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1
The Role of the JESSICA Holding Fund in Bulgaria
Implementation of the JESSICA Initiative in Bulgaria
JESSICA and Investment Funds
European Investment Bank
Stara Zagora, 7 April 2011
2
What is JESSICA?
Initiative of the European Commission (DG REGIO) launched beginning of 2006,supported by EIB & CEB, to establish a common approach for financing urbandevelopment and strengthening the urban dimension in cohesion policy throughthe “transformation of grants” in repayable/recyclable assistance
Applying “financial engineering” techniques to EU Structural Funds
More efficient and effective utilisation of Structural Funds through tailor made“non-grant financial instruments” and mobilising additional financial resources
Financial and managerial expert support of international financial institutions(EIB, CEB)
JESSICA: Joint European Support for Sustainable Investment in City Areas
MISSION: To assist European cities in defining long-term, sustainable
and viable patterns of development through investment activity
financed with the utilization of “revolving” financial instruments.
3
JESSICA implementation model
HF Manager
European Commission
ERDF – DG Regio
Managing Authority
EU
Level
Na
tio
nal /o
r
regio
nal
Level
Holding Fund (« HF »)
Urban Development
Funds
Na
tio
nal/re
gio
nal
/Local Level
Re
gio
nal /L
oca
l
Level
ProjectsSustainable Urban Development Plan
€ € € €
€€€€
€
4
Urban Development Fund (UDF) as an urban impact fund:
a specific policy tool within the wider financial engineering concept in the programming period 2007-2013
to promote, by employing Structural Funds in close cooperation with DG-REGIO, the development of a system of financial engineering instruments (so-called Urban Development Funds) for urban development
policy-driven, geographically-focused and planning-led investmentvehicle supporting the sustainable transformation processes of city areas
impact investing to be seen as a new asset class requiring specific investment skills, organisational structures, metrics and benchmarks.
The terms “impact funds” or “impact investors” refer to investors and investment vehicles that have an interest, in addition to achieving remuneration to their
investment, in achieving measurable “impacts” (in our definition “sustainable ERR target”) on policy-defined, non-financial objectives, constituting a key dimension
in the investment vehicle performance assessment.
UDFs as "impact funds" for urban transformation
5
Urban regeneration funds (mainly area-based)
“Place making” locations / incubators / creative class attractors
Brownfield locations, mostly in inner city areas
Deprived city districts, urban sprawl voids
City infrastructure transformation funds (for city systems)
Addressing infra / urban imbalances from changes in city hierarchy
Focusing on the provision of capital in less competitive areas
Focusing on transformation of strategic urban infrastructure
IT broadband, waste to energy, water, electric public transport, etc.
Energy-focused funds (regional or city-based)
EE / RE and energy / emission audit /certification systems
Climate action strategies (EU 20/20/20 targets in urban areas)
Regional upgrade of green technology and transmission systems
Which types of UDFs?
6
Key implementation stages:
0Pre-negotiation Stage/ HF
Agreement to be signed in 2010
1
HF Agreement signed/ Investment
strategy/ Investment board
2Call(s) for Expression of Interest
in preparation
3Call(s) for Expression of Interest
launched
4Call(s) for Expression of Interest
closed
5 UDF(s) selected
6Operational agreements in place
(HF/ UDF)
Stage Achieved
Implementation of the stage imminent
Signature expected in coming months
Legend
State of play of existing JESSICA mandates
Managing AuthorityVolume (EUR
m)HF FA 0 1 2 3 4 5 6
HF - Wielkopolska (PL) 67 II/09
HF - Andalucía (ES) 86 II/09
HF - Lithuania (LT) 227 II/09
HF - Portugal (PT) 130 III/09
HF - WestPomerania (PL) 33 III/09
HF - London (UK) 110 IV/09
HF - NorthWest England (UK) 110 IV/09
HF - Sicily (IT) 148 IV/09
HF - Moravia Silesia (CZ) 20 I/10
HF - Campania (IT) 100 I/10
HF - Scotland (UK) 55 II/10
HF - Greece (GR) 258 III/10
HF - Silesia (PL) 60 III/10
HF - Pomerania (PL) 57 III/10
HF - Bulgaria (BG) 33 III/10
Total signed 2010 1,494
HF - Energy Efficiency (ES) 142 II/11
HF - Galicia (ES) 15 II/11
HF - Sardenia (IT) 60 II/11
HF - Masovia (PL) 40 II/11
HF - Abruzzo (IT) 25 III/11
HF - Czech National Fund (CZ) 40 III/11
HF - Hungary (HU) 50 III/11
HF - Slovakia (SK) 20 III/11
HF - North East (CZ) 20 IV/11
Total expected 2011 412
Total 2010 + 2011 1,906
EIB Holding Fund mandate Implementation progress
7
62 Evaluation Studies (national, regional, sectoral)
18 Memoranda of Understanding on cooperation in JESSICA implementation
By the end of 2010, EUR 1.65 billion of Structural Funds has already been legally
committed to 19 JESSICA HF / UDF vehicles in 11 Member States (and nearly
50 NUTs-2 regions):
15 Holding Fund agreements signed by EIB (EUR 1.49bn)
1 Holding Fund set up with a national financial institution (Estonia)
3 Urban Development Funds established without Holding Fund (Brandenburg/DE,
East Midlands/UK and Wales/UK)
7 fund structures out of 19 have an energy component, committed to invest
amounts of up to EUR 784m in energy efficiency and renewable energy
infrastructure
UDF selection and disbursements to final recipients take place in all JESSICA
countries
State of play of existing JESSICA mandates
8
1. EU & globalization => “single market for cities” (1200 – 2000 functional urban areas compete for scarce resources: Human capital, Economic activity, Budgetary transfers, etc.)
2. MS and regions face difficult challenges in ensuring the transformation of the urban systems due to both market and institutional factors
3. New modes of interaction with the private sector to achieve public goals
4. National budget discipline ( pressure on sovereign and municipal debt levels; limits on transfers from national to local level; lower expenditure capacity of cities for investment without taking on additional debt
5. De-leveraging of banking activity (financial markets offer less co-financing for investment activity)
6. Highly volatile real estate economic cycle (from overinvestment & over-aluation to under-investment and under valuation )
7. Impact on viability of private investments (PPPs) in urban infrastructure and urban development
8. Reduced collateral value of land and buildings in non-core areas
9. Institutional investors reshuffling their sovereign and sub-sovereign portfolios
10. End of baby-boomers’ era => from asset accumulation to management of existing property and infrastructure
Global challenges in urban transformation
9
Livebirths in Germany and
Central-Eastern Europe, 1970-2007
200000
300000
400000
500000
600000
700000
800000
900000
1000000
1100000
19701973
19761979
19821985
19881991
19941997
20002003
2006
DE
PL + Baltics
CZ + SK + HU
RO + BG
1980
2005
-21%
-47%
-45%
1989
-36%
The Central EU demographic scenario
Births & Deaths in Bulgaria
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035
Births
Deaths
Population in Bulgaria
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
According to Eurostat, Bulgaria is expected to illustrate the sharpest decline among EU Member States between 2008-2060:
2008-2035: -14.5% 2008-2060: -28.2%
10
Development of Sofia area, Bulgaria
Holistic Approach Urban wealth (Natural, Fixed, Human, Economic)
Jobs & economic activity
Financials / Fiscal
Sustainability
Capital & enterprise transfers
Human capital ageing / migration
Asset value creation processes
… focus on the functional urban area (Urban Labour Market Areas, ULMAs) and the role of European Metropolitan areas over the next 20 years
Integrated urban investment strategy for highly dense functional areas
Functional urban areas and metropolitan areas
Population density in Bulgaria
11
11
Retirement Dependency Ratio(65%+ / 15-64)
Ageing impacts on city infrastructure functionality and public finance
12
Geography matters:
Transform your city areas into growth poles
Focus on latent capital
Keep your cities “slow”/ “low cost” (maintenance, obsolescence)
Think new ways to finance inner city areas, housing stock refurbishment
Attraction from external sources is crucial (investment, capital…)
For all this, combine various sources of leverage
– Regions: SF
– Cities: land & buildings
– Banks: financial resources
– Private: additional resources
1970
2030 (?)
2010
2030 (?)
2010
Inflation
Public debt
Banking leverage
City Operating cash flows, Technological progress,
Foreign Direct Investment Efficiency/Reprocessing
Pension rights
Increasing value of land rent and
buildings
Urban sprawl
What drove growth in 1970-2010?
What will happen to these (largely financial) drivers in 2010-2030?
Raising “financial resources” for cities
13
A macroeconomic conclusion for urban policy:
• For 30 years, (urban) expansion took place naturally, because of market forces and demographic (baby boom) factors• Cities initially built on revenue generation, later expanded via debt/consumption
• In the next 30 years (ageing process), the process of urban transformation must be guided in a completely different way as compared to the past• What will additional debt be used for? Not for debt-addict structures
• The core element is to have efficient, productive, attractive and livablecities characterized by low maintenance/management costs and low “break-even point” on fixed assets• Competitive cities in a shrinking/restructuring environment
• Can be achieved by rationalization, reprocessing, restructuring and optimization at the urban level with a focus on sustainability
Global challenges: Conclusions
Cities need clear objectives, strategic planning, a roadmap,
governance, technical data and systems to tackle market distortions/
long-term risks - managed through strategic impact investors.
Implementation of the JESSICA Initiative in Bulgaria
15
Current status of JESSICA in Bulgaria
Completed pre-implementation phase
Funding Agreement between the EIB and the Government of the
Republic of Bulgaria signed on 29 July 2010
JESSICA Holding Fund for Bulgaria organised as a separate block of
finance within EIB established
UDFs selection procedure launched (call for the EoI)
16
The role of the EIB at the current stage in Bulgaria
Operating the JESSICA Holding Fund for Bulgaria on the basis
of Regulations specifically providing for EIB involvement and in
line with the Funding Agreement:
Launching and managing of one or more calls for EoI to identify
and select one or more UDFs for submission for approval to the
Investment Board
Negotiating of the Operational Agreements with UDFs
Monitoring and controlling of the UDFs operations in accordance
with the terms and conditions of the applicable Operational
Agreement
17
Flow of funds within JESSICA in Bulgaria
Directorate General “Programming of Regional
Development” in the Ministry of Regional Development
and Public Works
JESSICA HF for Bulgaria (managed by the EIB)
Urban Development Funds (UDFs) selected through the Call for EoI
Contribution from OP
(2010)
Urban projects conform to the criteria of the Investment Strategy and are
compliant with eligibility and state aid rules
Investment into UDF
(2011)
Loans, equity or guarantees
for projects
(2011-2015)
Resources repaid from
projects to UDF
(2015 )
EUR ca. 31.3 m
18
Call for EoI – Structural Elements (1/2)
2 Lots
Amount to be invested - EUR ca. 31.3 m - divided into two lots:
Lot 1: EUR ca.12.5 m earmarked for investments in Urban Projects in Sofia
Lot 2: EUR 18.8 m earmarked for investments in Urban Projects in the sixmajor cities of Bulgaria (Plovdiv, Stara Zagora, Burgas, Varna, Ruse andPleven)
Structure of the Call for EoI
Annex 1 – General Information about the Applicant
Annex 2 – Declarations to be made by the Applicant
Entry in trade register, representative, representations on not being subject to insolvencyproceedings, conflict of interest as well as on compliance with public law obligations (tax, socialsecurity)
Statement of relevant experience (execution of different types of Urban Projects and different rolesheld by the applicant in the project)
Supporting documents
19
Call for EoI – Structural Elements (2/2)
Annex 3 – Terms of Reference
Background of JESSICA and its operational characteristics
Amount allocated to the Call for EoI
Selection procedure and criteria (exclusion and selection criteria)
Business Plan template
Characteristics of potential Urban Projects
Financial model
Conditions for the financial products
Management fee
Award criteria (Appendix A)
Selected Terms of the Operational Agreement (Appendix B)
Instructions on Financial Forecasts and Operational Budget of the UDFs, incl. financial statements
template (Appendix C)
Instruction on Economic Analysis of Urban Projects (Appendix D)
Definitions and Abbreviations (Appendix E)
20
EoIs Evaluation Principles
Exclusion criteria
Being in bankruptcy or analogous situation
Proof of professional misconduct
Non-fulfilment of social security and tax payment obligations
Criminal conviction
Proof of misrepresentation
Selection criteria
Proper submission of the relevant documentation and supporting material,
according to the specifications of the Call for EoI
Possession of adequate experience
Completion of declarations (Annex 2) to the satisfaction of EIB
Minimum co-financing
21
Detailed Business Plan
1. Investment Policy
2. Financial forecasts and operational budget of the UDF
3. Portfolio of potential Urban Projects
4. Methodology for the identification and evaluation of Urban Projects
5. The policy of the UDF concerning exit from Urban Projects
6. Legal and ownership structure of the UDF
7. The by-laws of the UDF
8. Governance structure and key experts
9. Annual management fee
10. Interest rate on Available Funds
11. Co-financing – leverage
12. Winding-up provisions of the UDF
22
CriterionMaximum
scoring
Investment Policy 0-15
Financial forecasts and operational budget of the UDF 0-10
Projects portfolio 0-10
Methodology for the identification and evaluation of urban projects 0-10
Governance structure 0-20
Key experts 0-5
Annual management fee 0-10
Interest rate 0-5
Co-financing leverage 0-15
Total Score 0-100
Offers Evaluation Principles – Award Criteria
23
Call for EoI indicative timetable
Call for expressions of interest
April 2011
EIBUDF
candidates
Evaluation of the offers:
-exclusion criteria
-selection criteria
-award criteria
May / June 2011
Signature of the
Operational
Agreement
July 2011
Offers
(incl. business plan)
May 2011
Presentation of the successful
bidders to the IB
UDF selection – June 2011
24
Next steps
For cities
Discuss the main aspects of the project with Managing Authority (interactive process…)
Prepare / elaborate the project (in cooperation with private investors) in order to ensure recyclability
Ensure that these projects constitute a part of an Integrated Plan for Sustainable UrbanDevelopment. According to the Funding Agreement, each JESSICA project shall be in compliancewith the relevant Urban Master plans/detailed spatial plans and the Municipal Development Plans,which are considered as Integrated Urban Development Plans according to Article 43, 1(b) ofRegulation 1828/2006
Initiate immediately project preparation procedures
For candidate UDFs
Familiarize themselves with the Operational Programme
Create a project portfolio which will constitute a basic part of the business plan which will besubmitted in the context of the tendering procedure
Discuss with municipalities/cities their Integrated Plans for Sustainable Urban Development and thepotential to incorporate revenue generating projects
For project promoters
Familiarize themselves with the requirements of the OP
Prepare properly the revenue generating projects
- Feasibility study / project business plan
Discuss with municipalities/cities the potential to incorporate their project into Integrated Plans forSustainable Urban Development
Initiate immediately project preparation procedures
25
Thank you for your attention
JESSICA and Investment Funds
European Investment Bank100 Bvd Konrad Adenauer, L-2950 Luxembourg
www.eib.org/jessica
Gianni Carbonaro, Economic Advisor, [email protected]
Elias Papageorgiou, Holding Fund Officer, [email protected]