Proposal for a Council Regulation (EC) amending Regulation (EC) No 1083/2006 laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund, in respect of certain revenue-generating projects
Date: 2008-09-15
Institutions: European Commission
Subjects: Cohesion Fund, European Regional Development Fund, European Social Fund, competitiveness, economic and social cohesion, financial management, operation of the Institutions, powers of the institutions (EU)

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 15.9.2008 
COM(2008)558 final 

Proposal for a 

COUNCIL REGULATION (EC) 

amending Regulation (EC) No 1083/2006 laying down general provisions on the 
European Regional Development Fund, the European Social Fund and the Cohesion 
Fund, in respect of certain revenue-generating projects 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

1. 

Context of the proposal 

•  Grounds for and objectives of the proposal 

The provisions of Article 55 of Regulation No 1083/2006 do not seem appropriate to 
projects  co-financed  by  the  European  Social  Fund  (ESF),  which  essentially  finances 
non-physical  operations  rather  than  infrastructure  (which  is  ineligible).  Few  projects 
generate  revenue,  and,  if  they  do,  it  is  usually  during  the  operation  implementation 
phase only. 

Furthermore, in the case of small operations co-financed by the ERDF/Cohesion Fund 
or operations co-financed by the ESF, the follow-up procedures to be complied with — 
revenue  may  be  taken  into  account  for  up  to  three  years  after  winding-up  of  the 
operational programme — would seem to be a disproportionate administrative burden 
compared  with  the  amounts  concerned,  and  an  important  risk  factor  in  programme 
implementation. 

•  General context 

The new financial management rules introduced by Regulation No 1083/2006 include 
provisions on the financial contribution from the Funds (Title V) and in particular on 
revenue-generating projects (Article 55). 

According to Article 55(1) of the Regulation, ‘revenue-generating project’ means any 
operation  involving  an  investment  in  infrastructure  the  use  of  which  is  subject  to 
charges borne directly by users or any operation involving the sale or rent of land or 
buildings or any other provision of services against payment. 

Bearing in mind the risk of over-financing revenue-generating  projects, such projects 
have always been treated in a special way as regards co-financing by the Funds. The 
impact  of revenue  on the maximum  level of Community support is that a calculation 
method is established for the projects concerned. This is the purpose of Article 55 of 
Regulation No 1083/2006. 

•  Existing provisions in the area of the proposal 

During the previous programming period (2000-2006), this principle was implemented 
according to a flat-rate approach. Article 29(4) of Regulation (EC) No 1260/1999, as 
regards the 2000-2006 programmes (Structural Funds), stipulated in particular that for 
projects involving ‘investment in infrastructure generating substantial net revenue’, the 
maximum  rate  of  Community  co-financing  could  not  exceed,  for  example  (for 
Objective 1), 40% rather than the normally permitted maximum of 75%. The existence 
of  ‘substantial  revenue’  thus  led  to  a  reduction  in  the  maximum  rate  of  Community 
co-financing  which  was  uniform  and  automatic.  On  the  other  hand,  there  was  no 
restriction on Community support below this threshold of ‘substantial revenue’. 

Following a proposal from the Commission, the Council has decided to adopt a more 
precise and more stringent approach for the 2007-2013 period, based on the calculation 
of  maximum  eligible  expenditure  rather  than  a  flat-rate  reduction  of  the  rate  of 
co-financing. Article 55 of Regulation No 1083/2006 is now applied to a broader range 

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of projects regarded as revenue-generating (defined in paragraph 1 of the Article), and 
not only to infrastructure investment projects generating ‘substantial net revenue’ as in 
2000-2006. 

Where the revenue generated by a project is insufficient to ensure the financial viability 
of the  investment, the part of  the investment  which  necessitates a subsidy  constitutes 
the maximum level of expenditure eligible for Community co-financing. 

•  Consistency with the other policies and objectives of the Union 

Not applicable. 

2. 

Consultation of interested parties and impact assessment 

•  Consultation of interested parties 

Consultation methods used, main sectors targeted and general profile of respondents 

The  Member  States  have  been  consulted  informally  on  several  occasions  concerning 
the  procedures  for  implementing  the  provisions  of  Article  55,  the  difficulties 
encountered in practice and the various options for counteracting them: 

–  consultation  concerning  the  interpretative  note  on  Article  55:  the  meetings  of  the 
Coordination  Committee  of  the  Funds  on  27 February  and  21 May  2008  provided 
opportunities to examine the extent of the flexibility permitted under the text of the 
Regulation; 

–  consultation  concerning  the  possibility  of  amending  the  Regulation:  the  Member 
States  were  consulted  twice,  on  25 June  2008  at  the  meeting  of  the  Coordination 
Committee  of  the  Funds  and  on  3 July  2008  at  the  meeting  of  the  Council’s 
Structural Measures Group. 

Summary of responses received and how they have been taken into account 

The outcome of all these consultations was that the Member States felt that solutions 
based on the interpretation of Regulation No 1083/2006 were not totally sufficient. A 
very  large  majority  were  therefore  in  favour  of  amending  Article  55  (and  Article  55 
only).  

•  Obtaining and use of expertise 

No recourse to external expertise has been necessary. 

•  Impact assessment 

The Commission considered the leeway offered by the text of the Regulation itself with 
a  view  to  resolving  the  difficulties  expressed  by  the  Member  States  by  way  of 
interpretation.  The  choice  of  a  guidance  note  seemed  to  have  the  advantage  of 
simplicity. However, although the guidance note prepared by the Commission provided 
a basis for exploring all the flexibility possibilities in implementing follow-up, it was 
unable  to  include  the  possibility  of  proportionality  in  calculating  maximum  eligible 
expenditure for small operations or the exclusion of ESF operations. 

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Furthermore,  an  amendment  limited  to  Article  55  will  allow  the  discussion  to  be 
focused on a provision of a technical nature and make it possible for the amendment to 
be adopted rapidly, so that any legal uncertainty will be strictly limited in time. 

3. 

Legal elements of the proposal 

•  Summary of the proposed measures 

The Commission is therefore proposing an amendment to Article 55(5) only, with the 
other provisions of Regulation No 1083/2006 remaining unchanged. 

The  amendment  consists  in  replacing  the  provision  on  proportionality  in  monitoring 
small operations (total cost below €200 000)  by the non-application of the provisions 
of Article 55 to operations co-financed by the ESF and to operations co-financed by the 
ERDF  or  Cohesion  Fund  where  the  total  cost  is  less  than  €1 000 000.  It  is  also 
proposed that this should apply retroactively from 1 August 2006. 

•  Legal basis 

Adopted on 11 July 2006, Council Regulation (EC) No 1083/2006 laying down general 
provisions  on  the  European  Regional  Development  Fund,  the  European  Social  Fund 
and  the  Cohesion  Fund  and  repealing  Regulation  (EC)  No  1260/1999  establishes 
common  rules  applicable  to  the  three  Funds.  Based  on  the  principle  of  shared 
management  between  the  Commission  and  the  Member  States,  the  Regulation 
introduces a  new  programming process  and  new  rules  on  the  management  (including 
financial management), monitoring, follow-up and assessment of projects. 

•  Subsidiarity principle 

The  proposal  concerns  an  area  that  falls  under  the  exclusive  competence  of  the 
Community. The subsidiarity principle therefore does not apply. 

•  Proportionality principle 

The proposal complies with the proportionality principle for the following reasons. 

An  amendment  limited  to  Article  55  will  allow  the  discussion  to  be  focused  on  a 
provision of a technical nature and make it possible for the amendment to be adopted 
rapidly, so that any legal uncertainty will be strictly limited in time. The threshold to be 
established must be low enough so as not to jeopardise the general scheme of Article 
55  of  Regulation  No  1083/2006,  which  follows  the  principles  of  sound  financial 
management. The threshold of €1 000 000 has been set in order to limit the proportion 
of Community funding operations which would be excluded from the scope of Article 
55.  

Such an amendment shows that there is a genuine wish to simplify the management of 
the  Funds,  and  it  will  certainly  have  a  positive  impact  on  the  rate  of  programme 
the 
implementation,  as 
ERDF/Cohesion  Fund  and  operations  co-financed  by  the  ESF  will  be  significantly 
facilitated  and  simplified.  The  amendment  will  also  facilitate  the  implementation  of 
more innovative projects, especially in the fields of the environment, social inclusion, 
energy and research. 

the  management  of  small  operations  co-financed  by 

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•  Choice of instruments 

Proposed instrument(s): regulation. 

Other instruments would not have been appropriate for the following reasons. 

The Commission considered the leeway offered by the text of the Regulation itself with 
a  view  to  resolving  the  difficulties  expressed  by  the  Member  States  by  way  of 
interpretation.  However,  although  the  guidance  note  prepared  by  the  Commission 
provided a basis for exploring all the flexibility  possibilities in  implementing  follow-
up, it was unable to include the possibility of proportionality in calculating maximum 
eligible expenditure for small operations or the exclusion of ESF operations. 

4. 

Budgetary implications 

The proposal has no implications for the Community budget. 

5. 

Additional information 

•  Simplification 

The  proposal  simplifies  the  legislative  framework  and  the  administrative  procedures 
applying to the public authorities (national or European). 

In  the  light  of  the  objectives  of  the  cohesion  policy,  the  Commission  considers  it 
necessary  to  rectify  the  difficulties  by  adopting  an  amendment  to  Regulation  No 
1083/2006  limited  to  Article  55(5)  and  comprising  only  two  points:  exclusion  of 
operations co-financed by the ESF from the scope of Article 55, and establishing of a 
threshold below which projects co-financed by the ERDF or Cohesion Fund would be 
similarly be excluded from the scope of Article 55, both for the purposes of calculating 
maximum eligible expenditure and for monitoring. The other provisions of Article 55 
remain unchanged.  

The  amendment  consists  in  replacing  the  provision  on  proportionality  in  monitoring 
small operations (total cost below €200 000)  by the non-application of the provisions 
of Article 55 to operations co-financed by the ESF and to operations co-financed by the 
ERDF or Cohesion Fund where the total cost is less than €1 000 000. 

•  Repeal of legislation 

The  adoption  of  this  proposal  will  mean  that  certain  legislative  provisions  must  be 
repealed. 

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Proposal for a 

COUNCIL REGULATION (EC) 

amending Regulation (EC) No 1083/2006 laying down general provisions on the 
European Regional Development Fund, the European Social Fund and the Cohesion 
Fund, in respect of certain revenue-generating projects 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, and in particular Article 
161 thereof, 

Having regard to the proposal from the Commission1, 

Having regard to the assent of the European Parliament2, 

Having regard to the opinion of the European Economic and Social Committee3, 

Having regard to the opinion of the Committee of the Regions4, 

Whereas: 

(1) 

(2) 

(3) 

1 
2 
3 
4 
5 

The  regulatory  framework  for  the  2007-2013  programming  period  was  prepared  and 
negotiated  with  the  aims  of  consolidating  the  simplification  of  programming  and 
management  of  the  Funds,  the  effectiveness  of  assistance  provided  by  them  and 
subsidiarity in their implementation. 

A  more  precise  and  more  stringent  approach  based  on  the  calculation  of  maximum 
eligible  expenditure  has  been  put  in  place  for  the  processing  of  revenue-generating 
projects  covered  by  Article  55  of  Regulation  (EC)  No  1083/2006  of  11 July  2006 
laying  down  general  provisions  on  the  European  Regional  Development  Fund,  the 
European  Social  Fund  and  the  Cohesion  Fund  and  repealing  Regulation  (EC)  No 
1260/19995. 

A number of difficulties have been highlighted in connection with the application of 
the  provisions  of  this  Article,  including  a  disproportionate  administrative  burden, 
especially  for  operations  co-financed  by  the  European  Social  Fund  and  small 
operations financed by the ERDF or Cohesion Fund. 

OJ C […], […], p. […]. 
OJ C […], […], p. […]. 
OJ C […], […], p. […]. 
OJ C […], […], p. […]. 
OJ  L  210,  31.7.2006,  p. 25.  Regulation  as  amended  by  Regulation  (EC)  No  1989/2006  (OJ  L  411, 
30.12.2006, p. 6). 

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(4) 

(5) 

These difficulties may have adverse consequences in terms of operation management, 
especially for projects in areas of Community priority such as the environment, social 
inclusion,  research,  innovation  or  energy,  and  in  terms  of  the  number  of  errors  in 
applying the provisions of Article 55. The said Article must therefore be simplified. 

This simplification must apply to all projects receiving assistance from the Structural 
Funds  or  Cohesion  Fund  during  the  2007-2013  programming  period.  Retroactive 
application is therefore necessary. 

(6) 

It is necessary to amend Regulation (EC) No 1083/2006 accordingly, 

HAS ADOPTED THIS REGULATION 

Article 1 

In Article 55 of Regulation (EC) No 1083/2006, paragraph 5 is replaced by the following: 

Paragraphs 1-4 of this Article shall apply only to operations which are co-financed by 

‘5. 
the ERDF or Cohesion Fund and the total cost of which exceeds €1 000 000.’ 

Article 2 

This  Regulation  shall  enter  into  force  on  the  day  following  its  publication  in  the  Official 
Journal of the European Union. 

It shall apply with effect from 1 August 2006 to all operations receiving assistance from the 
Structural Funds or Cohesion Fund during the 2007-2013 programming period. 

This Regulation is binding in its entirety and directly applicable in all Member States. 

Done at Brussels, […] 

For the Council 
The President 
[…] 

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