By Elisabetta Righini

Investment in the infrastructure that keeps Europe running smoothly continues to be a big theme in European private equity.

In every sector, from energy to sport, from transport to broadband, governments are increasingly calling in the private sector to build and operate infrastructure assets. Indeed, spending on infrastructure received a boost in 2014 when the European Commission launched the InvestEU programme, which aimed to generate more than €300 billion for projects across Europe. Only last month, Chancellor George Osborne pledged £100 billion of government funding to reinvigorate infrastructure development in the UK.

But private equity investors should take care. National and local governments often encourage private investors in infrastructure through financial assistance. Under EU rules, public interventions in the economy may qualify as state aid, and hence, in principle, be prohibited as such interventions unduly affect competition between private undertakings and distort trade flows between EU member states. However, when aid meets a “common interest” for the EU as a whole, the European Commission can authorise the aid. The basic rules haven’t changed since 1957, but the rules’ application has been constantly evolving to adapt to the geographical, social and economic changes of an ever-integrating European internal market. We see these changes coming into sharp focus in today’s market.

In most cases, public financing for infrastructure meets this common interest criterion. However, private equity investors must ask their legal counsel whether aid for their particular project is within the rules and authorised by the European Commission.

Investors must also seek advice when acquiring assets formerly financed by state aid. The European Commission has the power to deem assistance incompatible for up to 10 years after the assistance was granted. If aid is judged incompatible, the beneficiaries must pay the money back to the public authorities with compound interest.

State aid compliance is now an issue to check when investing. If legal counsel decides there is a risk that the public support given to a project is in breach of EU state aid rules, our view is that private equity investors need to do one of two things:

• Ask the national or local government giving the aid to notify the case to the European Commission for approval, before accepting the public financing.

• If buying an asset, factor into the purchase price or other deal terms the risk of having to pay back the state funding.



In 2010, the EU Digital Agenda set as a target for 2020 the roll out of new, fibre-based infrastructure capable of delivering advanced connectivity services of 100 Mbps. Since then, the European Commission has been authorising overall state aid of approximately €2 – €5 billion+ annually. In June 2014, the Commission approved a German scheme for the roll-out of next generation access (NGA) broadband networks throughout the country, including in rural areas. The Commission’s main objective in this area is to reconcile the need for public intervention to foster quick broadband roll-out without crowding out private investment. Hence, state aid is approved when channelled towards areas where private investment remains insufficient.


Europe has a network of over 440 airports; 42% still operate at a loss. The 2014 state aid Aviation Guidelines allow investment aid only for airports serving less than five million passengers a year; only if there is a genuine transport need (no competing transport in their catchment area, such as another airport or fast train); and the positive effects are clear, such as improved accessibility, regional development and less traffic congestion at major airports. On this basis, over the last two years the Commission has ruled that state aid given to Poland’s Gdansk, Germany’s Zweibrücken and Belgium’s Charleroi airports, has violated EU law and must be paid back.

Energy Generation

The UK will need about 60 GW of new electricity generation capacity to come online between 2021 and 2030 due to the closure of existing nuclear and coal power plants. In October 2014, the European Commission approved UK plans to establish a price support — a “contract for difference” — to ensure stable revenues for 35 years for the Hinkley Point nuclear plant operator, as well as to establish a guarantee covering any debt the operator will seek to obtain on financial markets to fund the plant’s construction. The Commission, however, raised the guarantee fee which the operator will pay to the UK Treasury, and thus reduced the subsidy by more than £1 billion. The Commission also imposed a gain-share mechanism on the operator for the project’s entire lifetime.