Is the new CEF-T programme rendering itself obsolete?

Is the new CEF-T programme rendering itself obsolete?

The budget for the Connecting Europe Facility – Transport is almost depleted. Of the initial grants budget of € 22.4 billion in 2014 only 1 billion is left for the remainder of the programme period ending 2020. The time for grants is over; the time for new financial instruments has begun…

With a proposed budget of € 50 billion between 2014 and 2020, the Connecting Europe Facility was to be a key instrument to promote growth, jobs and competitiveness through targeted infrastructure investment at European level. Aim is to support the development of high-performing, sustainable and efficiently interconnected trans-European networks in the fields of transport, energy and digital services (telecom). At the start of the programme the budget was reduced to about € 30 billion (24.05 for transport, 5.35 for energy and 1.04 for telecom, divided over grants and financial instruments) and pressure on EU public budgets is ever increasing.

CEF investments have to fill gaps that would not be filled if the existing market or public sector instruments were the only options. Besides offering grants, CEF investments are also intended to act as a catalyst to attract further funding from the private sector and other public sector actors. With the increasing pressure on EU public budgets, a more systematic use of innovative financial instruments is required to leverage the impact of EU budgetary resources. The CEF is designed to attract private sector investment to infrastructure through a number of financial risk-sharing instruments, including special lending, guarantees and equity investments. These instruments aim to give credibility to infrastructure projects and to lower their risk profiles. The goal is to offer an alternative to traditional grant funding and to fill financing gaps for strategic infrastructure investments. One euro of funding can only be spent once; euro’s going into guarantees, loans etc. several times.

Recently within CEF Transport a call has opened for project proposals, with the sole purpose of ‘blending’ grant funding with other financial instruments. The pressure to use the budget efficiently has further increased, as after 3 consecutive calls for grant proposals, of the € 22.4 billion grants budget only 1 billion till programme’s end in 2020 is remaining. In the 2016 call that closed 7 February this year, the Cohesion Envelope has been oversubscribed 5 times (5.7 vs 1.1 billion) and the general envelope 2 times (1.8 vs 0.84 billion), meaning many submitted projects are to be turned down. The € 1 billion made available for the blending call is additional budget shifted from the Financial Instruments budget.

The call allows for the combination of grants with financing from the European Fund for Strategic Investments, or the European Investment Bank, or National Promotional Banks, or private sector investors, in order to maximize the leverage of private sector involvement and capital in the delivery of actions. Project proposals to be submitted are quite similar to the ones for conventional calls. A few differences and important topics are:
- Co-funding rates are as for a conventional call (Multi-Annual Programme, General envelope: general funding rate 20%, MOS 30%, bottlenecks / cross border sections 30 - 40%, ERTMS/ SESAR 50%),
- Total eligible project cost should be in excess of € 10 million,
- Only works are supported (no studies, no pilots),
- New part E of proposal: assessment of financial readiness and indication of finance level by public or private financial institutions (e.g. letter of support; evidence that full financial close with a private institution is to be reached within 12 months from signature of grant agreement),
- For projects pulled by private parties, co-funding by own equity or loan capacity does not qualify; co-funding by an external private institution is mandatory,
- Purchase of rolling stock is eligible cost,
- Action implementation could run until 31 December 2023,
- Two submission deadlines (14 July and 30 November 2017), but entire available budget may be allocated to proposals submitted within the first cut-off date.

Possible projects are best illustrated by an example: the upgrade of the public tram system and introduction of green buses in Riga, Latvia:
- EIB loan of € 75 million combined with CEF grant of € 8 million and commercial finance,
- Upgrade tram system: new rolling stock & infrastructure,
- Purchase of 10 new hydrogen fuel cell buses,
- Purchase of 10 new trolleybuses with hydrogen fuel cell range extenders,
- Purchase of associated refueling infrastructure.

So yes, we have to be prepared grant-only projects, co-funded by own equity or cash flows, are not sufficient anymore to retrieve funding in the near future. The multiannual financial framework midterm review will possibly result in a new CEF blending facility as financial instrument. Conventional grant-only calls for proposals will continue, but with much smaller budgets compared to the past. With my experience in over 70 successful CEF-T and CEF-T predecessor applications, I’m happy to be of service.

Vincent van den Bosch

 

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