Infrastructure? The EU will help

Local authorities will be the major beneficiaries of community aid. Out of a total of EUR 12.8 bln, which is the budget for Poland for the years 2004-2006, nearly EUR 3 bln (under the Integrated Regional Development Operational Programme; IRDOP) will be allocated for regional projects to be implemented by local government. Entrepreneurs can benefit from EU funds in two ways: (1) by establishing co-operation with a local authority under a public-private partnership model or (2) by investing independently, in which case the infrastructure is part of a project involving the modernisation of an entrepreneur's manufacturing facility.

Either with local government...

The public-private partnership formula is much more attractive in terms of the funds available. The upper threshold of subsidies granted to local government projects will be 75 per cent of the eligible costs1 and may be as high as 80 per cent for projects of vital importance to a region. The only restriction is a cap of 50 per cent on eligible costs for infrastructure projects that generate substantial profits. Although the direct beneficiaries of infrastructure project aid funds are local authorities, in many cases their co-operation with entrepreneurs is not only possible but desirable. For example, structural funds will be assigned to finance, in line with the objectives set out in the IRDOP documentation, the construction or modernisation of roads to enhance the accessibility of project sites, existing industrial facilities and local business centres, among others. Where a project involves the provision or modernisation of a road, the refund may apply to, for example, expenses incurred when purchasing a plot of land (up to 10 per cent of the total eligible project costs), earthwork, construction and assembly, construction or modernisation of the road surface, construction of junctions and exits etc. IRDOP funds will also be available to finance the broadly understood environmental infrastructure, such as the water supply or sewage treatment systems, or the use of renewable energy sources. Qualifying projects will include the purchase of land to be used as project sites, construction and assembly work, the purchase of equipment or the preparation of design documentation.

...or on one's own

The threshold of aid available to finance entrepreneurs' independent projects will not exceed 50 per cent of the upper regional subsidies' threshold, which in practice, implies 25 per cent of eligible project expenses on average. In this case, entrepreneurs will find it more difficult to raise the funds necessary to construct a road, as this type of project is not mentioned in the list eligible for structural funds in Poland. Conversely, projects involving, for example, construction of an industrial sewage treatment plant, a heating or waste recycling system, will be granted funds corresponding to 30-40 per cent of the eligible costs.

Hope for the future

The choice between an independent project and a project realised in co-operation with a local authority will largely be determined by the actual availability of aid funds. Regrettably, public-private partnerships are not common because the lack of an appropriate regulatory framework. Therefore, it will currently be much easier for entrepreneurs to use aid funds to finance independent infrastructure projects. The situation may change if clear public-private partnership regulations are soon enacted and if such co-operation is actively promoted. This would make it easier for entrepreneurs and local authorities alike to use EU infrastructure assistance funds and ensure the more effective utilisation of those community funds, which are allocated to Poland.

Magdalena Burnat-Mikosz,

EU Advisory Services,

Ernst & Young

In cooperation with

Piotr Wieliński,

Real Estate Services Group,

Ernst & Young

1 Under Commission Regulation (EC) No. 1685/2000 of 28 July 2000 laying down detailed rules for the implementation of Council Regulation (EC) No. 1260/1999 as regards eligibility of expenditure of operations co-financed by Structural Funds, eligible costs are, to put it simply, expenses directly linked with the implementation of a project. For example, eligible costs do not include the VAT charge as long as it can be recovered by the beneficiary otherwise.