Green transition: Opportunities and pitfalls of EU-funded projects

Entrepreneurs who not only adapt to the new regulations of the European Green Deal, but also decide to implement comprehensive, advanced changes will become more competitive, will be able to enter ‘green markets’ and, as a result, will become part of the green economy. In addition to the regulations imposing increasingly stringent restrictions on businesses, the green transition also assumes growing awareness among contractors and consumers, the introduction of green criteria that will become important in, for example, public procurement, creditworthiness assessment, and the possibility of applying for EU support.

It is worth seeking support from EU funds in this area, and it is undoubtedly worth doing so consciously in order to avoid the most common mistakes made by beneficiaries, which may result in the return of even the entire grant.

Incentive effect

The moment of commencement of an investment project implemented with EU support is important due to the requirement to fulfil the so-called incentive effect. This is one of the principles of state aid, which boils down to the assumption that the condition for granting support is the recognition that the project being subsidised could not have been carried out without this aid. In practice, fulfilling the incentive effect usually boils down to verifying whether work on the project began only after the application for aid was submitted. The start of work is generally understood as ‘the first legally binding commitment that makes the investment irreversible’. For example, the start of construction work, the adaptation of premises, the ordering of equipment necessary for the implementation of the project may be considered such an action, but the purchase of land for the investment, the performance of preparatory work or the obtaining of the necessary permits and the carrying out of feasibility studies will not be considered such a ‘commitment’. The ‘irreversibility of the investment’ is also a concept that has a specific meaning, as otherwise the authority may assess a contract definitively concluded by the beneficiary and take a different approach to a contract concluded conditionally, for example, where the contract provides for the possibility of withdrawal from its implementation if funding is not obtained. Consequently, from the entrepreneur’s point of view, it is important to be aware that, as a rule, none of the planned activities resulting from the application for co-financing may be started before the date of submission of the application, and exceptions in this respect are interpreted strictly.

Contracts awarded under the project

If contracts are concluded under the project with contractors for supplies, services or construction works co-financed by EU funds, such contracts will usually be awarded on the basis of a market survey or the principle of competitiveness. The choice of the appropriate procedure depends on the value of the contract; as a rule, for contracts with a net value exceeding PLN 50,000, they will most often be carried out in accordance with the principle of competitiveness. It is also always necessary to verify whether, in the given circumstances, there are grounds for applying public procurement law to the applicant or beneficiary. Importantly, incorrect award of a contract in a project may result in the costs of that contract being deemed ineligible and, in the most extreme cases, even in the return of the entire grant.

Before awarding a contract, the applicant or beneficiary must therefore verify, among other things, the value of the contract, the type of contract and whether it is being awarded in parts. As a rule, the basis for determining the value of a contract is the total estimated remuneration of the contractor, excluding value added tax, determined by the beneficiary with due diligence. This means that the value of the contract must be determined on the basis of the description of the subject matter of the contract and all known circumstances that may affect the preparation of the tender. The value of the contract should be estimated as carefully as possible, i.e. using the necessary knowledge, skills and experience. The obligation to estimate the value of the contract carefully is all the more important the closer it is to the threshold that determines the choice of the procurement procedure. In practice, beneficiaries without relevant experience may often find it difficult to estimate the value of the contract correctly and, consequently, to select the appropriate procurement procedure. It is therefore worth remembering that if a beneficiary plans to award contracts to contractors as part of a project, they should first carefully assess the specific facts and verify which procedure is appropriate and what requirements must be met in this regard.

Maintaining the sustainability of the project

The principle of sustainability applies to projects involving investment in infrastructure or product investment and aims to ensure that any project involving public funds should have a lasting effect, existing for a certain period of time, and consequently bring about real, positive economic changes. This means that during the durability period (lasting 3 or 5 years, depending on the scope of the project and the category of beneficiary), the project cannot undergo significant modifications, in particular with regard to the maintenance of the objectives and output and result indicators specified in the grant application. A breach of the durability principle may consist, among other things, in the cessation of production activities or their transfer outside the programme support area, but also in a change in the ownership of a co-financed infrastructure element which gives the enterprise or public entity an undue advantage. Importantly, a change of ownership is not only a legal transfer of ownership of a given item to another entity, but also capital changes in the ownership structure of the beneficiary (e.g. a change in the shareholding structure). The principle of permanence will be breached if, in the event of such a change of ownership, the entity obtains undue benefits, which means that such a benefit would be incompatible with the objectives of the aid, e.g. in a situation where, as a result of the change of ownership, the co-financed infrastructure is acquired by an entity which would not have received support under the measure in question because it did not meet the competition criteria. The principle is also violated if, during the project’s lifetime, there is a significant change affecting its nature, objectives or implementation conditions, which could lead to a breach of the original objectives of the project.

The above issues are just a few of the important points to be taken into account when implementing a project co-financed by EU funds. In practice, applicants and beneficiaries must bear in mind, from the stage of applying for support until the end of the project’s lifetime, that public funds will be spent on the project, which means that they must comply with specific legal regulations, the provisions of the grant agreement and cooperate with the granting authority. At the same time, the opportunity to take advantage of support programmes is often a great chance for these companies to develop, modernise and increase their competitiveness. In order to make the green transition as painless as possible and with the greatest benefit for entrepreneurs, it is worth considering EU support, bearing in mind that this assistance requires compliance with certain rules resulting from the public nature of the funds provided.