Focus on what's important: keys to accessing the NGEU Funds.
Right now, we are getting news and updates from the government, ministries, regions and from Europe itself on a daily basis. On 15 June, the European Commission issued debt to finance annual recovery plans across Europe. Just one day later, on 16 June, it approved the National Recovery Plan for Spain and Portugal. And at the beginning of July, ECOFIN gave the go-ahead to the España Puede Reform and Investment Plan. This was the launch of the Next Generation Funds marathon in our country, including new developments such as:
- Two weeks ago, the Council of Ministers approved the Strategic Project for Economic Recovery and Transformation (PERTE) for the automotive sector.
- Bidding documents for the purchase of licences and technology have already been launched, with a view to modernising the administration.
- Subsidies related to the deployment of the National Artificial Intelligence Strategy have been announced.
- New aid programs have also been approved for the rehabilitation of buildings, homes and properties.
- And some organisations have already started working and publishing their rules, such as Industria Conectada 4.0.
In total, there are already 27 billion euros reserved in the government's budget, which must be pre-allocated before the end of 2021. And in the coming weeks, the first tranche of the funds is expected to arrive: 9 billion, which Spain will begin to distribute.
Given this timeframe, it is more important than ever that companies carry out good, focused projects, and complete their submissions to the public authorities correctly.
Expressions of Interest
The first milestone in the application process are the Expressions of Interest. Expressions of Interest are the government's tool to find out about the interests of the business community and the direction it wishes to give to its projects.
It should be noted that an Expression of Interest is in any case not binding for the future award of funds. However, participation in an Expression of Interest is helping companies to work on their projects, to anticipate future calls for submissions, to align their strategic plans with the España Puede plan and to move their projects forward.
Retroactivity, yes or no?
There are many doubts as to whether plans that were previously submitted to the Next Generation Funds are going to be financed. The answer remains unclear. In principle, the essence of public financing is to encourage the business fabric to take a risk when carrying out projects. In other words, the target is projects that look to the future.
However, the España Puede plan mentions the possibility of including retroactive projects from February 2020, although it refers to future calls for submissions and specific rules and regulations.
Therefore, it seems that retroactive projects will most likely be accepted only in calls for submissions of an investment rather than a development nature.
Finance: 1 part government, 4 parts private
It should be noted that projects will not be financed in full. The target is for public financing to be around 20%. This means that the projects must be profitable and viable for private companies. These companies will bear most of the costs.
This ensures that the projects will contribute to real economic development. Economic and employment growth will in fact derive from private investment ... and these sectors will be driving the country's economy in the future.
Mechanisms for accessing Next Generation Funds
In Spain, there will be three key mechanisms through which all requests for funds will be channelled:
- Through recurring calls for submissionsSE07460 Son convocatorias que ya existían y que van a ver vitaminados sus presupuestos por dos vías: por un aumento de su presupuesto o por una mejora de las condiciones de financiación. O por ambas a la vez.
- Through new calls for submissions Created exclusively to raise Next Generation Funds.
- Through the PERTEs (Strategic Projects for the Recovery of the Economy). At the moment, there are 6 preliminary PERTEs.
And it should be noted that, in addition to national programmes, there are other European-level programmes that companies can apply to, such as the Horizon Europe 2021-2027 framework programme.
The impact of PERTEs
To date, Spain has announced six PERTEs, of which only the first is already approved:
- Electric and connected vehicle.
- Energy generation from green hydrogen.
- Aerospace industry.
- Sustainable and efficient agriculture.
- Use of the Spanish language in the field of artificial intelligence.
- Development of a state-of-the-art health system.
All Strategic Projects for Economic Recovery and Transformation (PERTEs) are aimed at developing and transforming the entire value chain of the industry in their sector. For this reason, companies (including SMEs) that are already operating in these sectors have more of a chance to participate in the corresponding PERTEs.
For example, The PERTE for the automotive sector
The Strategic Project for Economic Recovery and Transformation (PERTE) for the automotive sector aims to develop the entire automotive sector in Spain, from start to finish. From promoting battery factories, factories of automotive components for electric cars, production lines for electric cars ... to the development of 5G for the coverage of connected cars.
The interesting REACT Funds
In Europe, additional REACT Funds (Recovery Assistance for Cohesion and the Territories of Europe) have been approved. Of the 750 billion euros of Next Generation Funds at European level, 47 billion are allocated to REACT Funds to reinforce existing programmes: health, education, social services, liquidity and support for SMEs and the self-employed ...
They are basically non-refundable subsidies, new funds to reinforce the regions that have suffered the most from the COVID-19 pandemic. It must be noted that although they are directed at more specific issues, the REACT funds maintain total alignment with the four pillars of the Next Generation funds:
- Ecological transition.
- Digital transformation.
- Territorial cohesion.
- Gender impact.
A key axis for Spain: Digital Transformation
The digitalisation axis of the Next Generation Funds affects all types of public and private entities. And almost a third of all the money in the Funds goes to digitalisation. There are four key areas for Spain's digitalisation:
- Sectors driving the economy. Above all, tourism, health, retail, mobility and agri-food. It is about large companies going digital, and about their causing the digitalisation of the entire ecosystem in their sector, supporting SMEs, the self-employed, startups...
- Digitalisation of the public sector. It's not just about buying technology, it's about really integrating it. It is a complete transformation for the Spanish public sector, which must focus on streamlining and changing processes, automating, personalising services...
- Digitalisation of SMEs. There are many and very varied. The big challenge is knowing what each one needs, its current situation, what digital service will work well, how to achieve results, how it will help it grow ...
- Digital training of individuals. In Spain, there will be a lack of workers with technological skills and digital training ... while there is 40% unemployment among young people. To bridge this huge gap, people have to be trained to access those jobs.
Ecological transition in Spain
More than 40% of the funds of the España Puede plan will go to "Green Transition". In 2021-2023, more than 28 billion euros will be executed in Spain alone, in connection to this green transition.
Also, companies must know that access to the funds is subject to the "green filter": no investment financed with the funds can cause significant damage to the climate or the environment.
There are 30 components in the España Puede plan, all with a percentage applied to energy transition. In ten (10) of them, the percentage is higher than 40%. And three (3) of them are 100% energy transition: the seventh for renewable energies, the eighth for storage and smart grids, and the ninth for hydrogen.
The dreaded "Emergency Brake"
The so-called "frugal countries", reluctant to accept the European Union's massive financing plans, demanded a guarantee mechanism so that the Next Generation Funds are executed and managed optimally: the so-called emergency brake. This means that, if the European Commission determines that investments in Spain are not being executed in the time and manner stipulated, the next tranches may be stalled.
At the current time, the Spanish reform and investment plan is validated and satisfactory. It just needs to be performed optimally. The second disbursement of funds will take place at the end of the year. It would be a huge failure if it were to stop, especially because it would mean that the first delivery of funds would not be achieving the objectives of transforming and improving our productive fabric and our economy.
Keys to designing a good project
To design a good project that manages to attract Next Generation Funds, you must first find out what the government's requirements are and what will have the most weight in their decision:
- The disruption brought by the project: the company has to ask itself what makes it different, why no one has done it before, and be very clear why it is doing it this way.
- Structuring the project and the company's capabilities: does the company have these technical and financial capacities, or does it need others?
- Integration in the project with other types of companies: large companies with SMEs, collaboration with universities, organisations, startups ...
- And the project's impact: that has a positive impact on the productive fabric and its transformation, that leads to new jobs, that promotes new investments, that energises the territory...
Also, companies must bear in mind that the rules are set out in the specifications and cannot be breached in any way. The company will have to follow the content of its project to the letter.
Tips for companies in the coming months
- Have fresh and up-to-date information on which calls for submissions you can access and when the funds will be launched: the time frames are very tight.
- Assign a person or a team responsible for everything related to these funds.
- Meet the requirements for financing the projects precisely. There may be many companies, especially SMEs, that have never applied for funds and will need to get used to the government's strict criteria.
- Distinguish the company's strategic projects, which of them can be submitted and align them with national plans. In other words, shaping projects so that they meet the criteria, making them greener, more sustainable, more inclusive ...
- Get to work on the projects straight away, to be ready and set for the calls for submissions.
- And perseverance: you must remember that, as a general rule, a good project will always be financed.
Information from the round table in the BKT room, during the 4th National Congress of CFOs (APD). With the participation of:
- Emma Montserrat: Head of Corporate Banking at Bankinter.
- Alberto Zamora: Managing Director at Accenture of the Health and Public Administration area in the markets of Spain, Portugal and Israel.
- Marta San Millán: Coordinator of the Office of European Projects at the CEOE.
- Gerard Brinquis: Head of the FI Group Next Generation Hub.