European Association of Public Banks

Transcription

1 DG Competition HT 618 Register-ID : February 2012 EAPB comments on the Consultation Paper on the Research, Development and Innovation State aid Framework Dear Madam or Sir, The European Association of Public Banks welcomes the opportunity to comment on the Consultation Paper on State Aid for Research and Development and Innovation. The EAPB member banks play an important role in the granting of state aid, especially to promote research, development and innovation (R&D&I). In times of scare financial liquidity and accessibility it becomes increasingly important to prudently allocate financial resources, especially from the point of view of SMEs. Consequently the pressure increases for SMEs not to take high risks and issues like R&D&I risk tend to be less in the focus of SMEs. In a time when markets become more and more competitive and innovative companies are confronted with counterfeiters it is essential to always be a step ahead by constantly investing in R&D&I. Therefore public support must contribute to helping SMEs and start-ups to put more emphasis on strategic issues like R&D&I. It is crucial that the EU has an appropriate State aid law framework that allows public financial institutions to fulfil their promotional tasks. Please find here our responses to key questions of the consultation: - 1 -

2 Section B: General Questions on R&D&I State aid B.1. Effectiveness of R&D&I State aid Question 17 According to your experience, which are the most appropriate types of State aid instruments to promote effectively R&D&I? (e.g. direct grants, reimbursable advances, loans, soft loans, fiscal incentives, provision of capital, guarantees, compensation above market prices for goods or services, consultancy, training, provision of infrastructures, public procurement policy, reduction of social-security contributions, debt write-off)). Please substantiate your answer. Generally in research three phases are distinguished: fundamental research, industrial research and experimental development. These three research phases are also defined by the current R&D&I framework. The practical experiences of the EAPB member banks show that the closer a project is to research (i.e. in fundamental research and industrial research) the more important it becomes to use grants. This is amongst other reasons because fundamental research and experimental development are characterised by experimental and theoretical work in which the possible practical application possibilities are not yet perceivable. In R&D&I projects close to the market repayable instruments are also appropriate. However because of the generally higher success risk of a R&D project in certain cases grant may be preferable such as in fundamental research and experimental development. In this context for the promotion of R&D&I a full range of state aid instruments, including fiscal incentives, should be available and permitted and the different research phases should be taken into consideration with different State aid intensities. Question 18 According to your experience, which instruments do you regard as being particularly effective in supporting innovative start-ups and SMEs? In the start-up phase grants and the provision of capital are indispensable since the capacity of company founders and innovative start-ups to meet principal payments is not developed yet and it may take a few years until they achieve a profitable basis

3 B.2. Positive effects of R&D&I State aid Question 21 When granting State aid to R&D&I, how do the authorities in your country verify the existence of the incentive effect? Do you typically make enquiries into the counterfactual (i.e. what the firm concerned would do in the absence of aid). Please provide examples. Do you measure effect of additional public spending in leveraging private expenditure on R&D&I? If so, what are the results? R&D&I state aid is necessary to ease difficult access to financing but also to limit the risk of a possibly unsuccessful development of procedures and products. This risk has effects on the willingness to provide own contributions. Also private investors shy away from investments and seldom commit themselves to R&D&I projects. Thus there is market failure not only because of the lack of funding but also because of the high risk involved. Section C: R&D&I- Framework C.2. Notion of aid in the context of the R&D&I-Framework Question 28 Considering financial instruments, do you find necessary to further clarify the notion of transparent aid and to provide further guidance for the quantification of the aid element in such instruments? If yes, what do you consider to be the necessary elements in this regard? Financial instruments should play a greater role in the post 2013 funding period in order to meet the objectives of the 2020 strategy. However, independently from the fact whether individual grants or financial instruments are used for R&D&I-Framework promotion the definition of types of transparent aid should be the same. This means that a loan must always be considered a transparent aid in State aid law, independently from the fact whether it is provided from a financial instrument (loan fund) or outside a financial instrument. In this sense we would welcome an explicit inclusion of mezzanine financing forms (for example subordinated loans) as transparent types of state aid. Innovative companies often lack collateral and therefore receive insufficient external funding. Because R&D&I have high failure rates private banks are reluctant to grant loans without the provision of collateral. Therefore young innovative companies are dependent on State funding which takes into consideration their lack of collateral in many cases. By taking into consideration mezzanine funding forms of public funding institutions the funding of many innovative companies could be greatly improved

4 Therefore the new R&D&I-Framework as well as the General Block Exemption Regulation should explicitly include mezzanine funding forms. These should be considered transparent state aid in the same way as pure debt capital since like in pure debt funding- a classification in the margin system of the EU Reference Rate Communication is possible since takes into consideration the creditworthiness of the applicant as well as the collateral of the funding. This allows a precise risk classification of the aid recipient in line with the Commission Reference Rate Communication. The higher risk of mezzanine funding forms in the context of a potential bankruptcy of the beneficiary could be taken into consideration with an additional risk premium or a rating downgrade in the margin grid like it was done by the Commission on several occasions after its Brandenburg Decision (N 55/2008). Question 31 Do you consider appropriate the current guidance and criteria applicable to collaboration between research organisations and undertakings, as regards the aspects relating to: indirect aid to undertakings through collaboration with publicly funded research organisations; the provisions applying to contract research by public research organisations on behalf of undertakings. the terms on which research organisations and undertakings collaborate, for example in respect of the terms for transferring intellectual property? If not, what would be in your view the most appropriate elements to take into consideration in this regard? Do you consider that there are other areas where the current guidance and criteria that are applicable to collaboration between research organisations and undertakings should be improved? Generally yes. For example the allocation of the results and rights of intellectual property to project partners are properly regulated in order to exclude indirect aid to undertakings through collaboration with publicly funded research organisations. However, the rules under Nr b) ii), first hyphen of the R&D&I-Framework are not compatible with non-economic activities research organisations, which are not relevant to state aid (i.e. those organisations which are promoted at 100%)

5 C.3. Definitions provided by the R&D&I-Framework Question 35 Do you consider, in particular, that the current definitions of 'industrial research' and 'experimental development' (Points 2.2.(f )and (g) of the R&D&I-Framework) are sufficiently clear with regard to those activities, which fall under the scope of the R&D&I-Framework? The definitions should also take into consideration the technological risk. In this context self-explanatory terms such as practice-orientated instead of industrial research and product related instead of experimental development should be used in order to lead to a better understanding of practitioners. Question 36 Do you consider the scope of the definition of 'research organisation' (Point 2.2.(d) of the R&D&I-Framework) as sufficient to cover entities engaged in non-economic R&D&I and/or in innovation-intermediary activities? The definition is sufficiently wide and should be kept as such. C.4. Scope of the R&D&I-Framework Question 40 Does the R&D&I-Framework need to become more specific about activities such as user-focused innovation and design? Should it include some types of marketing activities? Yes, marketing activities should be included. These should be linked to pre-existing or continuing R&D&I projects, product improvements or the development of new products for which solutions are available. Also, SMEs often lack sufficient financial margins after a successful product development for an effective market penetration and the linked costs for introducing the product in the market. Often this leads to a company selling the discoveries or the product itself without the innovation being used in the company. The current rules are not sufficient or too restrictive to allow proper promotion of start-ups. We therefore suggest including marketing activities of SMEs in the new rules. In order to take into consideration the proximity of these aids to the market the gross subsidy equivalent should be much lower in comparison with experimental development and as - 5 -

6 additional condition- the State aid instruments should be limited to repayable instruments such as loans, guarantees and participations. C.5.3. Aid for technical feasibility studies Question 46 According to your experience, do you consider the current limitation of the aid to 'technical' studies appropriate? Please explain. An extension to technical studies ahead of industrial research and experimental development would be appropriate. C.6. Compatibility criteria of the R&D&I-Framework C.6.1. Standard assessment (Chapter 5 and 6 of the R&D&I-Framework) C.6.1.a) Question 55 Aid intensities, aid amounts, bonuses What is your experience with the aid intensities, aid amounts and bonuses that are permitted under the current R&D&I-Framework? To what extent are these: either too excessive, i.e. the market failure is, as a rule, overcome with less than the maximum permitted aid intensity/amount, or too restricted, i.e. the maximum permitted aid intensity/amount is not sufficient to overcome the market failure? The rules that state that in the field of own contributions the promotion with early phase instruments can only be done once have led to problems in practice. Because of this projects with a clear need for a further funding round cannot be supported. This comes in addition to the prohibition to cumulate further aid for a period of three years. These restrictions should be removed as they create financial constraints for companies. C.6.1.b) Eligible costs and other compatibility criteria Question 60 Eligible costs: In your view, should the concept of eligible costs relate to the total costs of the project or rather the incremental cost (extra costs compared to the counterfactual project)? - 6 -

7 The concept of eligible costs should- including in a special field such as R&D&I- refer to the total costs of the project. The calculation of extra costs represents an insurmountable practical obstacle which under a cost-benefit analysis is often not justified and which can lead to having to abandon funding fundamentally sensible projects. We generally approve the intention of the Commission to take into account specific areas and exceptional situations in its regulations. This objective of tailored promotional policy is however often not achieved because of overly detailed and complex regulation. In practice certain funding opportunities are not used because of too complex rules such as in the field of environmental protection aid. This especially concerns applicants in fields for which special rules need to be complied with, for example the need for an expert evaluation report on the existence of extra costs compared to counterfactual projects. In the case of stricter requirements higher aid intensities would be permitted. In our view the benefits of a leaner, transparent and unbureaucratic handling of state aid rules (in particular the higher acceptance and legal certainty) would heavily outweigh the possible negative effects (possibly less precision in the targeting of aids) of less differentiated rules. C.6.1.c) Incentive effect Question 61 According to your experience, do you consider the conditions for demonstrating the incentive effect of the aid (Chapter 6 of the R&D&I-Framework) as sufficiently clear and appropriate? Please differentiate in your reply between the formal aspect of the incentive effect (R&D&I activity must not have commenced prior to the aid application by the beneficiary to the national authorities) the material aspects of the incentive effect, in particular the analysis of the counterfactual (profitability (Net Present Value, NPV) of R&D&I project without aid; risk assessment; analysis of financing constraints). We consider that the condition stating that the R&D&I activity must not have commenced prior to the aid application by the beneficiary is appropriate in order to prevent deadweight effects. However it should be sufficient in the context of credit financing to have had a qualified funding discussion between the financial institution and the borrower which concludes that the borrower makes the realisation of the project dependent on the granting of a credit. The purely formal requirement of filing a credit demand in this context does not constitute any determinant aspect of evidence for an incentive effect, when the funding - 7 -

8 discussion has already led to the conclusion that the applicant has clearly included public funding in the conception of the R&D&I project. With regard to counterfactual analysis for the verification of the incentive effect we would like to point to the fact that especially in the field of R&D such an analysis can only have limited conclusiveness. In particular comparing the project with and without State aid is not meaningful. The applicant usually plans the project with specific technical details. Typically he would not run a less ambitious project without state aid, since this would not be compatible with the technical specificities of the project. What is decisive in such projects is rather whether the applicant would receive market funding or not, i.e. whether the investment depends fully on the availability of public funding. However in most cases private banks are reluctant to support such projects of innovative companies so that the realisation without public support is jeopardised. With regard to the use of financial instruments, because of the need to pay back the loan amount, a requirement for a counterfactual analysis as condition for the granting of aid should not be necessary. C.7. Reporting and monitoring obligations under the R&D&I-Framework Question 66 What is your experience in reporting and monitoring (Section 10.1 of the R&D&I-Framework)? Generally we consider that an annual report on granted state aid in the field of R&D&I is appropriate in order to give the Commission an overview of aids granted by Member States. However we consider a detailed reporting about all individual aid amounts by beneficiary and with a detailed explanation of individual incentive effects in the context of extensive reporting to be overly burdensome. We therefore support limiting extensive reporting to large ad-hoc aids, which have most potential for distorting competition. It would make sense to reduce the level of complexity and detail. Individual applicant-based listing of incentive effect criteria should only be necessary for measures subject to detailed assessment under point 7 of the framework. For R&D&I state aid in the context of standardised credit programmes the rules concerning reporting as laid down in the procedural regulation before the introduction of R&D&I framework should continue to apply

9 Should you have additional questions or comments, please do not hesitate to contact us. Kind regards, Henning Schoppmann EAPB Julien Ernoult EAPB The European Association of Public Banks (EAPB) represents the interests of 40 public banks, funding agencies and associations of public banks throughout Europe, which together represent some 100 public financial institutions. The latter have a combined balance sheet total of about EUR 3,500 billion and represent about 190,000 employees, i.e. covering a European market share of approximately 15%