Bridging the Gap: Financing Research Infrastructures Through Construction and Upgrades

In the last few years I have been lecturing at the Executive Masters in Management of Research Infrastructures (University of Milano-Bicocca) about legal and governance considerations in the financing of intergovernmental research infrastructures by way of a loan (e.g, a cash facility from the European Investment Bank or similar).

Here is a summary of the key points discussed:

Inter-governmental research infrastructures (“RI”) will usually be funded by their members (mostly national governments) with or without a combination of grants, user fees, and in some cases, revenues from commercial activities.

During a period of construction or in cases of capital investment (e.g., new or upgrade of existing machines) it is possible that for a certain period of time the expected cash flow i.e. contributions by members and other sources of income, when compared with the expected expenditures for construction/upgrade, will create a negative cash-flow.

The RI may then need to consider alternative ways of securing funding, for example by securing a cash facility, to be paid back in periods when expected cash flow is positive again. Such a cash facility, or bridge funding, can be achieved by contracting a loan from a funding bank (e.g., EIB, ESIF, EFSI, etc)

If the amounts are significant, it is likely that the management of the RI may find itself at that point in a challenging position:

The lending bank would be concerned with "bankability", that is: taking into account financial, economic, legal and political considerations, the bank would want to be assured that the RI has both the means and the obligation to repay the loan. The bank will look at the RI's business plan and examine in particular aspects such as: cash flow, future revenues (if any), commercial activity, assets (including IPR), possible guarantees and the organisation’s liability regime. The bank would require sufficient comfort from the borrower for proper servicing of the loan (capital, interest and any other applicable charges).

The stakeholders of the RI, i.e., the member countries represented at the Council/Assembly, would be concerned with their authority to permit the RI to contract a loan of a significant amount and about their government’s (and possibly their personal) liability in relation to servicing such a loan.

The bank would seek maximum security, hence increased liability or specific guarantees while the members will seek to minimise their liability and potential exposure. The RI governing documents, such as the Convention or Statutes and Financial Rules, will be looked at by both the lending bank and Council members, in support of their respective interests. It is likely that the RI itself will be requested by the bank and by the Council to provide additional guidance on the interpretation of governing documents as well.

When the amount of the loan is large, the stake will be high and so is the challenge to the RI’s management team. Finding the path forward will require strong leadership skills combined with a degree of creativity and a solid team of advisors. In this context, drawing on the experience of specialised advisors, such as X-officio, can provide valuable support in navigating the legal and governance complexities involved.