JESSICA Evaluation Focused Study Regione Toscana · 2017. 12. 11. · The UDF can be public,...

JESSICA

JOINT EUROPEAN SUPPORT FOR SUSTAINABLE INVESTMENT IN CITY AREAS

JESSICA EVALUATION FOCUSED STUDY REGIONE TOSCANA

ENGLISH VERSION

This document has been produced with the financial assistance of the European Union. The views expressed herein can in no way be taken to reflect the official opinion of the European Union.

EXECUTIVE SUMMARY.................................................................................................... 4 1. TUSCANY –INTEGRATED PLAN FOR SUSTAINABLE URBAN DEVELOPMENT .................. 7 2. THE JESSICA FRAMEWORK ................................................................................. 13 2.1. Funding Agreement - Managing Authority, Holding Fund.................................. 20 2.2. Operational Agreement – Urban Development Fund ........................................ 23 2.3. Investment Agreement and procedures ......................................................... 29

3. JESSICA PILOT PROJECT IN TUSCANY.................................................................. 38 3.1. Piombino – IPSID analysis ........................................................................... 39 3.2. Livorno – Dogana d’Acqua and Scoglio della Regina ........................................ 46 3.3. Firenze – former Sant’Orsola monastery and Villa Mondeggi............................. 51

INDEX OF FIGURES Figure 5 – Technological Centres IPSUD projects scores..............................11 Figure 6 – Tourism and Commerce IPSUD initiatives...................................11 Figure 7 – Urban Infrastructures IPSUD initiatives......................................12 Figure 8 – The JESSICA scheme...............................................................14 Figure 5 – The JESSICA scheme...............................................................15 Figure 6 - The JESSICA process in Europe .................................................17 Figure 7 - Urban Development Funds activated and call for tenders..............18 Figure 11 - JESSICA, Funding Agreement..................................................20 Figure 12 - JESSICA, Operational Agreement.............................................23 Figure 13 - State Aid, spread applicable to the basic interest rate ................28 Figure 14 - JESSICA, Investment Agreement .............................................29 Figure 15 - JESSICA procedure ................................................................31 Figure 16 - UDF selection phase I.............................................................32 Figure 17 - UDF selection phase II ...........................................................32 Figure 18 - UDF selection phase III ..........................................................33 Figure 19 – UDF co investor in project vehicles ..........................................35 Figure 20 – UDF lender to project vehicles ................................................36 Figure 21 – UDF borrower to Public Authority ............................................37 Figure 22 – Urban perimeter of intervention ..............................................39 Figure 23 – Relational scheme .................................................................42 Figure 24 – Expected revenues ................................................................44 Figure 25 –Scoglio della Regina building costs ...........................................48 Figure 26 – Dogana d’acqua ....................................................................49 Figure 27 – Dogana d’Acqua building cost .................................................50 Figure 28 – Sant’Orsola monastery surface ...............................................52 Figure 29 – Villa Mondeggi surface and functions .......................................53 Figure 30 – Building costs .......................................................................55 Figure 31 – Sant’Orsola revenues.............................................................55 Figure 32 – Villa Mondeggi revenues.........................................................56

JESSICA evaluation study in the Tuscany Region

Testo trasmesso a DG-Regio per approvazione

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EXECUTIVE SUMMARY JESSICA (Joint European Support for Sustainable Investment in City Areas) is an initiative created by the European Commission, the European Investment Bank (EIB) in collaboration with the Council of Europe Development Bank (CEB). JESSICA is a financial engineering tool created to improve both the allocation and use of European Regional Development Fund (ERDF) resources for urban development, attracting at the same time other financial sources. JESSICA allows the revolving use of Structural Funds (in particular ERDF) for urban development, going beyond the traditional model. Main features of the JESSICA tool are presented as follows: From traditional grants to revolving financial investments � the JESSICA scheme foresees an investor/lender role for the Regional Authority. Efficiency and effectiveness in using EU funds � JESSICA is not a new source of a financial resource, but a tool developed for more efficient

use of Structural Fund resources for urban development. Attracting other resources of finance (both public and private) � JESSICA allows attracting private and public investors into the investment process,

encouraging public private partnerships. Immediate availability of resources � Structural Funds invested in JESSICA are immediately transferred to the JESSICA scheme,

overcoming problems of anticipating the cost of projects. International know-how sharing � The JESSICA initiative has a European nature and considerable know-how, concerning both

procedures to adopt and type of projects to implement. Progress reporting � The transfer of Structural Fund resources to JESSICA structures (Holding Fund or Urban

Development Fund) allows the progress reporting of those funds. In order to start up the JESSICA mechanism, some structures are needed, in particular: � Holding Fund (HF) – Holding Fund is created to invest JESSICA resources in Urban

Development Fund that, in turn, will invest them in projects within Integrated Plan for Sustainable Urban Development. The Holding Fund supports the Managing Authority in the UDF selection, JESSICA resource allocation, UDFs investment strategy and monitoring its activity. The Holding Fund is usually established as separate block of finance within the European Investment Bank that can be directly endorsed by the Managing Authority, avoiding passing through a public call for tenders. Currently 16 Holding Funds are active, of which two are in Italy (Sicily and Campania Region), and they are organized as separate block of finance within the European Investment Bank.

� Urban Development Fund (UDF) - JESSICA resources are conferred to UDF to be invested (as equity, loans or guarantees) in public-private partnerships or in other projects within Integrated Plan for Sustainable Urban Development. UDF is selected by the Holding Fund by means of a call for tenders. In some cases direct award of JESSICA resources to UDFs is allowed. The UDF can be public, private or mixed capital and it can have several



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levels of organization, in particular it can be established as separate block of finance within a Financial Institution or as independent legal entity. In Italy there are several legal structures that could be used as UDF, such as: financial company, securities investment trust, assets dedicated to a specific transaction, banking convention, etc.

� Structures dedicated to the realization of Urban Development Projects –JESSICA

resources (from the UDF) are invested in projects and these structures are responsible for the realization of the project. It can be a typical structure of public private partnership initiative (i.e. Special Purpose Vehicle) or other structures (i.e. Local Entities). JESSICA resources must be used only for approved expenditures and they must be spent and accounted until December 2015.

JESSICA PROCEDURE

Procedures that can be adopted for the building and management of projects, within the JESSICA scheme, can be like the ones used in public private partnership initiatives (i.e. project financing, concession, ...) or like the ones typically used by local authorities for urban projects (i.e. public procurement). On the basis of the defined procedure (PPP, procurement, etc.) the UDF can have several roles, in particular: 1. Equity investor in project vehicles – in this scenario the UDF invests JESSICA resources

acquiring equity capital of project companies responsible for the building and management of JESSICA initiatives. The UDF will return invested resources by means of capital gains and dividends of project vehicles. Within this scenario JESSICA resources will have a risk and return scheme comparable to other investors, as defined in the State Aid Regulation.

2. Lender to project vehicles – in this scenario the UDF lends JESSICA resources to project

companies responsible for the building and management of JESSICA initiatives. In this scenario JESSICA resources will gain an interest rate comparable to market levels, as required by the State Aid Regulation.

3. Lender to Public Authorities – in this scenario the UDF lends JESSICA resources to the

Public Authorities responsible for the building of IPSUD projects. Public Authorities will have to return funds plus previously defined interests to the UDF. In this case the State Aid regulation allows UDF to ask for an interest rate eventually lower than market rates.

PILOT PROJECTS

The Tuscany administrative Region, on the basis of a general analysis of IPSUD projects, selected three initiatives to be analysed considering the urban, procedural, economic and financial aspects: Piombino – the analysis has been carried out, including: four technological centres, museum, civic centre, music and dance hall. A public private partnership procedure has been assumed in order to attract also private investors. The IPSUD projects do not allow reaching the minimum financial sustainability level needed to attract private investors; therefore a concession of other areas (owned by the Piombino Municipality) has been assumed. The project implies an investment of about 69,6 Million Euro of which about 27,8 Million Euro is assumed to be equity capital and 41,7 Million Euro is of debt capital. The nominal Internal Rate of Return of the project (post tax) is equal to 4,16%.

Livorno – an analysis of two science parks (Scoglio della Regina and Dogana d’Acqua) has been carried out. Both projects could attract private investors; however the procedural



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hypothesis defined by the Municipality of Piombino makes it difficult for JESSICA resources to be revolving. In this case the analysis does not include an estimate of project internal rate of return, because assumed procedure and management model does not allow generating any return.

Florence – IPSUD project considers the regeneration and functional redefinition of the Sant’Orsola former monastery (owned by the Provincial administration of Florence) while building of several functions: tertiary, commercial, learning spaces, dance academy, guest rooms and other social functions. For this initiative a public private partnership procedure is assumed and, in order to help financial sustainability of the initiative, the concession of Villa Mondeggi Lappeggi (owned by Provincial administration of Florence) is foreseen. The project implies an investment of about 35,5 Million Euro of which about 14,2 Million Euro assumed to be equity capital and 21,3 Million Euro is of debt capital. The nominal Internal Rate of Return of the project (post tax) is equal to 4,3%.



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1. TUSCANY – INTEGRATED PLAN FOR SUSTAINABLE URBAN DEVELOPMENT

In this chapter, the Integrated Plans for Sustainable Urban Development (IPSUD) - Piani Integrati Urbani di Sviluppo Sostenibile - are analysed. These are linked to the Axis V of the Operational Programme CReO Tuscany 2007-2013. The CReO OP Tuscany (Operational Programme) has financial resources of more than 1.126 Million Euro, sum of about 338 Euro million from Community contribution and 814 Euro million from national match funding. The timetable for the estimated expenditure of ERDF resources suggests an annual use of about 40/45 Million Euro, as shown in the table 1 below.

Table 1 - Timetable CReO OP

Source: CrEO OP Tuscany

IPSUD is considered in CReO OP Tuscany Axis V and it has an endowment of about 277 Euro Million Euro and a ERDF co-financing rate (Community resources/total of the Axis) of 22,1%. In POR CREO Tuscany, JESSICA mechanism can be set up in Axis IV or V. Hence there is no need for a charge in the Operational Programme to benefit from JESSICA.



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Table 2 –CREO OP Tuscany 2007/2013

Source: CReO OP Tuscany



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INTEGRATED PLAN FOR SUSTAINABLE URBAN DEVELOPMENT 1

The Urban policies outlined in Axis V if the CReO OP Tuscany are implemented using an integrated inter-sectorial approach consisting in IPSUDs, which use complex urban planning as an instrument of local development and urban regeneration and involve measures to rehabilitate and regenerate urban areas. Under the IPSUD implementation terms of reference (Decision n. 205/2008), an Integrated Plan for the Sustainable Urban Development is “a coordinated, systematic and integrated set of public and private interventions, with multifunctional and intersectoral purposes, for the creation of objectives for the social and economical development, taking into account a sustainable perspective, through the improvement of urban and environmental quality and a more rational use of the urban area” the aim is to increase the urban appeal and competitiveness. As shows in the table below, Priority Axis V has two main activities regarding IPSUD, more specifically; there are five lines of actions: 1. the improvement of the urban environment and areas for productive activities intended for new premises for public services, advanced services and R&D; 2. interventions for the creation of spaces for collective use (tourism, commerce, services); 3. intervention for the enhancement of cultural heritage; 4. nursery; 5. social infrastructure.

Table 3 – IPSUD Interventions guide

Source: Document for the Regional Implementation CReO OP The process of structuring and allocation of IPSUD resources defined by the Region is competitive, and has to develop within the guide-lines determined by the Region itself (most of them are in the Disciplinary of 17th March 2008), among which: � The set of operations under IPSUDs must provide for total OP - eligible public expenditure

of not less than 20 Million Euro and not more than 50 Million Euro;

1 This paragraph contains topics already seen in the previous feasibility study



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� IPSUD has to refer to at least three different lines of action of 5.1 and 5.2. of the Axis V of the OP;

� IPSUD can be presented by a Municipality of the Region with a population of more than 20.000. A IPSUD can also be presented by neighbouring Municipalities with more than 20.000 inhabitants in total, with the condition that the project areas are adjacent to one other;

� At the presentation of IPSUD, infrastructures have to be at the level of preliminary planning;

� Planning or functional parts of planning are considered al eligible expenditures of the UPSID only if it is proved the feasibility of the initiative;

� The maximum ERDF co-financing rate for the operations is the one foreseen for the entire CReO OP Tuscany (i.e. 30% ERDF resources, 70% matching funds);

� All the operations have to be closed within 31st December 2014 and reported within 30th October 2015.

For a more complete analysis of the IPSUD arrangement procedures and their evaluation, please look at the IPSUD web page on the Tuscany Region web site. IPSUD – SELECTION PROCESS FOR THE REPORT

To define IPSUD projects to be analysed for this feasibility study, the selected IPSUD works have been investigated, to understand which initiatives are more coherent with the JESSICA mechanism (together with Tuscany Region). The projects analysed in detail are those included in the 5.1A (planning on Economic Development) and 5.1B (planning on Tourism and Commerce) intervention guides. Among the initiatives 5.1A e 5.1B three categories of projects in different IPSUD coherent with JESSICA have been provided: facilities for technological transfer, accommodation facilities and urban facilities.

In order to have a ranking of identified projects, a scoring function has been designed, using four variables:

5.1A – Economic Development

Technological Transfer Centres

5.1B – Tourism and Commerce

Accomodation Facilities Urban Facilities

� Contained in eight UDIP

� 20 projects

� 99 €mln total investment

� 7 €mln third parties funds

� 5 €mln on average per project

� Contained in three UDIP

� Four projects



� Contained in five UDIP

� Six projects


� 58 €mln third parties funds




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� Project dimension (m2), defines the total surface of the project. The larger the surface, the higher the score the project gets, because it creates a bigger value. Moreover, in urban projects a minimum efficient dimension is usually needed in order to benefit from economies of scale.

� Investment dimension (€), defines the total amount of financial resources invested on the project. Within the score function it has a positive value (the higher the amount of invested resources, the higher the score the project has).

� Ex Ante Economic efficiency (€/mq), it is the ratio of investment over surface and this ratio has a negative effect on the scoring function, because initiatives reducing this ratio are better than others.

� Capability of attracting third party resources, it is the percentage of non-public financial resources invested in project.

Results obtained by applying the scoring function to IPSUD projects are presented in the following tables.

Figure 1 – Technological Centres IPSUD projects scores

Figure 2 – Tourism and Commerce IPSUD initiatives



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Figure 3 – Urban Infrastructures IPSUD initiatives

Source: Regione Toscana and Sviluppo Toscana S.p.A. Sinloc elaborations

On the basis of acquired information and score function results, the Tuscany Region decided to implement the economic and financial analysis of the best three initiatives related to Technological Transfer: Piombino, Firenze and Livorno.



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2. THE JESSICA FRAMEWORK

JESSICA (Joint European Support for Sustainable Investment in City Areas) is a financial engineering tool developed by the European Commission, the European Investment Bank (EIB) with the support of the Council of Europe Development Bank (CEB), in order to improve the use of Structural Funds particularly European Regional Development Fund (ERDF) resources for urban development, attracting other external resources. JESSICA is a tool that Managing Authorities can use, in order to “transform” part of EU funds (in particular ERDF) grants into revolving finance, in order to increase the efficiency of public resources invested in urban development projects. With JESSICA, the concept of European contributions as free grants is over. The grant concept has demonstrated significant limitations, due to both the impossibility to re-use funds and due to the inefficiency that is often experienced in their allocation. Below some key elements of the JESSICA mechanism are analysed: 1. From traditional grants to revolving financial investments � the JESSICA scheme foresees an investor/lender role for the Regional Authority; � JESSICA aims at financing economically sustainable projects, so that investment returns

(as dividends, capital gains, interests, etc.) can be re-invested in new projects of urban development.

2. Efficiency and effectiveness in using EU funds � JESSICA is not a new source of a financial resource, but a tool developed for more efficient

use of ERDF resources for urban development; � since 2014/2020 programming period decrease in EU resources is expected, thus it is

important to better manage the existing funds. 3. Attracting other resources of finance (both public and private) � JESSICA is able to attract private and public investors into the investment process,

encouraging public private partnerships; � thanks to the specific JESSICA structure, it is possible to enhance leverage, on different

levels of the process (both UDF and project level); 4. Immediate availability of resources � structural Funds invested in JESSICA are immediately transferred to the JESSICA scheme,

overcoming problems of anticipating the cost of projects. 5. International know-how sharing � the JESSICA initiative has a European nature and considerable know-how, concerning both

procedures to adopt and type of projects to implement. 6. Progress reporting � once Structural Fund resources are transferred to JESSICA structures (Holding Fund or

Urban Development Fund),progress reporting of JESSICA resources is possible; � the constrain of the resources spending until December 2015 remains. The JESSICA allows ERDF resources to be used as revolving finance. � Holding Fund (HF) – ERDF JESSICA resources are transferred to this structure, which

then invests them in the Urban Development Funds. The Holding Fund has to select the Urban Development Fund, approving its investment strategy and monitoring its activity.



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• Urban Development Fund (UDF) – it is selected by the Holding Fund or by the Managing

Authority. The UDF invests OP ERDF resources (as equity, loans or guarantees) in public-private partnerships or in other projects within Integrated Urban Development Plans.

� Structures dedicated to project realization – it is the final responsible for the realization of the project and the structure in which JESSICA resources (from the UDF) are invested in. It can be a typical structure of public private partnership (i.e. Special Purpose Vehicle) or another structure (i.e. Local Entities).

Besides the aforementioned structures, the JESSICA tool involves some ad hoc2 agreements, in particular: � Funding Agreement – signed by the Managing Authority and the Holding Fund. It defines

size, investment strategy, constrains, etc. of the JESSICA resources transferred from the Managing Authority to the Holding Fund.

� Operational Agreement – signed between the Holding Fund and the Urban Development Fund. In this agreement the mode with which the JESSICA resources shall be invested is defined, together with the criteria for the managing of the proceeds.

� Investment Agreement – signed between the Urban Development Fund and the entity responsible for carrying out the work, through which the relationship between the parties are regulated, regarding the initiatives to be carried out and their financing.

Figure 4 – The JESSICA scheme

Within the EU funds transferring process, JESSICA involvement is illustrated in the following list, starting from point two:

2 these terms refers to agreements signed in cases in which the EIB assumes the Holding Fund role

REGION (Managing Authority)

HOLDING FUND

URBAN DEVELOPMENT FUND

Projects within a URBAN DEVELOPMENT INTEGRATED PLAN

EU COMMISION

(optional)

OTHER INVESTORS (Public and Private)

LOCAL AUTHORITY banks and

other investors

Strctural Funds

INVESTMENTS (equity, loans and guarantees)



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1. approval of the ERDF OP by the European Commission, within which the possibility of implementing the JESSICA instrument for specific Axis and/or lines measures has to be calculated;

2. decision of the Region (Managing Authority) to activate the JESSICA process, for previously defined Axis and/or Lines, for the financing of projects within Urban Development Integrated Plans;

3. start up (optional) of an Holding Fund with the transfer of JESSICA resources (both ERDF and matching funds). The Fund has the task of assisting the Region in the management of the process and of investing regional resources in the Urban Development Funds under the rules of the funding agreement. Until now the role of Holding Fund, in the large majority of cases, has been carried out by the European Investment Bank that can be directly nominated by the Managing Authority;

4. selection of one or more Urban Development Funds to which JESSICA resources are allocated to be invested, by means of equity, debt or guarantees, in projects within Integrated Plans for Urban Development.

5. investment of JESSICA resources in projects within Integrated Plans for Urban

Development, using public private partnership procedures or in other ways; 6. profits generated by the projects in which JESSICA resources have been invested return,

on the basis of the agreements made, to various structures.

In the following scheme a graphical representation of the JESSICA mechanism is reported.

Figure 5 – The JESSICA scheme

Source: SINLOC elaborations

MANAGING

AUTHORITY

HOLDING FUND (optional)

LOCAL

AUTHORITY

Funding Agreement

URBAN

DEVELOPMENT

FUND

Equity Loan

Fees

Equity Loan

Investment Agreements

Urban Sustainable Development Integrated

Plan

In kind contribution/surface right

Call for tenders

Concession

Operational Agreement

Returns

PROJECT RESPONSIBLE

Funds Returns Fees

Returns



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In the following sections, structures and agreements of the JESSICA mechanism will be analyzed, highlighting strengths and weaknesses. JESSICA CASE STUDIES

The figures below schematically portray the state of advancement of the JESSICA process. For each phase, Italian Regions involved in the specific procedural steps are reported in bold.

In the figure below are reported the six main stages of the JESSICA implementation process, when EIB acts as a Holding Fund (as at December 2010): 1. Signing of the Funding Agreement, investment strategies, investment committee 2. Call for tenders (Expression of Interest) in preparation 3. Call for tenders (Expression of Interest) published 4. Call for tenders (Expression of Interest) closed 5. Urban Development Fund selected 6. Operational Agreement (FP - FSU) enabled

STRUTTURE DI FINANZIAMENTO JESSICA IN FASE DI STUDIO

STUDI DI VALUTAZIONE REALIZZATI A LIVELLO NAZIONALE

STUDI DI VALUTAZIONE REALIZZATI A LIVELLO REGIONALE PROTOCOLLI DI INTESA

Bulgaria; Cipro; Francia; Germania; Grecia; Italia, Lituania; Lussemburgo; Polonia; Portogallo; Slovacchia; Spagna; Svezia; Paesi Bassi

Fiandre (BE), Vallonia (BE), Moravia – Slesia (CZ), Sud Est Rep. Ceca (CZ), Finlandia Ovest, Berlino (GE), Amburgo (GE), Nord Reno Westfalia (GE), Saarland (GE), Regioni Greche (GR), Toscana (IT), Liguria (IT), Marche (IT), Abruzzo (IT), Puglia (IT), Campania (IT), Sicilia (IT), Polonia del Sud (PL), Polonia est (PL), Andalusia (SP), Galizia (SP), Londra (UK), EIRE, Nord Ovest e Nord Est Inghilterra

Bulgaria, Cipro, Grecia, Portogallo; Moravia – Slesia (CZ), Sassonia (GE), Wielkopolska (PL), Pomerania Ovest (GE), Galizia (SP), Andalusia (SP), Castiglia la Mancha (SP), Londra (UK), Est Midlands (UK), Scozia (UK), Marche (Novembre 2009), Abruzzo (Febbraio 2010)

STRUTTURE DI FINANZIAMENTO JESSICA IN FASE OPERATIVA

FONDI DI PARTECIPAZIONE (BEI) FONDI DI PARTECIPAZIONE (ALTRI) FONDI DI SVILUPPO URBANO

Wielskopolka (PL) Andalusia (SP) Pomerania Ovest (PL) Lituania (LT) Portogallo (PT) Londra (UK) Scozia (UK) Grecia (GR) Silesia (PL) Pomerania (PL) Nord-Ovest Inghilterra (UK) Slesia-Moravia (CZ) Bulgaria (BL) Sicilia (Novembre 2009) Campania (Marzo 2010)

Estonia (KredEx – Fondo di Garanzia delle esportazioni)

Brandeburgo (ILB – Banca di Sviluppo Regionale) East Midlands (King Sturge) Galles (Amber Infrastructure e Lambert Smith Hapton) Accordo Operativo con HF Estonia (Swedbank, SEB) Lituania (Siauliu Bankas (2), Swedbank) Wielkopolska (PL) (Bank Gospodarstwa Krayowego)



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Figure 6 - The JESSICA process in Europe

Source: European Investment Bank (December 2010)



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Currently, EIB acting as Holding Fund maintains an amount equal to about 1.7 billion Euros, some of which have already been transferred to Urban Development Funds, while others will be invested, once the latter will be selected.

Figure 7 - Urban Development Funds activated and call for tenders

Source: European Investment Bank (December 2010)

JESSICA – APPLICABLE LEGISLATION

The most important normative references for the JESSICA tool are contained within EU Regulations, in particular: � Regulation n. 1083/2006, “General Regulation on Structural Funds”, especially:

− Art. 36 on the participation of the European Investment Bank; − Art. 44 on financial engineering instruments; − Art. 45 on technical assistance at the initiative of the Commission; − Art. 78 on the statement of expenditure.

� Regulation n. 1080/2006 of the European Parliament and of the Council, especially: − Art. 7 on eligibility of expenditure; − Art. 8 on sustainable urban development.

� Regulation n. 1828/2006, especially: − Art. 43 on general provisions applicable to financial engineering instruments; − Art. 44 on additional provisions applicable to holding funds; − Art. 46 on additional provisions applicable to urban development funds; − Art. 47 on interventions in the field of housing; − Art. 51 on in-kind contributions.

A further source that is available to fully define the structural and procedural framework of the JESSICA scheme are the so-called COCOF notes, i.e. the notes prepared by the Coordination Committee of the Funds, pursuant to art. 103 of Regulation 1083/2006. � “Guidance Note no 1 on financial engineering in the 2007-2013 programming period”

(16/07/2008); � “Guidance Note no 2 on financial engineering” (22/12/2008);

Signature date

Amount signed in EUR

equivalentCall No of EoIs Manager

Amount signed in EUR

equivalentWielkopolska 29.04.2009 Call 1 9 BGK 19

Call 1 Lot 1 7 UDF selected

Call 1 Lot 2 UDF selected

Call 1 Lot 1 7 Siauliu Bankas AB 6

Call 1 Lot 2 Swedbank AB 6



Call 2 1 Siauliu Bankas AB 20



Call 1 6 UDF selected

Call 2 Call launched



Portugal 20.07.2009 130 Call 1 Lots Call launched

Italy Sicily 19.11.2009 148 Call 1 Call launched

80

Funding Agreement UDF

11.06.2009 227

Country Region

Poland

Lithuania

London 28.10.2009 116

86

38

NorthWest region

of England12.11.2009 117

Westpomerania 30.07.2009

UK

Spain Andalucía 8.05.2009



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� “Guidance Note on eligibility of energy efficiency and renewable energy interventions in the building sector (including housing) under ERDF and the Cohesion Fund 2007-2013” (29/10/2008).

JESSICA – STATE AID

An important issue to be considered within the JESSICA process is the State Aid legislation. There are two levels in which State Aid rules could have an impact: 1. Urban Development Fund – the transfer mechanism and payment of JESSICA resources

to the UDF have to be in line with the restrictions established in the rules on State Aid. 2. The level of project – returns on investment (in the form of loans or equity) made by the

UDF to the project company realising urban projects have to fit with State Aid rules. The second level (the only one that will be analysed in this report) is particularly important in the cases where public private partnerships are utilised (at the project level). In the case in which a Public Body receives JESSICA resources, State Aid constrains are less binding. In the following sections the three possible scenarios are presented: 1. Loans to Local Entities for the building of projects within IPSUD � This case is exempt from the restrictions in the rules on State Aid, since the Public Body

does not operate in the marketplace. 2. Loans to Special Purpose Vehicles � On the basis of the Commission Communication 2008/C14/02, resources loaned to project

companies have to receive an interest rate equal to the IBOR rate increased by at least 400 basis points, which is an estimate of the interest rate “practiced by a company and so would not give the beneficiary an advantage.”

3. Investments in the venture capital of project vehicles

� A clear definition of the minimum Internal Rate of Return to be required on JESSICA resources invested as equity has not been specified. One of the most shared interpretation of the constrain is that JESSICA resources have to be invested pari passu with other financing sources, and gain equal return to sources with the same risk level of JESSICA resources.



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2.1. Funding Agreement - Managing Authority, Holding Fund The Funding Agreement is the contract that the Managing Authority (MA) signs with the Holding Fund (HF).

Figure 8 - JESSICA, Funding Agreement

Source: Sinloc elaborations

FUNDING AGREEMENT3

Ruled by EU Regulations, in particular Art. 43 ad 44 of Regulation 1828/2006, that states the Agreement must contain: � the investment strategy and planning; � monitoring of implementation in accordance with the applicable rules; � an exit policy for the financial engineering instrument; � the winding-up provisions of the financial engineering instruments, including the re-

utilisation of resources returned to the financial engineering instrument from investments or left over after all guarantees have been honoured, attributable to the contribution from the operational programme;

� the conditions related to the contributions of the operational programme to the Holding Fund;

3 The wording “Funding Agreement” (and what is written in this report about it) reflects what usually is recorded in cases when the EIB acts as Holding Fund

MANAGING AUTHORITY

HOLDING FUND

(optional)

LOCAL

AUTHORITY

Funding Agreement

URBAN DEVELOPMENT

FUND

Equity Loan

Fees

Equity Loan



Plan

In kind contribution/surface right Call for tenders Concession


Returns

PROJECT

RESPONSIBLE

Funds Returns Fees

Returns



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� a call for expression of interest addressed to financial intermediaries or to urban development funds by the holding fund;

� the appraisal, selection and accreditation of the financial intermediaries or of the urban development funds by the holding fund;

� the setting up and monitoring of the investment policy or the targeted urban development plans and actions;

� reporting by the holding fund to the Member States or the managing authorities; � monitoring the implementation of investments in accordance to applicable rules; � audit requirements; � the exit policy of the holding fund out of the venture capital funds, guarantee funds, loan

funds or urban development funds; � the winding-up provisions of the holding fund, including the reutilisation of resources

returned to the financial engineering instrument from investments made or left over after all guarantees have been honoured which are attributable to the contribution from the operational programme.

Main elements of the Funding Agreement can be summarized as follows: Governance of the Fund - In the Funding Agreement where EIB is the Holding Fund, the Fund is governed by the Investment Board, composed by members appointed by the Managing Authority, with the charge of defining: investment strategy, UDF selection, Operational Agreement definition, consultant hiring, monitoring of UDF activities, and approval of financial statements of the activities of the Holding Fund.

Holding Fund financing methodologies - The Funding Agreement regulates how the Managing Authority transfers JESSICA resources to the Holding Fund, which then shall be invested in the Urban Development Funds. Holding Fund investment strategy - The Funding Agreement determines the investment strategy that the Holding Fund shall follow in its activities. This can take the form both of general guidelines for its actions and specific instructions concerning sectors of investment, geographic area of beneficiaries, monitoring mechanism for investments, etc. Costs - The Funding Agreement establishes the cost of the services performed by the Holding Fund and the means through which they are paid, within constrains settled by Art. 43 of the 1828/2006 Regulation, in particular, “Management costs may not exceed, on a yearly average, for the duration of the assistance [...] 2% of the capital contributed from the operational programme to the holding funds, or of the capital contributed from the operational programme or the holding funds to the guarantee funds [...] unless a higher percentage proves necessary after a competitive tender.” Normally given the prolonged duration of the Funding Agreement, the operations of the Holding Fund, which normally is more intense at the beginning of the contract, it is reasonable to assume, as it is usually done, that the percentage of management costs is equal to, or greater than, 2% during the first part of the contract and decrease in the later periods. Accessory conditions - The Funding Agreement includes, in addition to the parts described above, clauses related to: the duration of the contract; recession clauses; conditions precedent to any liability; how to monitor the activities of the Holding Fund, liabilities of the parties, confidential restrictions, etc. MANAGING AUTHORITY

The Managing Authority (MA), described by EU Regulations (in particular Reg. 1080/2006, 1083/2006 and 1086/2006) is a public authority or a national, regional or local public or



22

private body, assigned by a Member State to manage the operational programme, according to the principle of sound financial management. Within the JESSICA mechanism the Managing Authority can have a different number of tasks depending on the chosen scenario: 1. Establishment of an Holding Fund – the Managing Authority can directly entrust the

European Investment Bank, or another structure (either by means of a direct entrustment or by means of a call for tenders), that will be responsible for operative management of investments, while the MA will remain responsible or the use of European Funds.

2. Direct selection of one or more Urban Development Funds – in this scenario the MA

will have to follow needed procedures to implement JESSICA, among them: � selection of Urban Development Fund(s); � transfer of the resources; � monitoring of the activities of the UDFs; � etc.

HOLDING FUND

As aforementioned, the Holding Fund (structure regulated by Community Regulations 1080, 1083 and 1828 of 2006 and their amendments) is created to invest JESSICA resources in Urban Development Fund that, in turn, will invest them in projects within an Integrated Plan for Urban Development. The Holding Fund supports the Region (Managing Authority) in the definition of investment strategic guidelines, UDF selection, JESSICA resources allocation, reporting and monitoring of resources. The transfer of ERDF resources to the Holding Fund allows for the intermediate reporting. The Holding Fund is considered as beneficiary (in accordance with Art. 26 Reg. 1083/2006) and therefore responsible for the implementation of the actions and the administration the OP ERDF resources according to the requirements of the Funding Agreement. Community Regulations (Art. 43 of Reg. 1828/2006) state that the Holding Funds can be established in two ways: 1. Separate block of finance within a Financial Institution – as “subject to specific

implementation rules within the financial institution, stipulating, in particular, that separate accounts are kept which distinguish the new resources invested in the financial engineering instrument, including those contributed by the operational programme, from those initially available in the institution.” (Art. 43 Reg. 1828/2006).

2. Independent legal entity – it has its own legal personality and shall therefore have its own

legal identity that fulfils the requirements of Community and national rules.

EIB AS HOLDING FUND

The structure which acts as Holding Fund is mainly the European Investment Bank (with the exception of Kredex in Estonia). This is mostly due to: � the EIB can be entrusted directly by the MA; � deep knowledge of the JESSICA mechanism; � economic, financial, legal and procedural competences about the JESSICA tool; � already developed competences on the JESSICA mechanism; � lower level of commissions practiced, limited to covering costs; � etc.



23

2.2. Operational Agreement – Urban Development Fund The Operational agreement is the contract the Holding Fund (or the Managing Authority) signs with the Urban Development Fund (UDF).

Figure 9 - JESSICA, Operational Agreement


OPERATIONAL AGREEMENT

The Operational Agreement rules relationships between the Holding Fund and the Urban Development Fund. The Community Regulation 1828/2006 Art. 44 number 3 declares that the Agreement defines “The terms and conditions for contributions [...] to urban development funds from holding funds...” and it has to include, at least: � the investment strategy and planning; � monitoring of implementation in accordance with the applicable rules; � an exit policy for the contribution from the operational programme out of the financial

engineering instrument; � the winding-up provisions of the financial engineering instrument, including the reutilisation

of resources returned to the financial engineering instrument from investments or left over after all guarantees have been honoured that are attributable to the contribution from the operational programme.

Some elements that have to be carefully considered in defining the Operational Agreement are the following:

MANAGING AUTHORITY

HOLDING FUND

(optional)

LOCAL

AUTHORITY

Funding Agreement

URBAN

DEVELOPMENT FUND

Equity Loan

Fees

Equity Loan



Plan



Returns

PROJECT

RESPONSIBLE

Funds Returns Fees

Returns



24

� UDF investment strategy – in the Operational Agreement how the Managing Authority or the Holding Fund invests the ERDF JESSICA resources in the Urban Development Fund(s) has to be defined. A methodology of transferring resources from the HF to the UDF, observed in various calls for tenders, (in particular in Andalusia) is the contingent loan, a loan whose returns are strictly correlated with revenues that the UDF obtains from urban projects it invested in.

� Management fees – the Operational Agreement defines the size and the payment of

management fees that the Urban Development Fund may receive, that the Community Regulations (Art. 43 Reg. 1828/2006) limit to the maximum threshold of “[...] 3% of the capital contributed from the operational programme or the holding fund [...]”.

� Proceeds – The Operational Agreement shall indicate how an Urban Development Fund

pays back to the HF the part of proceeds due to the Holding Fund/ Managing Authority (and eventually the entity of proceeds).

� Way out and reinvestment of resources – the Operational Agreement defines the way

the Holding Fund/ Managing Authority will exit from the Urban Development Fund. URBAN DEVELOPMENT FUND – NORMATIVE FRAMEWORK

The Urban Development Fund is one of main structures of the JESSICA mechanism; it has to invest JESSICA resources in urban development projects, as equity, loans or guarantees. Its strategy is ruled by the Operational Agreement, while main legislative guidance can be found in Community Regulations, in particular in following articles: � (Art. 43 Reg. 1828/2006) “Urban Development Funds supply repayable investments, or provide guarantees for repayable investments in public-private partnerships or other urban projects included in integrated plans …”

� (Art. 46 Reg. 1828/2006) “Urban development funds shall invest by means of equity, loans and guarantees [...], urban projects receiving grant assistance from an operational programme may also be supported by urban development funds. Where Structural Funds finance urban development funds, the funds concerned shall not re-finance acquisitions or participations in projects already completed.”

� (Art. 43 Reg. 1828/2006) “The business plan shall be submitted by the Managing

Authority or the Holding Fund (if there is one) and shall include: − [...] urban projects and the criteria, terms and conditions for financing them; − the operational budget of the financial engineering instrument; − the ownership of the financial engineering instrument; − the co-financing partners or shareholders; − the by-laws of the financial engineering instrument; − the provisions on professionalism, competence and independence of the management; − the justification for, and intended use of, the contribution from the Structural Funds; − the policy of the financial engineering instrument concerning exit from investments in

[...] urban projects; − winding-up provisions of the financial engineering instruments, including the

reutilisation of resources returned to the financial engineering instrument from investments or left over after all guarantees have been honoured, attributable to the contribution from the operational programme.”



25

� (Art. 43 Reg. 1828/2006) “Financial Engineering tools, included Urban Development Funds shall be set up as independent legal entities governed by agreements between the co-financing partners, that is as a separate block of finance subject to specific implementation rules within the financial institution, stipulating, in particular, that separate accounts are kept which distinguish the new resources invested in the financial engineering instrument, including those contributed by the operational programme, from those initially available in the institution.

� (Art. 43 Reg. 1828/2006) “Management Costs may not exceed, on a yearly average,

[...], unless a higher percentage proves necessary after a competitive tender [...] 3% of the capital contributed from the operational programme or the holding fund to the financial engineering instrument [...]”

� (Art. 43 Reg. 1828/2006) “returns from equity investments and loans, less a pro rata

share of the management costs and performance incentives, may be allocated preferentially to investors operating under the market economy investor principle up to the level of remuneration laid down in the by-laws of the financial engineering instruments, and they shall then be allocated proportionally among all co-financing partners or shareholders.”

� with respect to expenditures, the COCOF notes, in particular the COCOF note of July

2007, establishes that it is the responsibility of the Managing Authority to ensure that all the supporting documents regarding expenditures of the UDF are conserved for three years after the partial or complete completion of operational programme (in accordance with Art. 90 Reg. 1083/2006).

URBAN DEVELOPMENT FUND - STRUCTURES

As was mentioned earlier, Art. 43 Reg. 1828/2006 calculates UDF can be created either as independent legal entity or as separate capital within a financial institution.

In order to identify the legal entities that in the Italian national context may play the role of the Urban Development Fund, an analysis has been carried out dividing structures in the two following categories: Independent legal entity; � Financial company � Mutual funds Separate block of financing within a financial company; � Banking conventions � Assets dedicated to a specific transaction URBAN DEVELOPMENT FUND - FINANCIAL COMPANY

Financial companies are the category of financial entities that gathers together the various kinds of firms other than banks and that, as is established in the legislative decree 385/93 (Italian Banking Law), concerns the purchase of shares, granting financing and provision of payment services. Recently, after the issue of two new national laws (Decreto Legislativo 27 gennaio 2010, n. 11 e Decreto Legislativo 13 agosto 2010, n.141) the legislative framework regarding financial



26

institutions is changing, and therefore the legislative framework of the financial company has been modified. Within the future legislative context there will be two types of financial companies that could fit with the role of Urban Development: � Financial Company recorded ex Art. 106 of the Financial Intermediaries

Legislation – can lend financial resources to the public, and eventually it can acquire shareholdings (at the date it is not clear whether or not this activity can be done) and make other activities not related to typical activities of the UDF.

� Not recorded financial company – it tipically aquires shareholdings in companies (i.e. Special Purpose Vehicle) and it can lend financial resources as prestito soci to shareholding companies.

Depending on the presence of private co-investors financial companies could be activated as the UDF following two procedures: 1. Selection of a private (or mixed capital) financial company granting it JESSICA funds

(in the form of venture or debt capital or mezzanine) by means of a call for tenders; 2. Selection of a new financial company capitalised with public resources within which

placing JESSICA funds thus avoiding a public call for tenders. Once selected or established, the financial company could invest in project vehicles created for the purpose to carry out the intiatives included in the IPSUDs in two ways: � injection of venture capital – the company (UDF) will invest directly in the project

vehicles by injecting capital in them. � Disbursement of loans – the company (in this case it will have to be registered ex Art.

106 of the Italian Banking Law) can disburse loans to special purpose vehicles and/or to Public Entities building projects.

URBAN DEVELOPMENT FUND - SECURITIES INVESTMENT TRUST

Securities investment trust funds invest most of their resources in securities. Within the macro category of securities investment trusts, the more coherent with the JESSICA mechanism are infrastructure securities investment trusts: securities trusts that invest primarily in infrastructure works, in particular in so-called hot (self-liquidating) works, without directly carrying out the project, but financing the special purpose vehicles. There are mainly two ways in which a securities investment trust could be utilised as Urban Development Fund: 1. Selection of an Asset Management company (Società di Gestione del Risparmio) for the

establishment of an ex novo fund in which JESSICA resources shall be injected eventually with other private resources;

2. Selection of an Asset Management company (Società di Gestione del Risparmio) and injection of JESSICA resources in an existing fund that invests them in projects within the IPSUD.

URBAN DEVELOPMENT FUND - BANKING CONVENTIONS

A banking convention is an instrument typically adopted by public entities to employ resources appropriated for specific tasks, normally, through making soft credit available.



27

In the JESSICA model, a banking convention could be the beginning for the constitution of an Urban Development Fund as a separate block of finance, taking the form of an agreement between the Managing Authority/ Holding Fund and one or more selected banks, with which: 1. the bank is granted a supply of credit dedicated to finance projects included in the Urban

Development Integrated Plans; 2. the procedures for the selection of projects and their assessment are defined; 3. the rules of the governance are defined. In particular two procedures could be followed: � the bank selects independently IPSUD projects in which to invest; � the bank has to receive the approval of the Managing Authority or the Holding Authority

before investing into projects. This means of intervention could establish a co-financing by the selected bank that, as all non ERDF resources included in the JESSICA mechanism, could be used to finance: � the same projects included in the IPSUD financed with JESSICA resources; � projects or planning costs relevant to the objectives of the UDF but not eligible for OP ERDF

financing and thus not accountable for community purposes. If a banking convention is signed and it provides for the opportunity for the selected bank to co-invest, two scenarios are possible: 1. the same interest rate for JESSICA ERDF resources and co-invested resources from the

bank; 2. a lower interest rate for JESSICA ERDF resources than that practiced on co-invested

resources from the bank. If it is decided to apply an asymmetric interest rate for resources of the bank and those of JESSICA, it is important to consider the nature of the entity to which the loans are granted, in particular there are two possible cases: 1. Public institutions – in this case JESSICA resources are lent to Municipalities or other

Public Institutions that use them to finance projects included in the IPSUDs. In this case there should not be problems if the JESSICA resources were lent at lower rates than those of the market since Public Institutions, not operating in the marketplace, are not subject to Community rules on State Aid. Another factor that should be considered in cases of granting JESSICA resources to public institutions is that, since they are Community funds, according to the Circolare 30th March 2010 of the Ministry of Economy and Finance, they should not fall within the domestic Stability Pact, even though on this point there is an ongoing debate on the extent of this regime to the national matching funds.

2. Project companies – in the case JESSICA funds are granted to project vehicles, the

option of using JESSICA funds to grant subsidized loans could encounter important obstacles connected to community rules on State Aid. These rules, which are analysed further in the following sections, establish that community funds cannot be used to finance interventions that create a competitive advantage for their beneficiaries. It is particularly problematic to define the minimum interest rate that JESSICA resources have to ask before the loan is considered State Aid. The Communication of the Commission 2008/C 14/02, that defines one way of determining minimum discount rates to apply, is of particular importance.



28

The Communication includes the following elements for setting the discount rate to be used: � the national 1-year IBOR rate; � rating category of the project/company; � the degree of collateralisation of the project/company.

Figure 10 - State Aid, spread applicable to the basic interest rate

Source: Comunication of Commission 2008/C 14/02

On the basis of these inputs, it is possible to determine the discount rate to apply to projects in order not to violate State Aid restrictions. In the conclusion of the Communication the question of the lack of data on the risk of the project in particular situations are dealt with, such as start-up companies or project vehicles (JESSICA as a typical case). In these situations, the application of a spread of at least 4% on the baseline rate is fixed. In such a context, the use of JESSICA to grant soft credit to facilitate projects could face significant problems that although it is not yet clear if for the JESSICA mechanism the method for setting interest rates presented above will be applied, or an ad hoc method will be adopted. URBAN DEVELOPMENT FUND - ASSETS DEDICATED TO A SPECIFIC TRANSACTION

The institution of assets dedicated to a specific transaction (Codice Civile Art. 2447 bis) allows Società per Azioni (Limited Liability Companies) to separate within their own assets, assets dedicate to the accomplishment of a specific transaction. Within the JESSICA model, the dedicated assets could be a possible way to create an UDF as separate block of capital within a Financial Institution. The separate block of capital would be dedicated to the financing (purchase of shareholdings or loan issue) of vehicles created to carry out urban development projects included in an IPSUD or the financing of Public Entities for the building of IPSUD projects. Two courses may be followed to establish an Urban Development Fund as assets dedicated to a specific task: 1. Selection of an existing private or mixed company, which shall establish within itself

some assets dedicated (within that JESSICA resources are included) for the purchase of buying shares of special purpose vehicles that pursues the projects included in the IPSUD.

2. Selection of a fully public capital company within which the JESSICA ERDF are placed as assets dedicated to a special transaction.



29

2.3. Investment Agreement and procedures

The Investment Agreement is the contract signed between the Urban Development Fund and the entity that realises out the work which determines how and with what specifications it is to be carried out.

Figure 11 - JESSICA, Investment Agreement


INVESTMENT AGREEMENT

The community rules do not refer to the Investment Agreement, so it may be assumed that it may be negotiated and structured between the parties freely and autonomously. Some elements of the Investment Agreement may define, for instance: � the characteristics of the investment plan (economic, financial, industrial, etc.); � the characteristics of the financing (form, duration, earnings, how to retrocede the profits

or interest, way out …); � how controversies between the parties will be handled; etc. The contents of the agreement will be deeply influenced by the procedure parties will decide to implement, in particular if initiatives will be carried out under public private partnerships or with traditional procedures in which the Pubic Entity builds the project. In particular two procedural options can be identified:

MANAGING AUTHORITY

HOLDING FUND

(optional)

LOCAL

AUTHORITY

Funding Agreement

URBAN

DEVELOPMENT FUND

Equity Loan

Fees

Equity Loan



Plan



Returns

PROJECT

RESPONSIBLE

Funds Returns Fees

Returns



30

� Public private partnerships – under this procedure the project is built and managed by private investors, therefore JESSICA resources (within the UDF) will be invested in private structures, that may be for instance a special purpose vehicle (SPV). Procedures for the selection of the SPV and for the structuring of agreements depend mainly on financing form (equity, and/or debt, and/or guarantees), on the owner of the land/building (i.e. Public Entity, private entity, etc.) and on specific investment features.

� Initiatives carried out by Public Entities – under this procedure the project is built by

the Public Entity and the UDF finances it by means of loan and/or guarantees. PROCEDURES

In this section, on the basis of the experiences observed in other European countries and of the community and national rules, some procedural scenarios will be defined. In particular two steps of the process will be analysed: 1. Selection of the Urban Development Fund; 2. Selection of the project vehicle. Below there is a figure that identifies the phases of the process that in principle have to be carried out.



31

Figure 12 - JESSICA procedure


PROCEDURES - SELECTION OF THE URBAN DEVELOPMENT FUND

Considering the lack of a general legislative base, in order to define main elements of this JESSICA process phase, procedures activated by the EIB (as Holding Fund) in other European countries will be analysed. In this section, in particular we will analyse in detail the case in which the Urban Development Fund (private) is selected through a public call for tenders composed of three phases: � PHASE 1 – possession of the formal and legal requirements; � PHASE 2 – appraisal of the general business plan; � PHASE 3 - appraisal of the tender and the signing of the Operational Agreement PHASE 1 – possession of the formal and legal requirements

In order to verify candidates are suitable (formally) to act as UDF, during this first selection phase a preventive control is made on the reliability of the participants in the process.

REGION MUNICIPALITY

IDUP Projects to be financed

HOLDING FUND

IDUP

project definition

URBAN

DEVELOPMENT FUND

“Accordo di programma”

call for tenders

Project feasibility study

Projects analysis

selection

Call for tenders

As foreseen by “D.Lgs. 163/06 Art. 143 – 153”

Insert in “Piano Triennale delle opere”

SPECIAL PURPOSE

VEHICLE Financial

shareholder

selection

Foreseen in the call for tenders

Strategic guidelines

Other shareholders



32

In particular control of legal requirements (i.e. involvement in legal proceedings, etc.); capital adequacy (i.e. rating, capitalisation, etc.); relevant experiences (e.g. urban development projects, etc.) as presented in the following flow chart.

Figure 13 - UDF selection phase I

Sources: Sinloc elaborations on UDF selection procedure used in Andalucia

PHASE 2 – appraisal of the general business plan;

In this phase of the process it will be required to candidates to structure some business plan of IPSUD projects considered most interesting, drawing hypothesis about management procedures and eventually proposing some changes to projects in order to improve their sustainability, and finally defining main characteristics of selected projects portfolio. Candidates will be selected on the basis of: proposed investment strategy, governance structure, project management models, etc. In the following flow chart main elements of this phase are reported.

Figure 14 - UDF selection phase II


During this phase an integration of available information about IPSUD projects could be needed, therefore ad hoc meetings with Local Authorities could be organized and/or some project hypothesis could be drawn.

F

CANDIDATES

B

C

D

Business plan phase

Team

and key expert

Investment strategy

Budget, financial

needs, cofinancing rate

Project

identification rationale

Legal and

governance structure

way out strategy

BASSO ALTO

C

D

CANDIDATI CANDIDATES

C

D

Formal requirements

capital

adequacy and relevant experiences

OK

OK

OK

OK

OK OK

OK

OK

OK

OK

OK

OK

OK OK OK

A

E

F

G

CANDIDATES

B

C

D

Legal requirements

exclusion phase

A

E

F

CANDIDATES

B

C

D

preliminary selection phase

Call for

tendersissued by the Holding Fund/

Managing Authority

Expression of interests reception

Follow up of

the selection process



33

PHASE 3 - appraisal of the tender and the signing of the Operational Agreement

Figure 15 - UDF selection phase III


During the third phase of the selection process, a selection of candidates will be made on the basis of: � how the UDF shall manage JESSICA resources; � structuring the compensation that the UDF asks for its activities; � liabilities of the parties in case of bankruptcy or other negative occurrences; � etc. Once the process will be over, selected candidates will sign the Operational Agreement and JESSICA resources will be transferred to the Urban Development Fund that, within a certain date, will have to invest them.

Relevant rights and obligations to the UDF, according to what already foreseen in submitted business plan

Financial conditions that will be applied to JESSICA resources that will be transferred

UDF responsibilities in case of default and other similar cases

Offert

SELECTED UDF

D

Selection

Sign of the Operative Agreement

Selected UDF will define: definitive project portfolio, operations timetable, etc.

CANDIDATES

selection

Sign Offert

C

D

C

D



34

PROCEDURES - SELECTION OF THE PROJECT RESPONSIBLE

The last phase of the process considers the investment of JESSICA considers from the Urban Development Fund into public private partnerships or other projects within Urban Development Integrated Plans. On the basis of the procedure that will be used for the building and management of projects, the UDF can have several roles, in particular: 1. Investor in project vehicles – the UDF invests JESSICA resources in project vehicles as

an equity investment, gaining dividends and capital gains. In this scenario JESSICA resources will have to be invested complying with State Aid rules.

2. Borrower to project vehicles – in this case the UDF lends JESSICA resources to project vehicles, even in this case JESSICA resources have to be borrowed at an interest rate coherent with State Aid rules.

3. Borrower to Public Entities – the UDF lends JESSICA resources to Public Entities responsible for the building and management of IPSUD projects. Loaned resources will have to be return to the UDF with defined interests (in this case the State Aid regulation does not apply).

In the following sections a brief description of each procedure will be presented. UDF investor in project vehicle

This hypothesis can be assimilated to the one stated by the Italian legislation (Decreto Legislativo 163/2006 e ssm Art. 143 – 153) for the realization of public private partnership initiatives, with the Public Entity acting as procuring entity and the UDF acting as shareholder of the project vehicle.



35

Figure 16 – UDF co investor in project vehicles

Activities that could be carried out by process actors, are the following: 1. The Local Entity owner of the area/building on which the project will be carried out signs

an agreement (Accordo di Programma) with the Region (Managing Authority) and other public entities involved in the process. The agreement defines the perimeter of the project in the light of actual master planning, procedures, etc.

2. The UDF (future co-investor in the project) participates actively in the definition of the Accordo di Programma, eventually supporting the Local Entity in defining a sustainable procedural scenario, able to attract industrial and financial counterparts.

3. Within the Accordo di Programma will be defined mechanisms and procedures of (eventual) in kind contributions of land or buildings from the Local Authority to the UDF and/or project vehicles.

4. Once the Accordo di Programma is signed and all procedural obligations have been fulfilled, the Local Authority will activate a call for tenders (as stated by the Decreto Legislativo 163/2006 Art. 143 comma 1) for the building and management of the project.

5. Once the winning candidate is selected, on the basis of obligations stated in the Accordo di Programma signed, the UDF will act in the project as shareholder of the project vehicle.

UDF borrower to project vehicles

This procedure is very close to the one previously described (UDF investor in project vehicle) but in this case the UDF will not invest JESSICA resources acquiring shareholdings of project vehicles but lending funds to the project vehicle. In the flow chart that follows main elements of this procedure are briefly presented.

REGION MUNICIPALITY

UDIP Projects

to be financed

HOLDING FUND

UDIP

project definition


“Accordo di

programma”

call for tenders


Projects analysis

selection

Call for tenders



PROJECT VEHICLE Shareholder of the SPV



Other shareholders



36

Figure 17 – UDF lender to project vehicles

UDF borrower to Public Entities

This procedural hypothesis calculates that IPSUD projects are realised with traditional procurement procedure and that JESSICA resources are borrowed to the UDF as loans (eventually subsidized loans) to Local Authorities (Municipalities) that will return them to the UDF under agreed terms and timetables.

REGION MUNICIPALITY

UDIP Projects to be financed

HOLDING FUND

UDIP

project definition

URBAN

DEVELOPMENT FUND

“Accordo di programma”

call for tenders


Projects analysis

selection

Call for tenders



PROJECT VEHICLE loans



shareholders



37

Figure 18 – UDF borrower to Public Authority

Activities that could be carried out by process actors are the following: 1. The Local Entity owner of the area/building on which the project will be carried out signs

an agreement (Accordo di Programma) with the Region (Managing Authority) and other public entities involved in the process. The agreement defines the perimeter of the project in the light of actual master planning, procedures, etc.

2. Within the Accordo di Programma will be defined, in case, mechanisms and procedures of in kind contributions of land or buildings from the Local Authority to the UDF and/or project vehicles.

3. Once the Accordo di Programma is signed and procedural obligations have been fulfilled, the Local Authority will activate a call for tenders (as foreseen by the Decreto Legislativo 163/2006 Art. 46-141) for the selection of a main contractor which will realise the project.

4. The UDF will lend to the Public Authority a subsidized loan that the Public Authority will use to pay for the building of the project.

5. The UDF, as required by State Aid regulation, may eventually even not apply an interest rate on resources borrowed to the Public Authority.

REGION

MUNICIPALITY

UDIP Projects to be financed

HOLDING FUND

project definition


“Accordo di

programma”

Project

Call for tenders

As foreseen by “D.Lgs. 163/06 Art. 46 - 141”


MAIN CONTRACTOR


JESSICA resources as subsidized loans

capital and interests (if required)



38

3. JESSICA PILOT PROJECT IN TUSCANY In order to evaluate a potential start up of JESSICA in the Tuscany Region, three pilot initiatives within IPSUD have been analysed: � Piombino – urban, procedural, economic and financial analysis of the whole IPSUD and of

two ancillary initiatives, within a public private partnership framework, in which the UDF invests as equity shareholder of the SPV responsible for the building and management of the initiatives.

� Livorno – urban, procedural and partly economic and financial analysis of “Scoglio della

Regina” and “Dogana d’acqua” initiatives, in a scenario in which the Municipality awards a contract to a third company for the building of the project using also ERDF Funds.

� Firenze – urban, procedural, economic and financial analysis of the IPSUD project to re-

develop and define new functions of the former Monastery of Sant’Orsola and of another building (Villa Mondeggi Lappeggi) with tourism functions. The initiative is analysed within a public private partnership framework.

Even if the three initiatives are in an advanced level and they are already included under the “grant” framework, to reach a minimum financial sustainability level, to assure the revolving character, some changes to projects have to be made. In particular for Piombino and Florence, areas and buildings outside the IPSUD perimeter have been re-considered, in order to sustain project returns. With respect to the Livorno initiative, procedure assumed by the Municipality has been maintained, however this decision does not allow for the revolving of invested resources, therefore a more qualitative analysis has been deployed.



39

3.1. Piombino – IPSUD analysis Piombino pilot project considers the urban, procedural, economic and financial analysis of the whole IPSUD and of two external areas that could be included to increase the financial sustainability of the initiative.

Figure 19 – Urban perimeter of intervention

The “Piano Particolareggiato Città Futura” (Future City Master Plan) calculates the transformation of the urban area near the steel industry, with the aim of creating a new urban centre with a different urban and functional organisation. The plan calculates four different areas of intervention, corresponding to four essential macro components of the whole urban transformation.

A Zone l’abitare sostenibile (Sustainable living)

B Zone la porta urbana (The Urban gateway)

C Zone produrre e innovare (Producing and renewing)

D Zone Parco del ferro e dell’acciaio (Steel and iron park)

The “Città Futura” (Future city) plan includes an urban area of about 34 ha with some industrial plants and infrastructures partly dismissed and contiguous urban areas that constitute a vast reserve of territory for the urban development of the city.



40

Within the aforementioned zones, four IPSUD projects are planed, as reported in the following figure.

In the following paragraphs, a brief description of the whole master plan “Città Futura” will be given, defining area and projects:

A Zone (l’abitare sostenibile) – this area is not included in the IPSUD. It has a dimension of about 140 thousand square meters, entirely owned by the Piombino municipality. A residential intervention consisting of about 280 flats, plus 690 sqm of commercial activities and the regeneration of green areas in the surroundings is designed in this area.

Master plan Città Futura

� Science Park

� Music and dance hall

� Steel and iron museum

� Steel and iron park

Contratto di Quartiere II

� Civic centre



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PIOMBINO – ECONOMIC AND FINANCIAL ANALYSIS

For this evaluation study a public private partnership procedure including the building and management process also private investors is assumed.

B Zone (la porta urbana) – this area is partly included in the IPSUD, it has a dimension of about 44 thousand sqm, entirely owned by the Municipality and it represents the gateway of the Piombino city. An intervention of about 16.500 sqm that includes a music and dance hall, sport facilities regeneration, commercial and tertiary buildings is designed in this area.

B

B

B

C Zone (produrre e innovare) – this area is included in the IPSUD. It has a dimension of about 36 thousand sqm, entirely owned by the Municipality. On this area an intervention of about 16.500 sqm for the building of four blocks of a Science Park is designed.

D Zone (parco del ferro e dell’acciaio) – this area is included in the IPSUD. It has a dimension of about 116 thousand sqm, entirely owned by the Municipality. On this area two actions are designed: the creation of a park focused on steel industry story and the organisation of the steel and iron museum by the regeneration of an old warehouse.

Civic Centre – this building is included in the IPSUD. The project aims its regeneration for social functions (meeting rooms, small hospital spaces, etc.) for the urban development of the area.



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The initiative includes some works within the IPSUD and some outside it, combined in one initiative. In particular to ensure some financial sustainability to the initiative, the business plan assumes the building and (partial) management of the following projects: � C Zone – the business plan foresees the building and management of the four science

parks. � Photovoltaic Park – this project is not included into the IPSUD but the hypothesis of

building a photovoltaic park has been strongly required by the Piombino Municipality. � Civic Centre – this project is included in the IPSUD. In the business plan building is

included but the management is left to the Municipality. � A Zone – the building and management of the whole residential complex is considered in

the business plan. In order to reach a minimum financial sustainability, the presented business plan does not include the following IPSUD works: steel and iron museum, music and dance hall and buildings included in B Zone (la porta urbana). Procedural Plan

In the assumed scenario the UDF acts as shareholder of the project to which it is assumed that the Municipality will give a concession of the interested areas. The following scheme shows the relationships among involved structures.

Figure 20 – Relational scheme


Input data – Building costs

Contratto

COMUNE

Rimborso

Equity

SOCIETÀ DI

PROGETTO (SPV)

COSTRUTTORE PROGETTISTA SOCI SPV

• Costruttore

• Gestore

• Finanziari

• FSU

BANCA ASSICURAZIONE

Contratto di progettazione

Costo di progettazione

Contratto di costruzione

Costo di costruzione

Dividendi

Debito

Premi

Concessione Diritto Superficie

PARCO FOTOVOLTAICO

CENTRO CIVICO

CENTRO RESIDENZIALE

INCUBATORI TECNOLOGICI

GESTORE

Contratto di gestione Ricavi da gestione

Locazione e cessione

costruzione



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The implemented business plan foresees total investment cost (building expenses, technical expenses, etc.) of about 69,5 €/mln (VAT excluded), divided into 29,8 €/mln of IPSUD works and 39,5 €/mln related to the A zone.

Source: Sinloc elaborations on Piombino Municipality data.

Input data – Revenues

In order to estimate revenues of the analysed initiatives, data from the National Territory Agency (Agenzia del Territorio) and a private data base (Consulente Immobiliare) have been used. In particular a selling price equal to 2.200 €/sqm for residential functions; 1.600 €/sqm for commercial activities; 1.400 €/sqm for tertiary functions and 1.000 €/sqm per parking is estimated.

With respect to revenues, the following assumptions have been made: � Selling of the whole residential complex within the two years after the conclusion of the

building phase; � Renting of science park spaces and some close parking areas for the entire length of the

concession (30 years) ; � Revenues for a 20 years period from the photovoltaic park.



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In the following table revenues input data are reported.

Figure 21 – Expected revenues

Source: Sinloc elaborations on Piombino Municipality data.

Input data – Management costs

The special vehicle costs have been estimated as follows: � Sales – a parametric cost equal to 1,5% of revenues has been anticipated for sold assets

at the moment of sale. � Leases – an annual cost equal to 2% has been estimated for Science Park spaces and

residential and commercial functions of the A Zone (for the period before the sale), while with respect to parking area a parametric annual cost of 200 Euro per place for cars has been computed and for the photovoltaic park an annual cost of about 60 thousand Euro is assumed.

� Municipal Building Tax (ICI) – on the basis of similar experience, the following annual

tariffs have been computed: − Tertiary -> 8,5 €/sqm − Commercial -> 8 €/sqm − Residential -> 5 €/sqm − Parks -> 3 €/sqm

� Maintenance costs – two interventions (every 10 years) have been assumed, for an

amount of about 3% of the investment cost, for a total amount of about 3,3 Million Euro. Financial input data – Financial source

The financial structure of the special purpose vehicle is featured by a 40% risk capital (partly financed by JESSICA resources) and 60% debt capital. The total financial needs of the investment is calculated as about 69,6 Million Euro, supplied as follows: � Equity – 27,8 Euro million



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� Debt – 41,7 Euro million The cost of debt is assumed equal to 4,5%, composed by a risk free rate equal to 2% and a risk spread of 2,5%. The cost of capital is calculated equal to 8,8% and equal to the risk free rate (2%) plus the mathematical product of risk premium (5,5%) times beta (1,25).

Project return

On the basis of assumptions made, the following about project financial sustainability have been computed: � Project IRR (post tax) –> 4,16% � Equity IRR (partly JESSICA returns) -> 3,96% Considering that JESSICA resources are part of special purpose vehicle shareholding capital, their return is equal to the equity of the company and therefore 3,96% per year. This result represents a good starting point to design the project in a way to be able to attract external private capital (or capital of other public entities) needed for the financing of activities.



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3.2. Livorno – Dogana d’Acqua and Scoglio della Regina The pilot project for Livorno Municipality calculates the urban, procedural and (partly) economic and financial analysis of two projects, both of them included in the IPSUD and related to the technological development: Dogana d’acqua e Scoglio della Regina.

Both the projects designed at a definite level are coherent with Livorno master plan and both buildings are included in the Structural Plan (Piano Strutturale) approved in 1997 (D.P.G.R. n.145/1997).

SCOGLIO DELLA REGINA

The project calculates a change of functions and the renovation of the main building, nowadays abandoned, and the recovery of contiguous spaces.

Scoglio della Regina

Dogana d’Acqua

Located close to the sea, in an area recently regenerated, and close to important shipyards, Scoglio della Regina is an abandoned and crumbling building where once there were public baths.

Dogana d’Acqua was built in 1830s and was the first customs house of the north side of the city. It has been bombed during the World War II and now only some parts are visible.

Scoglio della Regina

Dogana D’Acqua



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With the regeneration of the existing building and its enlargement, a large costal area will be regenerated, offering public utility spaces. The aim of the project is to favour the development of cultural and scientific activities within the field of maritime biology with the establishment of an international research centre

focused on innovative technologies for maritime sector (in particular maritime robotic), hosting several Entities and Research Institutions working on the field, in particular: � Centro di Robotica Marina of the Scuola Superiore S’Anna of Pisa � Centro Interuniversitario di Biologia Marina � Capitaneria di Porto of Livorno The main needs of the research centre are: � Research spaces – laboratories, offices, etc. � Teaching spaces – classrooms, conference hall, study rooms, etc. � Administrative and service spaces. The project calculates the regeneration and renovation of a total surface of about 1.800 sqm (superficie lorda di pavimento) with an investment of about 7 Million Euro (VAT excluded), that will be financed (as defined by the deliberazione della Giunta Comunale n.329 of 24 September 2010): � € 2.808.000 subscribing a loan; � € 4.212.000 with the IPSUD grant. The buildings will be freely given to the three structures aforementioned, which will have to bear with ordinary maintenance and management costs.

The building is located on a 5.700 sqm square on the sea, linked to the cost by means

of a long bridge. On the square there are two

buildings.

The two buildings have currently a covered surface of 865 sqm.



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Figure 22 –Scoglio della Regina building costs

Source: Livorno Municipality, Sinloc elaborations

DOGANA D’ACQUA

The project considers the regeneration and refurbishing redefinition of the Dogana d’Acqua building.

The customs house was located on Navicelli channel and it regulated the waterway commerce between Pisa and Livorno. During 1800s and in the beginning of 1900s the building was refurbished in order to improve the road system. The customs house was then heavily bombed during the Second World War



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and nowadays it is a ruined building. The project plans to build two new buildings and to uncover the former water channel.

Dogana d’Acqua initiative aims, through an urban regeneration process, to establish a higher specialisation pole on logistics connected to the research centre of Scoglio della Regina.

Figure 23 – Dogana d’acqua

Source: Livorno Municipality, Sinloc elaborations

The two aforementioned buildings will host research and experimental centres of several Institutes and Research Entities, such as: � PST-BIC Livorno srlu, operating since 1989 supporting technological start up companies; � Scuola Superiore Sant’Anna, operating since 1991 on applied research on interactive

robotic, simulators, virtual environments and mobile robotic; � Engineering Faculty of Pisa. The project will regenerate a 2.500 smq area with a 6,9 Million Euro investment (VAT excluded), that will be financed (as defined by the deliberazione della Giunta Comunale n. 326 del 24 September 2010): � € 3.989.000 IPSUD grant � € 2.294.000 loan � € 405.889 urbanisation cost reuse � € 170.000 State contribution Buildings will be freely given to the three structures aforementioned that will have to bear the ordinary maintenance and management costs.



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Figure 24 – Dogana d’Acqua building cost

Source: Livorno Municipality, Sinloc elaborations.

Prcedural hypothesis and JESSICA option

Livorno Administrative Authority assumed, for both projects, to follow a procedure in which the Municipal Authority is responsible for the building of the projects: selecting the building company and financing expenses (also with IPSUD resources). The management phase will be governed by third parties (in particular Research Entities) that will freely use spaces, bearing ordinary expenses, while extraordinary maintenance will remain as the activity of Livorno Municipality. Identified procedure makes the activation of JESSICA difficult, because no returns from the investment are foreseen. However JESSICA could be used with the UDF lending of JESSICA resources to the Municipality, that would have to return them back with (eventually) interest. This process is very close to subsidized loans usually supplied by national or regional development banks to Public Entities. An advantage of JESSICA loans with respect to traditional subsidized loans is that (at least for ERDF resources) JESSICA resources do not have to comply with constrains of the Internal Stability Pact and moreover, they do not have constrains about the minimum interest rate to be applied.



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3.3. Firenze – former Sant’Orsola monastery and Villa Mondeggi The Provincial administration of Florence chose as JESSICA pilot project the regeneration and new function definition of the Sant’Orsola monastery and the Villa Mondeggi Lappeggi (Mondeggi Lappeggi residence) with tourism function.

SANT’ORSOLA FORMER MONASTERY

The Provincial administration aims at regenerating the former monastery within a larger urban development plan involving the whole district, creating an excellence centre including: the academy, Palazzo Medici and San Marco.

The project aims at promoting new functions, with a surface of about 13 thousand square meters (21.687 smq), plus connection spaces (stairs, corridors, etc.) for about 400 sqm and about 3.000 sqm for parking.

Sant’Orsola monastery

The Sant’Orsola former monastery is located in the historical centre of Florence among via Guelfa, via Panicale, via S Orsola and via Taddea. The building is eight levels high (five of them are out of the ground).

Villa Mondeggi

Villa Mondeggi is located about 7km far from Florence centre and it is well connected to both local road system and to the entry of A1 highway.

The building complex, funded in 1327 is a huge area of more than 16 thousand square meters, with a covered surface (superficie coperta) of about 3.680 m2 and internal courtyards of about 1.700 m2. The initiative aims at: � social and functional recovery of the monument; � urban regeneration of the vast central area; � creation of urban spaces along the district; � offering an integrated system of cultural services,

increasing also available learning spaces.



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Figure 25 – Sant’Orsola monastery surface

Source: Provincial Administration of Florence, Sinloc elaborations

VILLA MONDEGGI LAPPEGGI

Villa Mondeggi is a building complex currently used as headquarters of a farm factory (owned by the Provincial Administration of Florence) cooperating with the Faculty of Agriculture and Forestry of the University of Florence and the National Research Centre.

� The building is located within an area of about 414 thousand square meters, with several

blocks with a total surface of 5.800 sqm. � The huge garden contains fountains, lanes, etc. � The building complex is located on an agricultural area (as stated by the Urban Regulation)

with peculiar landscape characteristics and the building complex itself is indexed as a special interest building

In order to achieve a minimum economic and financial sustainability to the regeneration of the former Sant’Orsola monastery, for Villa Mondeggi Lappeggi a turism function is assumed.



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Figure 26 – Villa Mondeggi surface and functions

Source: Provincial Administration of Florence, Sinloc elaborations.

FIRENZE – ECONOMIC AND FINANCIAL ANALYSIS

A public private partnership procedure is assumed, realizing both “Sant’Orsola” and “Villa Mondeggi” projects within a unique framework. In the business plan the following assumptions are made: Sant’Orsola former monastery

� Building and management: tertiary and commercial functions, learning spaces, international academy of fine arts and linked guest rooms;

� Building without management: all other functions (auditorium, centre for integration, police spaces, museum, etc.)

Villa Mondeggi Lappeggi

� Building and management: all functions, with an assumption to realize 60 rooms. Procedural hypothesis

In the assumed scenario the UDF acts as shareholder of the project to which the Municipality is assumed to give 30 years concession on interested areas. In the following scheme main relationships among involved structures is reported.

Given the absence of even a preliminary project design for Villa Mondeggi, a 60 rooms resort is elaborated as an assumption.



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Input data – building costs

The implemented business plan calculates total investment cost (building expenses, technical expenses, etc.) of about 34 €/mln (VAT excluded), divided into 21,7 €/mln related to Sant’Orsola works and 12,2 €/mln related to Villa Mondeggi. Because of the lack of certain information, VAT has been assumed equal to 20% for both projects.

Contratto

PROVINCIA

Rimborso

Equity

SOCIETÀ DI

PROGETTO (SPV)

COSTRUTTORE PROGETTISTA

SOCI SPV

• Costruttore

• Gestore

• Finanziari

• FSU

BANCA ASSICURAZIONE

Contratto di progettazione

Costo di progettazione

Contratto di costruzione

Costo di costruzione

Dividendi

Debito

Premi

Concessione Diritto Superficie

SANT’ORSOLA (alcune funzioni)

VILLA MONDEGGI

GESTORE

Contratto di gestione Ricavi da gestione

Locazione e cessione

costruzione

SANT’ORSOLA (funzioni sociali)



55

Figure 27 – Building costs


Input data - Revenues

In order to estimate revenues of the analysed initiatives, data from the Territory National Agency (Agenzia del Territorio) and ad hoc estimates have been used. In the business plan a 30 years concession period is assumed. Sant’Orsola – on the basis of aforementioned input data, it has been computed a prudential annual revenue flow equal to about 830 thousand Euro.

Figure 28 – Sant’Orsola revenues



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Considering the preliminary phase of the project and the lack of reliable data and information, revenues connected to learning spaces, international fine arts academy and guest rooms have been estimated as the lowest tertiary rent (as reported by the National Territory Authority) applying a 15% discount.

Villa Mondeggi – considering the total absence of project information, renting revenues and costs have been estimated on the basis of comparable initiatives, assuming daily revenues equal to 250€ per room of which 50€ related to food and bar activities. On the basis of these assumptions, annual revenues are computed as 2,7 Million Euro.

Figure 29 – Villa Mondeggi revenues


Input data – Management costs

The costs have been estimated as follows: � Leases – an annual cost equal to 2% has been estimated for all Sant’Orsola functions,

while for Villa Mondeggi it has been assumed (on the basis of similar cases) an annual cost equal to 60% of annual revenues.

� Municipal Building Tax (ICI) – on the basis of similar experience the following annual

tariffs have been computed: − Tertiary -> 8,5 €/sqm − Commercial -> 8 €/sqm − Residential -> 5 €/sqm − Parks -> 3 €/sqm

� Maintenance costs – two interventions (every 10 years) have been assumed, for an

amount of about 3% of the investment cost, for a total amount of about 1,9 Million Euro.

Financial input data – Financial source



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The financial structure of the special purpose vehicle is featured by a 40% risk capital (partly financed by JESSICA resources) and 60% debt capital. The total financial needs of the investment is calculated as about 35,5 Million Euro, supplied as follows: � Equity – 14,2 Euro million � Debt – 21,3 Euro million The cost of debt is assumed equal to 4,5%, composed by a risk free rate equal to 2% and a risk spread of 2,5%. The cost of capital is calculated equal to 8,8% and equal to the risk free rate (2%) plus the mathematical product of risk premium (5,5%) times beta (1,25).

Project returns

On the basis of hypothesis made, the following results about project financial sustainability have been computed: � Project IRR (post tax) –> 4,27% � Equity IRR (partly JESSICA returns) -> 4,13% Considering that JESSICA resources are part of special purpose vehicle shareholding capital, their return is equal to the one of equity of the company and therefore 4,13% yearly. This result represents a good starting point to design the project in a way that is able to attract external private capitals (and or capital of other public entities) needed for the financing of activities.

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