Regulation establishing incentives for investing in strategic sectors

On November 27, 2024, Ordinance 306-A/2024/1 was published, approving the Regulation on the incentive system for investments in strategic sectors (the “Incentive System”).

Objective

In response to the economic and social crisis caused by the war in Ukraine,

the Incentive System aims to provide financial support for major investment projects in sectors considered strategic for transitioning to a carbon-neutral economy. These incentives will be available until December 31, 2025.

Strategic sectors

The Incentive System is available for economic activities in any sector, provided the activities fall under the following project types:

•  Production of key equipment: This includes batteries, solar panels, wind turbines, heat pumps, electrolyzers, and carbon capture, utilization and storage (“CCUS”) equipment.
•  Production of essential components: These are components designed and used primarily as direct inputs for producing CCUS equipment.
•  Production or recovery of critical raw materials: These include the materials needed to produce key equipment and components.

These projects should aim to promote innovation, competitiveness and increased economic value. They should also integrate into extended value chains and contribute to carbon neutrality and energy resilience.

Incentive beneficiaries

Any company, regardless of its nature, size or legal form, can benefit from the incentives, provided it meets the following eligibility criteria:

• Legal incorporation: The company must be legally incorporated and registered, including in the Central Register of Ultimate Beneficial Owners (RCBE), if applicable.
• Tax and social security compliance: The company must have its tax and social security obligations up to date with the tax and social security authorities at the time of signing the investment contract.
• No outstanding European Union fund repayments: The company must not have any outstanding repayments related to financing from European Union (“EU”) funds, including those granted under the Recovery and Resilience Plan, verified at the time of signing the investment contract and when the corresponding payments are made.
• Resource availability: The company must possess—or be able to secure—the necessary human, technical, physical and financial resources required for the project.
• Financial stability: The company must present a balanced economic and financial situation and demonstrate the capacity to finance the project.
• Not an “Undertaking in Difficulty”: The company must not qualify as a so-called “Undertaking in Difficulty.”
• Staid aid compliance: The company must comply with applicable state aid rules.
• Non-relocation commitment: The company must confirm that it has not relocated to the establishment where the aided investment is to be made in the two years preceding the aid application. Also, it must agree not to relocate there for two years after completing the initial investment.

Eligible projects

Subject to meeting additional criteria specified in calls for applications, to be eligible for incentives, projects must:

• fall under the investment contract regime and be of strategic importance to the country, involving significant investment and meeting the minimum eligible investment amount specified in the calls for applications;
•  align with the objectives and priorities specified in the calls for applications;
•  start work after the date of the aid application or after the application date, as established in paragraph 85.d) of the Temporary Framework;
•  demonstrate economic and financial viability and ensure adequate equity financing, as specified in the calls for applications;
•  include all required information for the application process, as specified in the calls for application, and comply with the specified conditions and deadlines; and
•  comply with applicable national and EU laws and regulations.

Eligible costs

Eligible costs must be necessary for producing equipment and components or producing or recovering the raw materials specified in article 5.1 of the regulation. These costs must also fall into the following categories:

• Tangible assets: Plants, equipment and other machinery
•  Intangible assets: Patent rights, licenses, expertise, or other intellectual property.

All eligible costs must comply with the rules set out in the Temporary Framework, in line with EU state aid regulations.

Any eligible costs the beneficiary submits in payment requests must be based on actual costs and justified through paid invoices or other accounting documents of equivalent probative value.

Intangible assets must:

• remain associated with the specific region and not be transferred elsewhere;
• be primarily used at the establishment receiving the aid;
• be amortizable;
•  be acquired under market conditions from third parties unrelated to the purchaser;
•  be included in the beneficiary company’s assets; and
• remain associated with the project receiving the aid for at least five years, or three years for small and medium-sized enterprises.

Certain costs are not eligible. Specifically, these include:

• purchase of real estate, including land;
•  the beneficiary’s ongoing operational, maintenance and replacement costs, as well as costs related to periodic or ongoing activities;
• investments required by agreements or concession contracts with the state, or for compliance with legal obligations related to the proposed activities;
• value-added tax, regardless of whether recoverable by the beneficiary;
• interest and financial charges;
• working capital; and
• routine advertising.

Support types and rates

Support is granted as a non-refundable grant, as determined through the negotiation process.

The aid cannot exceed 15% of eligible costs, with a maximum total aid of €150 million per company and per Member State.

However, these caps are increased under the following conditions:

•  For investments in assisted areas that, under Article 107.3.c) of the Treaty on the Functioning of the European Union (“TFEU”), are designated as “c-regions” on the regional aid map, the aid cap increases to 20% of eligible costs, with a maximum total aid of €200 million per company and per Member State.
• For investments in assisted areas that, under Article 107.3.a) of the TFEU, are designated as “a-regions” on the regional aid map, the aid cap increases to 35% of eligible costs, with a maximum total aid of €350 million per company and per Member State.
• Support can be combined with other state aid for the same eligible costs, whether partially or fully overlapping, provided the combined aid does not exceed the maximum aid amount or the maximum aid allowed under any applicable rules. In no case can the total aid amount exceed 100% of the eligible costs.

Submitting applications

Applications are submitted individually in response to ongoing calls for applications. They are to be submitted using the electronic form available on the external access platform of the managing authority of the Innovation and Digital Transition Thematic Programme (COMPETE 2030).

Before starting work, applicants may submit a written request for aid in accordance with the applicable aid registration procedures. This request should be made in writing and should indicate the applicant’s intention to invest and the proposed start date.

Once the aid application is registered, the applicant must submit a formal application in response to the first call for applications following the corresponding aid request date. This application must adhere to the specified format and timeline, subject to any changes accepted in the support allocation decision.

The calls for applications specify the conditions for access, including (i) the minimum eligible investment amount, (ii) the methodology for evaluating merit and the minimum score required for project selection, (iii) the funding sources, (iv) the forms of support, and (v) any other specific conditions.

Application selection criteria

Applications will be evaluated based on their merit, in accordance with the following selection criteria, which will be further detailed in the calls for applications:

• Diffusion of innovation and new green technologies in the economy
• Potential for economic recovery
• Impact on economic competitiveness and integration into extended value chains
• Contribution to carbon neutrality and energy resilience.

Practical recommendations for companies interested in the Incentive System:

1. Initial assessment: Carry out a comprehensive assessment of the project’s eligibility and viability, considering the requirements and conditions outlined in the regulation and the calls for applications.
2. Financial planning: Ensure that the necessary financial resources are secured to co-finance the project.
3. Complete documentation: Prepare all required documentation in advance, including feasibility studies, licenses and registrations, to ensure the application is complete and coherent.
4. Legal compliance: Verify compliance with all applicable legal and regulatory standards, particularly regarding environmental law, energy regulations and state aid rules.