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

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

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

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

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

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

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

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