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Calculation of Discounted Net Revenues Methodology and Funding Gap Determination

This expert group meeting discusses the methodology for calculating discounted net revenues, determining the funding gap, and the principles and reference periods involved. Changes to the Financial Analysis and Guidance Note on Article 55 are also presented.

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Calculation of Discounted Net Revenues Methodology and Funding Gap Determination

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  1. methodology for the calculation of discounted net revenues Expert Group Meeting, 26 September 2013

  2. 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)" • Delegated Act for the Methodology for Discounted Net Revenues • Implementing Act for the CBA methodology • DA linked to IA by provisions related to Financial Analysis

  3. Content of the Delegated Act • Article 54 (3) (b) of the CPR 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'.

  4. Calculation of Discounted net revenue to determine 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 • In order to establish the decisional amount and the Union contribution, the following standard calculation shall be used: • DA = EC * (1-DNR/DIC)= EC*FGR • where DA stands for decisional amount • EC is the eligible cost • EU grant = DA * maxCFpa • maxCFpa stands for maximum co-financing rate of the priority axis or measure(%)

  5. Revenues, Costs and residual Value • Incremental methode • Onlyrevenues and costsattributable to the operation 'Additional' contributions – not only new revenues • Recalculationonly for new sources of revenues , Art. 54 (b) • Investmentcosts = eligible and ineligible capital costs for construction • Operating and maintenance costsfixed and variable (linked to consumption) • Replacement costs to assure technicalfunctioning of the operationduring the referenceperiod • Residual value- net present value of cash flow in the remaining life years • Residual value to beconsidered if DNR >0

  6. Reference to principles • Polluter pays principle • Pollution costs and costs of preventive measures are borne by those who cause the costs • Full cost recovery • Tariff aims in recovery of capital+ operational + maintenance/replacement costs with regard to reference period • 'Affordability' and 'Proportionality ' to be respected

  7. Reference periods • Derogations must be justified • Different periods for sectors not covered by Annex 1 possible

  8. Changes in comparison to the Financial Analysis presented in June • Financial discount rate (originally proposed: 5%, now 4%) • Calculation of Residual value (originally proposed: 'calculated as a cash-inflow in the last year of the reference period as the residual (non-depreciated) accounting value', now 'by computing the net present value of cash flows in the remaining life-years of the project') • One definition of replacement costs (previously we also had 're-investment costs' category)

  9. Main changes to Guidance Note on Article 55

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