 Member States

• FEIs for energy efficiency and renewable energies (year end 2011): EUR 278.63 million of ERDF and national resources committed to 1 HF and 8 specific funds across 4 Member States

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Regional Policy

Financial instruments in Regional Policy 2007-2013

Advantages from a policy perspective

• Providing loans, equity or guarantees for revenue-generating (parts) of projects > wider spectrum of financial tools for policy delivery

• Revolving scheme > increased budgetary efficiency & financial sustainability

• Possible leverage from public or private sector partners (at all levels) and increased financial discipline at project level > one € spent through financial instruments can mobilize several further € for cohesion policy objectives and provide incentives for high project quality and sustainability.

• Provide finance to final recipients before actual project expenditure

• Offer a high degree of flexibility > tailor-made support & delivery structures for the benefit of regions and Member States

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Regional Policy

Financial instruments in Regional Policy 2007-2013

Challenges with regard to design & implementation

• Delays in delivering funds to final recipients: FEIs represent a new approach to CP support, requiring new skills, partnerships and capacities

• Limited availability of reporting & monitoring data

• Over allocation of resources to financial instruments

• Shortcomings in the financial or market gap assessment - rationale for FEI deployment?

• Potential for achieving better leverage effects

• Legal and administrative framework not detailed enough from the outset (COCOF Guidance, audit methodology)

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Regional Policy

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Challenges detected EC proposal: 2014-2020: CPR and envisaged DA / IA

2007-2013 provisions of legal framework not detailed enough

• More detailed and clearer rules, based on existing guidance (continuity) and best practice (optimisation); stronger rules on financial management including the re-use of capital resources paid back and income resources (Art 37 and 38 CPR)

• Ensure alignment with FR and compatibility with FIs at EU level

MS capacity deficit led to delays in launching and delivering the FIs to final recipients

• Guidance envisaged already at programming stage • Technical assistance platform for FIs in cohesion policy 2014-2020 • Flexible implementation options, including support to FIs at Union level (Art 33 CPR) • Possibility to implement standardised "off-the-shelf" instruments which allow for swift roll-out

under Art 33 CPR; templates in IA; close co-operation between REGIO, ECFIN and COMP Slow start of FI-related activities

Lack of reporting and monitoring data on FIs

• Legislative package to contain minimum requirements for monitoring and annual reporting (Art 40 CPR and envisaged IA)

Supply-driven instead of demand-driven design of FIs

• Obligatory ex-ante assessment for each FI to identify market failure and justify CSF intervention (Art 32 CPR); minimum requirements to be laid down in envisaged DA

Over-dimensioning of FIs • Results of ex-ante assessment (please see above) to be taken into account when developing FI

business plan and concluding relevant funding agreements

Avoidance of n+2 decommitment / parking of Structural Funds

• Phased payments from programmes to FIs, based on actual investment performance and related capital requirements (Art 35 CPR)

• Incentive-based methodology for management costs & fees will discourage parking of funds

Intransparent management costs and fees structures

• Envisaged DA will lay down a methodology for incentive-based management costs and fees • Art 36 CPR enables capitalised management costs and fees for defined cases and timeframes

Multiplier effect below levels achievable outside cohesion policy

• Ex-ante assessment to assess possible public or private sector participation beyond CSF • Clear rules on the re-use of CSF Funds and their legacy beyond programme closure (Art 37 to

39 CPR) • Envisaged DA to lay down specific multiplier requirements for FIs & guarantee-products

Regional Policy

Proposal for Financial

Instruments under the CPR

2014-2020

(Commission proposal of 06/10/2011 and taking account of elements of

Partial General Approach of 26/06/2012)

Regional Policy

Financial instruments 2014-2020: Introduction

Background: Increased importance of financial instruments in implementing EU budget resources in future (Budget review, 5th Cohesion Report, MFF)

EU central level / „direct management“: „EU Debt and Equity Platforms“ to serve as standardised rules for FIs using EU budget

Regional Policy / „shared management“: Strengthening and expansion of financial instruments in the context of Cohesion Policy

CSF legislative framework 2014-2020 to provide a clear set of rules, based on existing experience / guidance,

facilitate wider and more flexible use (e.g. capture synergies with grants, wider thematic scope, more implementation options),

ensure better targeting, budgeting and monitoring of FIs,

achieve compatibility with financial instruments at EU level.

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Regional Policy

Definition of financial instruments - Article 130(1) FR:

“Union measures of financial support provided on a complementary

basis from the budget in order to address one or more policy objectives

of the Union. Such instruments may take the form of loans, guarantees,

equity or quasi-equity investments, or other risk-sharing instruments,

and may, where appropriate, be combined with grants.”

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Financial instruments 2014-2020: CPR provisions

Regional Policy

Financial instruments 2014-2020: CPR provisions

1. Wider scope: Common provisions cover all five Funds: ERDF, ESF, Cohesion

Fund, EAFRD and EMFF

Expansion to all thematic objectives & priorities foreseen by OPs

Support investments expected to be financially viable which do not give rise to sufficient funding from market sources

2. More implementation options for managing authorities:

Contribution to EU level FIs under central management (ring-fencing)

Contribution to national or regional EU level FIs under shared management

Tailor-made instruments (cf. current period)

Standardised "off-the-shelf instruments for quick roll-out

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Regional Policy

Financial Instruments in MMF proposals 2014-2020

Research, Development Innovation

Growth, Jobs and Social Cohesion

Infrastructure

Horizon 2020 Equity and Risk Sharing Instruments

Instruments under Structural and Cohesion

Funds

EU level (central management)

National/regional instruments (shared management)

Off-the shelf FIs

Tailor made FIs

Significant higher amounts than currently!

Competitiveness & SME (COSME)

Equity & guarantees

Connecting Europe Facility (CEF) Risk sharing (e.g. project bonds) and equity

instruments

Social Change & Innovation

Creative Europe Guarantee Facility

Erasmus for all Guarantee Facility

Shared Management with MS (Common Provisions Regulation)

Centrally managed by COM (Financial Regulation)

Regional Policy

Financial instruments 2014-2020: CPR provisions

3. Ex-ante assessment: Must be carried out prior to decision to support financial instruments,

including:

rationale/additionality against existing market gaps and demand/supply

Value added, potential additional public and private sector involvement

target final recipients, products and indicators

4. Better combination of FIs & other forms of support:

In financial instrument: Grant component may cover financing (e.g. state aid compliant subsidy element) or technical assistance for the benefit of the final recipient

At the level of final recipients: Combination is now possible also with assistance from other programmes supported by the EU budget

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Regional Policy

Financial instruments 2014-2020: CPR provisions

5. More flexible implementation modalities for FIs at

national/regional level. Managing Authorities may:

Invest in the capital of existing or newly created legal entities

Entrust implementations tasks to

EIB

IFIs in which a MS is a shareholder or financial institutions acting in public interest / under control of public authority

A body governed by public or private law selected in accordance with EU and national rules

Undertake implementation tasks directly for FIs consisting solely of loans and guarantees

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Regional Policy

Financial instruments 2014-2020: CPR provisions

6. EU co-financing Incentives regarding EU co-financing rates (Art 110):

EU-level instruments: Up to 100% of the paid support may come from ERDF, ESF and CF; separate priority axis to be foreseen

Instruments implemented at national/regional level: ERDF, ESF, CF co-financing rate to increase by 10% if an entire priority axis is implemented through financial instruments

Flexibility for national public & private co-financing contributions under operational programmes:

May be provided at the level of the FI or at the level of the final recipient (including in-kind contributions where relevant)

National co-financing does not have to be paid to the FI upfront but may be provided at later stages of FI implementation, but before the end of the eligibility period

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Regional Policy

Financial instruments 2014-2020: CPR provisions

7. Phased contributions to FIs

MAs are encouraged to pay programme contributions in at least 4 tranches application for interim payment cannot contain more than 25% of the total

programme contributions committed to the FI under the funding agreement),

Subsequent payments from MA to FI to be made on the basis of FI investment rate in relation to programme contributions received 2nd application when at least 60% of the amount included in the 1st application

has been spent as eligible expenditure

3rd and subsequent applications when at least 85% of the amounts included in previous applications have been spent as eligible expenditure

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Regional Policy

Financial instruments 2014-2020: CPR provisions

8. Eligible expenditure at closure, interest and other

gains, re-use of resources

Eligible expenditure at closure: total amount of programme contributions effectively paid or, in case of guarantees, committed, by FI within eligibility period

Interest and other gains generated by support from CSF funds to FIs to be used for the same purposes until end of eligibility period

Re-use of resources during the eligibility period

Re-use of resources after the eligibility period

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Regional Policy

Financial instruments 2014-2020: CPR provisions

9. Reporting on FI implementation

MA to report to COM on FI operations annually (annex to the annual implementation report); reporting items should be aligned with requirements of the Financial Regulation

COM to publish annual summary report on the basis of data received

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Regional Policy

Elements of PGA not acceptable to Commission

• Introduction of eligibility criteria for FI supporting enterprises

allowing unrestricted support to working capital and opening support to projects, other than capital projects, which have already been completed.

• The possibility of declaring future flow of investments which will take place beyond the eligibility period as eligible expenditure.

• Exclusion of final recipients from audit (except in case of suspected fraud) and release from the obligation of record keeping.

• Non alignment of the reporting requirements under CPR with those in the Financial Regulation

+ General reserve with regard to delegated and implementing acts

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Regional Policy

Financial Instruments

2014-2020

Next steps

Regional Policy

Financial instruments 2014-2020: Next steps

REGI Committee vote November 2012, trilogue to follow

Drafting of secondary legislation (envisaged Delegated Act and Implementing Act); adoption only after adoption of CPR

Stakeholder meetings envisaged to discuss and test substance of envisaged Delegated Act and Implementing Act

Development of ready-to-use "off-the-shelf" instruments to be launched among COM services, followed by stakeholder testing

Concept for a TA platform for financial instruments in cohesion policy 2014-2020 to be developed

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Regional Policy

Additional information on financial instruments

1. COMMISSION STAFF WORKING DOCUMENT - Financial Instruments in

Cohesion Policy http://ec.europa.eu/regional_policy/sources/docoffic/official/communic/financial/financial_instruments_2012_en.pdf

Factsheet: Financial Instruments in Cohesion Policy 2014-2020 http://ec.europa.eu/regional_policy/sources/docgener/informat/2014/financial_instruments_en.pdf

Panorama Autumn 2012: Using financial instruments to leverage support for regional policy http://ec.europa.eu/regional_policy/sources/docgener/panorama/pdf/mag43/mag43_en.pdf

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Regional Policy

Thank you for your attention!

DG Regional Policy – Directorate B, Policy

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