Next Generation EU Funds: new financing opportunities.
The first pre-financing disbursements were received in Spain in August: 9 billion euros, accounting for 13% of the total transfers to be allocated to Spain, which will ultimately reach some 70 billion euros.
These 9 billion euros, plus the 24 billion euros already envisioned in the General State Budget Law, are a tangible and meaningful result of the calls for aid in the form of tenders and subsidies for businesses. This has marked the definitive kick-off of the Next Generation Funds earmarked for Spain.
The 9 billion we have already received qualifies as pre-financing, though Spain is the first EU country to formally request the first disbursement from the European Commission. These initial disbursements are already conditional upon the fulfilment of certain targets set by the European institutions, which, if not met, may render the country ineligible for further disbursements. Indeed, this summer the European Commission has appointed two senior officials who will be responsible for confirming whether Spain manages to honour its commitments in due course.
Main challenges for Spain
Spain faces a number of challenges in ensuring successful use of Next Generation Funds:
- The heavy weight of SMEs within our country: a suitable balance must be found when distributing the funds, on the understanding that large companies should attract most of the aid as driving forces for the SME ecosystem that lies beneath them. However, the bulk of the funds should also be awarded under calls for subsidies for which SMEs, micro-SMEs and the self-employed in this country are also eligible.
- Communication, dissemination and transparency channels for companies need to be improved. The government's recovery plan website is not complete and there is currently no single-window option at state level to apply for this aid, which would make it much easier for SMEs.
- We must pick up the pace in implementing these funds. Before the summer, not even 5% of the funds had been implemented. There is a general need to improve, modernise and digitise the public administration's operating systems so that it can become more agile.
- The financial sector should have an important role to play in all of this, Banks and other financial institutions know SMEs the best and have good dealings with them, and they would be a good partner in carving up the aid, as they have been doing in relation to the CAP funds, with excellent results.
- Spain must usher in regulatory and structural reforms with the Recovery Plan to make its businesses more competitive. This should be done without ideological criteria but focusing solely on economic and business concerns.
The role of the autonomous communities
The autonomous communities of Spain are set to play a hugely important role in implementing the plans and in awarding the aid to companies in all areas that fall within their remit: education, health care, etc. Right now they are in the early stages of preparing, processing and implementing these aspects:
- Strengthening fund monitoring offices to help companies within their respective territories submit viable projects and secure grants and subsidies.
- Ensuring the necessary technological tools, procedures and personnel to be able to cope with the large volume of applications they will have to handle in the future.
- Investing the money initially received under the Next Generation Funds. Money has already been allocated in the realms of Education, the Educa Digital plan and employment, where they are tendering technical assistance to create the network of job guidance centres.
The PERTEs are under way
In Spain, funds are largely allocated through what are known as Strategic Projects for Economic Recovery and Transformation (PERTEs to use their Spanish acronym) and this system is already up and running. Key projects so far:
- Currently the only one to have been approved is the PERTE for Electric and Connected Vehicles: it features three mandatory blocks: manufacture of original equipment, manufacture of batteries and manufacture of other components. All three must be met in order for the company to be eligible for funding. There are also three additional blocks: manufacture of intelligent electric vehicle components, connectivity components and charging systems. And three transversal processes: circular economy, digitisation of the entire value chain and the training and recycling of professional profiles. In this PERTE, we can see clear evidence of a public-private partnership, the integration of SMEs with a 40% presence, the necessary link between Autonomous Communities (there must be a minimum of two companies from two different Autonomous Communities) and the collaboration of a knowledge provider. This PERTE structure is important because attempts are being made to replicate it in the other PERTEs, according to the needs of the business community as reflected in the expressions of interest.
- Another project that is gaining in relevance is the Agro-Food PERTE currently being spearheaded by the Ministry of Agriculture, Fishing and Food.
It aims to provide easier access to healthy, safe and sustainable food. It seeks to improve innovation capacity along the entire value chain on the path towards digitalisation and sustainability, leading to food traceability from production through to logistics and last-mile distribution.
- There is also talk of a Health PERTE. Its main objective is personalised medicine, to champion the use of innovative techniques and technologies in the diagnosis and prevention of diseases with an impact on the clinical side.
- Another project that was discussed in May —and on which work is still ongoing— is the Technology PERTE. Its first three mandatory blocks are the integration of renewable projects, the storage of renewable energy and the hydrogen roadmap.
What have the actual calls been like?
Since July there have been several calls for proposals and we can see a number of common themes:
- Under the public-private partnership model, we have seen large consortia calls for proposals. For instance, the call for artificial intelligence projects was led by a large company, yet the call insisted that at least five SMEs and one public research body (technology centre, research centre, etc) also take part. In other words, this type of public-private partnership must be conducive to cooperation between businesses and give rise to transformative projects.
- Substantial amounts have been paid out in non-repayable grants and subsidies. Depending on the nature of the project and the type of company, this can range from 40% to 80%.
- There are also other, more individual calls, more focused on digitisation in its broadest sense. Here we have the Activa Financiación call, which seeks to digitise industry through collaborative robotics, digital twins and other technologies that will lead to big change across different sectors.
Another example would be the ongoing Red.es Artificial Intelligence call for new digital enabling technologies that help impact the market.
- Then we have various calls that already existed but which have received a significant boost from the EU funding, such as the Artificial Intelligence call, which last year offered 20 million euros in grants, climbing to 100 million this year.
In conclusion, there are two main thematic blocks in which these calls are being deployed:
- Lines heavily focused on Research and Development into concrete subjects, and on specific challenges that appeared in the expressions of interest (we can see that they are being followed).
- Digitisation, in the broad sense of the word. Currently focusing on innovative technologies.
They are all subject to by the grant thresholds set out in the regulations. What this means is that, depending on the nature of the project and the type of the company, the bidder may be eligible for X intensity of non-repayable grants. It is therefore essential for companies to follow the regulations and reliably identify the projects that are being worked on.
Lastly, it bears repeating that any line with Nexts Generation Funds must comply with the 6 DNSH principles: do no significant harm in environmental terms.
Near future: new calls
So far this year calls for proposals have been few and far between, though the pace should now pick up as we enter the final stretch. When the time comes, the government will launch a large-scale communication campaign targeting all business groups and SMEs within the country.
The calls will focus on subjects that fall within the remit of regional governments: circular economy, sustainability, industry and digitisation, training, education, health, etc. They will head in three directions:
- Research and development projects.
- Energy transitionenergy R&D projects, self-consumption projects via solar panels, wind power, machinery rehabilitation at large companies and SMEs, building rehabilitation, innovative renewable energies, the hydrogen roadmap... the funding rules of all of these aspects are already in the approval phase.
- And digitalisation: Tourism and its "last mile" call and calls for digital skills and training for employees will all be very important, as will the Digital Toolkit call, which will be launched imminently with a total budget of 500 million euros in 2021. This particular call aims to help companies go digital and become more competitive and will be hugely important for SMEs.
Companies should get everything ready before the calls are announced:
- A team must be mobilised having people ready in-house to lay the groundwork and draw on external expertise when necessary.
- It is extremely important to define the projects properly, on the clear understanding that they must be genuinely profitable. There are non-refundable items, though the funding is not there to finance the entire project; only part of it.
- Deploying the organisation accordingly in response to each call. For example, if you have to go with SMEs acting within a larger consortium, you need to start looking at what they might be. It remains to be seen whether partners are needed in other geographical areas... Everything needed for the project to meet the criteria of the awarding authority.
- Be wary of deadlines. Some calls give less than a month in which to apply. To find out which calls are currently running and learn more about them, including deadlines, go to the tenders and grants service at ceoexeuropa.es, which is updated every day. Information is also available on the website of the Spanish Ministry for Ecological Transition and the Demographic Challenge: www.idae.es.
- Preparing the legal side in advance, including responsibilities and guarantees. Administrative issues, being up to date with all tax and Social Security obligations, filing of accounts, etc.
And here are the experts' tips on how to prepare projects with all the safeguards in place:
- Staying one step ahead: to have the projects already prepared and aligned with the España Puede plan so that they can be presented within the strict deadlines following the call for proposals, in some cases within as little as 10 days. The better prepared the country is, the better the projects will be, which will ultimately compete against other projects for the aid.
- No missed opportunities: there are many calls for proposals and they are extremely specific in their scope. You must be able to dissect your project and enter into as many calls as it can fit, or enter each part of your project into each funding leg for which it is eligible.
- Focusing on the right objective:companies must be aware of the purpose of the funds: investment projects that pursue green and digital objectives.
- Paying attention to the formal presentation of projects:the government has a specific approach to work and its systems and procedures must be mastered. The fine print is very important.
- Presenting realistic, profitable and genuinely feasible projects. Feasibility is essential and if it is not achieved, the problem may be insurmountable.
Information obtained from the webinar organised by the Bankinter CFO Forum. 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.