A Research Project Based on Collaboration with a Research Organisation

A Research Project Based on Collaboration with a Research Organisation - State Aid Uncovered photos 15


After pre-notification contacts, Croatia notified, in March 2023, State aid amounting to a EUR 179.5 million for an R&D project regarding the development of an innovative autonomous electric vehicle [a “robo-taxi”]. The aid, in the form of a grant, was to be provided to Project 3 Mobility LLC [P3M]. The Commission approved it in decision SA.101759.1

The aid beneficiary, P3M, is a large company with more than 250 employees and an annual turnover of more that EUR 50 million, headquartered in Zagreb, Croatia, specifically set up for the realisation of this project.

The aid measure supports the R&D phase of an urban mobility project in Zagreb, and which was included in Croatia’s Recovery and Resilience Plan. Interestingly, Croatia intends to support the other components of the project, notably the related infrastructure for a new urban transport eco-system, with regional aid. The main objective of the broader urban mobility project is the provision of autonomous mobility services.

The R&D phase involves “applied research” within the meaning of point 16(e) of the R&D&I Framework which combines both industrial research and experimental development. The research focuses on the development of prototypes of the eventual final vehicle. The prototypes will be used to test the newly developed systems in simulated road conditions.

The R&D project is made up of nine work packages. Paragraphs 20-31 of the Commission decision describe the contents and objectives of each work package and the associated risks. As noted by the Commission “(30) the final result of the R&D phase is dependent upon the successful completion of numerous and varied tasks. These concern components with different TRLs. For this reason, even if certain tasks have a relatively high TRL, they cannot be carried out without the completion of others with a significantly lower TRL.”

The Commission decision notes that work on the R&D activities had not started prior to the aid application. Only basic preparatory activities were undertaken, which was deemed necessary for the conceptualisation of the project, the estimation of the resources needed (both financial and staff) and other preparatory project tasks.

The involvement of a Research Organisation

What makes this measure also interesting is the extensive involvement of Research Organisations [RO].

P3M will collaborate with the Faculty of Electrical Engineering and Computing, of the University of Zagreb (FER) in the context of “effective collaboration”, as provided in points 28 and 29 of the R&D&I Framework. According to the Commission decision, FER is a public research institution from the University of Zagreb, which does not carry out any economic activity.

The Commission noted that “(34) the terms of cooperation between the beneficiary and the FER have been agreed on in advance of the start of the project in a “Partnership Agreement” which defines the details related to their contribution, risk sharing (financial, technological and scientific), dissemination of research results, and approach and rules relating to intellectual property rights.” “(35) The collaboration between the beneficiary and FER will fulfil the requirements of “effective collaboration” as defined in point 16(h) of the R&D&I Framework.”

“(36) More specifically, article 3 of the Partnership Agreement provides for the common specific objectives pursued by the two parties […] According to article 3 of the Partnership, the objective of the agreement is to define the organisation of the project and the joint actions of the parties as well as more detailed elaboration of the rights and obligations of the parties. According to article 10 of the Partnership Agreement, decision-making within the partnership “must be carried out in good faith and in agreement with the FER”. Further, article 4 of the Partnership Agreement foresees that all activities relating to the collaboration will be carried out by skilled technical teams organized in two levels: a project management level and an operational level carrying out the research activities. All teams will be composed by personnel from P3M and FER and will have a team manager. The specific work streams that both parties will be collaborating on are laid down in article 5 of the Partnership Agreement. Furthermore, article 16 of the Partnership Agreement provides for the mutual responsibilities and guarantees of the parties in terms of the financial and administrative management of the project. On this basis, […], the parties pursue their common objective based on the division of labour and jointly define its scope, participate in its design, contribute to its implementation and share its financial, technological and other risks.”

“(37) No indirect State aid is awarded to the beneficiary through the collaboration with the research organisation. According to article 9 of the Partnership Agreement, the beneficiary will bear the full costs of the project. Further, as per article 13(10) of the Partnership Agreement, the knowledge arising from the collaboration between the beneficiary and the FER will not be IP protected and will be widely disseminated by both parties, creating positive externalities and benefitting the wider society.”

Rules on intellectual property rights and dissemination of results

A typical problem in projects involving effective collaboration between undertakings and ROs is the valuation and/or sharing of intellectual property rights [IPRs]. “(40) The Croatian authorities provided a detailed roadmap for dissemination activities, which includes both the dissemination of knowledge obtained through the collaboration with the research organisation (FER) and the dissemination of non IP protected results obtained from other aspects of the R&D phase. These activities include notably the use of websites, tenure of media space and social media and the development of promotional print, digital and video material, dissemination through specialised publications and events (conferences, expert exchange visits, collaboration with the academic community).”

“(41) Concerning the IP protected results, the Croatian authorities indicated that the beneficiary’s business model is to operate directly autonomous mobility services and not to licence the IP rights to other operators.”

“(42) The rules regarding IP rights and the dissemination of the results stemming from the partnership with FER have been defined within the collaboration agreement between FER and the beneficiary. The Croatian authorities have provided the collaboration agreement to the Commission. The Croatian authorities submitted that the knowledge arising from the collaboration between the beneficiary and FER will not be IP protected and will be widely disseminated by both parties.”

Financial projections and aid intensity

The Commission examined a comprehensive business plan as well as a study by the Boston Consulting Group benchmarking the cost assumptions in the business plan, and a detailed overview of revenues streams and costs for each work package.

“(60) The net present value (‘NPV’) of the urban mobility project without the aid is negative, approximatively EUR – [200 – 300] million.”

Interestingly, “(61) the funding gap could not be estimated separately for the R&D phase of the urban mobility project as it constitutes an integral part of that project […] The R&D phase of the urban mobility project includes the majority of the development costs necessary before the commercialisation of the urban mobility solutions on the market i.e. the deployment of the urban mobility service based on a fleet of fully autonomous electric vehicles in Zagreb. Following the R&D phase of the urban mobility project the beneficiary will have to incur additional investments, notably for setting up the assembly line and the necessary infrastructure to deploy the urban mobility service on the market. However, these costs are not R&D related and therefore are not included in the eligible costs of the R&D measure.”

“(62) The cash flows are discounted at the company’s Weighted Average Cost of Capital (‘WACC’). […] the beneficiary’s WACC is estimated at [10 – 15] %.”

“(63) The NPV of the project (or factual scenario) […], was calculated on the basis of a quantification of all main costs and revenues of the project, discounted over the duration of the business plan […] with the WACC of the beneficiary. The duration of the business plan is based on the assumption that the market will be mature in year […] and fully saturated in […].”

“(64) The total eligible costs of the R&D phase of the project are projected to amount to around EUR [300 – 400] million (i.e. approximatively [75 – 80] % of overall project development costs).”

“(66) The business plan does not include revenues (and cost) projections from inter alia using the results generated in the R&D phase of the urban mobility project in other cities, likely to occur before the end date of its business plan […]. According to the information submitted to the Commission, the beneficiary cannot plan with any degree of certainty the roll-out of a similar project in other cities and does not have concrete plans in this regard. Therefore, in the business plan […] the beneficiary did not include revenues (and costs) from activities in other cities in its financial planning.”

“(68) The aid amount for this R&D measure is capped at maximum EUR 179 499 215.”

“(69) This aid amount represents approximately a [45 – 50] % aid intensity.”

Eligible costs

“(84) The eligible costs for the notified R&D measure are […] EUR [300 – 400] million.”

Eligible costs:

  1. Personnel costs
  2. Costs of instruments and equipment
  3. Costs of buildings and land
  4. Cost of contractual research, knowledge and patents bought or licensed from outside sources in arm’s length transactions
  5. Additional overheads incurred directly as a result of the project
  6. Other operating expenses

Cumulation with other aid

“(85) The R&D aid may not be cumulated with other aid (whether de minimis or not) received from other local or regional authorities to cover the same eligible costs of the R&D phase of the project. The Croatian authorities have committed to ensuring that where aid is awarded concurrently under several aid schemes or cumulated with ad hoc aid, the total amount of State aid for the eligible costs of the R&D phase of the project will not exceed the applicable aid ceilings laid down in the R&D&I Framework.”

“(86) The Commission also notes that according to the Croatian authorities other investments necessary for the urban mobility project will be financed with regional aid. The regional aid will not cover the costs incurred during the R&D phase of the project but other costs of the

urban mobility project, provided they are eligible under Regional aid rules. The Croatian authorities have clarified that R&D aid together with regional aid will allow the beneficiary to close the funding gap of the urban mobility project overall.”

Claw-back mechanism

“(88) A claw back mechanism, forming part of the notified R&D measure, will further ensure that the aid is kept proportionate. The basis for the claw-back mechanism will be audited ex-post figures (fn 19) compared with the business plan. This basis will also take into account any additional benefits or revenues (and corresponding ex-post audited relevant costs) resulting directly from this individual project, or directly or indirectly stemming as a result of the project (including licencing of IP generated as a result of the project) before the “end year” of the business plan projections (hereafter “additional benefits”).”

Fn 19: The basis for the claw-back mechanism will be ex post financial data, which must have been subject to annual approval by an independent auditor. For this purpose, separate analytical accounting will be required from the aid beneficiary for its individual project.

“(90) If […] the real EBITDA exceeds the EBITDA for that date, as projected in the business plan (business plan EBITDA) for the equivalent date, then the beneficiary will pay back 60% of the difference between the real EBITDA and the business plan EBITDA to Croatia.”

“(91) The amount to be clawed back is capped by the sum of the actual State aid disbursements between 2023 and the “end year”, discounted using the EU reference rate applicable to Croatia at “end year”, according to the Commission’s Communication on setting the reference and discount rates, increased by 100 basis points.”

Compatibility assessment

There was no doubt that the grant to P3M constituted State aid.

With respect to possible indirect aid to P3M via its collaboration with the FER, the Commission concluded as follows:

“(110) The collaboration with FER, a research and knowledge dissemination organisation in the meaning of point 16(ff) of the R&D&I Framework does not constitute indirect aid to P3M since, […], the nature and scope of the collaboration with FER represents an effective collaboration in the meaning of points 28 and 29(a) of the R&D&I Framework whereby P3M is incurring all costs of the project. In addition, all results developed in the framework of the effective collaboration between P3M and FER are widely disseminated.”

Incentive effect

“(120) In accordance with Article 107(3)(c) TFEU and points 41 and 42 of the R&D&I Framework, R&D&I aid can be found compatible with the internal market only if it has an incentive effect. An incentive effect occurs where the aid changes the behaviour of an undertaking in such a way that it engages in additional activities, which it would not carry out

or it would carry out in a restricted or different manner without the aid. The aid must however not subsidise the costs of an activity that an undertaking would anyhow incur and must not compensate for the normal business risk of an economic activity.”

“(121) The Commission considers that aid has no incentive effect for the beneficiary when work on the relevant R&D&I activity has already started prior to the aid application by the beneficiary to the Croatian authorities (point 43 of the R&D&I Framework).”

“(123) In the present case, the Commission notes that the aid application was made before the start of the project. The Croatian authorities indicated that the beneficiary engaged solely with preparatory project activities before submitting its application for aid.”

“(125) According to point 46 of the R&D&I Framework, for notifiable individual aid, Member States must demonstrate to the Commission that the aid has an incentive effect and therefore need to provide clear evidence that the aid has a positive impact on the decision of the undertaking to pursue R&D&I activities which would otherwise not have been pursued.”

“(127) The Commission notes that the incentive effect of the aid at hand is demonstrated by the business plan submitted by Croatian authorities […] that shows that the aid is necessary for the beneficiary to go ahead with the project, including the R&D phase of the project […] Absent the aid […], the beneficiary would not consider the project to be financially viable and the project activities (in particular due to R&D related development investments amounting to approximately EUR [300 – 400] million, corresponding to [75 – 80] % of project development costs incurred in 2023-2025) would have generated a negative NPV, which would not attract private investors to the project and would have led the beneficiary to abandon the project, its R&D activities characterised by significant investments, technical and commercial risks.”

“(128) The Commission recognises that the beneficiary does not face the choice between carrying out either the aided R&D activities of the project or alternative ones […]. Absent the aid, it would not be economically viable for the beneficiary to carry out the project, […].”

“(129) Furthermore, it is implausible that the beneficiary would embark on a project smaller in size or with lower level of technological ambitions, as the R&D phase of the project is necessary to develop the level 5 fully autonomous electric vehicle.”

“(131) The Commission considers that, […], the project entails high commercial, financial and technological risks, […], requiring high upfront R&D investments in 2023-2025 (amounting to approximately EUR [300 – 400] million), with a timeframe for free cash flows showing a distant and uncertain return (expected to turn positive only in […]), which discourages private investment for the project.”

“(132) Furthermore, […] investors appear to be ready to invest in the project only after the R&D aid has been disbursed, the latter improving the project’s profitability prospects where negative cash-flows generated in particular by the R&D activities are partially supported with public funding (see section 2.8.).”

“(133) As shown in the project’s business plan, the funding gap of the overall project amounts to approximately EUR – [200 – 300] million without state aid. Absent the R&D aid subject to the present decision the beneficiary would not be able to close the funding gap and attract the necessary funding to pursue the project and its R&D activities […] In addition, the Croatian authorities have provided evidence that the beneficiary has requested financing from several private equity and venture capital funds, without success.”

“(134) Given the fact that in the years 2023 – 2025 total financing needed will amount to approximatively EUR [450 – 550] million (covering R&D and non R&D related development activities), the beneficiary expects that only up to 60% of that amount can be funded by equity investments (private investors).”

“(135) Furthermore, the information provided by the beneficiary indicates that significant loan financing is not feasible due to fact that the project requires R&D based development, thus there is no proof of concept and the beneficiary, created for the purpose of the project, has no existing track record or income generating assets. Also, the beneficiary acknowledges in the business plan that investments in development and capital expenditure (of which majority relate to R&D development costs) are generating losses (EBITDA) in the years 2023- 2025 and thus the beneficiary will not be able to service the debt. State aid would cover remaining funding needs in the development phase of the project […].”

No breach of relevant Union law

The Commission may not authorise any State aid measure that infringes any relevant EU law through the conditions attached to the measure, its financing method (when it forms an integral part of the aid measure), or the activity it supports.

In this respect, “(146) according to point 54 of the R&D&I Framework, in assessing the compatibility of any individual aid with the internal market, the Commission will notably take into account any infringement proceedings relative to Articles 101 or 102 TFEU which may concern the beneficiary of the aid and which may be relevant for its assessment under Article 107(3) TFEU.”

“(147) In the present case, the Commission has not sent a letter of formal notice to Croatia regarding a possible breach of the applicable rules of EU law in relation to the notified measure, its implementation and financing conditions.”

Need for state intervention

The Commission confirmed that the aid measure intended to mitigate the impact of “imperfect and asymmetric” information for the development of autonomous vehicles and to incentivise the generation of positive externalities and the dissemination of knowledge.

“(158) The Commission notes that the notified aid is necessary for the successful achievement of the project due to the beneficiary’s inability to find alternative sources of financing from its shareholders or on the financial market […] despite the high value the R&D phase of the project has for society and the fact that there is no similar project already delivered within

the EU. The innovative and complex R&D activities of the project are characterised by a high degree of uncertainty and private investors are reluctant to finance a valuable project involving R&D activities going beyond the global State of the art.”

Appropriateness of the aid measure

“(173) The Commission notes that the significant investment in the first three years of the project (approximatively EUR [450 – 550] million, out of which approximatively EUR [300 – 400] million represent R&D eligible costs) is exceeding the sum of the operating cashflows in the planning period, as a result of which the net present value (NPV) of the project is negative (approx. EUR – [200 – 300] million). Since cash flows are expected to turn positive only in […], State aid in the form of loans or guarantees are not a feasible option for the beneficiary and could hinder the development of the project. Notwithstanding, the Commission considers that the claw back mechanism to which the beneficiary has committed […] acts, in part, as a repayable instrument, rendering State aid support for the R&D phase of the project less distortive.”

Proportionality of the aid

“(177) According to point 77 of the R&D&I Framework, in order to ensure that the level of aid is proportionate to the market failures which it is intended to address hindering the implementation of the R&D&I activities to be triggered by the aid measure in question, the aid must be determined in relation to a predefined set of eligible costs and limited to a certain proportion of those eligible costs (‘aid intensity’). The aid intensity must be established for each beneficiary of aid, including in a collaboration project.”

“(179) The R&D measure concerns activities that correspond to TRLs 2-4 and 5-8, which qualifies as industrial research and experimental development, defined respectively in point 16(r) and (k) of the R&D&I Framework. The Commission therefore concludes that the activities covered by the notified measure constitute applied research in accordance with point 16(e) of the R&D&I Framework.”

“(180) According to point 95 of the R&D&I Framework, where aid is awarded for R&D projects and the Commission can establish, on the basis of the methodology laid down in points 93 or 94, that the aid is strictly limited to the minimum necessary, higher maximum aid intensities than those laid down in Annex II may be allowed, up to the levels set out in point 95, and the aid intensities concern applied research, with no distinction between industrial research and experimental development. For large enterprises […], the maximum allowed aid intensity for applied research activities, as the ones supported in the case at hand, is set at 60%, as set out in the table of point 95 of the R&D&I Framework. Furthermore, the R&D&I Framework allows for higher aid intensity up to 70% for applied research activities, like the R&D phase of the project in question, which are subject to effective collaboration between an undertaking and a research organisation or subject to wide dissemination of results. This is the case for the assessed project […] Furthermore, for R&D projects carried out in assisted areas the maximum aid intensity is set at 65% subject to the R&D activities being carried out in assisted regions fulfilling the conditions of Article 107(3)(c) of the Treaty. The assessed project fulfils this

requirement as the R&D phase of the project is carried out in Zagreb which is an assisted region fulfilling the conditions of Article 107 (3) (c) of the Treaty.”

“(181) In the present case, the Commission notes that the maximum amount of aid is set at approximatively EUR 179,5 million in support of eligible costs of approximately EUR [300 – 400] million, which corresponds to approximatively [45 – 50] % of aid intensity. In accordance with the conditions set out in point 95 of the R&D&I Framework this is well below the maximum aid intensity of 70% applicable to applied research activities which are carried out by a large enterprise and which involve effective collaboration with a research organisation and / or involve wide dissemination of results. The Commission notes that even if the conditions relating to effective collaboration or wide dissemination of research results were not fulfilled, the applied research activities could benefit from State aid up to an aid intensity of 65% as the applied research activities are located in an assisted region fulfilling the conditions of Article 107 (3) (c) of the Treaty.”

“(183) The Commission notes that […] the project business plan which indicates that due to the high R&D investments in the first three years of the project the NPV of the project is negative (approx. EUR – [200 – 300] million, which is considered as the funding gap for the overall project). Absent the aid for R&D activities of the project the project is expected to generate lower return than the cost of funding the investment (the Internal Rate of the Return of [4,7 – 5,2] % is significantly lower compared to the costs of financing the project as the WACC of the company amounts to [10 – 15] %). The R&D aid will allow to close the funding gap of the project (fn 34) incentivising the company to go ahead with the R&D activities which are integral part of the project.”

Fn 34: The Commission notes that additional non R&D deployment costs are not eligible for R&D aid but according to the Croatian authorities will be supported with regional aid.

“(184) The Commission also notes that considering that, according to the Croatian authorities, there is no similar project for the development of fully autonomous level 5 electric vehicle, it was not possible to compare the project’s Internal Rate of Return (IRR) to the sector specific benchmark or hurdle rate. However, the Commission considers that a negative NPV of the business plan presented to the Commission and supported by internal analysis of its assumptions, is sufficient to demonstrate the need for State aid financing.”

“(185) In addition, in order to further ensure that the aid is kept proportionate, a clawback mechanism will apply, notably to avoid overcompensation to the beneficiary should the beneficiary use the results generated in the R&D phase of the project in other cities, which is not accounted for in the business plan submitted to the Commission. The claw-back mechanism is designed to keep the aid proportionate if the profits of the beneficiary were to significantly exceed the projected figures in the business plan. In addition, the claw back aims at maintaining strong incentives for the beneficiary to maximise its investment and project performance and successfully commercialise the project whereby 40% of any additional profits would remain with the beneficiary in line with the Commission’s case practice (fn 35) in relation to risky and ambitious R&D projects.”

Fn 35: As followed in Commission IPCEI case practice. See for example Commission decision SA. 54794.

Avoidance of undue negative effects on trade and competition

The Commission verified that the specific negative effects of R&D&I aid on competition and trading conditions were minimized or avoided.

The Commission examined possible negative effects in relation to the following:

Effects on product markets:

  1. Distorting dynamic incentives: market growth, exit barriers, aid amount, incentives to compete for a future market, closeness to the market / category of the aid, product differentiation and intensity of competition.
  2. Creating or maintaining market power: market power of the aid beneficiary and market structure, level of entry barriers, selection process, buyer power.
  3. Maintaining inefficient market structures.

Effects on trade and location choice:

  1. Manifest negative effects: e.g. obligation for the beneficiary to have its central seat in the relevant Member State (or to be predominantly established in that Member State) or to use national products or services, as well as for aid measures restricting the possibility for the beneficiary to exploit the R&D&I results in other Member States, the aid is not conditional on the use of national products, equipment and services.


The positive effects of the aid outweighed the negative effects and the Commission authorised the aid measure.



Phedon Nicolaides

Dr. Nicolaides was educated in the United States, the Netherlands and the United Kingdom. He has a PhD in Economics and a PhD in Law. He is professor at the University of Maastricht and the University of Nicosia. He has published extensively on European integration, competition policy and State aid. He is also on the editorial boards of several journals. Dr. Nicolaides has organised seminars and workshops in many different Member States, and has acted as consultant to several public authorities.

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