Explanatory Memorandum to COM(2011)665 - Connecting Europe Facility - Main contents
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dossier | COM(2011)665 - Connecting Europe Facility. |
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source | COM(2011)665 ![]() |
date | 19-10-2011 |
On 29 June 2011, the Commission adopted a proposal for the next Multi-Annual financial framework for the period 2014-2020: A Budget for Europe 2020''. In its proposal, the Commission decided to propose the creation of a new integrated instrument for investing in EU infrastructure priorities in Transport, Energy and Telecommunications: the 'Connecting Europe Facility' (hereafter CEF).
Smart, sustainable and fully interconnected transport, energy and digital networks are a necessary condition for the completion of the European single market. Moreover, investments in key infrastructures with strong EU added value can boost Europe’s competitiveness in a difficult economic context, marked by slow growth and tight public budgets. Finally, such investments in infrastructure are also instrumental in allowing the EU to meet its sustainable growth objectives outlined in the Europe 2020 Strategy and the EU's '20-20-20' objectives in the area of energy and climate policy.
This Regulation sets out the provisions governing the CEF. It draws on the work undertaken to prepare the revision of the policy framework in all three sectors (Transport, Energy, and Telecommunications) for the next Multi-Annual financial framework (2014-2020). In line with Article 170 of TFEU, new guidelines are proposed in each sector in line with the CEF. Therefore, the revised Guidelines for Transport, Energy and Telecommunications on the one hand and the CEF on the other hand constitute one coherent regulatory package.
In the past decade, infrastructure spending in Europe has been, on average, on a declining path. The economic and financial crisis has, however, brought renewed interest in the need for infrastructure investment. During the economic crisis, targeted investments in infrastructure renewal or construction have been an important part of stimulus and recovery plans at EU and Member State levels, as a way of supporting aggregate demand while ensuring a long term return from money spent. Most importantly, the crisis has shown that infrastructures are crucial for Europe's economic future.
A truly integrated Single Market, as the Monti Report indicated, would not be possible without a seamless connection between all its component parts. Transport connections, electricity grids and broadband networks are vital for a functioning, integrated economic area and for its social and territorial cohesion. Yet, while regulatory integration advances within the EU and markets become more integrated, most recently in the energy sector with the adoption and entry into force of the third liberalisation package, cross-border physical interconnection is lagging. Missing links exist, notably in the new Member States, creating dividing lines between the centre and peripheries of the European Union and hampering the further development of intra-Union exchanges or the growth of new economic sectors, such as e-commerce.
Considerable investment needs have been identified. In the energy sector, the proposed regulation concerning guidelines for the implementation of European energy infrastructurepriorities (hereafter Guidelines for trans-European energy infrastructure) identifies twelve infrastructure priority corridors and areas, four for each sector, electricity, and gas transportation, as well as smart grids deployment, electricity highways and cross-border carbon dioxide networks. Whilst Europe's energy system would require investments of ca. one trillion by 2020, out of which it is estimated that about €200 billion of investment is needed for electricity and gas networks of European importance alone. €100 billion of this total investment should be delivered by the market unaided, whereas the other €100 billion will require public action to leverage the necessary investments.
In the transport sector, a Europe-wide ‘core network’ has been identified using a pan-European planning methodology. This core network with corridors, carrying freight and passenger traffic with high efficiency and low emissions, makes extensive use of existing infrastructure. By completing missing links and alleviating bottlenecks and with the use of more efficient services in multimodal combinations, it will handle the bulk of transport flows in the single market. The cost of EU infrastructure development to match the demand for transport has been estimated at over €1.5 trillion for 2010-2030 for the entire transport networks of the EU Member States. The completion of the trans-European transport networks requires about €500 billion by 2020, of which €250 billion would be needed to complete missing links and remove bottlenecks on the core network.
For the telecommunication networks, the removal of (digital) bottlenecks which hinder the completion of the Digital Single Market is a key objective. This implies a need for an overall improvement of the whole broadband network and the establishment of digital service infrastructure platforms that permit a coherent digital deployment of European public services. Indeed, these networks, both physical and service-based, are key enablers for smart growth. As part of the Digital Agenda, every European should have access to basic broadband by 2013 and fast and ultra fast broadband by 2020. In September 2010, the Commission outlined the steps needed to trigger up to €270 billion of investment required to bring ultra-fast broadband to all European households and businesses by 2020. In the current circumstances a part of these investment needs will be covered by the private sector. The investment needs for achieving these objectives are estimated at up to €270 billion. However, in the absence of Union intervention, private sector investment is expected to be not more than EUR 50 billion for the period until 2020. This results in an investment gap of up to €220 billion. As the social benefits from investment in digital infrastructures by far exceeds the private incentive for investment, focused public intervention is necessary to stimulate the market.
The analysis carried out by the Commission services in preparation of this Regulation have shown that while the market and national budgets are expected to play a major role in delivering the required infrastructures through appropriate investment and pricing mechanisms, some investments in infrastructure will not take place or will be delayed far beyond 2020, if the EU does not take action. Therefore, there is a need for a significant contribution from the EU budget in the next Multi-Annual financial framework to ensure that EU infrastructure priorities are actually delivered.
In order to increase the impact of EU budgetary resources, the Commission proposes to tap more systematically into the use of innovative financial instruments to offer an alternative to the traditional grant funding and plug financing gaps for strategic investments. An important feature of innovative financial instruments is that they create a stronger multiplier effect for the EU budget than traditional instruments, by facilitating and attracting other public and private financing to projects of EU interest. They leverage the investment and consequently magnify the impact of the EU budget.
Building on the experience of financial instruments under the current financial framework put in place in cooperation with the European Investment Bank (EIB), such as the Loan Guarantee Instrument for trans-European transport networks projects (hereafter LGTT), the Commission proposes to implement a significant part of its interventions within the CEF through financial instruments. In particular, the Europe 2020 Project Bond Initiative will be used as a means of securing investment resources for infrastructure projects of key strategic European interest.
Contents
- RESULTS OF CONSULTATIONS WITH THE INTERESTED PARTIES AND IMPACT ASSESSMENTS
- LEGAL ELEMENTS OF THE PROPOSAL
- BUDGETARY IMPLICATION
- 2.1 Consultation and expert advice
- 2.2 Impact Assessment
- 2.3 EU Added Value of the CEF
- 5. SUMMARY OF CONTENTS OF REGULATION
- 5.1 A single framework for investing into EU infrastructure priorities
- 5.2 Simplification measures and coherence with existing rules
- 5.3 Stronger emphasis on financial instruments
- 5.4 The Connecting Europe Facility in the context of the next Multi-Annual Financial Framework
This Regulation draws on extensive consultation with stakeholders, EU institutions and bodies, Member States, regional or local authorities, social and economic partners, academic experts and international institutions. The results of mid-term evaluations carried out on the 2007-13 programmes as well as a broad range of studies and expert advice were used as input.
For the three sectors, the stakeholder contributions raised inter alia the following issues:
There is a broad consensus emerging from the consultations on the fact that accelerating the development of infrastructure with European added value requires increased EU support.
Stakeholders called for a higher leverage of EU funding towards trans-European networks policy objectives through for instance a greater coordination between different financial instruments, namely the Cohesion Fund and European Regional Development Fund (ERDF), the trans-European networks programmes and the EIB's interventions.
Widening the portfolio of available financial instruments is seen by stakeholders as a means to better adjust support to the particular needs of a project, to enable effective project structuring and to attract new investors. The planned Project Bonds Initiative is particularly suitable for larger investments under the CEF.
The proposed Regulation has been the subject of an impact assessment concerning possible implementation options of the CEF as a policy initiative, i.e. options concerning the definition of the CEF operational rules. The impact assessment started from the overarching objective of the CEF as proposed in the Multiannal Financial Framework Communication 'A Budget for Europe 2020' – to accelerate the infrastructure development that the EU needs to reach the Europe 2020 Strategy's objectives as well as the 20-20-20'' energy and climate change targets – and drew on the input of stakeholder consultations, and of evaluation studies of current EU programmes providing financial support to TEN development.
The main focus of the assessment of impacts of the possible policy options has been the achievement, in a most effective, efficient and coherent manner of two main specific objectives:
1) Increase the leverage of EU funds – by defining forms, methods and rules of financing that can ensure maximal leverage in attracting public and private investment for projects with a European and Single Market dimension, in particular priority networks that must be implemented by 2020 and where European added value is most warranted including, where appropriate, those that may take place in third countries;
2) Facilitate the timely delivery of EU co-funded projects – by defining monitoring and evaluation mechanisms that reward performance and penalise non-effective use of EU funds.
At the same time, the assessment of the policy options had to take into account two associated overarching policy goals of the Union: on the one hand, the achievement of the sector specific policy objectives in the field of infrastructures as defined in Articles 170 and 171 of the TFEU, and on the other hand, the simplification of the EU funding rules by exploiting synergies within and between sectors, to which the Commission has firmly committed itself. As these two policy goals are not however fully compatible, finding the appropriate balance between coherence with sector policy objectives and maximisation of synergies was a key principle pursued in assessing the options defining the CEF operating rules.
Nine main policy options alternatives were initially considered, starting from the central rationale underlying the Commission's decision to propose the establishment of the Connecting Europe Facility, namely simplifying the existing EU funding framework by drawing on sectoral synergies. The policy alternatives were built on combinations of scenarios corresponding to three basic options for financial rules simplification – minimal, maximal and variable (or 'à la carte') harmonisation of sectoral rules – in the two areas of policy intervention corresponding to the two main specific objectives identified earlier – investment leverage and programme implementation.
The range of options was thus situated between two extremes. At one extreme, minimum harmonisation of both investment leverage and programme implementation referred to a situation where completely distinct, specific rules and set-ups for providing EU funding support under the CEF in each sector would be established. At the other extreme was the policy option characterised by maximum harmonisation of both investment leverage and programme implementation rules, referring to a situation where the three sectors would have thoroughly common financial rules and programme management set-ups for the use of funds under the CEF. In between these extremes, the remaining options envisaged situations whereby sectors shared certain rules and set-ups whereas other remained distinct and sector specific, i.e. combinations of maximal or variable harmonisation of rules in one area of policy intervention with variable or minimal harmonisation of the sectoral rules in the other area.
The assessment of the impacts of these policy options, with respect to the achievement of the objectives highlighted earlier, has lead to the conclusion that two of the considered options could best ensure that the CEF, by means of its operational rules, would support an accelerated development of infrastructure of EU interest:
- The policy option where the harmonisation of rules would be variable – i.e. with a number of rules common and a number remaining sector specific – in both the area of investment leverage and that of programme implementation – would be the best option from the perspective of coherence with all the relevant EU policy goals;
- Whereas the policy option where a variable harmonisation at the level of rules for investment leverage was chosen with a maximal harmonisation of rules at the level of programme implementation might prove more efficient from a cost-related perspective.
Nevertheless, the second option might have a longer term negative impact with regard to the capacity to respond to sector-specific situations, particularly as regards the programming of funds and which might, in the long run, offset initial cost-savings. It was therefore eventually concluded that a certain degree of sectoral flexibility also in defining the CEF rules in the area of programme implementation would be the best option for ensuring the CEF objectives.
The provisions concerning the use of funds under the CEF put forward in the present Regulations have been drafted based on the considerations and conclusions highlighted in the above mentioned impact assessment.
The process of consultation with interested parties as well as the analysis carried out in the impact assessment has highlighted that the added value of the CEF as a common funding framework would be four fold:
A common framework would lead to the simplification of the EU legal framework concerning TEN infrastructures funding. It would also ensure a coherent approach to EU project financing across the three sectors.
At the same time, a single EU infrastructure fund and financial framework would provide a coherent and transparent approach to EU funding that would offer certainty and would thus have a huge potential to attract more private sector financing. Financial instruments would be available in a centralised and coordinated manner, attracting and improving the effectiveness of the relationship with the private investors and the partner financial institutions.
In addition, the progressively increasing interdependency between economic infrastructure projects, networks and sectors would enable the realisation of economies of scale. An integrated EU infrastructure funding framework could allow exploiting cross-sector synergies at project development and implementation level, enabling cost savings and/or more efficient exploitation and higher returns.
Last but not least, a common framework draws on lessons learned and best practice sharing across sectors, enabling thus an enhanced effectiveness and efficiency of EU financing in all sectors.
Trans-European networks are covered under Article 170 TFEU, which specifies: “The Union shall contribute to the establishment and development of trans-European networks in the areas of transport, telecommunications and energy infrastructures”. The right for the EU to act in the field of infrastructure financing is set out in Article 171 which provides that the Union "may support projects of common interest supported by Member States, (…) particularly through feasibility studies, loan guarantees or interest-rate subsidies". Article 172 TFEU specficies that the guidelines and other measures referred to in Article 171 shall be adopted by the European Parliament and the Council, acting in accordance with the ordinary legislative procedure and after consulting the Economic and Social Committee and the Committee of the Regions.''
In the Budget Review Communication, the Commission underscored the importance of employing the EU budget in order to "plug gaps left by the dynamics of national policy-making, most obviously addressing cross-border challenges in areas like infrastructure, mobility, territorial cohesion… - gaps which would otherwise damage the interest of the EU as a whole."[7] Member States tend to prioritise projects of primary national relevance when planning and funding infrastructure, and these may not always be the same as cross-border projects that carry higher added value for the citizens on an overall EU level.[8] The aggregate expenditure of the EU and the Member States should be efficient, ensure an adequate scale of the investment and promote synergies.
The legislative instrument, and the type of measure (i.e. funding) are both defined in the TFEU, which provides the legal basis for the CEF, and states that the tasks, priority objectives and the organisation of the trans-European networks may be defined in regulations.
The Commission’s proposal for the next Multi-Annual financial framework includes a proposal for €50 billion[9] for the period 2014-2020, of which €10 billion earmarked in the Cohesion Fund for transport infrastructure.
CEF| €40 billion
· Energy| €9.1 billion
· Transport| €21.7 billion
· Telecommunications/Digital| €9.2 billion
Amounts ring fenced in the Cohesion Fund for transport infrastructures| €10 billion
Total| €50 billion
Experience with the current financial framework shows that many Member States, which are eligible to the Cohesion Fund, have difficulties designing and implementing complex cross-border transport infrastructure projects. Therefore, for the next Multi-Annual Financial Framework, the Commission proposes that while the Cohesion Fund continues to support Member States whose Gross National Income (GNI) per inhabitant is less than 90% of the EU27 average in making investments in trans-European Transport networks and the environment, part of the Cohesion Fund allocation (€10 billion) will be used to finance transport projects on the transport core network in the Cohesion Fund eligible Member States under the Connecting Europe Facility.
Past experience in infrastructure financing through TEN frameworks, the EERP and the Cohesion and Structural funds shows that the EU can bring a value added to infrastructures. A consensus exists among stakeholders that in a 'business as usual' scenario, Europe might not be able to mobilise in time the investments needed to modernise its infrastructure networks and plug missing links.
In the wake of the financial crisis, Member States' public budgets are struggling with the necessary fiscal consolidation. Capital expenditure has often suffered substantial cuts, with spending for infrastructure investment projects suspended or delayed. At the same time, the prospects for stepping up investments from private sources are uncertain. In addition to financing constraints, regulatory obstacles also delay or impede the implementation of needed infrastructure projects. Against this background, the current EU framework for infrastructure funding does not seem adequate to provide an effective response. Funding is fragmented among too many programmes and prevents the full exploitation of synergies between programmes and sectors.
In re-designing its funding strategy for infrastructure, the Commission has pursued the following objectives:
· Ensure cost-effective and timely implementation of key priority network infrastructure in the energy, transport and ICT sectors, as identified in the Energy Infrastructure Package, the White Paper for Competitive and Sustainable Transport[10] and the Digital Agenda for Europe.
· Maximise synergies between the energy, transport and ICT programmes, so that funding responds to a coherent policy strategy and projects are selected according to clear harmonised criteria.
· Enhance the EU funds' ability to leverage other public or private funds so that the aggregate volume of resources mobilised is adequate to meet the projected investment needs to 2020;
· Ensure optimal project selection, follow up and monitoring so that EU funding is well targeted, delivers the highest impact and is spent in the most effective way.
The rationale for a common legislative basis for providing financial support in three distinct sectors with different policy framework lies in the opportunity to exploit synergies across sectors, stemming from common issues with regard to the financing of the implementation of otherwise importantly varying policy objectives. The added value of a common framework would be three fold.
A common framework would result in a simplification of the EU legal framework concerning TEN infrastructures funding. It would also ensure a coherent approach to EU project financing across the three sectors. As highlighted earlier, the EU infrastructure financial framework is currently fairly complex, due mainly to the number and heterogeneity of the existing EU legal texts. Simplification of rules is one of the keywords of the new approach proposed by the Commission with regard to EU budgetary spending.
At the same time, a single EU infrastructure financial framework and fund would provide a coherent and transparent approach to EU funding that would offer certainty and would thus have a huge potential to attract more private sector financing. Financial instruments would be available in a centralised and coordinated manner, attracting and improving the effectiveness of the relationship with the private investors and the partner financial institutions.
In addition, the progressively increasing interdependency between economic infrastructure projects, networks and sectors would enable the realisation of economies of scale. An integrated EU infrastructure funding framework would allow exploiting cross-sector synergies at project development and implementation level, enabling cost savings and/or more efficient exploitation and higher returns.
Last but not least, a common framework would allow lessons learned and best practice sharing across sectors, enabling an enhanced effectiveness and efficiency of EU financing in all sectors.
Simplification of rules is one of the keywords of the new approach proposed by the Commission with regard to EU budgetary spending. The common CEF framework results in a simplification of the EU legal framework concerning TEN infrastructures funding. A unique legal text covers EU project funding across Transport, Energy and Digital networks.
Though the sectors are technologically/financially/regulatory different – there is a sufficient number of commonalities to propose a real improvement with regard to the existing different instruments. At the same time, the proposal spells out specific rules which are necessary to maintain for the overall aim of the CEF: accelerate and better target the flow of public EU money to important infrastructure projects of EU interest.
The current text introduces simplification, in particular addressing the following issues:
· Alignment of indicators on the Europe 2020 Strategy's objectives
· Flexibility on budget allocations
· Centralised management for the three sectors, possibly through implementation via an executive agency.
· Common funding instruments
· Common award criteria
· Common conditions for financial assistance
· One stop visibility through common annual work programmes - important for sector - and common committee - important for Member States
Furthermore, full coherence with current and future Financial Regulation has been ensured. The exceptions foreseen, are either duly allowed for in related legal texts or precedents exist.
The CEF will complement EU direct support with financial instruments in order to optimise the impact of funding. Through the high multiplier effects of financial instruments (e.g. which could be as high as up to 1:15 to 1:20), access to capital for the substantial investment needs will be facilitated. Together with the successful absorption of direct EU support (as experienced in the European Energy Recovery Plan (EERP) and in the TEN-T programme), the increased reliance on financial instruments will contribute significantly to mitigating risks to project promoters and therefire ensure implementation of projects of common interest.
Furthermore, the task is to build an environment conducive to private investment and develop instruments that will be attractive vehicles for specialised infrastructure investors. To be most effective, such vehicles need to aim at reducing risk by diversifying the portfolio of potential projects. The maximum diversification can be achieved by targeting multiple sectors across a wide range of countries. This can be achieved most successfully at the European level and on the basis of well-defined corridors and targeted areas of investment. Therefore, most financial instruments should be common for all sectors. However, it is not excluded that some financial instruments may be developed to cover the specific needs of an individual sector.
On the basis of analysis conducted in the preparatory phase of this Regulation, the Commission services estimate that while the financial support for broadband would primarily rely on financial instruments, for transport and energy the volume of EU budgetary resources required for financial instruments should not exceed more than €2 billion and €1 billion respectively. These estimates are not to be understood as binding ceilings, since the volume of EU funding allocated to financial instruments will be adjusted every year on the basis of an assessment of the project pipeline conducted by financial intermediaries (e.g. the EIB in the case of project bonds).
The Connecting Europe Facility will be an essential element of an EU growth agenda focussed on increasing the EU's long-term growth potential. The Facility will be coordinated with the other interventions coming from the EU budget such as Horizon 2020'' and the Cohesion and Structural Funds.
As regards the coordination with Horizon 2020, it is necessary to ensure complementarities while avoiding potential overlaps. It is also important that the coordination between the CEF and Horizon 2020 ensures that the research and innovation chain leading to deployment in infrastructure is not interrupted. It is particularly critical at a time when significant technological advances in transport, energy and ICT will be needed to help the EU meet its ambitious Europe 2020 Strategy's objectives. Any support to research and innovation activities through financial instruments will be implemented through Horizon 2020-related financial instruments.
As regards the relation with the Cohesion and Structural Funds, the cohesion policy's Common Strategic Framework as well as Partnership Contracts with Member States will be closely coordinated with the policy frameworks in the transport, energy and telecommunication sectors. The respective guidelines will rely on the Cohesion and Structural Funds to deliver the local and regional infrastructures and their linkages to the priority EU infrastructures, connecting all citizens throughout the EU.
Moreover, the Connecting Europe Facility will be a centrally managed facility, benefiting from ring fenced amounts for transport in the Cohesion Fund (€10 billion in 2011 prices). In the allocation of the €10 billion, the greatest possible priority will be given to projects respecting the national allocations under the Cohesion Fund. Moreover, these €10 billion will be reserved for Member states eligible for the Cohesion Fund, and co-financing rates from the Union budget will be set at the same level as the Cohesion Fund.