Connecting Europe Facility (CEF) - CINEA Guide on economic appraisal for CEF-T Transport Projects
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Connecting Europe Facility (CEF)
CINEA Guide on economic appraisal for CEF-T
Transport Projects
Version 1.0 — DRAFT
01 October 2021
1
EU Grants: CINEA Guide on economic appraisal for CEF-T Transport Projects: V1.0 DRAFT – 01.10.2021
IMPORTANT NOTICE
This document is designed to help beneficiaries determine the scope of the CBA in the context of
an application to CEF2 Transport Call for proposals.
HISTORY OF CHANGES
Publication
Version Change
Date
1.0 DRAFT 01.10.2021 Initial version (new MFF).
2.0
3.0
1EU Grants: CINEA Guide on economic appraisal for CEF-T Transport Projects: V1.0 DRAFT – 01.10.2021
Table of contents
1. Background: The CBA requirement ......................................................................................... 3
2. Cost-benefit analysis (CBA) ................................................................................................... 6
2.1 General provisions ........................................................................................................... 6
2.2 Content of the economic analysis ...................................................................................... 6
2.3 Content of the financial analysis ........................................................................................ 7
2.4 Frequently Asked Questions .............................................................................................. 8
3. Simplified cost-benefit analysis (simplified CBA) ....................................................................... 8
Annex 1 — Note on the scope of Cost-Benefit Analysis (CBA) in the framework of the Connected Europe
Facility – Transport (CEF-T) ..................................................................................................... 12
Annex 2 — Source of the unitary values of transport externalities and value of time ....................... 24
Annex 3 — Cost-Benefit Analysis checklist ................................................................................. 32
2EU Grants: CINEA Guide on economic appraisal for CEF-T Transport Projects: V1.0 DRAFT – 01.10.2021
1. Background: The CBA requirement
The Commission Implementing Decision C(2021) 5763 final on ‘the financing of the
Connecting Europe Facility -Transport sector and the adoption of the work programme for
2021-2027applications’ states that proposals including works shall include a Cost Benefit
Analysis (CBA).1
To meet the eligibility requirement, a ‘full CBA’ must be composed of a standalone text
document, with a minimum length of 20 pages, and the CBA Cash Flow template filled in to
present the results of the CBA in a common and simplified format.
The Commission Implementing Decision foresees a number of exceptions to this general
requirement. In particular, a full CBA is not needed when:
the proposed project relates to smart and interoperable mobility as specified in Section
6.2.1 of the Implementing Decision, to the reduction of rail freight noise as specified
in Section 6.2.2 or
the proposed project is presented with the support of an Implementing Partner in the
context of the Alternative Fuels Infrastructure Facility as specified in Section 6.2.2 or
the proposed project relates to civilian-defence dual-use activities.
For these projects the applicant does not need to submit any document or analysis replacing
the CBA (not even a Cost Effectiveness Analysis). All information on socio-economic impact
will be inserted directly in the application form part B.
If the eligible costs of a proposed project do not exceed EUR 10 million, or if the proposed
project is presented under the Alternative Fuel Infrastructure Facility with the support of a
financial institution (other than an Implementing Partner) as specified in Section 6.2.2 of the
Implementing Decision, the CBA may be provided in a simplified form compared to a ‘full
CBA’. The simplification consist in dropping the requirement for the standalone text document
and replacing the filled in CBA Cash Flow template with the mandatory simplified CBA
calculator. Indeed the Simplified CBA calculator requires fewer inputs to produce the output
indicators by automating the calculation of externalities and the monetisation of time saving.
Applicants may always submit a full CBA instead of a simplified CBA.
Please note that the questions in the Application Form part B provide a summary of the main
results of the CBA. The information provided in this Form may not replace the obligation to
provide a standalone CBA Report and the CBA Cash Flow Template, or the Simplified CBA
Calculator.
Applications relating to a new phase of a project under construction and for which other
construction phases were/are supported by the Programme or by the previous Programme,
may re-submit the CBA originally submitted (provided that the project for which funding is
requested, was already included in the scope of the original CBA, and that no significant
changes have occurred that may impair the value of the original CBA.2 If applicants decide to
re-submit the original CBA they must confirm that these two conditions are met in Application
Form part B section 4.2).
If the CBA Cash Flow template was not necessary at the time of the original submission, the
applicant has to fill it in for the current application.
An overview of the various requirements for the various priorities is summarised in the table
below.
1
https://ec.europa.eu/transport/sites/default/files/c20215763-cef-financing-annex.pdf
2
Additional guidance is provided in Annex I in the section “time frame of the analysis”
3EU Grants: CINEA Guide on economic appraisal for CEF-T Transport Projects: V1.0 DRAFT – 01.10.2021
Work programme
Priorities Requirement
‘Objectives’
6.1 Projects related to the efficient, interconnected, interoperable and multimodal networks
Railways Full CBA / Simplified < 10 m*
Inland waterways and inland ports Full CBA / Simplified < 10 m*
Maritime ports Full CBA / Simplified < 10 m*
Roads, rail-road terminals, connections to airports and
Full CBA / Simplified < 10 m*
multimodal logistics platforms
6.2 Projects relating to smart, interoperable, sustainable, multimodal, inclusive, accessible, safe and secure mobility
6.2.1 Projects related to ERTMS No CBA
smart and ITS No CBA
interoperable
mobility RIS No CBA
SESAR common projects No CBA
SESAR other projects No CBA
Transport interoperability No CBA
6.2.2 Projects related to Implementing Partner: No CBA
sustainable and Alternative fuels infrastructure
Others: Simplified CBA
multimodal
mobility Motorways of the Seas Full CBA / Simplified < 10 m*
Multimodal passenger hubs Full CBA / Simplified < 10 m*
Reduction of rail freight noise No CBA
6.2.3 Projects related to Safe and secure parking infrastructure Full CBA / Simplified < 10 m*
safe and secure Road safety Full CBA / Simplified < 10 m*
mobility
Projects improving transport infrastructure resilience Full CBA / Simplified < 10 m*
External border checks Full CBA / Simplified < 10 m*
6.3 Military mobility
4EU Grants: CINEA Guide on economic appraisal for CEF-T Transport Projects: V1.0 DRAFT – 01.10.2021
Military mobility No CBA
5EU Grants: CINEA Guide on economic appraisal for CEF-T Transport Projects: V1.0 DRAFT – 01.10.2021
2. Cost-benefit analysis (CBA)
2.1 General provisions
The CBA needs to comply with a methodology recognised by the concerned Member State(s).
It remains and is still strongly recommended to follow the DG REGIO Guide to Cost-Benefit
Analysis of Investment Projects - Economic appraisal tool for Cohesion Policy 2014-2020, in
order to simplify the process of project preparation under the CEF and ESIF funds.
In addition, applicants should now also refer to the DG REGIO CBA Economic Appraisal
Vademecum (EAV) for the economic appraisal of EU co-financed investments in the
programming period 2021-2027. This document is not a replacement but a complement to
the existing CBA methodology and supports in particular the early screening of investments.
It is based on established good practices at EU and Member State level, and it is consistent
and coordinated with the approach to economic appraisal followed by the European
Investment Bank.
Irrespective of the methodology applied, the provisions of the present guidance note are
mandatory. In particular, the CBA should contain both a financial and economic analysis of
the project and these analyses should be supported by results of feasibility studies with
demand and option analyses, sensitivity analysis and risk assessment. Therefore, the CBA
document should be at least 20 pages long. Where possible applicants should submit their
CBA report in English.
When submitting a full CBA applicants shall also fill in and submit the CBA Cash Flow Template
to present the results of the CBA in a common and simplified format.
If the CBA has been carried out on bigger scope than the project (such as the global project),
explain how it is relevant to the proposed project, drawing concrete conclusions as much as
possible for the proposed project. Detailed guidance on the definition of the appropriate scope
of the CBA is available in Annex 1.
2.2 Content of the economic analysis
The CBA is a microeconomic tool enabling the assessment of a project's impact on the entire
society in terms of expected welfare changes and therefore confirm whether the project is
worth the EU co-financing. Indeed, according to Article 7(2)c of the TEN-T Regulation, a
Project of Common Interest must ‘be economically viable on the basis of a socio-economic
cost-benefit analysis (CBA)’.
As such, all direct effects induced by a project are reflected in the analysis. Indicatively, the
direct effects of a transport project can be grouped in the following categories 3:
‘investment costs’, including both the initial investment and the replacement costs
during the entire period of analysis, and their corresponding residual values
transport users' benefits (‘Consumer Surplus’), related to the benefits for the use of
the goods or services rendered in all affected transport modes. Typically, these will
include savings in travel times and costs for users
operating costs and revenues (‘Producer Surplus’), corresponding to the amount the
producers benefit from producing and selling a quantity of a good. Typically, this may
include cost savings for commercial vehicles for freight transport or cost optimisation
3
A more detailed description of the general categories of transport project effects id provided in the DG REGIO
Guide to Cost-Benefit Analysis of Investment Projects of Investment Projects, Chapter 3 Transport.
6EU Grants: CINEA Guide on economic appraisal for CEF-T Transport Projects: V1.0 DRAFT – 01.10.2021
of public transport suppliers (e.g. due to faster commercial times or reduced travelled
distances)
‘externalities’ i.e. spill over effects from the project towards third parties (neither
consumers nor producers) without monetary compensation. Examples of externalities
are environmental effects (such as air and noise pollution, climate change) or
prevention of fatalities, injuries or accidents.
In line with the DG REGIO Guide to Cost-Benefit Analysis of Investment Projects, the inclusion
of effects on markets other than transport (either indirect or wider economic effects) should
be extremely rare, and as a general rule, it can be said that:
Indirect effects beyond the transport sector (such as the impacts transferred to the
industrial sector) are usually excluded because of the risk of actually including effects
already captured among the direct effects (double counting).
Similarly, the wider economic effects (such as output change in imperfectly
competitive markets, agglomeration effects, and the tax implications of a move to
more productive jobs) should not be counted. Consensus among practitioners about
their estimation is still limited, and excluding them keeps the analysis more
conservative (i.e. without arguable benefits).
The economic analysis of the project should calculate the economic net present value of the
project and the economic rate of return. The CBA report submitted should provide as a
minimum the following socio-economic information on the proposed project:
main economic benefits (fuel savings, CO2 emission savings, productivity gains, delay
savings, time savings, vehicle operating costs savings, accident savings, reduction of
GHG and non-GHG emissions, reduction of noise emissions, quality of service
improvements)
economic net present value (ENPV) of the project
economic rate of return (ERR) of the project
social discount rate used
time horizon (reference period).
A brief description of the methodology used and steps taken in the calculations such as fiscal
corrections, conversion of market to accounting (shadow) prices, monetisation of non-market
impacts (corrections for externalities) that serve to clarify the conclusions of the analysis
should also be included.
Categories of externalities can be found in DG MOVE Handbook on External Costs of Transport
(with annexes).
The incremental analysis and the discounted cash flow methodology should be followed. The
chosen social discount rate and time horizon should be stated and justified.
2.3 Content of the financial analysis
The financial analysis should address the financial profitability and financial sustainability of
the proposed project. In this regard, the following key indicators are valuable analytic tools
and are necessary in the CBA to be submitted:
financial profitability measured by the financial net present value (FNPV) of the
planned investment and the financial rate of return (FRR)
7EU Grants: CINEA Guide on economic appraisal for CEF-T Transport Projects: V1.0 DRAFT – 01.10.2021
financial profitability assuming the EU support is provided based again on the FNPV
and FRR
a calculation of the estimated cumulated net cash flow for the project over the chosen
time horizon demonstrating that it remains always positive (financial sustainability).
Detailed guidance on the definition of the appropriate scope of the financial analysis of the
CBA is available in Annex 1.
The financial analysis should be consistent with the assumptions underlying the socio-
economic CBA.
The chosen time horizon for the financial analysis shall be identical to the time horizon for the
economic analysis: both shall reflect the project economic life, irrespective of duration of
commercial contract or regulatory framework (for example it could go beyond a concession
period). Applicant shall refer to and apply guidance provided under the form of FAQ for the
notion of project life, as well as related notions (e.g. residual or terminal value).
The financial discount rate (FDR) should be stated and justified: Applicant may retain, for the
purpose of the Financial Analysis of the CBA, a discount rate that exceeds the value for the
financial discount rate recommended in CBA methodologies targeting public investment such
as the DG REGIO Guide to Cost-Benefit Analysis of Investment Projects (i.e. 4%). If the
applicant decides to use an higher rate, then it should substantiate the level of the discount
rate selected (i.e. if possible, by the use of market references, Internal Rate of Return of the
sector, the level of its Weighted Average Cost of Capital ‘WACC’ providing in such case
relevant explanation of the calculation, etc.) and provide also an indicative calculation of the
Financial net present value (FNPV) based on the recommended discount rate. If the Financial
Discount Rate used exceeds the WACC, the applicant should provide an additional explanation
of why the project is comparatively more risky than the average risk profile of the applicant,
what are the other business segments (and their relative size) which are comparatively less
risky than the one to which project belongs.
Revenues and costs should be determined by applying the incremental method based on a
comparison of costs and revenues in the scenario-with-the-project with costs and revenues
in the scenario-without-the-project. For revenues, only cash in-flows directly paid by the users
(such as charges borne directly by users of the infrastructure) should be considered.
Please note that unless transferred to users by a reduction of fares or compensated by an
equal reduction in the operating subsidy, cost savings contribute to the potential of a project
to be financially profitable.
Only cash flows should be taken into consideration when calculating costs and revenues. This
means all accounting items such as depreciations and reserves should be excluded.
The financial gap and financial indicators will be taken into account for the assessment of
award criteria (such as Catalytic effect) and will help justify the CEF financial assistance and
determine whenever possible the appropriate co-funding rate.
2.4 Frequently Asked Questions
When retaining key parameters for their socio-economic and financial analysis, applicants
are required to check the existing Frequently Ask Questions (FAQ) and apply the
recommendations provided or provide justification in case of deviation from these
recommendations.
3. Simplified cost-benefit analysis (simplified CBA)
For the programming period 2021-27, DG REGIO has prepared with the support of JASPERS
a DG REGIO CBA Economic Appraisal Vademecum (EAV). This Vademecum aims at providing
8EU Grants: CINEA Guide on economic appraisal for CEF-T Transport Projects: V1.0 DRAFT – 01.10.2021
methodological insights and tools to use economic appraisal methods in support in particular
of the early screening of investments, and the assessment of those projects for which a more
detailed CBA might not be necessary.
To complement the Vademecum, DG REGIO has also developed a spreadsheet template with
the objective of standardizing how to report the results of economic appraisal. In coordination
with CINEA, the template has been tailored to meet the requirements of CEF Transport
applications when a simplified CBA is needed.
For simplified CBAs applicants should download the template, and enter information about
their proposed project coming from their business plan.
Handling of macros
The simplified CBA excel calculator embeds several macros and is saved with the extension
‘.xlsm’. For security reasons, some IT enterprise administrators set excel software of their
employees to disable Macros when opening ‘.xlsm’ files. To properly work with the file, using
macros, applicants might therefore ask their IT administrators to (temporarily) revoke these
limitations or use a personal device.
The evaluation environment used for CEF Calls also applies limitations to ‘.xlsm’ file. For this
reason when applicants have finished to fill in the simplified CBA calculator they must save
the file with a different extension without Macros. To do so they have to use the command
‘Save as’ and change the file type from ‘Excel Macro-Enabled Workbook (*.xlsm)’ to ‘Excel
Workbook (*.xlsx)’.
Microsoft Excel will return a warning message that Visual Basic project (i.e. the code of the
Macros) cannot be saved in the new file type. Click ‘Yes’.
Spreadsheet configuration
It is important to configure correctly the Simplified CBA calculator for CEF Transport calls. In
this respect, please make sure to choose the following 3 settings in the general assumption
sheet (‘G.Asm’).
Selecting the sector ‘Transport’ will open a new sheet for the calculation of externalities and
monetisation of time savings.
The evaluation of CEF proposals require to use the Cost-Benefit Analysis as economic
appraisal method and to calculate the financial performance indicators.
Activate the Financial Analysis option. Activation of this option will allow the applicant to fill
in compulsory information, relevant for the financial assessment of its project.
9EU Grants: CINEA Guide on economic appraisal for CEF-T Transport Projects: V1.0 DRAFT – 01.10.2021
Cell Appearance
Select ‘Transport sector’ F11
Select ‘Cost Benefit Analysis’ F13
Activate ‘Financial analysis’ F75
Failure to use the appropriate settings above may lead to rejection of the application during
the stage of the eligibility check of applications and the application might consequently be not
be evaluated.
Automatic calculation of externalities
Externalities are calculated in a dedicated sheet called ‘Transport’. If the general assumption
sheet (‘G.Asm’) has been set to include several options the Transport sheet will feature the
appropriate number of tables: two for each option. One for traffic data for the estimation of
externalities and one for time for the monetisation of time savings.
In each of these tables applicants only need to select the ‘transport mode’, the ‘vehicle type’
and the unit used when measuring the expected change in traffic/travel time. The model
automatically retrieves the correct values for each line of traffic.
All four main externalities (accidents, air pollution, climate change and noise) are then
calculated automatically.
Similarly the applicant will select the ‘transport mode’ and the ‘purpose’ to allow the model
to retrieve the correct value of time.
10EU Grants: CINEA Guide on economic appraisal for CEF-T Transport Projects: V1.0 DRAFT – 01.10.2021
To actually transfer the estimated externalities to the relevant option sheet (for example in
the case of Option 1 to the sheet ‘O.1’) press the button next to the Option number.
The button will copy the content of both transport externalities and value of time savings for
a given option.
11EU Grants: CINEA Guide on economic appraisal for CEF-T Transport Projects: V1.0 DRAFT – 01.10.2021
Annex 1 — Note on the scope of Cost-Benefit Analysis (CBA) in the framework of
the Connected Europe Facility – Transport (CEF-T)
Subject matter
Choosing a proper scope of an economic or financial analysis, accurately identifying the
relevant cash flows4 can be challenging. CBAs submitted as part of CEF applications
occasionally show too wide or too narrow scopes either in the financial or economic analysis,
excluding relevant cash flows or, on the opposite, including irrelevant ones. These
shortcomings happen because there is no single general rule applicable to all cases: defining
the appropriate scope requires a certain degree of judgment as projects have different
objectives and different effects.
This note aims to support CEF applicants avoiding pitfalls in the definition of the scope of the
CBA, such as excluding relevant costs not borne by the applicant in the economic analysis or
excluding revenues generated by inter-related dependent components or services in the
financial analysis. For this reason, the note also includes several examples, which were
elaborated taking stock of the lessons learned in the evaluations of applications submitted to
the 2014-2021 CEF programme.
In this line, after a brief outline of the content of the economic analysis of transport projects,
this document provides three objective guiding principles that will help applicants to identify
the most appropriate scope for the CBA. This guidance starts with establishing the self-
sufficient unit of analysis as the principle to define the minimal scope of the CBA. Then it gives
a set of guiding principles that should be applied to adjust the CBA scope considering
necessary and inter-related components and then presents additional elements recommended
to be added, such as the direct effects and the broader network effects. Therefore, the
definition of the CBA scope is presented as an iterative process in three steps with cumulative
adjustments starting from the project, i.e. the proposed set of investments for which the CEF
support is requested.
This document builds on the DG REGIO Guide to Cost-Benefit Analysis of Investment Projects
(2014)5 and should be read in conjunction with it because it provides the general reference
to the preparation of a CBA. Definitions in this guidance are therefore kept to a minimum.
The reader can use as additional background material the DG REGIO CBA Economic Appraisal
Vademecum (EAV) released by DG REGIO in 2021. In line with the EAV, the guidance provided
in the note focuses mainly on economic appraisal. Issues related to financial appraisal are
covered (and only to a limited extent) in a dedicated final section of this document.
Finally, the note discusses some specific issues related to the time frame of the analysis,
including the conditions for accepting pre-existing CBAs already submitted to previous CEF
calls for proposal.
When starting to develop a CBA, the scope of the economic analysis needs to be defined,
meaning that, for each of the categories of effects listed above, the specific costs and benefits
relevant for the project evaluation must be identified. This initial step concerns, for instance,
the definition of the precise list of project-specific impacts and the affected individuals or
groups, the identification of the transport modes subject to price or demand changes, the
delimitation of the impact area (i.e. the geographic extent of the effects on the transport
network). The following section provides a set of guiding principles that should be considered
by CEF applicants to complete this initial step successfully.
Scope of the economic analysis
4
The generic term ‘cash flow’ is used in the note to refer without distinction to any flow expressed in monetary
values and included in the financial and economic analysis.
5
https://ec.europa.eu/regional_policy/sources/docgener/studies/pdf/cba_guide.pdf
12EU Grants: CINEA Guide on economic appraisal for CEF-T Transport Projects: V1.0 DRAFT – 01.10.2021
Step 1 - Necessary Components
The DG REGIO Guide to Cost-Benefit Analysis of Investment Projects defines the minimum
scope of the CBA by referring to the self-sufficient unit of analysis concept. A project to
be evaluated in a CBA constitutes a self-sufficient unit of analysis if it delivers a functionally
complete investment (infrastructure and/or equipment) that enables the provision of a
requested service to a well-identified pool of users and the generation of the expected benefits
without dependence on other new or existing investments 6. On one side, this implies that the
investment fits for purpose from a technical point of view; in addition, the notion of service
refers to the fact that it fits for use from the standpoint of the expected beneficiaries.
In the context of CEF calls for proposals, the project for which funding is sought may not
constitute an appropriate unit of analysis for the CBA, meaning that:
The project may exclude some components that are logically required to deliver the
intended services (under-scaling) or
The project may include multiple independent components delivering different services
(over-scaling).
Therefore, it is sometimes necessary to expand the scope of the CBA beyond the project or
to split the assessment of the project into more than one CBA. The extent to which the scope
should be adjusted depends on a case-by-case basis. In what follows, some guiding principles
to exercise such judgment are proposed:
If the components of the project submitted to a CEF call for proposal are not self-
sufficient, i.e. cannot function without other components, then the scope of the CBA
needs expansion to all other necessary components, even if not eligible to be financed
through EU funds or if only foreseen for submission to CEF financing at a later stage
On the other side, if a project covers more than one self-sufficient unit of analysis, the
assessment must be split into separate CBAs. For example, this could happen for
Motorways of the Sea projects involving largely independent developments at ports in
different countries. In such cases, the scope of the separate CBAs combined must
include the proposed project.
Guiding principle 1
The scope of the CBA shall include all components (infrastructure and/or
equipment) that are ‘necessary’ for the project to deliver the intended service to
the expected users, irrespective of whether they are already in place or still to
be built. This may need adding some ‘necessary’ components to the project itself,
but if a project includes components that are not interdependent of one another,
then they should be grouped in distinct sub-projects for which a separate CBA
should be carried out.
On a practical ground, when a project-specific planning document (such as a feasibility study)
other components are featured as part of a global project, this is generally a relevant
reference to claim that all these components are indeed necessary.
6
For simplicity, in this note the term ‘global project’ is used to refer to the self-sufficient unit of analysis considered
in the CBA.
13EU Grants: CINEA Guide on economic appraisal for CEF-T Transport Projects: V1.0 DRAFT – 01.10.2021
To help applying the concept of self-sufficient unit of analysis the following three categories
of necessary components are defined:
The project, i.e. the part of the infrastructure and equipment
A currently requesting CEF support and/or being prepared for
implementation.
+
Any other existing components (infrastructure or equipment)
B needed for the commercial7operation of the service to be
delivered by the project.
+
Any planned but not yet existing components (infrastructure
C or equipment) that are needed for the commercial8 operation of
the services to be delivered by the project.
As a reminder, only incremental amounts are to be considered in the CBA (as changes in
comparison to the reference or ‘business as usual’ scenario). This is the situation without the
implementation of the planned components (falling in the categories A and C above).
Therefore, all costs and benefits generated by existing infrastructure or equipment that are
‘necessary’ but whose level does not change compared to the reference scenario will cancel
out. It is worth noting that already occurred incremental costs (and benefits if some
components of the global project are already operational) related to existing necessary
components (category B) need to be included in the analysis.
Finally, it shall be noted that the unit of analysis should include all ‘necessary’ components,
even if some of them are not implemented by the applicant but rather by a third party. Indeed,
while the financial analysis focuses on the implementing entity only, this limitation is not
relevant for the definition of the scope of the economic analysis.
Examples of ‘necessary’ components
As a first example, we consider the construction of a rail last-mile connection to a port terminal
container (i.e. Lot 2 of a wide investment), which is currently only served by a road link. In this
example, we assume that in addition to the new rail last-mile connection (i.e. from the port handover
rail station to the container terminal), the global project involves several additional investments
‘necessary’ to move containers by rail, namely: the purchase of new cranes and equipment (i.e. Lot
3 of a wide investment) to load and unload the containers to/from the rail wagons within the terminal;
and the adaptation of the loading gauge of one existing tunnel on the rail line connecting the port
handover station to the national network (i.e. Lot 1 of a wide investment), to allow passage of wagons
loaded with maritime containers.
Let's also assume that the application is submitted to request CEF financial support for the
construction of Lot 2 only (the rail tracks), which therefore constitute the project. Let's now define
the necessary components according to the three categories described above:
Lot 2 is the project and therefore falls in Category A by definition
In the CBA, Lot 3 is to be included as it falls under Category C (planned but not yet existing
equipment needed for the commercial operation of the rail access).
Finally, the existing tunnel, together with the entire rail national line, is also to be included in
the CBA, as it falls under Category B (existing infrastructure needed for the commercial
operation of the rail access). Indeed, the tunnel and the main line appear in both the reference
and "with-the-project" scenarios because they already exist.
7
The term ‘commercial’ is used here to refer to the provided service to the end users, regardless of whether a fee
is charged for it
8
Ibidem.
14EU Grants: CINEA Guide on economic appraisal for CEF-T Transport Projects: V1.0 DRAFT – 01.10.2021
However, the loading gauge adaptation works enter the ‘with-the-project’ scenario only, as
they are designed to serve the rail access development. Ultimately, the cost for the initial
construction of the tunnel and the national line and their maintenance will cancel out 1.
Therefore, on an incremental basis, what will stand out from the difference between the ‘with’
and ‘without-the-project’ scenarios are the adaptation works. In practice, the whole
infrastructure is considered, but only the pieces that change are captured in the incremental
cash flow analysis.
Lot 1 – Tunnel adaptation Lot 2 – Rail track Lot 3 – New crane
Category B Category A (project) Category C
As a second example, let's consider the development of an EU-wide rail corridor. The evaluation of
the entire corridor as a single unit of analysis is relevant for the strategic planning of the
infrastructure, but not for the CBA submitted for the modernisation of a specific corridor subsection
in the framework of a CEF call for proposals. To confirm that the chosen design and standards for
the infrastructure to be modernised are optimised, the scope should be limited to a smaller self-
sufficient unit of analysis, including the section of the proposed investment (Category A as defined
above), complemented with any additional project component falling under categories B or C above.
These additional components may include other works on the same section or works on contiguous
sections that are needed to generate benefits to the expected users of the rail section included in the
project. Modernisation of other distant sections, mainly serving a different demand, are not "needed"
components and their investment costs should therefore not be included in the CBA submitted to
CEF1.
As a third example, let's consider a Motorways of the Sea project involving separate investments
for the upgrading of RoRo terminals in two ports and a third investment for the modernisation of
the RoRo vessels operating a regular Short-Sea-Shipping (SSS) service between the two ports.
Although all investments are part of the same project, they are largely independent developments,
as the RoRo terminals are not exclusively dedicated to the SSS link interconnecting them, but rather
serve multiple markets and routes. At the same time, vessels during their operational lifecycle may
be used on different routes and not exclusively on the one included in the project. In such an
example, three separate CBAs should be submitted as part of the CEF application dossier to evaluate
independently the economic merit of each individual investment, as well as their financial
performance and sustainability.
Step 2 - Inter-Related Components
Inter-related components are those that deliver ancillary/complementary services in addition
to the main service provided by the global project. Therefore, inter-related components are
never ‘necessary’ as they concern services that are complementary but not strictly needed to
deliver the main intended service. These ancillary services may indeed be provided in markets
other than transport (such as energy, urban regeneration or even accommodation or food).
The DG REGIO Guide to Cost-Benefit Analysis of Investment Projects stipulates: ‘inter-related
but relatively self-standing components, whose costs and benefits are largely independent,
should be appraised independently’. This is intended to ensure that the merits of smaller
independent components are adequately assessed, i.e. in terms of demand levels and
consideration of feasible alternatives, through dedicated CBAs with a smaller scope.
In line with the reasoning of the DG REGIO guidance, an exception to the above general
principle shall be made if the inter-related components are not independent. Indeed, inter-
related components shall be included in the scope of the analysis if their (incremental) costs
15EU Grants: CINEA Guide on economic appraisal for CEF-T Transport Projects: V1.0 DRAFT – 01.10.2021
and benefits are essentially dependent on (or inter-dependent with) the main intended service
of the global project9.
Guiding principle 2
Inter-related but relatively self-standing components, whose costs and benefits are
largely independent, should be appraised independently. However, inter-related
components whose (incremental) costs and benefits are essentially dependent on (or
inter-dependent with) the main intended service of the global project need to be
included in the scope of the analysis.
Examples of inter-related components
Let us discuss a first example. A port authority is applying to the CEF for an investment to improve
the maritime accessibility of its main port. The investment is limited to dredging works required to
allow larger vessels to call at the port. Neither expansion nor upgrading the port terminals or quays
is foreseen, as these already have the required capacity to sustain the incremental traffic due to the
project. The port is currently connected to its hinterland by road only, and the road network has
available spare capacity to serve all the expected incremental hinterland traffic.
Independently from the investment in maritime accessibility, the port authority is also developing a
new rail last-mile connection to the port. The new rail last-mile connection is intended to contribute
to the national strategic objectives of shifting transport to less polluting modes, and it is already
decided and financed, although not under construction.
Now the question is whether and how the CBA submitted to the CEF for the co-financing of the
maritime accessibility improvement should also include the investment costs of the new rail access
project. In this simple example, the two projects constitute indeed two interrelated but relatively self-
standing components, as their costs and benefits are largely independent:
The main intended benefit of the rail access is reducing emission shifting hinterland transport
of goods from road to rail, and this benefit can also be achieved independently from the
improvement of the maritime accessibility; indeed, in our example, this project has been
already evaluated and approved at the time of the submission to the CEF of the investment
on maritime accessibility
The main intended benefit of the maritime accessibility project is the improvement of the
efficiency of the logistic chain, reducing maritime transport costs. Because in this example,
the port terminal can handle all the incremental flows of goods via road, this main benefit can
be attained independently from the construction of the new rail access.
On this basis, the recommended approach is that the dredging works should be appraised
independently from the rail access project. The investment costs for the construction of the new rail
access should not be considered in the CBA. Indeed, the submitted CBA only serves to evaluate the
economic performance of the investment on maritime accessibility and take a decision about this
investment. The decision on the rail access is independent1.
In a second example, let's consider a CEF application concerning the request for funds for the
prolongation of a metro line to the city Airport. Within the same initiative, the City also foresees specific
complementary investments for the renewal of the urban public areas and streets immediately
surrounding the stations. This urban renewal component doesn’t include any real estate (housing or
commercial) development and it is related to non-transport objectives, such as: improving the visual
quality of the urban landscape and developing public green areas. The transport and urban
regeneration components of the project are relatively self-standing and independent in terms of
objectives and expected benefits but are strongly interdependent in terms of implementation and
investment, as the urban renewal initiative is conceived as a complementary initiative of the new
metro line, and physically related to the same sites of the stations. In this case, although the project
subject of the CEF application is limited to the transport sector, the scope of the CBA should be
extended to include both project components (transport and urban renewal).
9
The maturity of such dependent inter-related components shall also be assessed in view of their inclusion in the
scope of the analysis.
16EU Grants: CINEA Guide on economic appraisal for CEF-T Transport Projects: V1.0 DRAFT – 01.10.2021
In a third example, let's consider a project related to the development of an onshore power facility
in a port (cold ironing). Together with this initiative, the Port Authority is also planning a
complementary investment to produce the electricity needed to supply the ships from renewable and
carbon-neutral sources. The two components (power supply to ships and power production) are
independent in terms of implementation and costs (as the onshore power facility is also connected
to the national grid). Still, the benefits of both projects are inter-dependent, as the new clean power
source will allow maximising the benefits of the cold ironing facility in terms of reduced air and GHG
emissions. Unless concerns exist about the maturity of the development of the new power plant, the
scope of the CBA submitted to the CEF can be reasonably extended to include both components
(power supply to ships and power production). A variant of the above example is an integrated
initiative for the electrification of an urban bus fleet coupled with the construction of a new solar
power plant to recharge buses and the deployment of new technologies for sustainable energy
management.
Step 3 - Considering the Effects on the Transport Network
When defining the scope of the CBA, the intention is to correctly capture any changes in the
costs and benefits linked to the implementation of the global project in a given impact area.
Whereas the previous principles deal with the definition of the global project, in this last step,
the focus shifts to the effects that global project operations can have on its surrounding, and
in particular on the wider transport network.
Indeed, transport developments tend to have effects that exceed the (global) project itself
and affect other sections of the network infrastructure. These repercussions can be split into
direct transport effects and network effects. Direct transport effects are those taking place on
transport infrastructure that can be considered as an alternative or supporting route or mode.
Network effects occur on the wider network at different territorial scales, regional, national
and international. This should be interpreted in a broader sense, i.e. including all transport
modes and not only the transport mode(s) affected by the project.
It shall be noted that very large projects (especially for freight) can have a radical effect on
the network they are part of and, therefore, may require an extended analysis of the traffic
on a European level. In any case, to ensure that the effort required to develop the CBA is
proportionate to the size of the global project, the scope of the analysis of network effects
shall be geographically limited to the subnetwork where the global project impacts are not
negligible and therefore may materially affect the outcome of the CBA.
Guiding principle 3
All non-negligible transport effects should be included in the CBA: both direct
effects taking place on transport infrastructure that can be considered as an
alternative or supporting the global project and network effects on sections that
are relatively far away from the place of implementation.
Example of direct transport effects on a monomodal network
For the illustration of these considerations, let’s refer to a new example: the construction of a new high-
speed railway connection between two main urban areas. These cities are already linked by a railway,
but this one is a direct and faster line.
The next figures show graphically the impact of building such a new direct and faster line (red line) on
the surrounding railway connections (direct transport effect).
17EU Grants: CINEA Guide on economic appraisal for CEF-T Transport Projects: V1.0 DRAFT – 01.10.2021
Traffic on the rail network without the project Traffic on the rail network with the project
175 125
30 30
300 175 50 125
50 300 50
200 200
225 175
250 250
325 75
100 100
275 275
The effect of the global project is represented by the change of traffic in the origin/destination graph
before (image on the left) and after (image on the right) the global project is implemented.
The effect of all surrounding connections should be added to the analysis. Both the ‘Western route’ that
sees a major drop in usage (-250,000 passengers, -83%) and the ‘Eastern route’, which is only
marginally affected by the global project (-50,000 passengers, -29%).
Δ-50 Eastern route
Δ-250 Δ-50
Δ300
Δ-50
Δ-250
Example of multimodal network effects
Let’s now expand the previous example to study the case of network effects: the new high-speed and
high-capacity line will make the access to the inland capital town easier for freight vessels unloading at
the Northern port instead of shipping to the Eastern port as occurring in the without project situation.
In this example, the Northern port has sufficient spare capacity to handle the new traffic, so no
investment is needed in this node.
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Traffic on the multimodal network without the Traffic on the multimodal network with the
project project
600 50 600 450
550 150
400
450 50
The network effect, i.e. the change in the routing of freight on sections of the network far away from the
global project, is included in the CBA. Not only the effect on the railways (in orange) but also on maritime
routes (in light blue). Indeed, network effects encompass the transport mode of the project and include
changes in other transport modes.
Provided it is significant, the effect on the other rail sections linking the Eastern port to the other cities
or surrounding urban areas could also be included1 .
180 170
180 170
10
10
Time frame of the analysis
The CBA is a decision-making support tool, and in the specific context of the CEF, the relevant
decision concerns the allocation of the requested grant to the proposed project. For this
19EU Grants: CINEA Guide on economic appraisal for CEF-T Transport Projects: V1.0 DRAFT – 01.10.2021
reason, the CBA need to be based on information updated at the date of submission of the
application, providing for the most reliable view of the expected project costs and benefits 10.
However, the CEF Work programme states that applications relating to a new phase of a
project under construction and for which applicants have already received support by CEF,
the originally submitted CBA may be resubmitted under the following conditions:
The first condition for accepting the original CBA is that the project for which funding
is sought was already included in the scope of the original CBA. This would be typically
the case where the current project was a Category C activity at the time the CBA was
prepared. While less likely, another possibility is that the project was a dependant
inter-related activity.
The second condition is that no significant changes have occurred that may impair the
value of the original CBA. Significant changes can relate to the project itself if, for
example, the nature, scale and scope of the project (or its context/background) have
changed. The original CBA would not be valid if, for example, the demand has changed.
This could happen if a competing project has been implemented in the meantime or if
there has been a structural economic change (technological breakthrough, normative
constraint, social conditions, uses and customs).
The requirement for an updated CBA, however, doesn't necessarily imply that the analysis
shall only be limited to project components not yet implemented at the time of submission of
the application (i.e. either new construction/purchase or upgrading of existing infrastructure
or equipment). Indeed, the guiding principles described in the previous sections have
precedence over pure time-based considerations: in particular, expenditure already incurred
before the date of submission, if related to necessary or dependent inter-related components,
shall be included in the analysis. Historical expenditures should be capitalised (using an
average inflation rate based on CPI index) and included in the first year of the reference
period.
Example of historical costs
As an example of the treatment of historical and planned cost, let's again consider the construction
of the rail last-mile connection to a port terminal container. As it was argued in the section concerning
the ‘necessary’ components, the scope of the CBA shall include Lot 1 (Tunnel adaptation), Lot 2 (Rail
track) and Lot 3 (New crane). In this example, let's assume that in all cases described below, the
three separate construction lots are always implemented in the following order: first, works on the
tunnel, second, the rail section and third, the installation of the new crane.
If the CBA is carried out in the application for the CEF financing for Lot 1 (Category A - project), Lots
2 and 3 need to be included in the CBA because they fall in Category C (planned but not yet existing
infrastructure/equipment necessary for the delivery of the planned services).
Application is made for Lot 1
Lot 1 – Tunnel Lot 2 – Rail track Lot 3 – New crane
adaptation
Category A (project) Category C
If the CBA is carried out in the application for the CEF financing for Lot 2 (Category A - project), Lot
3 is included in the analysis because it still falls under Category C. On the other hand, the components
already completed under Lot 1 will be included in the assessment because they are now in Category
B (existing infrastructure needed for the commercial operation of the rail access) 1.
Application is made for Lot 2 (Lot 1 already completed)
Lot 1 – Tunnel adaptation Lot 2 – Rail track Lot 3 – New crane
Category B Category A (project) Category C
10
Given the primary objective of this note, the section mostly discuss issues and examples concerning the economic
analysis. However similar considerations also apply to the financial analysis.
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If the CBA is carried out in the application for the CEF financing for Lot 3 (Category A - project), the
initial two lots should be included in the assessment because those parts of the infrastructure are
in Category B.
Application is made for Lot 3 (Lot 1 and 2 already completed)
Lot 1 – Tunnel adaptation Lot 2 – Rail track Lot 3 – New crane
Category B Category A (project)
Therefore, depending on when the CBA study is carried out, the three investments mentioned
above could fall under different categories of components. Yet, the cumulated scope of the CBA
should always be the same because only considering all the three components the analysis covers
a self-sufficient unit of analysis. For the project components already implemented at the time of
the application, costs shall be based on actual disbursements. Already occurred investment costs
(and benefits if some components of the global project are already operational) shall be capitalised
(using an average inflation rate based on CPI index) and included in the first year of the reference
period.
Content and scope of the financial analysis
Differently from the economic analysis, the financial appraisal is limited to cash inflows
(revenues) or outflows (costs). Therefore, the financial appraisal does not consider non-cash
flows items such as externalities or non-monetary users' impacts (such as the perceived value
of personal travel time savings). On the other side, cost savings in operational costs borne by
the applicant are included in the financial analysis.
In addition, while the scope of the economic analysis shall include all costs and benefits
generated by the global project, whether or not the applicant has control over them, the
financial analysis submitted by the CEF applicants should be limited to cash flows (i.e. costs
and revenues) of only those components under the control of the applicant. In the context of
CEF, ‘components under control’ include all those implemented directly by project actors, i.e.
the applicant itself or another party associated with the implementation of the project (in its
broader sense) or their affiliated entities or subcontractors.
The reason for this differentiation is that the economic analysis has the objective to verify
that a global project is desirable from the perspective of the society as a whole (typically by
a positive Economic Net Present Value). On the other hand, in the context of CEF, the financial
analysis has a narrower objective and tries to measure if the global project and its promoter,
including parties under its control, is in need of co-financing (typically because of a negative
Financial Net Present value).
In cases where the operator and owner of the investment are different entities (e.g. in a PPP
or a concession, or a rail infrastructure being used by rail operator(s)), a consolidated analysis
should be carried out to determine the overall profitability of the global project. This
consolidation will lead to a neutralisation of cash flows between owners and operators while
still presenting all the in and outflows for this aggregated entity. Additional guidance on this
point is available in the Cohesion Policy CBA methodology for Major Projects (page 86).
Although the definition of the scope of the financial analysis is generally more straightforward
than in the case of the economic appraisal, applicants need to carefully identify its perimeter.
In particular, the scope of the analysis shall not be limited to the global project but needs to
be extended to the ancillary activities that contribute to the overall service offering of the
planned activity as well as other activities (or other business lines) that benefit from or are
adversely affected by the existence and operation of the investment planned.
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A specific case of such a situation occurs, for instance, when an inter-related component
delivers to the users of the main service an ancillary/complementary service which is not
easily available elsewhere or from another provider. In such circumstances, where the only
choice for the potential consumers of the main project service is whether to purchase what is
supplied by the ancillary project components or make no purchase at all, the ancillary services
are considered dependant and shall be included in the analysis. Such cases, commonly defined
as ‘captive markets’ are quite frequent in some of the transport sectors addressed by CEF,
such as safe and secure parking areas, refuelling and charging stations, and needs to be
identified and appropriately addressed by including the ancillary project components in the
scope of the financial analysis. On the other hand, when dependency between the main and
ancillary service is less clear, because the ancillary market is not ‘captive’, the incremental
cash flows of the complementary services can be disregarded.
Example of content of financial analysis
Let's consider a project of a safe and secure parking area for trucks1. This will be built next to an
existing highway rest area, which already hosts some facilities providing complementary/ancillary
services on top of safe and secure parking, including a restaurant which is managed by the same
applicant of the safe and secure parking area project. As there are no other catering facilities easily
reachable from the new truck parking area by foot, users willing to use the restaurant services are
dependent on it for meals during parking time. Therefore, catering services are a captive market for
the users of the safe and secure parking area. Given that the restaurant is under the control of one
of the project actors, its incremental cash flows should be included in the financial analysis.
In a variant of the above example, let's assume that the safe and secure parking lot is in an area
where several independent, easily reachable catering options are already available to customers
instead. In such case, dependency between the safe and secure parking area and a particular
restaurant/catering facility is less evident. The incremental cash flows of the catering services can
be disregarded. This would apply even if one of them is owned by the company building the new
safe and secure parking area for trucks.
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