JESSICA EVALUATION STUDY FOR GALICIA · JESSICA GALICIA FINAL REPORT 1 JESSICA EVALUATION STUDY FOR...

JESSICA EVALUATION STUDY FOR GALICIA

Ref.: IR812

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.

FINAL REPORT

15/09/10

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JESSICA EVALUATION STUDY FOR GALICIA

Final Report

IR 812

Contents:

1 INTRODUCTION ........................................................................................ 5

1.1 What does JESSICA represent within the Structural Fund investment and expenditure programmes? .................................................................... 5

1.2 JESSICA and Galicia .......................................................................... 5

1.3 Objectives of the evaluation study ................................................... 6

1.4 Methodology and procedures for conducting the study .................... 6

1.5 How is the JESSICA initiative structured? .......................................... 7

2 TERRITORIAL AND URBAN FRAMEWORK IN GALICIA ................................. 9

2.1 Geographical description ................................................................. 9

2.2 Economic Activity ........................................................................... 12

2.3 Population and urban system ......................................................... 14

2.4 Territorial and urban planning in Galicia ........................................ 19

2.5 Urban Initiative 2000‐ 2013 ............................................................ 22

2.6 Integrated Refurbishment Areas .................................................... 23

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2.7 JESSICA planning framework .......................................................... 25

2.7.1 Territorial planning .................................................................... 26

2.7.2 Sectoral planning ....................................................................... 26

2.7.3 Urban Planning .......................................................................... 26

3 THE 2007‐2013 OPERATIONAL PROGRAMME IN GALICIA ......................... 27

3.1 Priority Axes ................................................................................... 28

3.1.1 Axis 1: Development of the knowledge economy (R&D, Education, Information Society and ICT) ................................................................... 28

3.1.2 Axis 2: Enterprise innovation and development .......................... 28

3.1.3 Axis 3: Environment, protection of natural resources, management, distribution and treatment of water, risk prevention ........ 29

3.1.4 Axis 4: Transport and Energy ...................................................... 29

3.1.5 Axis 5: Sustainable local and urban development ....................... 29

3.1.6 Axis 6: Social infrastructure ....................................................... 29

3.1.7 Axis 7: Technical support and reinforcement of institutional capacity .................................................................................................. 30

3.2 Availability of Funds ....................................................................... 30

3.3 JESSICA and its alignment with the ERDF OP ................................... 32

3.3.1 Possibilities for the JESSICA initiative under the 2007‐2013 Operational Programme .......................................................................... 32

3.3.2 Axis 2, Issue 8: Other investments in companies ......................... 33

3.3.3 Axis 4, Issue 41: renewable energy. Biomass .............................. 33

3.3.4 Axis 4, Issue 43: Energy efficiency, co‐generation and energy management .......................................................................................... 33

3.3.5 Axis 4, Issue 52: Development of clean urban transport .............. 33

3.3.6 Axis 5, Issues 56 and 57: protection and development of natural heritage ‐ Other grants to improve tourism services ................................ 33

3.3.7 Issue 61: Integrated urban regeneration projects ....................... 34

4 THE FRAMEWORK FOR THE DEVELOPMENT OF JESSICA PROJECTS IN GALICIA .......................................................................................................... 35

4.1 The experience of public‐private funding and initiatives in Galicia .. 35

4.2 JESSICA and ERDF fund managers ................................................... 35

4.2.1 Phase I: Initial context and general explanation of the JESSICA initiative ................................................................................................. 36

4.2.2 Phase II: Analysis of possible UDFs in the field of land, building and energy .................................................................................................. 37

4.3 JESSICA and other institutional and economic agents ..................... 39

4.4 Role and attitude regarding JESSICA at regional credit institutions . 39

4.4.1 The financial system in Galicia .................................................... 39

4.4.2 Attitude of financial intermediaries to JESSICA ........................... 39

5 ELIGIBLE PROJECTS .................................................................................. 41

5.1 Eligibility criteria ............................................................................ 41

5.1.1 Eligibility alignment of ERDF OP projects .................................... 41

5.1.2 Sustainable planning framework ................................................ 41

5.1.3 Respect for competition laws ..................................................... 42

5.1.4 Accumulation of grants .............................................................. 42

5.1.5 Other specific JESSICA initiative eligibility criteria ....................... 42

5.2 Project included in Axis 4: Energy and Transport ............................. 42

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5.2.1 Renewable energy projects. Priority Issues 40, Solar, and 41, Biomass. ................................................................................................. 42

5.2.2 Energy efficiency in buildings line. Priority Issue 43. ................... 43

5.2.3 Energy efficiency in services and urban amenities. Issue 43: Energy efficiency, co‐generation and energy management .................................. 44

5.2.4 Energy transformation. Priority Issue 43 ..................................... 44

5.2.5 Line of finance for public transport (in partnership with the Directorate‐General for Mobility). Priority Issue 52: Development of clean urban transport ...................................................................................... 45

5.2.6 Selected projects ........................................................................ 45

5.3 Axis 2, Enterprise Development and Innovation. Issue 8: Other investments in companies .......................................................................... 45


5.4 Axis 5. Accommodation for students and other service amenities ... 46


5.5 Axis 5, Issues 56 and 57: protection and development of natural heritage ‐ Other grants to improve tourism services ................................... 46


6 DESCRIPTION OF THE PROJECT AND FINANCIAL MODELLING ................... 47

6.1 Development with JESSICA funding ................................................. 49

6.2 High environmental quality public buildings ................................... 52

6.2.1 Description of the project ........................................................... 52

6.2.2 Initial hypotheses: Project development without JESSICA funding. . .................................................................................................. 54

6.2.3 Development with JESSICA funding. ........................................... 61

6.3 Installation of biomass plants ......................................................... 65

6.3.1 Description of the project .......................................................... 65



6.4 Renewal of efficient urban bus fleets (financial leasing) ................. 75

6.4.1 Description of the Project .......................................................... 75



6.5 Sensitivity Analysis ......................................................................... 85

6.6 Summary ....................................................................................... 89

6.6.1 Project eligibility criteria ............................................................ 89

6.6.2 Profitability ............................................................................... 90

6.7 Other projects analysed ................................................................. 93

7 JESSICA STRUCTURE FOR GALICIA ............................................................ 95

7.1 The three JESSICA funding tools: Holding Fund, Urban Development Fund and Projects ...................................................................................... 95

7.1.1 Holding Fund (HF) ...................................................................... 95

7.1.2 Urban Development Funds (UDFs) ............................................. 95

7.1.3 Eligible projects ......................................................................... 96

7.2 JESSICA structure for Galicia ........................................................... 96

7.3 Alternatives for the design of a UDF in Galicia ................................ 97

7.3.1 Basic architecture ...................................................................... 97

7.3.2 Distinctive aspects of JESSICA in Galicia ...................................... 98

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7.3.3 Other possible structures for the Galician UDF ........................... 98

7.4 Outcomes for the UDF and the HF ................................................... 99

8 CONCLUSIONS: JESSICA SOLUTION FOR GALICIA .................................... 109

1 STUDENT ACCOMMODATION ON THE ELVIÑA UNIVERSITY CAMPUS, IN A CORUÑA. ...................................................................................................... 113

1.1 Description of the Project ............................................................. 113

1.1.1 Urban development planning context ...................................... 114

1.1.2 Desired objectives .................................................................... 114

1.1.3 Development and administration agents .................................. 115

1.1.4 Action periods .......................................................................... 115

1.1.5 Estimate of costs and revenues ................................................ 115

1.2 A‐7‐38 Arieiro area, in Vigo .......................................................... 116

1.2.1 Description of the project ......................................................... 116




1.2.5 Execution Deadlines ................................................................. 118

1.3 Estimate of costs and revenues ..................................................... 118

2 PACIOS‐BAAMONDE ENTERPRISE PARK ................................................. 119

2.1 Description of the Project ............................................................. 119




2.1.4 Execution Deadlines ................................................................. 121


3 MONFORTE DE LEMOS DRY PORT ......................................................... 123

3.1 Description of the project ............................................................. 123


3.1.2 Desired objectives ................................................................... 125


3.1.4 Deadlines ................................................................................. 126


3.2 "Fishing Port/Marina Project for Improved Port/Town Integration in Muros" .................................................................................................... 127

3.2.1 Description of the Project ........................................................ 127


3.2.3 Desired objectives ................................................................... 127


3.2.5 Deadlines ................................................................................. 127


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1 INTRODUCTION

1.1 What does JESSICA represent within the Structural Fund investment and expenditure programmes?

JESSICA is the acronym for "Joint European Support for Sustainable Investment in City Areas", a European Commission initiative developed jointly by the European Investment Bank (EIB) and the Council of Europe Development Bank (CEDB).

The initiative allows Managing Authorities in the Member States to use a part of the provisions from the Structural Funds to make repayable investments in projects registered as part of an integrated urban sustainable development plan.

This thus represents a new way of employing structural funds by means of financial tools allowing for the development of projects which:

• Have a profitability threshold.

• Can be implemented by means of public‐private partnerships.

• Provide a return on the Structural Funds (mainly ERDF) for subsequent investment in the region to which they were allocated.

• Projects registered as part of an Integrated Plan for Sustainable Urban Development (Regulation EC 1083/2006)

JESSICA applies to urban sustainability projects, in other words projects with a clear impact on the activity, economy and efficiency of the city. Projects typically funded by JESSICA include, among others, operations to regenerate inner city areas, to recover obsolete or polluted industrial land, to support sustainable urban mobility, to create amenities and service centres, along with energy efficiency projects in cities.

JESSICA represents a change in the culture of fund managers, accustomed to using their budgets to finance projects on a non‐reimbursable basis. JESSICA allows the funds to be recovered by means of funding mechanisms which may involve an equity stake, loans or guarantees given to the project developers.

The importance of this tool is even greater given the possibility that the forthcoming Operational Programme for Galicia could require that a proportion of the funds allocated be applied by means of tools allowing for repayment. It has therefore been deemed desirable to publicise this tool among the managing authorities of the Galician regional government, the Xunta de Galicia, and to draw up an evaluation study identifying the problems and opportunities in the future implementation of the JESSICA tool as part of the 2007‐2013 Operational Programme.

1.2 JESSICA and Galicia

In 2008 the Xunta agreed implementation of an evaluation study for the introduction of the JESSICA initiative within its Autonomous Region. The study is in its characteristics and methodologies similar to many other evaluation studies conducted by the EIB in numerous regions of Europe.

The EIB has so far analysed the viability of implementing JESSICA in 36 European regions/countries, establishing the basic management structures for the initiative in 9 regions/countries. JESSICA has currently been dedicated 931 million Euros from Structural Funds under the 2007‐2013 Operational Programme intended for the implementation of Projects and Urban Development Funds (UDFs) as pilot schemes.

The JESSICA Evaluation Study for Galicia was contracted from the company Equipo de Técnicos en Transporte y Territorio (ETT, S.A.) in September 2009. During autumn of that year and in the first half of 2010 the technical support team performed their work with the inestimable assistance of the Xunta's Directorate‐General for Planning and Funding (the DXPF) and those responsible for JESSICA at the EIB, identifying projects, analysing opportunities, getting to know the various public and private agents with an interest in JESSICA and the structuring of a possible application of JESSICA in Galicia.

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1.3 Objectives of the evaluation study

The EIB's mandate for the preparation of this study covers the following objectives:

1. Analyse the 2007‐2013 Operational Programmes affecting Galicia and having components within the scope of urban policy in order to establish the margin available in the use of JESSICA.

2. Diagnose the urban planning situation in Galicia in order to ascertain the practical level of application of integrated planning methods and indicate formulae for the swift development thereof.

3. Establish the interest in employing financial engineering mechanisms in Galicia in order to implement schemes in urban settings, and specifically within the context of Structural Fund intervention. Demonstrate in particular the potential effect of the UDFs in terms of leverage and acceleration of investment. Ascertain whether there is in fact unsatisfied demand for financial engineering instruments for urban regeneration and renewal operations which would be open to the JESSICA initiative.

4. Analyse the legal and operational viability of UDFs in Galicia and their potential municipal, metropolitan, provincial or regional status.

5. Identify the main protagonists (public and private) in the field of urban renewal, along with the existing investment structures, with the aim of clearly specifying their current role and establishing their potential contribution to success in the employment of JESSICA in the region.

6. Propose a UDF structures in line with the implementation of JESSICA in Galicia, taking into consideration the legal obligations, rules regarding State Aid and the need to minimise additional procedural and administrative costs.

7. Analyse the possible application of the JESSICA mechanism to Galicia.

8. Suggest a plan of action for JESSICA in Galicia.

1.4 Methodology and procedures for conducting the study

The evaluation study, for which the protocol was signed in 2008, includes a far‐reaching initial phase intended to convince fund managers of the importance which JESSICA could have in future Operational Programmes. The working methodology employed was as follows:

• Phase I: Focused on developing an understanding of the reality of Galicia in terms of its regional and urban context, the state of urban and sectoral planning, the situation of urban regeneration activities in large and medium‐sized cities, along with the planning tools which could embrace the JESSICA initiative.

• Phase II: Review of the ERDF Operational Programme (this review was performed jointly with the technical staff of the DXPF in order to establish the Priority Issues and Axes which could be covered by "Jessicable" projects.

• Phase III: It was deemed essential to contact the Xunta's ERDF fund managers to explain the appeal of the JESSICA initiative. Joint and individual meetings were held over the course of more than three months, a survey was drawn up and documents and explanatory presentations prepared. This phase of contact with public and private agents was supplemented by means of meetings with credit institutions (mainly the two Galician Savings Banks), municipal heads of urban planning and university managers.

• Phase IV: Moving on from the previous phase, work was performed on identifying eligible projects, establishing the eligibility criteria and selecting a spectrum of projects open to analysis from the JESSICA perspective.

• Phase V: The area and type of projects which could be implemented by means of an Urban Development Fund (UDF) were selected. The

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financial structure for the project and the UDF was modelled, in order to ascertain its viability.

• Phase VI: Lastly, on the basis of the previous results, conclusions were drawn up for the entire evaluation process, along with proposed recommendations for implementation of the JESSICA tool by the Xunta.

• The evaluation study proposes the development at an initial stage of one Urban Development Fund (UDF) of 12 M EUR, focusing on the funding of urban energy efficiency and sustainable energy projects. This UDF would be supported by funds allocated under Axis 4 of the OP, Transport and Energy, and would serve to reinforce the lines of subsidies currently provided by the INEGA (Galician Energy Institute) for projects with similar characteristics.

1.5 How is the JESSICA initiative structured?

The European funds drawn from the ERDF Operational Programme are applied in Galicia by means of non‐reimbursable grants for projects selected in accordance with the eligibility criteria of the Operational Programme itself. This approach means that the available resources can be employed only once, and cannot be recovered for subsequent projects. The ERDF fund managers have developed procedures and a working culture focused on spending these funds as effectively as possible, but they generally have no experience of the development of business lines allowing for recovery or revolving credit.

The JESSICA initiative is intended to establish a financial architecture facilitating the recovery of the funds invested. At the same time, it aims to promote new procedures and working methodologies among managers, facilitating the use of resources as loans, equity or guarantees, the idea in all cases being to recover the investment.

The JESSICA initiative is supported at three levels, in descending order:

1. The creation of a Holding Fund (HF), to be seen as a "fund of funds" receiving structural funds from the Managing Authority,

which mandates a manager to make use of these funds. In the experience of Spain and Portugal the manager selected has been the EIB, contributing all its specialised knowledge in structuring the next financial level, the Urban Development Fund (UDF).

2. The Urban Development Fund (UDF) is a fund dedicated to investment in a particular type of eligible project. This fund may be established by means simply of finance drawn from the ERDF (via the Holding Fund) or may also involve a proportion of private finance (via credit institutions forming part of the UDF). In the latter case participating entities gain access by means of a public competitive tender, in accordance with EU regulations.

UDFs may be employed to fund very different types of project. All must fulfil the twofold eligibility of the ERDF (compliance with the eligibility conditions imposed by the OP) and JESSICA. Nonetheless, with a view to the evaluation and selection of projects in accordance with standardised criteria, UDFs focus on thematic areas which could, for example, include:

a. A spatial and/or a geographical basis (regional areas, size of city, economic specialisation, etc.)

b. A sectoral approach (type of project: urban regeneration, industrial land, amenities, energy, etc.)

c. Or the source of the private funding (for example a UDF developed jointly with a particular credit institution)

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The UDF has a specific manager responsible for coordination of the eligible projects, dialogue with possible partners and the development of the procedures, implementation and monitoring of the award tenders, development of the project and recovery of the investment. This manager must be selected by means of competitive tender.

3. Lastly, the third level constitutes the eligible project. These projects may be developed by public or private entities, and must comply with the eligibility criteria in order to be funded by the JESSICA initiative, by means of a specific UDF.

The enclosed figure provides examples of the different levels of the JESSICA structure:

Figure 1 Generic structure of the JESSICA initiative

Comisión UE EU CommissionAutoridad de Gestión Managing AuthorityGestor del Fondo: BEI Fund Manager: EIBNivel UDF UDF LevelGestor del UDF UDF ManagerSocios Privados Private StakeholdersNivel Proyecto Project LevelProyectos ProjectsAyuntamientos/EMV, S.A. Local Councils/EMV, S.A.Bancos/Cajas Banks/Savings Banks

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2 TERRITORIAL AND URBAN FRAMEWORK IN GALICIA

The first chapter of this evaluation study includes a description of the regional context along with economic and urban development, infrastructure and distinctive aspects in Galicia. Familiarity with the reality of Galicia will allow for an analysis of the region's specific needs, thereby defining a perimeter of intervention for projects open to JESSICA funding, such as an appropriate strategy for establishing JESSICA in Galicia in order to optimise procedural and administrative tasks.

Galicia is located in the Northwest of the Iberian Peninsula, to the north of Portugal, with which it is not only physically contiguous but also shares common historical characteristics.

It is a highly fragmented territory given its rugged terrain and the characteristics of its coastline, giving rise to a large number of municipalities superimposed onto the traditional division into parishes, in comparison with its surface area and population. This is also a region which was traditionally, up until the 1960s, a source of emigration, initially to the Americas and latterly to Europe and the rest of Spain, prior to a subsequent mass exodus towards the Galician coast, which has led to a remarkable concentration of land occupancy across an urban continuum from Vigo to Ferrol, generating a number of incipient Metropolitan Areas in Vigo and A Coruña, while emptying out the inland areas of the region, leading to a significant problem of population ageing and a loss of productive activity, with the consequent need to take action in order to help restore the territorial balance which has been lost.

2.1 Geographical description

Galicia covers an area of 29,875 km2, is bounded to the North by the Cantabria Sea, to the East by the Spanish Autonomous Regions of Asturias and Castile‐Leon, to the South by Portugal and to the West by the Atlantic Ocean. Its geography is defined by the length of its coastline, highly fragmented by its long, narrow river estuaries (known as "rías"), and its inland mountainous massifs.

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From the contour perspective one finds the greatest heights in the mountains of Lugo province and the Southeast of Ourense, with the highest point being Peña Trevinca, at 2127 m. There are smaller mountainous massifs of moderate altitude in the North, separating the Atlantic and inland provinces.

In terms of inclines the situation is repeated, with the greatest inclines being found in the arc running from North to South along the eastern zone and along the courses of the Rivers Miño, Eume and Sil. The flattest zones are to be found between the borders of the mountainous regions, in particular the valleys of Terra Chá, Limia, Verín and Monforte de Lemos, along with the inland plateaus in the province of A Coruña.

The coastal system is defined by the 'rías', long, fjord‐like estuaries found at the mouths of the largest rivers. This system is divided into the northern Rías Altas, running eastwards along the Cantabrian Coast from O Burgo in A Coruña and including Betanzos, Ares, Ferrol, Cedeira, Ortigueira, Barqueiro, Viveiro, Foz and Ribadeo. The more southerly Rías Baixas are to be found along the Atlantic coast: Vigo, Pontevedra, Aldán, Arousa, Muros and Noia, with the remaining coastline of the autonomous region, covering some 1500

km, featuring beaches and sand dunes along with substantial cliffs, such as the Costa da Morte.

The areas around the rías are home to greater human habitation given the shelter they offer, and are more natural in aspect than other areas. They all represent great value in terms of landscape and the economy, representing one of Galicia's attractions as a tourist destination, along with an active fishery. These spaces feature landscapes of remarkable significance in terms of heritage, environment and the economy, with their geography, climate and human adaptation making them particularly important in terms of tourism, overtaking more traditional activities and altering population systems, leading to very low occupation densities with detached houses dominating, along with a large number of second homes, hence the need to restore a balance between the floating and resident population and to mitigate the impact of urban development pressure on environmental factors. The fragility of these areas and a lack of planning in line with their characteristics led to the introduction of Urgent Measures for the Galician Coastline and Land Regulation Act 6/2007, of 11 May 2007, the most visible consequence of which has been the suspension of development planning and equal distribution processes, in other words essentially land open to urban development and non‐consolidated urban land within a 500 metre wide band measured horizontally inland from the inner limit of the shoreline, along with subsequent work to draw up the Coastline Plan, with the clear aim of guaranteeing environmental sustainability, enduring cultural heritage and the economic viability of the coastline.

As for the system of rivers, there are six basins which make a substantial contribution to shaping the morphology of the territory of Galicia, namely the following: the Cantabrian, the Atlantic, the Miño‐Sil, Limia and Tamega and Mende, entering as far as Portugal. They water the entire territory with their proliferation of tributary streams, forming valleys such as the Limia, or more enclosed formations such as the Cabe, being responsible to a great extent for the abrupt and fragmented relief which characterises the landscape of Galicia.

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Source: A. Precedo, in Atlas de Galicia. 1998

In terms of climate it should be pointed out that Galicia in general has a wet, temperate climate, with a high level of rainfall. Temperatures drop as one moves away from the coastline, as the moderating influence of the sea disappears and the altitude increases. Three climate systems can be distinguished, applying to the coastal seaboard, inland and mountainous areas. These climatic differences are reflected both in the flora and fauna and in the different types of building and construction, with a consequent impact on the landscape.

One significant factor which should be highlighted is the considerable quality of the natural spaces of Galicia, apart from the rías referred to above, hence the fact that they have been protected by means of the Natura Network, Zepas and Ramsar schemes, with a decree recently having been passed covering the demarcation and protection of Galicia's wetlands. These are all areas which must be included within a general consideration as protected spaces.

Infrastructure

Galicia has over recent years seen considerable modernisation of its infrastructure, with an improvement in communications by road, airports and

the port areas, along with the recent introduction of a high‐speed train line connecting the major cities with Madrid, and which will in the more distant future be extended to Portugal.

The roadway infrastructure is in hierarchical terms based on the A‐9 toll motorway connecting the entire coastline from Tui to A Coruña, and which will ultimately be linked up with the Cantabrian coast once the Cantabrian Motorway has been completed, followed by the A‐6 and A‐52, the highways connecting the region to the peninsula, with the Ourense‐Santiago AP‐53 having been recently completed.

This network is supplemented by regional rapid transit routes including the Salnés and Morrazo highways, which connect the A‐9 with the more dynamic parts of the coastline. We then find a large number of regional roads, the responsibility of the regional or municipal authorities, covering the entire territory with a very fine mesh, as one would expect given the population density and dispersion to be found here. One remaining weakness is the North‐South inland connection, along with the connection between the Cantabrian zone and Portugal, an aspect which would undoubtedly give this area greater dynamism.

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Source: Turgalicia

There are three airports: A Coruña, Vigo and Santiago de Compostela, in order of importance, all currently experiencing growth in terms of passenger numbers, along with the very gradual introduction of international flights from A Coruña and Vigo. All present challenging geographical conditions, far worse in A Coruña and Vigo, this being their greatest weakness in terms of any expansion of facilities and flights. Steering Plans are in the process of being drawn up, and it is possible that these plans could give rise to a rationalisation process offering a more balanced relationship with Porto airport and improvements to the effectiveness of the three airports.

The port system is based on two major zones covered by the Port Authorities of A Coruña and Vigo. This represents one of Galicia's greatest assets in terms of infrastructure, hence the need to make use of the competitive advantages it enjoys, with greater specialisation and improved connections, in particular by rail to the hinterland.

There has over recent years been a considerable increase in cruise ship traffic and a growing number of visitors, representing a major element in the commercial activity of the cities. However, the most significant aspect to be taken into consideration is the increase in the loading and offloading of freight, leading to the creation of the two external ports of A Coruña and Ferrol and demanding specialisation at Vigo with spaces dedicated to Ro‐Ro ferries, the introduction of logistics spaces to support activities, such as PLISAN in Salvaterra de Miño and the need to diversify and improve those in Marin and Vilagarcía de Arousa. They are in any event ports which offer unrivalled shelter and which are undergoing a process of modernisation, giving them greater potential. These ports are themselves backed up by a network of smaller fishing ports and leisure marinas which are gradually expanding in accordance with the importance of the coastal areas within this sector, an increase in the level of income of the population and tourist numbers.

2.2 Economic Activity

The figures contained in the document Territorial Structural Guidelines for 2007 present the following situation: "The economy of Galicia represents, in terms of Gross Domestic Product (GDP) slightly above 5% of the total for Spain. Over the last six years GDP per capita has closed the gap on the Spanish average by nearly five percentage points, with the level currently standing at around 83% of the mean, on the path to convergence with the wealthier regions". In other words, there has over recent years been an increased convergence with the region's immediate context, a situation which could change given the current economic climate, although the figures are not uniform in terms of the per capita distribution by province, with very pronounced differences being seen in terms of a phenomenon of concentration in the provinces of A Coruña and Pontevedra.

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Source: Territorial Structural Guidelines. Xunta de Galicia. 2008

The growth in the active population reveals a more dynamic pattern than in the overall population according to the most recent figures published (2009), with 85.2% of the population active and 12.6% unemployed. As for the distribution of the employed population by sector of activity, the following percentage figures are given by the INE (National Statistical Institute) for 2009:

Table 1 Distribution of employed population by sector of activity

Spain GaliciaAgriculture and fishing

4.04 7.82

Industry 15.79 17.99Construction 12.11 11.17

Services 68.06 63.02 100% 100%

Source: INE 2009. Produced in‐house

As may be seen, Galicia as a whole follows similar lines to Spain in general, with a very high percentage in the primary sector, in particular as a result of the length of its coastline, although this proportion is falling. Particular mention should be made of the excessive share occupied by construction in both cases, figures which will undoubtedly fall given the current economic cycle, with a downturn in the property sector. Mention should also be made of the smaller service sector, although this is undergoing clear growth, accounting for a proportion of more than 60% in all four provinces.

As mentioned earlier, activity is concentrated in the provinces of A Coruña and Pontevedra, which are home to some 80% of companies and account for almost 90% of revenue, with the remainder being distributed fairly evenly in terms of both figures across Lugo and Ourense.

A similar pattern may be found at the level of districts, with six districts, A Coruña, Vigo, Santiago, Pontevedra, Ourense and Ferrol accounting for 76% of Galicia's Gross Value Added, 60% of the region's companies and 50% of the population. If one adds in Lugo, O Salnés, Valdeorras, Barbanza, O Morrazo, Bergantiños, Deza, Ordenes and Betanzos, once again according to the figures set out in the aforementioned Guidelines, they account for 90% of Galicia's GVA. These districts are home to 81% of Galician companies, 70% of the population live there and they account for almost 88% of all employment generated in Galicia. It may be seen that all these districts are located in the provinces of A Coruña and Pontevedra and are to be found in the coastal belt, except for Lugo and Valdeorras, the defining features of which are the considerable importance of quarrying operations and a highly dynamic market.

This situation at the economic level is reproduced in terms of demographics, hence the need to make efforts to restore the balance between the coastal and inland provinces.

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2.3 Population and urban system

The Autonomous Region of Galicia had, according to the 2009 Register of Residents, a population of 2,796,089. It is divided into four provinces: A Coruña, Lugo, Ourense and Pontevedra, with the capital in Santiago de Compostela. The population and density figures are set out in the following table.

Table 2 Population and density by province

Population (inhabitants)

Density (inhab./km2

Galicia 2,796,089 93.59A Coruña 1,145,488 144.09Lugo 355,195 36.04Ourense 335,642 46.15Pontevedra 959,764 213.56

Source: INE 2009. Produced in‐house

These figures illustrate the considerable representation of the two Atlantic provinces in terms of population and regional employment, in both cases in comparison with the inland provinces, with the population density of Pontevedra being four times that of Lugo and Ourense, and that of A Coruña more than double. The numbers simply underline the point made earlier in terms of the concentration of population which has been occurring in the coastal areas. An estimate for the same date would suggest that around 70% of the population lives in towns with more than 5000 inhabitants. There has, in other words, been a shift in recent years from a pattern of rural settlement to a predominantly urban setting, the population becoming concentrated in the main urban areas, with an increasing decline in the population of most rural settlements, going as far as complete abandonment.

According to the Territorial Structural Guidelines which are currently being drawn up: "Galicia's urban system has seven areas which in terms of their size and functionality clearly stand out from the remaining towns: Vigo, A Coruña, Ourense, Santiago, Ferrol, Lugo and Pontevedra constitute the central focuses of dynamism and territorial structure. Taken together these cities and the

municipalities located within their areas of immediate influence are currently home to 57% of the Galician population".

The urban system, although heavily polarised towards the coast and the gravitational pull of the five cities located there, would seem to be based on a system of small villages which have historically been the backbone of the region, as centres for commercial exchange, supplemented by regular fairs in smaller towns, such as the centres of judicial districts, offering a wide range of services which have made them key centres within the urban and rural context. These conditions and the physical characteristics of the territory have served to consolidate certain districts, mainly in accordance with natural and subsequently functional factors, forging an important space for shared services and relationships.

This situation gave rise to District Development Act 7/1996, the most visible consequence of which was the approval on 20 February 1997 of the District Map of Galicia, made up of 53 districts. However, no great further progress has been made in the centralisation of services and administrative rationalisation beyond the creation of a number of supra‐municipal bodies.

The enclosed plan presents this division and reveals that each of the districts has its own capital, these being small and medium‐sized towns, some of the municipal capitals having more than 30,000 inhabitants, such as: Carballo and Vilagarcía de Arousa, while a larger number have a population of more than 20,000, including Ribeira, Cangas, A Estrada, Lalín and Ponteareas, only the first of which is in A Coruña. These are all very well connected towns which should be taken into consideration in terms of the metropolitan areas: Vigo‐Pontevedra and A Coruña‐Ferrol, the functional and economic zones of which include the other towns of more than 20,000 inhabitants, even if these are not district capitals: Narón, Oleiros, Ames, Arteixo, Cambre, Culleredo and Marin. All these municipalities help shape the system of towns along the Atlantic coastline now supported by the Atlantic Motorway, and historically having developed along the C‐550 Fisterra‐Tui highway, creating an urban continuum in the form of a conurbation, and, as mentioned earlier, accounting for a very considerable percentage of the urban population, with a very high population density.

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Source: Territorial Model Hypothesis

In the inland provinces all towns with a population of more than 10,000 are district capitals: Monforte de Lemos, Sarría, Villalba, Viveiro, O Barco de Valdeorras, O Carballiño, Xinzo de Limia and Verin. Although to a limited extent, they help rebalance the territory of Galicia.

A territorial, social and economic analysis subsequent to Territory of Galicia Regulation Act 10/1995, of 23 November 1995, gave rise to a document published in the late 1990s, the Territorial Model Hypotheses, serving as the forerunner to the Guidelines. This document defines 12 functional areas created by grouping together a number of districts, in an attempt to define an appropriate territorial model for Galicia. This model would, without the administrative modifications it requires, seem to have made no progress in terms of its configuration.

Source: Territorial Model Hypothesis

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Galicia is divided in administrative terms into 315 municipalities, each with a municipal capital, the most distinctive feature being the division of the territory into parishes which although they do not have legal status do serve to structure the territory at a lower level, and which therefore enjoy significant tangible and intangible assets and have clear value as an identifying element, and even today when our urban habits are more universal, each local resident will identify him or herself as belonging to parish, not a borough. Galicia, then, has a total of 3778 parishes.

However, despite the importance of the figures for parish divisions, the numbers which ultimately define the territory of Galicia involve the fragmentation of population settlements as a result of the region's characteristics in terms of both physical and climatic geography, combining with historical patterns of highly fragmented land ownership to give rise to a disperse settlement model, based on very small‐sized settlements, small concentrated hamlets in the harshest regions, and more extended centres of population in those with a more manageable terrain, occupying considerable land, although in all cases with a similar distribution: buildings are grouped around cultivated land, tilled land is to be found outside the built‐up area, 30.8% of the territory may be defined as usable agricultural land with all countryside areas being held in common, these being assets at all times attached to the parish as a whole, meaning that 61% of the surface area of Galicia is classified as forestry land. All this has served to shape a landscape with considerable and distinctive human influence, with its own identity in terms of the broad network of pathways, creating a fine mesh connecting the entire territory and linking up with a particularly extensive river network which has played a key role in human settlement, hence the fact that Galicia is home to 31,894 centres of population, more than 50% of all those to be found throughout Spain.

The tables below set out the population data based on the 2009 Register of Residents. They reveal the considerable differences to be found between the different provinces, essentially between A Coruña and Pontevedra on the one hand, and Lugo and Ourense on the other.

A CORUÑA

Inhabitants Municipalities Entities

1,000 – 2,000 Remainder 11 45

2,000 – 5,000 24 45

5,000 – 10,000 37 8

10,000 – 20,000 11 5

20,000 – 30,000 5 2

30,000 – 50,000 3 0

+ 50,000 3 3

TOTAL 94 ‐‐‐

Source: Municipal Register of Residents. INE. 2009. Produced in‐house

LUGO


1,000 – 2,000 Remainder 21 11

2,000 – 5,000 35 7

5,000 – 10,000 6 5

10,000 – 20,000 4 1

20,000 – 30,000 0 0

30,000 – 50,000 0 0

+ 50,000 1 1

TOTAL 67 ‐‐‐


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OURENSE


1,000 – 2,000 Remainder 58 3

2,000 – 5,000 24 4

5,000 – 10,000 5 2

10,000 – 20,000 4 3

20,000 – 30,000 0 0

30,000 – 50,000 0 0

+ 50,000 1 1

TOTAL 92 ‐‐‐


PONTEVEDRA


1,000 – 2,000 Remainder 4 38

2,000 – 5,000 19 20

5,000 – 10,000 14 8

10,000 – 20,000 16 3

20,000 – 30,000 5 0

30,000 – 50,000 2 0

+ 50,000 2 2

TOTAL 62 ‐‐‐


GALICIA

Inhabitants Municipalities % Entities %

1,000 – 2,000 94 29.84 97

2,000 – 5,000 102 32.38 76

5,000 – 10,000 62 19.68 23

10,000 – 20,000 35 11.11 11

20,000 – 30,000 10 3.18 2

30,000 – 50,000 5 1.59 0

+ 50,000 7 2.22 7

TOTAL 315 100.00 *


What they indicate is the existence of a poly‐centric system with two Metropolitan Areas based on Vigo and A Coruña, Vigo being larger in size, along with five major cities, accompanied by the aforementioned network of small and medium‐sized towns and villages. A look at the following maps reveals that this is a stable and already consolidated system. The more schematic 1998 map reveals a clear polarisation towards the major cities, indicating the emergence of secondary connections which are more explicitly presented in the second figure, and which may be seen as representing an advance in the restoration of Galicia's territorial balance, one of the region's greatest weaknesses.

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Source: A. Precedo, in Atlas de Galicia. 1998

Source: Territorial Structural Guidelines. 2008

It should for these purposes be pointed out that in 1985 there were 124 population centres with between 1,000 and 5,000 inhabitants, compared with 173 in 2009, 16 with between 5,000 and 10,000 inhabitants compared with 23, and just 10 more with over 10,000 inhabitants, as opposed to 20 in the most recent Register of Residents. In other words, we are seeing a process of urban concentration, at least in terms of population, although this urban characteristic is becoming increasingly widespread across the region, despite the concentration seen in the coastal zone, and more specifically along the margins of the Atlantic Motorway, the major structural axis of the western part of the region, with no equivalent counterpart being found in inland.

This situation is underpinned by an observation of the two maps from the previous Territorial Structural Guidelines document, illustrating the percentage increases in the population which, in contrast with depopulation, are to be found inland over the period 1950‐2007 and over the period 2000‐2007, with an apparent change in the trend, albeit a very slow one, suggesting that in the future the inland area could find its position strengthened, a positive element with a view to the future.

Source: Territorial Structural Guidelines for Galicia. 2008


In terms of the system of settlements, the map presented in the Guidelines document may be held to remain valid. The map also offers considerable clarification in providing a physical basis allowing one to indicate, apart from other considerations of a sociodemographic nature, that the depopulation of the interior is also to a great extent connected with the harsh topographical conditions of the Eastern and Southern Zones, where Galicia's most significant mountain ranges are to be found.


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At present 216 population centres have more than 1,000 inhabitants, as opposed to 150 in 1985, figures which in no case represent more than 0.68% of those in existence.

There is in any event a very high level of ageing inland, although this figure applies to the region as a whole given the increase in life expectancy. One other concerning figure should in any case be taken into consideration, namely the low gross birth rate of 7.8% which, together with the mortality figures, gave rise in 2008, the most recent data available, to a negative migratory balance of ‐6226. The migratory numbers are in themselves very low (17,810), as a result of the limited potential of the labour market to attract workers.

The population distribution in terms of educational level is very similar to that seen in Spain, with a practically identical percentage of illiterate and uneducated people. Galicia's figures are slightly higher for primary education, while those in Spain are marginally greater (around 2%) when turning to secondary and higher education.

What may in any event be stated is that we are faced here with a model of human settlement which it would be fair to categorise as a traditional diffuse city, which has over the course of its history demonstrated considerable capacity to maintain land occupancy, with the major migrations of the 20th century gradually reducing its content, having attempted to act in accordance with environmentally friendly and sustainable guidelines, since the land was itself the main basis for subsistence, social cohesion in the broad network of community relationships in place, and economic development, within lifestyles tied to the primary sectors of fishing on the coast and agriculture and livestock inland, a model which was disrupted by industrialisation firstly abroad, in the Americas and Europe, and later in Spain and Galicia's urban areas.

It is, meanwhile, a model undergoing transformation with the unplanned introduction of economic activities or the imposition of inappropriate regulations leading to the dispersal and de‐structuring of past settlement patterns, calling for the need to regenerate large areas of territory through their reactivation and diversification of uses, thereby requiring the

reclassification of urban population centres and the development of environmental and heritage resources. On the basis that territorially cohesive and environmental sustainable development must serve to guarantee the rights of all citizens wherever they live, along with a high‐quality, healthy environment. This will require the existence of agreement and coordination among public authority departments tied to the creation of a culture of public‐private partnership.

It meanwhile involves a population distribution model which could still be seen as valid in the information age, in which although location does not matter, a system of relationships does, with the territorial dimension of Galicia and a substantial improvement in communications leading one to suppose that its population distribution will remain valid, even if not all settlements survive. However, we also find another circumstance, namely that demands throughout the territory and from the entire population are urban in terms of infrastructure, along with services ranging from education to healthcare, culture and leisure, and that these are to a considerable extent met.

As a consequence, although this could be seen as a weak urban system, it should in truth be understood that the example of Galicia presents a complex urban system, with the same requirements as the traditional compact city, with all actions helping to reclassify the territory becoming urban regeneration initiatives.

2.4 Territorial and urban planning in Galicia

An analysis of the state of sectoral urban development planning and the capacity of regional and local authorities to implement sustainable urban development plans will serve to comply with the European regulatory requirement for the application of an integrated planning concept as part of the regional strategy in the field of urban development for JESSICA.

From the perspective of territorial planning Galicia is faced with numerous challenges. In recent years, it has been overwhelmed by the implementation of different laws and decrees that have affected the land‐use planning of the

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territory on different scales and that, along with the modification of national legislation, have made it necessary to completely overhaul the urban planning practices and urgently consider the approval of land‐use documents.

Since the approval of Urban Planning and Protection of the Rural Environment in Galicia Act 9/2002, of 30 December 2002 (the 'LOUGA'), there has been one modification of this by Act 15/2004, of 29 December 2004, followed by Act 6/2007, of 11 May 2007, introducing urgent measures regarding planning of the territory and coastline of Galicia, followed by Act 6/2008, of 19 June 2008, on urgent measures in the area of housing and land, modifying Act 9/2002, of 19 December 2002, on urban planning and protection of the rural environment in Galicia.

These Acts have been followed by the more recent Galician Housing Act (Act 18/2008, of 29 December 2008), and lastly Act 2/2010, of 25 March 2010, introducing urgent measures to modify Act 9/2002, of 30 December 2002, on urban planning and protection of the rural environment in Galicia. It is also necessary to consider all of the environmental legislation that has been implemented, with special emphasis on the need for Strategic Environmental Evaluation of the different plans and programs and Land Act 8/2007, of 28 May 2008, and the revised text of this legislation.

In addition to all the above urban development legislation, dealing with more physical aspects, one should make mention of Act 10/1995, of 23 November 1995, on the structuring of land use in Galicia, with an impact on territorial aspects, following on from which a number of sectoral plans have been drawn up. Recently, initial approval was given to the Territorial Regulation Directives, a key element in the definition of the objectives for the establishment of a future model in the territory, from infrastructure to the positioning of cities and centres of activity, rationalizing a territory that is currently unbalanced due to the urban weighting of the coast versus the shrinking population and abandonment observed inland.

Recent major‐impact initiatives along the coastline have raised the need for a Coastline Regulation Plan to be drawn up. Given the considerable length of Galicia's coastline, along with the aforementioned concentration of population and activity within this area, which therefore affects a

considerable surface area and is of particular significance in the future development of the zone, a moratorium has been imposed on construction permits within a 500 metre‐wide band, thereby halting all property development operations and this, combined with the real estate crisis, has led to a period of reflection and the emergence of the first Coastline Plan which, although it has not yet been passed, was broadly publicised at the outset of a consultation period involving the municipalities affected, this period having recently come to an end.

In terms of general planning, the situation reveals a widespread lack of adaptation to all legislation, even in the large cities. Vigo has had final approval issued, Pontevedra and A Coruña are beginning to draw up their plans, Ourense has had its cancelled while Lugo is in the final approval phase, with some sixty much smaller municipalities already having in place a definitive General Municipal Regulation Plan in line with the LOUGA, thanks to the efforts seen in recent months, thereby putting in place a planning system which incorporates sustainability criteria and environmental evaluation, and hence marking the start of an improvement in the situation.

It would meanwhile be very useful to define which municipalities, due to their scale, dynamic, and position in the territory, would not require a general plan, but rather simply a series of Subsidiary and Complementary Planning Standards, included in the LOUGA, that would replace the obsolete Subsidiary and Complementary Planning Standards of the provinces of A Coruña, Lugo, Ourense, and Pontevedra, which date back to 1991, providing for more agile urban development regulations.

In recent years, work has been performed on different aspects affecting territorial factors with a significant effect on urban planning and therefore on the evolution of the territory at the municipal level; in other words, in their physical definition and details, for example, the definition of the Natura Network, sectoral plans for enterprise parks, and the recent presentation of the Housing Sector Plan.

At the level of major infrastructure, work has been performed on highway connections, with recent projects such as the AP‐53 between Santiago and Ourense. The transformation of the A Coruña and Ferrol ports has

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commenced, with the construction of their outer ports. In terms of the railway, the AVE high‐speed link is already underway with the construction of some sections in Ourense and Pontevedra, and is in an advanced stage of development. The airport network is complete and steering plans such as that for Vigo are being drawn up.

There are major initiatives for the production system tied to the Enterprise Park Sectoral Plan, led by Xestur, public land management enterprises tied to the IGVS, notwithstanding the emergence of other agents, such as, for example, in the Vigo area the Salvaterra‐As Neves Dry Port, tied to the widespread development of the industrial fabric of Vigo, which is in the process of being refocused as a result of initiatives such as the Valladares Technology Park and the recent contract signed for the Matamá Enterprise Part in Vigo which, together with A Gándara in Porriño, involve Free Zone Consortium initiatives. These are in all cases projects which give considerable thought to sustainability, a principle which applies to all proposals from design itself to the choice of materials.

Mention should also be made of one of the issues pending consideration and of vital importance, namely the creation of the Vigo‐Pontevedra and A Coruña‐Ferrol Metropolitan Areas, which have so far failed and which will prove decisive in rationalising territories which reveal a considerable lack of structure, with top‐heavy capital cities, most visibly in the case of Vigo, in comparison with their constituent municipalities, hence the need for a definition of the roles to be played by each municipality. Nor should we overlook the integration and cohesion of a poly‐centric system of cities which has been in place for some considerable time, burdened by the disperse patterns of human settlement which characterise the region.

All the above calls for a rationalisation of infrastructure, including communications, with a particular emphasis on the need to plan inter‐urban transport, which is at present far too fragmented, collection of solid waste and the need for rationalisation of the entire water cycle, covering supply, the sewerage and water treatment system, the lack or low quality of water treatment facilities representing one of the most significant factors in the environmental pollution of the Rías, which represent one of the highest‐potential economic and landscape resources of Galicia, while also bearing in

mind the need for increased efficiency throughout the energy system, with renewable energy, in particular wind power, having come onto the scene to change the future landscape.

Further down the scale consideration must be given to the importance of the network of small towns and historical villages which, together with the major cities of A Coruña, Ferrol, Santiago de Compostela, Pontevedra, Vigo, Lugo and Ourense, have historical old towns which in many cases have been declared Assets of Cultural Interest, and which have in place specific plans not only offering protection but in many cases also covering major urban regeneration initiatives in response to previous proposals for renewal, since their abandonment over many years has led to a process of degradation which in many cases is at an advanced stage. The existence of such plans and the integration of many within the 'Urban' programme positions them as sustainable intervention projects, since they incorporate social measures, with direct benefits for the local population, economic measures through the reactivation of economic activities, and environmental measures, from both the perspective of improved infrastructure and the recovery of assets for building development. The conditions are in place to generate an improvement in quality of life with a long‐term impact on health, security, social stability, productivity and urban image, a process which is already beginning to bear fruit in the flagship city of Santiago de Compostela.

Summary

The urban system is characterised by its considerable polarisation towards the coastline and depopulation of the interior (harsh topographical conditions, most significant mountain areas in Galicia), and by a poly‐centric system (with two Metropolitan Areas based on Vigo and A Coruña, Vigo being larger in size), along with five major cities, accompanied by a network of small and medium‐sized towns and villages. This situation of urban and demographic imbalance is reproduced at the level of infrastructure (transport, water, waste...) and in economic terms (employment).

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The unplanned introduction of economic activities and the imposition of inappropriate regulations have led to the dispersal and de‐structuring of the original patterns of population. Objectives

► reinforce the interior as a positive element in restoring balance between the coastal and inland provinces through an inland axis as powerful as the coastal axis

► regenerate large areas of territory through their reactivation and

diversification of uses, requiring a reclassification of urban settlements and the development of environmental and heritage resources. Need for greater efficiency in the energy system

► promote projects included within territorially cohesive and

environmentally sustainable development plans. This will demand the existence of agreement and coordination between public authority departments, along with the creation of a culture of public‐private partnership

2.5 Urban Initiative 2000- 2013

This is an initiative intended to promote sustainable urban development projects through grants from the European Regional Development Funds of the European Union, co‐funded by various local authorities. The purpose is to bring about the economic, environmental and social regeneration of urban areas, with a view to fostering sustainable local development.

Prior to the 2007‐2013 programme there was an Urban I initiative covering a scheduling period from 1994 to 1999, with grants being awarded to programmes in 31 Spanish cities, while Urban II covered the period 2000‐2006, with 11 Spanish cities benefiting under this initiative, including Ourense

in Galicia; the regulations in place at the time required a population threshold of at least 20,000 inhabitants.

The funding round for the period 2007‐2013 focused on municipalities with an official population of more than 50,000 inhabitants and provincial capitals with lower population figures. The Spanish government decided to continue developing this type of grant, integrating the system within the "Local and Urban Development" Axis of the 2007‐2013 Regional Operational Programmes co‐funded by the European Regional Development Fund.

The characteristics required of the projects included an integrated focus in accordance with the development of a multi‐disciplinary raft of actions (environmental, social, urban planning, economic, tourism, cultural, heritage, new technologies, information society, etc.) in order to face up to the problems of the urban area selected within the municipality, subject to clear social and economic disadvantages with regard to the zone as a whole.

To this end Galicia's Regional Department of the Economy and Public Finance drew up its Galicia 2007‐2013 ERDF Operational Programme as a strategic document, as an instrument for medium‐ and long‐term community planning, setting out objectives, strategies and initiatives to achieve improved economic and social development through the application of structural funds.

The operational programme worked within the various Fund Axes, including Axis 5: Local, Sustainable Urban Development, with the Urban initiative itself falling within this category.

As mentioned earlier, prior experience existed of this type of initiative in drawing up the operational programme on the basis of an evaluation of the fulfilment of objectives in previous initiatives, these essentially being:

1. Foster the creation and implementation of particularly innovative strategies to encourage the economic and social regeneration of small and medium‐sized cities and neighbourhoods in crisis within large conurbations.

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2. Extend and exchange knowledge and experiences regarding regeneration and sustainable urban development within the Union.

Within this regard, the Operational Programme stated: "In terms of urban development, given the importance given to the role of cities in this new period and the specific issues they face, the initiatives will have as their main objective a response to the needs of cities in terms of the social and economic regeneration of their environment.

The area covered by the URBAN initiative will be exploited in this regard in order to continue developing integrated urban regeneration actions in those Galician cities with a distinctly industrial nature, such as Ferrol and Vigo.

Through the deployment of integrated urban and rural regeneration projects focusing essentially on small and medium‐sized Galician municipalities, the aim is to achieve territorial cohesion. Efforts will also be made to strengthen citizen participation in the administration of public affairs and the improvement of local services".

Within this context, in order to give continuity to the URBAN community initiative a proportion of the provision was ring‐fenced for cities with a population of more than 50,000, along with the provincial capitals of Galicia, where projects were selected by means of a national competitive tender run by the Department of the Economy and Public Finance.

The Operational Programme was submitted for Environmental Evaluation, in accordance with the terms of Act 9/2006.

In order to evaluate the project a mixed evaluation committee was set up, chaired by the Department of the Economy and Public Finance, while also featuring representatives from the Department of Public Administration, the Department of the Environment and Rural and Marine Affairs and the Department of Housing. The list of cities selected in Galicia for implementation of a Sustainable Urban Development project were: A Coruña, Ferrol, Lugo and Santiago de Compostela, which were allocated 45.7 million euros (32 million from ERDF funding).

The four municipalities with a General Municipal Regulation Plan in place are A Coruña (since 1998), Ferrol (since 2000), Santiago de Compostela (since 2007, the only one with a plan which has been adapted to the current urban development legislation), and Lugo, since 1990, although this is in the process of final approval of its adaptation, while the city also, as in the case of Santiago, has a Special Plan for its Historical Centre.

The projects selected are:

• A Coruña: Agricultural areas in Orzán.

• Lugo: Historical Centre (Zone inside the city wall‐District 1) and the old prison building.

• El Ferrol: Historical Centre (Ferrol Vello, Canido and A Magdalena).

• Santiago de Compostela: Santiago Norte, Barrios de Vista Alegre, Romaño, Vite, Guadalupe, Salgueiriños, San Caietano, Basquiños, Ultreia, Espiritu Santo, A Estila, A Almáciga, San Pedro, Concheiros, Belvis and Quiroga Palacios.

Previously Vigo and Ourense have benefited from the Urban programme. Vigo is now continuing with the task of regenerating and refurbishing its historical old town by means of the Old Town Consortium, which has been assigned an Integrated Refurbishment Area. In the case of Ourense the office has been maintained for the purpose of urban regeneration tasks, retaining the Urban Office name.

2.6 Integrated Refurbishment Areas

Declaration of Integrated Refurbishment Areas is included in the provisions of the various Housing Plans approved by the Department of Housing every four years. The State Housing and Refurbishment Plan currently in force is that for 2009‐2012, approved by means of Royal Decree 2066/2008, of 12 December 2008. The subsidies granted and established by means of the Agreement between the central and regional government authorities are administered by

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the Autonomous Region, with Galicia having received approval in this regard under Decree 402/2009, of 22 October 2009, establishing public grants in the field of housing covered by the Autonomous Region of Galicia and governing the administration of those laid down in Royal Decree 2066/2008, of 12 December 2008, for the period 2009‐2012.

The programme defines as Integrated Refurbishment Areas historical districts, urban centres, rundown neighbourhoods and rural municipalities, with the programme setting out the basic conditions for funding to be received under the Plan on projects to improve the residential fabric of urban and rural areas, achieve the functional recovery of historic districts, urban centres, rundown neighbourhoods and rural municipalities requiring refurbishment of buildings and housing, projects to address situations of inadequate housing and urban development and redevelopment projects for public spaces.

The initiatives receiving funding are:

a) For private‐use areas of buildings (residential properties), works to improve habitability, security, accessibility and energy efficiency.

b) For communal areas of buildings, works to improve security, waterproofing, accessibility and energy efficiency, and the use of renewable energy sources.

c) For public spaces, urban development and redevelopment and universal accessibility works, and the establishment of centralised HVAC and hot water systems powered by renewable energy sources.

Declaration of Refurbishment Areas must be ordered by the Autonomous Region, with certain minimum conditions being established for their demarcation: they must include at least two hundred residential properties, which must be at least ten years old. Residential properties having received grants must be used as the regular and permanent abode of the owner or leased out for at least five years after the refurbishment work is completed.

Once the declaration has been issued this is maintained and included under the various housing plans for as long as the objectives set out at the outset of each agreement are met.

In the case of historical districts, they must meet the following requirements:

a) They must have been declared as such, or at least have this procedure under way, in accordance with national or regional legislation.

b) They must have a special conservation, protection and refurbishment plan in place, with at least initial approval at the time of the application.

Earlier housing plans will require definitive approval of planning. The special plans governing historical districts generally cover both protection and internal refurbishment measures, with a particular impact on urban regeneration, in accordance with social, economic and environmental conditions.

The restoration of such aspects of the urban fabric has a particularly important social component, given that these areas have been abandoned for many years, leading them to be occupied by an ageing population without the ability to move to other areas of the city, along with the arrival of a low‐income and often marginalised population, a situation which has led buildings to become degraded both as constructions and in terms of their habitability and accessibility.

Refurbishment of buildings involves improvements to quality of life and makes such areas more attractive, thereby contributing to social stability and security as a result of livelier streets.

This approach covers improvements in economic conditions through the incorporation of measures to restart economic activity. It also impacts on environmental conditions in terms both of improving the urban landscape and reducing light, noise and CO2 pollution by replacing inappropriate fuels and boilers, improving accessibility through traffic regulation, energy efficiency, etc.

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Conditions also arise for the urban redevelopment and installation of new amenities in the urban areas affected, fulfilling requirements of sustainability, with approval given by means of a strategic environmental evaluation in the case of the most recent plans. This type of plan, meanwhile, given its conceptual basis itself and the measures defined, enjoys considerable capacity to go beyond the aspect of simply urban planning, in order to implement what may be considered an integrated plan.

Housing plans have been successfully in operation for many years, administered by municipal offices often referred to as refurbishment offices, with appropriate technical personnel working on consultancy, technical support for developments and the dissemination of measures. They also enjoy added value in the form of cooperation by public authorities at three tiers, national, regional and municipal, working in unison.

The following Areas have so far been declared, covering practically all the declared Historical and Cultural Heritage Districts, and certain other zones of what are referred to as the large cities:

‐ A Coruña ‐ Betanzos ‐ Concubión ‐ A Coruña (three areas) ‐ Ferrol (three areas) ‐ Muros ‐ Noya ‐ Santiago de Compostela (three areas) ‐ Lugo ‐ Lugo (two areas) ‐ Mondoñedo ‐ Ribadeo (two areas) ‐ Viveiro ‐ Ourense ‐ Allariz ‐ Castro Caldelas ‐ Ourense (two areas) ‐ Ribadavia (two areas)

‐ Pontevedra ‐ Cangas de Morrazo ‐ Poio ‐ Pontevedra (Estribela) ‐ Vigo (two areas)

This, then, gives us twenty‐nine areas where JESSICA could be applied and where there is a technical support team in place with years of experience and proven efficacy in the refurbishment of intervention zones, as for example in the case of Santiago de Compostela and Allariz, the initiative perhaps best known internationally as an example of good practice in the restoration of a medium‐sized historical town centre in Galicia tied to a rural environment.

2.7 JESSICA planning framework

As has been indicated above, Galicia is now moving forward in accordance with principles of sustainability at every level of its structural regulations, little by little correcting any shortcomings in the planning process, although considerable progress does still need to be made. The territorial plans which are to serve as the reference framework have not yet been approved, although a large number of sectoral plans are in place and these, albeit on a fragmentary basis, make up for this shortfall, while the progress made on the Coastline Plan offers considerable cause for optimism in the regulation of one of Galicia's most fragile and most important areas. Meanwhile, the process of urban development planning would seem now, after a slowdown period, to have been refocused.

This all allows us to take a positive view, although it must be acknowledged that while there are numerous territorial, urban development and, above all, sectoral plans which could give support to the eligibility of projects, there are no clear reference frameworks with programmes and projects scheduled for inclusion "en masse" within an Integrated Urban Plan. In this regard, each project area will require an analysis of its sustainability, and justification of its inclusion within an IUP.

The Xunta has sponsored 118 plans. The list below is not fully comprehensive, but does include a substantial proportion of the reference framework for Galicia's planning.

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2.7.1 Territorial planning

• The Territorial Regulation Directives were recently published and did not include specific action programmes. They cannot, therefore, be viewed as a reference framework supporting projects which could potentially be funded by JESSICA.

• Coastline Regulation Plan, recently presented to the local councils, with the consultation period now having ended.

• Galician Territorial Rebalancing Plan 2007‐2010.

• Plan Galicia. Currently under review

2.7.2 Sectoral planning

• Housing and land:

o Sectoral housing plan

o Sectoral enterprise park plans.

• Mobility

o Framework Development Plans: Strategic Infrastructure and Transport Plan (PEIT) (Central Government)

o Mobility and Strategic Roadway Regulation Plan (Plan MOVE ‐Highways) (2010‐2015)

o Sustainable Mobility Plan (under execution)

o Municipal sustainable urban mobility plans (Lugo, Ferrol, A Coruña, Vilagarcía de Arousa)

• Sectoral service and energy plans

o Galician Urban Waste Management Plan 2007‐2017

o Galician Industrial Waste and Contaminated Land Plan 2008‐2018.

o Galicia‐Coastal Water System Plan 2007‐2015

o The Galician Supply Plan is at the draft stage.

o Galician Sewerage Plan 2000‐2015

o A.G.U.A. Programme (Central Government)

o Galician Industrial Waste and Contaminated Land Plan 2008‐2018

o Galician Energy Plan 2007‐2012

o Solar Sectoral Plan

o Biomass Sectoral Plan

• Galician Marinas Steering Plan

This issue will be returned to in discussing the eligibility criteria.

2.7.3 Urban Planning

For these purposes an Annex includes a list of the existing plans, with reference to population size. As may be seen, we are faced with a situation in the process of change as a result of the large volume of legislation introduced over previous years which has not provided continuity in the processing of urban development planning, a situation which is at present undergoing changes, and which will provide a situation much better aligned with programmes such as JESSICA.

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This wide‐ranging planning framework could facilitate the inclusion of JESSICA projects within the context of an Integrated Urban Plan (IUP), as set out in the eligibility criteria. One factor which is, however, lacking is a plan offering a precise fit with this "homologous" denomination of the eligible projects. One of the elements to be justified in the project selection process will therefore be their inclusion within a plan which may be considered an "Integrated Urban Plan" for the purposes of the JESSICA eligibility criteria.

One could, meanwhile, suppose that the implementation of JESSICA and the desire of project managers to benefit from UDF funding support will encourage the creation of new IUP‐type plans or the adaptation of existing planning tools which could be matched up with the JESSICA initiative and constitute an acceptable framework for integrated urban development, at least in the initial phase of JESSICA.

3 THE 2007-2013 OPERATIONAL PROGRAMME IN GALICIA

An analysis of the 2007‐2013 Operational Programmes affecting Galicia and having components within the scope of urban policy is essential in order to establish the margin available in the use of JESSICA. On the one hand, the types of project covered by the OP will help specify the eligibility criteria for projects funded by JESSICA. Meanwhile, familiarity with the funds available will serve to formalise a realistic financial proposal for involvement in JESSICA on the part of the ERDF Managing Authority.

The Commission of the European Communities approved the ERDF Operational Programme (OP) within the context of the Convergence Objective for the Autonomous Region of Galicia in Spain under the terms of Decision C (2007) 6079, of 30 November 2007, CCI 2007ES161PO005.

The sum total of the Programme amounts to 3.1722 billion euros, including public resources from the region, the State (980.47 M euros) and Community grants amounting to 2,191.5 M euros.

Although the aforementioned ERDF GALICIA 2007‐2013 Operational Programme was drawn up in accordance with "the Community strategic directives" of COM(2005) 0299 it was particularly important for Galicia to place the emphasis on the need to “Converge in terms of growth and employment", with a commitment in this regard to a knowledge‐based economy and sustainable and environmentally friendly growth. This new focus led to a substantial change in tack in terms of the economic policy devised by the Xunta, as seen in the Strategic Economic Convergence Framework for Galicia 2007‐2013 (MECEGA).

Within this scheduling process for the European Regional Development Fund (ERDF), the regional government viewed as strategic the involvement of the other Public Authorities with responsibilities for the region (Community, State, Regional and Local), along with other economic and social agents and

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institutions in Galicia, thereby working towards the definition of a participatory and integrated regional development strategy in line with the needs and potential existing in Galicia.

This framework also guarantees complementarity with other forms of Community intervention in the Autonomous Region and by means of sectoral policy funds for the rural environment (EARFD) and the marine environment (EFF), these being of particular importance to the region.

In order to achieve this Overall Objective, four Final Objectives have been established:

• "Promote and catalyse the regional economy, making Galicia a more attractive place to invest and work";

• "Increase the competitiveness of the productive fabric of Galicia through knowledge and innovation";

• "Increase the social and territorial cohesion of Galicia by improving levels of skills, quality of employment and social inclusion", and

• "Reinforce the synergy between growth and sustainable development"

3.1 Priority Axes

The Operational Programme is developed by means of seven axes:

ERDF Axes

1. Development of the knowledge economy (R&D+i, Education, Information Society and ICT)

2. Enterprise innovation and development

3. Environment, natural world, water resources and risk prevention

4. Transport and Energy

5. Sustainable local and urban development

6. Social infrastructure

7. Technical Support and reinforcement of institutional capacity

These axes are closely tied to the major challenges faced by Galician society within the context of the Lisbon Agenda.

3.1.1 Axis 1: Development of the knowledge economy (R&D, Education, Information Society and ICT)

Galicia's commitment to a knowledge society illustrates its desire to create new scientific and technological infrastructure and to increase the competitiveness of its productive fabric by promoting technological research and development (R&D), enterprise innovation and the dissemination of telecommunications.

The ERDF OP therefore places a particular emphasis on technology transfer and an improvement in the cooperation networks connecting small and medium‐sized enterprises (SMEs), linking such organisations up to other businesses, universities, post‐secondary educational institutions, regional authorities, research centres and science and technology nodes.

3.1.2 Axis 2: Enterprise innovation and development

This axis is closely tied to the above, with the aim of encouraging the growth of Small and Medium‐sized Enterprises (SMEs), developing their innovation

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potential in order to give them access to new markets within a global economic context. Interventions under this priority will therefore focus on increasing the international competitiveness of Galician companies and facilitating the transfer of knowledge from universities and research centres to enterprise.

3.1.3 Axis 3: Environment, protection of natural resources, management, distribution and treatment of water, risk prevention

The objective of this Access is to protect and at the same time improve the environment, employing natural resources in a clean and rational manner and establishing alert and environmental risk prevention mechanisms. The aim is to increase Galicia's environmental potential with a view to achieving sustainable economic development. Particular emphasis will to this end be placed on issues connected with the administration and distribution of drinking water and the treatment of wastewater, given its impact on the ecosystem of the Rías, which enjoy particular ecological and economic value. The aim is also to expand the areas covered by the Natura Network and to use Agenda 21 to bring on board the commitment of local authorities to safeguard natural heritage.

3.1.4 Axis 4: Transport and Energy

The objectives raised by Galicia in the field of transport within the context of transport policy are to correct the historical shortcoming in certain areas of transport infrastructure, such as railways, and to structure the relationship between the various modes of transport in order to bring about more sustainable mobility. Meanwhile, in the field of energy the aims which Galicia intends to meet over this period are to continue promoting the production of sustainable energy and to improve energy efficiency.

The main interventions included within the OP as "large‐scale projects" focus on improvements to infrastructure in the field of road, rail, port and airport links. In accordance with the regulatory provisions, most of these actions will also receive funding under the Cohesion Funds.

In the realm of energy, the interventions are intended to activate and promote the use of renewable energy sources: solar, biomass, geothermal, taking advantage of the considerable resources available within the territory of Galicia. Promote the development of cleaner urban transportation systems. Along with more efficient use of the energy consumed, these represent the major objectives in the field of energy for this period.

3.1.5 Axis 5: Sustainable local and urban development

The disperse habitat which characterises the territory of Galicia gives its system of cities particular importance in any integrated sustainable development focus. Cities which operate as true centres of gravity, attracting residential and business activity to the detriment of the rural environment. In order to achieve this objective Galicia must over the coming years face up to a twofold challenge:

• In rural zones the priority will be to encourage a spirit of enterprise among the population in order to diversify the basis of the economy, with the aim of reducing the level of the population and increasing the ability of these areas to adapt to the challenges raised by a global economy.

• In the larger cities, meanwhile, the essential aim is to deal with the needs of cities, in particular in terms of the social and economic regeneration of their context and those neighbourhoods which have suffered the greatest degradation and negative impacts through unemployment and the risk of social exclusion.

3.1.6 Axis 6: Social infrastructure

Lastly, the creation of social infrastructure is conceived of in the ERDF OP as a fundamental element in order better to rebalance the region, making it more attractive as a location for permanent settlement, capturing new residents and attracting new investments.

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3.1.7 Axis 7: Technical support and reinforcement of institutional capacity

Technical support allows for the co‐funding of management, monitoring, evaluation, supervision, encouragement, information and communication activities under the programme and operations implemented.

3.2 Availability of Funds

Although the Monitoring Committee is responsible for rescheduling funds under the ERDF OP, the regional government has declared that for the moment it has no intention of requesting such a modification, meaning that the level of execution of interventions funded under the ERDF Operational Programme constitutes vital information in guaranteeing the financial viability of those projects and initiatives which would be eligible for the JESSICA initiative. As indicated above, the sum total of GALICIA's ERDF OP Community funding amounts to €2,191.5 M, with the national contribution made by the Xunta and the Central Government Authorities (the 'AGE') adding up to €980.5 M, giving a total of €3,172 M.

Given that the eligibility period began on 1 January 2007, a large proportion of the OP resources are already at the commitment or execution stage. Overall, according to the information provided by the Galician Regional Department of the Economy, at the end of May 2010 almost 70% of the allocation administered by the Xunta had been executed or committed on various interventions (€1,095.5 M), leaving a balanced pending of €540.09 M, the detail by Axis being as set out in Table 2.

It is important to point out that the sums do not include Community grants tied to projects which are the responsibility of central government. These in specific terms include priority axes 17 (TEN‐T rail services), 21 (TEN‐T motorways) under Axis 4, Transport and Energy, and Issue 61 (integrated projects for urban and rural regeneration), under Axis 5, Sustainable Local and Urban Development.

Table 2 illustrates the level of execution of the ERDF OP for each of the seven axes, and hence the availability of resources on the date when this Evaluation Study was drawn up.

Table 2: Grants available by axis for 2010‐2013

Axes

Managed by COMMITTED SCHEDULED

GALICIA ERDF OP XUNTA AGE / EXECUTED / AVAILABLE

1 213,839,142 213,839,142 0 100,410,254 113,428,888

2 361,696,333 361,696,333 0 257,271,110 104,425,223

3 486,270,296 486,270,296 0 387,326,546 98,943,750

4 857,426,391 430,133,956 427,292,435 273,242,519 156,891,437

5 231,503,939 102,852,318 128,651,621 56,143,938 46,708,380

6 35,707,210 35,707,210 0 19,038,343 16,668,867

7 5,101,030 5,101,030 0 2,077,356 3,023,674

Total 2,191,544,341 1,635,600,285 555,944,056 1,095,510,066 540,090,219

Source: ERDF OP and Xunta de Galicia

The meetings held with the ERDF OP managing authority for Galicia served to take a further step forward in terms of the level of detail and so establish those priority issues which could provide an aegis for projects or actions compatible with the JESSICA eligibility criteria. The outcome of this consultation is set out in Table 3.

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Table 3 Grants available by axis and priority issue selected 2010‐2013

AXES PRIORITY ISSUE Name

Available/Scheduled

1 2

R&D infrastructure (installations, instruments and high‐speed information technology networks to connect research centres) 5,644,188

2 8 Other investments in companies 56,895,370

3

44 Management of domestic and industrial waste 14,681,753

45 Water distribution and management (drinking water) 7,857,300

46 Water treatment (wastewater) 43,473,468

50 Refurbishment of industrial areas and polluted land 1,136,505

25 Urban transport 4,086,717

4

40 Renewable energy: solar 4,902,61041 Renewable energy: biomass 5,970,265

43 Energy efficiency, co‐generation and energy management 4,358,408

52 Development of clean urban transport 13,476,856

56 Preservation and development of natural heritage 13,459,624

5

57 Other grants to improve tourism services 12,132,517

58 Protection and preservation of cultural heritage 14,540,705

SUBTOTAL, JESSICABLE PRIORITY ISSUES 202,616,286 ERDF OP TOTAL 540,090,219Source: Galicia ERDF OP and in‐house production.

One conclusion which may be drawn from this table is the scale of the differences in the level of availability across the different Priority Issues. This is illustrated by the following figure which sets out the percentage of Community grants still available for the period 2010‐2013.

Figure 2 Grants available by priority issue selected for 2010‐2013

0,0% 10,0% 20,0% 30,0% 40,0% 50,0% 60,0% 70,0% 80,0% 90,0% 100,0%

2.-Infraestructura de I+D (instalaciones, instrumentos y redes informáticas de alta velocidad parala conexión de centros de investigación

8.-Otros inversiones en empresas

44.-Gestión de residuos domésticos e industriales

45.-Gestión y distribución de agua (agua potable)

46.-Tratamiento del agua (agua residual)

50.-Rehabilitación de zonas industriales y terrenos contaminados

25.-Transporte urbano

40.-Energía renovable: solar

41.-Energía renovable: biomasa

43.-Eficiencia energética, cogeneración y gestión energética

52.-Fomento del transporte urbano limpio

56.-Protección y desarrollo del patrimonio natural

57.-Otras ayudas para mejorar los servicios turísticos

58.-Protección y conservación del patrimonio cultural

Protección y conservación del patrimonio cultural

Protection and preservation of cultural heritage

Otras ayudas para mejorar los servicios turísticos

Other grants to improve tourism services

Protección y desarrollo del patrimonio natural

Preservation and development of natural heritage

Fomento del transporte urbano limpio

Development of clean urban transport

Eficiencia energética, cogeneración y gestión energética

Energy efficiency, co‐generation and energy management

Energía renovable: blomasa Renewable energy: biomassEnergía renovable: solar Renewable energy: solarTransporte urbano Urban transport

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Rehabilitación de zonas industriales y terrenos contaminados

Refurbishment of industrial areas and polluted land

Tratamiento del agua (agua residual) Water treatment (wastewater)Gestión y distribución de agua (agua potable)

Water distribution and management (drinking water)

Gestión de residuos domésticos e industriales

Management of domestic and industrial waste

Otros inversiones en empresas Other investments in companiesInfraestructura de I+D (Instalaciones, Instrumentos y redes informáticas de alta velocidad para la conexión de centros de investigación)

R&D infrastructure (installations, instruments and high‐speed information technology networks to connect research centres)

3.3 JESSICA and its alignment with the ERDF OP

The Operational Programme reflected the new financial engineering instruments which the Commission had proposed in collaboration with the EIB (including JESSICA), as set out in Article 44 of Regulation 1083/26. These instruments opened up ERDF funds to the involvement of private initiative.

The Operational Programme includes, with reference to Axis 5, the following text:

"Within the field of urban development, services may be implemented to support companies, induction centres, centres and agencies for local development, the promotion of enterprise development on the basis of the main assets in cities, such as ports, technology centres or strategic sectors, actions which may be supplemented by means of the use of additional resources within the context of the JESSICA initiative".

The Programme itself also went so far as to establish the procedure for making use of this initiative:

"Lastly, with regard to the new JESSICA financial cooperation instrument, and with the aim of better using Community funds and providing alternative sources of funding for urban development projects, the Monitoring Committee for this Programme will analyse and rule as to the possibility of dedicating its funds to the implementation of this new initiative".

3.3.1 Possibilities for the JESSICA initiative under the 2007-2013 Operational Programme

The eligible project areas were selected jointly with the Directorate‐General for Planning and Funds (the 'DXPF') on the basis of the OP 2007‐2013 Priority Issues. One major factor in selecting the projects was that established by the level of progress on projects committed to in 2010. Unfortunately, as we are practically half way through the period covered by the OP, the funds already committed represent a substantial proportion of the Operational Programme.

From an initial list of 14 Priority Issues which could cover projects compatible with JESSICA, six different types have been selected, in accordance with the following criteria:

• Confirmation of a demand for viable projects and, in some cases, a portfolio of projects.

• Interest from the Xunta fund manager in developing these projects under a public‐private partnership system.

• Availability of resources in the corresponding Axis.

• Alignment with a funding structure based on UDFs with a degree of homogeneity.

The groups selected were:

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3.3.2 Axis 2, Issue 8: Other investments in companies

The research conducted served to advance public interest in the development of land for economic activity. These developments are based on promotional mechanisms with a considerable store of experience held at public bodies, such as the Instituto Galego de Vivenda y Solo (the Galician Housing and Land Institute, or 'IGVS'), the provincial Xestur bodies and municipal urban development offices. In this regard, these are conventional public‐private partnership projects which constitute no risk from the perspective of their implementation.

The problem they present is twofold:

• On the one hand, eligibility from the perspective of an Integrated Urban Plan, since most of these projects are located in newly created land and, although their impact on the urban continuum may be considerable (relocation of industries, job creation, etc.) they cannot be considered as urban regeneration projects per se.

• Secondly, the limited potential for development at this time of land use projects involving private initiative. The economic crisis in general and the freeze on urban development operations would make it very difficult today to develop new land for economic activities in accordance with JESSICA eligibility criteria.

3.3.3 Axis 4, Issue 41: renewable energy. Biomass

The recent funding round organised by INEGA (the Galician Energy Institute) offering grants for biomass generation facilities was successfully concluded (over 40 projects). This demonstrates the interest, mainly in the field of smaller‐sized towns within a rural environment ("agri‐towns") to develop this type of energy.

In accordance with the interest revealed at the INEGA, a broad range of projects within an urban setting which would be open to JESSICA funding has been included.

3.3.4 Axis 4, Issue 43: Energy efficiency, co-generation and energy management

This issue is tied to the interest aroused in Galicia by projects to optimise the energy efficiency of buildings, thermal solar roofs, geothermal heating, etc. These are small‐volume projects which could be applied to public or private facilities of a certain size.

3.3.5 Axis 4, Issue 52: Development of clean urban transport

The funding of clean Public Authority and public service concession‐holder fleets is a constant feature of the sustainable mobility plans being undertaken throughout Spain. Energy agencies (the IDAE at the national level and the INEGA in Galicia) have in place grant systems to subsidise the acquisition of clean vehicles. Galicia in particular wishes to activate a line of grants for the acquisition of cleaner buses for urban transportation, and this could in part become JESSICA funding on the basis of co‐funding systems for financial leasing or similar operations.

This programme goes a step further and must allow public authorities to adopt an overall strategy in terms of the acquisition of their fleet or the fleet of their service concession‐holders.

3.3.6 Axis 5, Issues 56 and 57: protection and development of natural heritage - Other grants to improve tourism services

The Secretariat‐General for Tourism has registered considerable interest in applying JESSICA to some of its programmes to promote tourism activities. It has in particular been proposed that the viability of JESSICA be analysed in two areas: a) construction and management of marinas and promotion of nautical tourism and, b) refurbishment of fortresses, introducing hospitality, cultural and tourism operations.

In parallel, the Directorate‐General for Ports, which is responsible for developing Galicia's marinas, has registered its interest in applying JESSICA mechanisms on the project covered by its Galician Ports Plan. Marinas have therefore been analysed as being JESSICA eligible given their integration

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within the urban context of Galicia's small and medium‐sized towns, along with the interest registered by the two Xunta managers.

3.3.7 Issue 61: Integrated urban regeneration projects

URBAN‐type projects are being managed by the Central Government Authorities (the AGE), without the involvement of the Xunta. Relationships are maintained directly between the Concellos (Local Councils) and the AGE. This makes it difficult to establish a JESSICA proposal for such projects, and they have been excluded from this analysis of pilot projects.

From the project perspective, Annex D) amply illustrates the potential and options which this type of project could have on a JESSICA funding scenario.

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4 THE FRAMEWORK FOR THE DEVELOPMENT OF JESSICA PROJECTS IN GALICIA

4.1 The experience of public-private funding and initiatives in Galicia

Spain has over recent years seen an increase in forms of public‐private partnership, mainly tied to the development of public amenities and infrastructure. One recent reference framework may be found in the form of Public Sector Procurement Act 30/2007, of 30 October 2007 (the 'LCSP'), which introduces the concept of the "Public Sector and Private Sector Partnership Contract". There also exist numerous corporate structures which would allow for partnership between the public and private sectors.

Galicia has limited experience of such partnerships. The fears aroused by a possible "privatisation" of public services and infrastructure, along with the difficulties inherent in the quest for an appropriate corporate structure and funding, have restricted Galicia's business culture with regard to public‐private ventures. Examples of partnership can, however, be found, mainly in the field of amenities and infrastructure. Some of the most significant cases would include the following:

• Highways infrastructure, undertaken by means of concession systems under a shadow toll system (traffic risk and payment by the Public Authority). These involve conventional concession‐based systems with the Public Authority taking up no equity stake in the company but paying a tariff and, in some cases, providing a proportion of the funding by means of participatory loans.

• Hospitals. No experiences to date. However, the new Vigo hospital is being developed by means of public‐private partnership. This is a conventional concession‐based structure (construction and operation), with payment by availability, in general terms similar to

the systems introduced in other Spanish Autonomous Regions, such as Madrid.

• Marinas, also developed as Regional Authority concessions under the terms of the Galician Marinas Steering Plan.

• Bus stations, under the aegis of the national Transport Act (the 'LOTT'), with municipal ownership.

Galicia also has experience in the creation of Mutual Guarantee Societies (or 'SGRs'), the purpose of which is to allow small‐scale companies which find it difficult to access credit and associated services to set up joint societies, with the stakeholders bearing no personal liability for the society's debts. The object of these societies is to grant personal guarantees, by means of bonds or any other legally accepted system other than surety insurance, allowing their stakeholders to perform transactions within the context of the trade or business of the companies they own.

Two such SGRs exist in Galicia:

• AFIGAL SGR , which operates in the provinces of A Coruña and Lugo and has 9,637 SME stakeholders and 46 protector stakeholders.

• SOGARPO, SGR which operates mainly in the provinces of Pontevedra and Ourense, with 6,281 SME stakeholders and 27 protector stakeholders.

These societies have a long‐standing tradition, both of them having been in operation for more than 25 years, and are well established in the SME finance market in Galicia.

4.2 JESSICA and ERDF fund managers

The Evaluation Study focused in its initial stages on exploring the attitude of Xunta ERDF fund managers, their interest in applying the JESSICA tool and the

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resolution of doubts and concerns which may arise out of the shift from grant‐based management to a different system involving repayable funds and public‐private partnership systems.

This work was all times performed jointly with the Directorate‐General for Planning and Funds, which provided access to the managing bodies and supported the initiative.

4.2.1 Phase I: Initial context and general explanation of the JESSICA initiative

Following on from an initial meeting staged in October 2009, attended by the main departments managing ERDF funds at the Xunta de Galicia1, the Xunta's various managing bodies _were presented with the characteristics and possibilities for establishing JESSICA funding. As there is no detailed guideline for the allocation of a part of the ERDF funds to the JESSICA initiative, work at this initial stage focused on explaining the benefits of such funding and jointly examining the possibilities which it could have for application on the projects currently being funded in their respective areas.

Following on from this initial meeting, further contact took place in the form of personal meetings and surveys completed by the managers, which mainly fall under the aegis of three Regional Government Departments:

• Regional Department of the Environment, Territory and Infrastructure

o Secretariat‐General of the Department,

1 See Annex D) and E)

o Directorate‐General for Mobility,

o Directorate‐General for Ports,

o Directorate‐General for Urban Development,

o Galician Housing and Land Institute ‐ IGVS

o Provincial land managers ‐ XESTUR

• Regional Department of Culture and Tourism

o Secretariat‐General for Tourism

• Regional Department of Economy and Industry

o Galician Energy Institute – INEGA

The assessment given during this initial contact stage may be summarised under the following points:

1. The fund managers are generally concerned with the complexity of their task and the procedures demanded by the EU (justification and certification of the funds spent), and also reluctant to use new tools which could make their work even more difficult.

An attempt was made in this regard to explain that the use of JESSICA funds does not make the manager's task more complex, but on the contrary consultative support from the EIB throughout the process and the fact that the funds can be certified from the outset make the manager's task easier.

2. There already exists a culture of management based on the use of Operational Programme funds by way of grants, in other words there is a philosophy of expenditure but not of forming business initiatives to provide a return on the investment. Some managers registered a degree of reluctance to apply funds to projects generating economic

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returns and with private involvement, on the basis that such funds should preferably be allocated to social return projects. Other managing authorities, as in the case of the INEGA representatives, were convinced that repayable finance using ERDF funds as opposed to the grants system could offer greater transparency and efficacy in the development of the eligible projects.

3. With the exception of certain managers (INEGA, DG Ports, DG Mobility) there was no experience in the creation of public‐private partnership projects. The inclusion of the private sector is seen as an element of complexity within procedures based on non‐refundable subsidy and grant mechanisms.

In this regard the consultants attempted to explain that the JESSICA initiative and similar tools could become standard and even mandatory practice in the administration of future operational programme funds. The need was to understand them and receive training in their use, even if only through a very small allocation of current funds.

4. The managers were in general found to be unwilling to redirect funds towards the JESSICA initiative, either so as not to employ the committed funds allocated to non‐refundable grants or because of the difficulty in selecting eligible projects within each area.

This last point will be analysed in detail in the next chapter, presenting a justification of the existence of a broad range of projects which could be funded by means of JESSICA.

5. Lastly, the managers were very aware of the advantage represented by certification of JESSICA funds from the point at which they are assigned to this initiative. The restrictions imposed by Rule N+2 and the fact that the OP has a downstream financial pathway, with considerable commitment entered into during the initial period of the OP and possible certification difficulties, mean that JESSICA is seen as a solution to the threat of OP non‐compliance.

During this phase the managers, in particular the Secretariat‐General for Tourism, the Directorate‐General for Mobility, the Directorate‐General for Ports, the INEGA, the IGVS and some of the XESTUR bodies, registered considerable interest in JESSICA and contributed ideas and projects for inclusion in the Evaluation Study.

4.2.2 Phase II: Analysis of possible UDFs in the field of land, building and energy

The initial phase of contact with managers and the regional analysis served to identify three lines of projects which could be subject to JESSICA funding:

• Land development and urban amenities, through the Galician Housing and Land Institute (the IGVS).

• Energy efficiency, in partnership with the INEGA.

• Development of projects tied to tourism and nautical activities, in partnership with the Directorate‐General for Ports and the Secretariat‐General for Tourism.

4.2.2.1 IGVS: Land

The IGVS from the outset registered its interest in incorporating the JESSICA initiative within its line of funding for land development projects. During the initial meetings held, the proposed projects focused on:

• Projects for the development of newly created land for economic activity. JESSICA eligibility lies in the territorial context involved: a diffuse urban territory, with some such developments serving to relocate industries and centres of activity located in urban zones or those outside urban planning regulation areas.

• Unlike in other Autonomous Regions, the IGVS administers such land, which it acquires under an expropriation system, performing urban development directly. This aspect makes it difficult to establish

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public‐private partnership through the compensation boards and the inclusion of private owners.

• Lastly, mention was made of the possibility that JESSICA could be used to fund some of the utilities connections not yet implemented, supplementing through infrastructure those provisions of recently developed land for economic activities not yet brought on‐stream.

• Land of this type would include that covered by the Pacios‐Baamonde activity centre and the Monforte de Lemos Dry Port, as explained in detail in a later chapter.

Following a number of meetings, the IGVS reached the conclusion that at present it is not feasible to put forward a line of JESSICA funding based on land development for economic activities. The current market and the paralysis of development projects led the IGVS to perceive a considerable risk of loss in the JESSICA UDF dedicated to this activity. As a result, this approach has been abandoned pending an improvement in the general economic climate.

4.2.2.2 IGVS: relocation and amenities

One further line of work covered by the IGVS and which it is currently funding includes relocation projects, and above all the creation of student residences, third‐age residences and other amenities. Once the funding of residential buildings had been discarded, work continued with the IGVS on the funding of amenities, with the Elviña university student campus residence being one example detailed in a later chapter.

Unfortunately, this particularly promising line of work has been suspended pending referral by the IGVS to the Directorate‐General for Planning and Funds of its query seeking confirmation of the JESSICA eligibility of these projects.

4.2.2.3 INEGA: Energy efficiency and renewable energy sources

The line of work with the INEGA remains open, with considerable interest on the part of the organisation's managers. The INEGA is currently working on a number of project lines which could be covered by the grant system. Many of these could be shifted to JESSICA funding, making the involvement of public funds more logical.

The types of project defined together with the INEGA as potentially eligible for JESSICA are as follows:

Axis 4 Priority Issue Action 41 Sustainable energy Installation of biomass plants

Investment in renewable energy facility projects

43 Energy efficiency

Investment in public buildings Improvements to integrated building enclosures

Improvements to heat facilities in buildings

Investment in services Outdoor public lighting installations Energy transformation Energy transformation 52 Development of clean urban transport Renewal of Public Authority fleets

Renewal of public urban transport fleets

These projects have been analysed from the perspective of JESSICA eligibility and their financial viability, and constitute the core of the UDF proposal presented for Galicia.

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4.2.2.4 Nautical Tourism

The line of work focusing on marinas, their facilities and commercial amenities and their integration within towns has received limited analysis as priority was given to other lines of work. However, the evaluation study does in a later chapter include a simulation of the creation of new mooring berths at the port of Muros, an example proposed by the Directorate‐General for Ports.

This line of work remains open given the interest registered by its managers and the potential of applying JESSICA within a context that already has in place public‐private partnerships systems. The structure of a UDF based on this type of project has not, however, been included in this study, with priority being given to the line of projects connected with energy efficiency and renewable energy sources.

4.3 JESSICA and other institutional and economic agents

The working team also held meetings with Local Authority bodies, urban development management authorities (the Vigo Free Zone Consortium and Urban Offices), universities, private developers and credit institutions (the savings banks Caixa Galicia and Caixa Nova). The interest registered by all of these was, in general, considerable. The two savings banks in particular gave a positive response to the JESSICA proposal, as they regularly manage lines of finance for Local Corporations for the administration of ERDF funds.

4.4 Role and attitude regarding JESSICA at regional credit institutions

The role of financial institutions within the architecture of the JESSICA initiative is fundamental, as set out in Article 43 of Regulation 1083/2006. Meanwhile, as these are repayable investments, they are potentially attractive to private investors and financial institutions in a way which does not apply to other conventional types of intervention involving non‐refundable grants.

The structure of JESSICA allows credit institutions to become involved at two different levels:

• UDF level: joint involvement in forming a UDF on the part of a credit institution (a bank or savings bank). The Galician savings banks have considerable experience in managing OP funds. Some of them have lines of finance for ERDF projects which discount the subsidy and advance the funding to the public development entity.

• Project level. It is already typical at this level for banks and savings banks to be involved in the financing of urban projects, with or without ERDF funding.

4.4.1 The financial system in Galicia

The financial landscape in Galicia is dominated by the two savings banks, which are in the process of merging, and one regional bank (the Banco Pastor). In addition, the two largest Spanish banks (Banco Santander and BBVA) and the two largest savings banks (La Caixa and Caja Madrid) also have a significant market share, sufficient for them to maintain regional head offices. The Xunta enjoys a fluid relationship with all these, and they are regularly involved in the issuing of debt by the Xunta de Galicia.

Within the context of the reforms to the savings bank system being instigated by the monetary authorities, the merger agreement approved by the Boards of Directors of Caixa Galicia and Caixa Nova will represent a far‐reaching transformation of this financial landscape. The Bank of Spain itself, along with a due diligence process conducted by KPMG and commissioned by the Xunta, have demonstrated that the merger is viable and generates value. However, in order for this entity to operate as one single savings bank, with a market share of more than 50% of deposits in Galicia, it will be required successfully to complete the agreed three‐year transitional period.

4.4.2 Attitude of financial intermediaries to JESSICA

With the aim of informing and attracting those financial institutions which have the greatest relationship with local authorities in Galicia, meetings were

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held with managers at the two savings banks which are most strongly established within the region.

The aim of these two meetings was to inform them of the JESSICA initiative, its possible implementation in Galicia and the evaluation study being conducted, while also sounding out their attitude with regard to this financial engineering instrument and their potential involvement in any UDFs which may be set up.

Both institutions registered interest in this form of fund management and declared their desire to learn further details about the procedure in order to be in a position to take part in a future funding round. They also have experience in the funding of ERDF projects, since they finance the equity funds which many Galician local authorities use for joint finance of their European projects: URBAN, ERDF, etc.

Annex D) sets out the result of the interviews and initiatives conducted with the Xunta fund managers, local authorities, public and private developers and the two leading savings banks in Galicia.

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5 ELIGIBLE PROJECTS

Analysis of the Priority Issues and Axes, performed jointly with the Directorate‐General for Planning and Funds, and the meetings held with the OP managers. These essentially served to define four types of project open to eligibility analysis. They are as follows:

• Axis 2, Priority Issue 8: development of land for economic activities, based on regeneration and relocation.

• Axis 4, Priority Issues 41 and 43: renewable energy and energy efficiency.

• Axis 5, Priority Issues 56 and 57, nautical tourism and marinas.

• Axis 5, Priority Issues 59 and 61, public amenities (student residences, third‐age residences, etc.)

As was set out in the previous chapter, at the time this report was drawn up only the INEGA and the projects involved in Axis 4, Energy and Transport, had made progress on establishing a UDF. These projects are, therefore, those described, leaving the remaining types involving land development, tourism and urban amenities for a second phase.

5.1 Eligibility criteria

The eligibility criteria employed in selecting projects are as follows:

5.1.1 Eligibility alignment of ERDF OP projects

Once a decision has been taken as to the UDFs which are to be used to develop the JESSICA initiative, the criteria and eligibility rules established for the ERDF OP under Community regulations must be met, essentially the principles intended to govern the subsidisability of expenditure as set out in Regulation 1083/2006, Regulation 1080/2006 and Regulation 1828/2006.

The criteria set out for the Galicia OP by the ERDF OP Monitoring Committee for the selection of 2007‐2013 ERDF operations must also be met, as laid down in Article 56.3 of Regulation 1083/2006.

5.1.2 Sustainable planning framework

Regulation (EC) 1083/2006, laying down general provisions for EU structural funds for the programming period 2007‐2013, focuses on the importance of sustainable urban development and the role of cities in achieving the goals of economic and social cohesion. Indeed, current European policies focus on the application of innovative strategies for urban regeneration, including by means of the use of integrated focuses dealing jointly with social, economic and environmental aspects of urban renewal and development.

In this regard, in order for JESSICA projects to be deemed eligible they must form part of an integrated plan for sustainable urban development (an IUP), in other words a system of interrelated actions intended to achieve a lasting improvement in the economic, physical, social and environmental conditions of a city or an area within the city.

The key concept here is "integration", in the sense that both the policies and the projects are taken into consideration on the basis of all relationships among them. Within this context, synergies between different elements of the plan must be such that the overall impact of the plan is greater than the sum of the impacts of its individual components.

The integrated focus of operations eligible for funding under JESSICA thus requires the existence of sustainable contextual planning in order to facilitate implementation within the urban environment. This planning does exist at various levels in Galicia, ranging from the URBAN projects for initiatives in large cities to the Regional Rebalancing Plan intended to structure interventions in small and medium‐sized towns, to the specific inventory for urban development planning in order to make actions within a specific area viable.

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The chapter dedicated to a review of territorial and urban planning provisions reflects the complexity and number of plans in place in this Autonomous Region; all that is absent are specific plans for integrated projects.

However, for each "Jessicable" project case it will be ascertained whether these territorial or thematic plans already in existence could justify integration within urban sustainability action programmes.

As such a planning concept does not exist in municipal or regional regulations, the Integrated Urban Plan (IUP) will need to be drawn up on the basis of the eligible projects, which will need to justify:

1. The general framework of territorial, sectoral and municipal planning covering the project.

2. The sustainability criteria contained within this reference framework.

3. The existence of other complementary actions which could serve to establish an IUP.

4. Compliance on the part of the project with all or some of these sustainability criteria.

5.1.3 Respect for competition laws

The principle of transparency and competition must prevail in the selection both of the financial institutions with an interest in taking part in the UDFs and also the actual projects competing in the public funding rounds which the managing authority will stage at the time in question.

5.1.4 Accumulation of grants

Although Article 53 of Regulation 1083/2006 provides the possibility of the accumulation of Community grants, they must clearly respect the thresholds established in order not to violate the regulations governing State Aid in convergence target regions.

Annex G to the Report sets out the limitations imposed in terms of State Aid.

5.1.5 Other specific JESSICA initiative eligibility criteria

Lastly, the eligible projects must comply with other JESSICA eligibility criteria, such as:

• Repayment of all parts of the investment generated by the project business lines.

• Backed by public‐private initiative and funding.

• Viable from the legal perspective.

• Technically viable and not completed at the time of their selection.

• Investment drawn from OP funds over the period established in the 2007‐2013 OP period (31 December 2015).

5.2 Project included in Axis 4: Energy and Transport

In identifying these types consideration was given to the current project lines backed or funded by the INEGA and the line of subsidies for public transportation fleets developed jointly with the Directorate‐General for Mobility.

5.2.1 Renewable energy projects. Priority Issues 40, Solar, and 41, Biomass.

Action Installation of BIOMASS boilers:

o Domestic, industrial and public service

thermal biomass boilers.

o Installations for the storage, handling, prior

treatment and anaerobic or gasification

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digestive systems, energy reuse (heat/cold),

and/or electrical use of any type of organic

matter open to such treatment.

o Biomass field treatment implementation

projects.

JESSICA Elegibility o Energy efficiency

o Urban projects for industries, amenities,

integrated services in neighbourhoods and

centres of population

Action Investment in renewable energy facility projects:

o Projects for the installation of low‐

temperature thermal solar energy.

o Projects for the installation of isolated

photovoltaic solar energy for services at

locations not connected to the general

grid.


o Urban projects or those in urbanised

environments

5.2.2 Energy efficiency in buildings line. Priority Issue 43.

Action Investments involved in improving building enclosures

in order to reduce the energy spent on HVAC.


o Investments in public buildings, amenities,

centres of economic and commercial activity.

Action Investment in improvements to the thermal

installations in existing buildings in order to reduce

energy consumption by 20%


o Investments in public buildings, amenities,

centres of economic and commercial activity.

Action Investments in improvements in outdoor lighting:

o Lamps, lights and ancillary equipment,

achieving reductions of 30%

o Lighting level regulation and switching

systems achieving reductions of 20%

o Change in the position of lights installed using

previous technologies, achieving reductions

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of 30%

JESSICA Elegibility o Energy efficiency in buildings

Action Installation of geo‐thermal heat pumps, air‐air and air‐

water heat pumps.

JESSICA alignment o Energy efficiency in buildings

Action New buildings with A‐B rating and additional costs in materials, equipment and systems required in order to improve the installations in buildings in order to move from a D to an A‐B rating

JESSICA Elegibility o Energy efficiency in buildings

5.2.3 Energy efficiency in services and urban amenities. Issue 43: Energy efficiency, co-generation and energy management

Action Investment in drinking water processing, supply and

wastewater treatment installations, replacing these

with others offering greater energy efficiency


o Actions at municipal level

Action • Investments in public outdoor lighting

installations in order to achieve an A or B

rating

• LED traffic lights


o Actions at municipal level

5.2.4 Energy transformation. Priority Issue 43

Action Construction of high‐efficiency co‐generation

installations with a power rating of more than 150 kW

in the tertiary and agri‐fisheries sector

JESSICA alignment o Energy efficiency

Action Construction of high‐efficiency co‐generation

installations with a power rating of more than 150 kW

in the industrial sector


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5.2.5 Line of finance for public transport (in partnership with the Directorate-General for Mobility). Priority Issue 52: Development of clean urban transport

Projects derived from Sustainable Urban Mobility (PMUS) and Travel to Work (PTT) Plans and viability studies which, by means of the associated investments, promote modal changeover and energy efficiency in the transport sector.

Action Network of electric or hybrid buses within urban

centres to improve permeability: combination of

funding for fleets and new service concessions.

JESSICA Elegibility o Sustainable Mobility

o Energy Efficiency

Action Promote the acquisition by public authorities of less

polluting vehicles: for passengers, freight, industrial

transportation and municipal fleets.

Particular focus on the line which could be activated

with DG Mobility for the subsidisation (funding) of

urban transportation bus fleets.

JESSICA Elegibility o Sustainable Mobility

o Energy efficiency

5.2.6 Selected projects

The INEGA was unable to provide any individual projects for modelling. The project which have been modelled in this evaluation study are thus theoretical, and reflect a standard type of project which could be open to JESSICA funding.

The project models, as described in the following chapter, are:

• Biomass boilers for residential services in neighbourhoods and small population centres.

• Improvements to a public building in order to achieve greater energy efficiency (thermal solar roof, installation, low‐powered lighting, etc.).

• Funding of bus fleets for urban transport, via lease or rental systems.

5.3 Axis 2, Enterprise Development and Innovation. Issue 8: Other investments in companies

The research performed served to advance public interest in the development of land for economic activities, in particular in small‐scale urban areas within the region. With a focus on territorial balance, such developments are based on mechanisms for which there is considerable experience at public bodies such as Xestur and municipal urban development departments. In this regard, these are conventional public‐private partnership projects which constitute no risk from the perspective of their implementation. They are also included in the Plan Galicia for the planning and structuring of business land initiatives.


In the contacts held with the various public land development agents, an attempt was made to seek out projects which could be eligible. In particular, the selection made for initial analysis included economic developments at:

• Monforte de Lemos Dry Port

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• Development of economic activities in Pacios‐Baamonde

These two industrial and warehouse land developments are not fully aligned with the eligibility criteria, in particular the criterion for inclusion within an IUP, as they involve new land developments (greenfield sites) with only a part of the economic activity being installed involving relocations from urban locations.

In any event, the main public development agent for this type of activities, the IGVS, informed the team drafting this report that there would be problems in channelling JESSICA funding within one area, land development for economic activity, which was undergoing a profound crisis, hence the decision not to design a UDF based on this type of project.

5.4 Axis 5. Accommodation for students and other service amenities

In conversations held with the University of A Coruña, a proposal was presented for a pilot project based on the construction of student rental housing on the Elviña campus. The IGVS in turn proposed an analysis of a funding line for public services and amenities such as student residences, third‐age residences, etc., currently covered by subsidies for private initiatives.

Unfortunately, this promising line of work was ultimately dependent on a consultation regarding the JESSICA eligibility of such projects, a consultation which the IGVS decided to present to the Directorate‐General for Planning and Funds, this issue not yet having been resolved.


Two projects were studied:

• Student residence on the Elviña campus, as a pilot project.

• Ariero area. Rental accommodation and complementary services for the Meixueiro Hospital, in Vigo

These projects are not included under the UDF proposal.

5.5 Axis 5, Issues 56 and 57: protection and development of natural heritage - Other grants to improve tourism services

The Secretariat‐General for Tourism has registered considerable interest in applying JESSICA to some of its programmes to promote tourism activities. It has in particular been proposed that the viability of JESSICA be analysed in two areas: a) construction and management of marinas and promotion of nautical tourism and, b) refurbishment of fortresses, introducing hospitality, cultural and tourism operations.

In parallel, the Directorate‐General for Ports, which is responsible for developing Galicia's marinas, has registered its interest in applying JESSICA mechanisms on the projects covered by its Galician Ports Steering Plan. The area of marinas has therefore been analysed as potentially being JESSICA eligible given their fit within the urban context of Galicia's small and medium‐sized towns, along with the interest registered by the two Xunta managers.


The example chosen was the development of nautical facilities at the port of Muros. The project was proposed by the Directorate‐General for Ports, which provided all the documentation required for its modelling. However, because of the limited JESSICA fund allocations (the ERDF OP resources which the Xunta is prepared to employ on the JESSICA initiative: between 10 and 12 million euros at the initial stage), this type of project has not been modelled nor included in a specific UDF.

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6 DESCRIPTION OF THE PROJECT AND FINANCIAL MODELLING

As a result of the research performed and the interest registered by the Fund Managing Authorities, by certain local entities and other institutional agents, a selection was made of projects which could be subject to JESSICA funding at this initial stage. These projects were analysed from the perspective of JESSICA eligibility criteria, with a matrix of projects and criteria being included at the end of the chapter. Financial modelling was also performed, along with structural modelling of three projects by means of a UDF.

In this regard, only the projects under Axis 4 were modelled for structuring on the basis of a UDF (Energy). The remaining projects were either not considered eligible (the Monforte Dry Port or land development for economic activity in Pacios‐Baamonde), or have otherwise been switched to a second phase of JESSICA. When the time comes, and once approval has been given by the Managing Authority, new UDFs would be structured on the basis of new resources allocated to this initiative.

Table 3 Selected Pilot Projects

PROJECT DESCRIPTION ADMINISTRATOR/DEVELOPER1. Energy efficiency in public buildings

Improvements in public buildings and amenities to achieve greater energy efficiency

Municipal and Xunta de Galicia

2. Biomass boilers Services for public centres, neighbourhoods and small towns

Municipal and Xunta de Galicia

3. Funding of clean urban transport fleets

Fleet renewal Municipal and service concession‐holder

In the following sections we present an analysis of the financial viability of three of the projects initially selected. The working hypotheses involved definition of two scenarios:

1. Project development without JESSICA funding. This initial step establishes whether the projects selected are capable of generating resources, thereby fulfilling one of the requirements for JESSICA funding

2. Development with JESSICA funding proposed as the baseline case.

Design of the financial structure of the project: baseline hypothesis

In this last case, with the aim of making the most of the opportunities offered by this financial instrument, the JESSICA funds are used as a loan for development of the operation (11.783 million euros) and also as a stake in the corresponding equity (1.3 million euros), the latter proportion nonetheless being considerably lower.

• At this initial phase the main aim will be investment in sustainable development projects based on the use of renewable energy sources and improved energy efficiency.

• The flows to be obtained by the financial institutions funding the project are confined solely to the rate of interest on the finance.

In addition to these hypotheses, others have been applied equally to both scenarios, referring to the following parameters and variables: a) Volume of investment and project duration: The cost of the

investment in the three projects selected amounts to 58.114 million euros. This figure has been established on the basis of the information provided by the INEGA itself, or other agents such as the Chamber of Madrid, regarding similar initiatives.

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b) Funding of the project and the breakdown of liabilities. The following aspects were taken into consideration in designing the financial structure:

1. The Xunta currently has in place a budget of some €15 million of

ERDF funds which could be available for use under the JESSICA initiative.

2. The nature and characteristics of each of the projects, a detailed description of which is included in the following sections: 6.1, 6.2 and 6.3.

3. The contribution of equity as a proportion of total liabilities, whether public or private, has been calculated at 35%, although it varies from one project to another between a minimum of 30% and a maximum of 50%. This minimum threshold coincides with the joint funding which would need to be contributed by the beneficiary of an ERDF grant in the event that the chosen funding mode was by means of a non‐reimbursable subsidy.

4. The agents and operators funding the projects contribute a volume of 20.841 million euros, of which private initiative contributes 12.441 million euros (59.7%), while the remaining 7.1 million euros (40.3%) come from public institutions. With the aim of exploring the greatest possible number of possibilities in the case design, in order thereby to reveal the full potential offered by the JESSICA initiative for the Managing Authority, this 40.3% includes a contribution of 1.3 million euros of JESSICA funds, but in the form of equities. The project selected for application of this approach was the biomass power plant, given that its viability is based on an experience which has been in successful operation for some years in the municipality of Allariz (Ourense province).

5. The commercial loans amount to 33.273 million euros (57.25%), which would be contributed by the financial institutions involved in funding the operation at the market interest rate. However, in

the baseline case one third of these resources would come from JESSICA funds, this time in the form of loans.

6. The use of subsidies in the project budget has been maintained. This opportunity applies because of the type of actions studied as pilot cases, and should not be seen as representing the general situation. The advantage is to reduce the resources used for equity or loans and thereby improve the project returns.

Lastly, although the existing aid measures (Resolution of 21 July 2010, establishing the rules for the granting by competitive tender of subsidies for energy efficiency and saving projects for the financial year 2010 co‐funded by the ERDF, published in Official Journal of Galicia 143, on 28/07/2010), allow for the possibility that the three projects could receive subsidies, this possibility has been taken into consideration only for the biomass power plant, the sum involved being 4 million euros. There are essentially two reasons behind this decision: the compatibility which Article 46.2 of Regulation 1828/2006 provides for between the two systems, provided that the limits established by the ERDF Operational Programme are not exceeded, and the aim of making this project more attractive to private agents in a sector which has considerable potential and track record in Galicia.

c) Inflation and evolution of operating costs and revenue

d) Interest rates on commercial credits

e) Interest rates on the JESSICA loan

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6.1 Development with JESSICA funding

• On this scenario it would be the UDF which funds the projects to the tune of 13.083 million euros. The involvement of JESSICA funds would, as indicated, take the form of two of the three systems covered by Article 44 of Regulation 1083/2006: 11.783 million euros of loans and the remaining 1.4 million as equities. Recourse to the grant system has been discarded, given the complexity and the conditioning factors involved in the process with the instruments specifically created for this purpose in Galicia: the SOGARPO and AFIGAL mutual guarantee societies.

• Having first ascertained the positive response which this initiative could receive from the financial intermediaries operating in Galicia, see section 4.4. The model assumes that the UDF managers will be the financial institutions providing the funding, calculated at 21.49 million euros.

• Having first ascertained the positive response which this initiative could receive from the financial intermediaries operating in Galicia, see section 4.4. The model assumes that the UDF managers will be the financial institutions providing the funding, calculated at 21.49 million euros. The details for each of the projects may be seen in the table:

Table 4 Power Plant

BUSINESS POWER PLANT

UNITS 1 PROJECT DURATION 10 INVESTMENT PERIOD 1 INVESTMENT START YEAR 1 OPERATIONAL START YEAR 2 INVESTMENT 14,400 EQUITY % LIABILITIES 27% DEBT, CREDITS %LIABILITIES 18% DEBT , JESSICA CREDIT (FIXED) 18% SUBSIDIES 28% CONTRIBUTION % JESSICA NET WORTH 9% EQUITY 5,200 PUBLIC ENTITIES 1,300 PRIVATE ENTITIES 2,600 OTHER (OWNERS, BANKS…) 0 JESSICA (EQUITY) 1,300 DEBTS 5,200 COMMERCIAL CREDITS 2,600 JESSICA CREDITS 2,600 INVESTMENT GRANTS 4,000

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Table 5 Intelligent building

BUSINESS THERMAL SOLAR ENERGY, BUILDING

COGENERATION PLANT

POWER REGULATORS

UNITS 2 2 2 PROJECT DURATION 16 16 16

INVESTMENT PERIOD 1 1 1 INVESTMENT START YEAR

1 1 1

OPERATIONAL START YEAR

2 2 2

INVESTMENT 1,270 27,316 2,677 EQUITY % LIABILITIES 40% 30% 30% DEBT, CREDITS %LIABILITIES

30% 50% 40%

DEBT , JESSICA CREDIT (FIXED)

30% 20% 30%

SUBSIDIES 0% 0% 0% CONTRIBUTION % JESSICA NET WORTH

0% 0% 0%

EQUITY 508 8,195 803 PUBLIC ENTITIES 508 8,195 803 PRIVATE ENTITIES 0 0 0 OTHER (OWNERS, BANKS…)

0 0 0

JESSICA (EQUITY) 0 0 0 DEBTS 762 19,121 1,874 COMMERCIAL CREDITS

381 13,658 1,071

JESSICA CREDITS 381 5,463 803 INVESTMENT GRANTS 0 0 0

Table 6 Bus fleet renewal

BUSINESS BUSES

UNITS 3 PROJECT DURATION 6 INVESTMENT PERIOD 1 INVESTMENT START YEAR 1 OPERATIONAL START YEAR 2 INVESTMENT 12,000 EQUITY % LIABILITIES 50% DEBT, CREDITS %LIABILITIES 30% DEBT , JESSICA CREDIT (FIXED) 20% SUBSIDIES 0% CONTRIBUTION % JESSICA NET WORTH 0% EQUITY 6,000 PUBLIC ENTITIES 1,500 PRIVATE ENTITIES 4,500 OTHER (OWNERS, BANKS…) 0 JESSICA (EQUITY) 0 DEBTS 6,000 COMMERCIAL CREDITS 3,600 JESSICA CREDITS 2,400 INVESTMENT GRANTS 0

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Table 7 Total structure

BUSINESS TOTAL

UNITS PROJECT DURATION INVESTMENT PERIOD INVESTMENT START YEAR OPERATIONAL START YEAR INVESTMENT 58,114 EQUITY % LIABILITIES DEBT, CREDITS %LIABILITIES DEBT , JESSICA CREDIT (FIXED) SUBSIDIES CONTRIBUTION % JESSICA NET WORTH EQUITY 20,841 PUBLIC ENTITIES 12,441 PRIVATE ENTITIES 7,100 OTHER (OWNERS, BANKS…) 0 JESSICA (EQUITY) 1,300 DEBTS 33,273 COMMERCIAL CREDITS 21,490 JESSICA CREDITS 11,783 INVESTMENT GRANTS 4,000

• Management of the project will be performed by the financial institutions selected to fund the project.

o The annual administrative costs incurred over the first five years would be 155 thousand euros, coinciding with the start‐up period, which will require greater supervision and initial project operations, the figure being 0.5% of the JESSICA funds managed during the following two years, and 0.10% for the remaining years.

o It receives a commission of 3% on the funds managed during the first three years, 2% during the following two years and 0.30% for the remaining financial years up until the date when all JESSICA funds are repaid.

• The flows to be obtained by the financial institution will be the interest rate for the finance, plus the fund management fee. The fund flow chart for this design may be seen in the following figure:

Diagrama de flujos en la arquitectura de JESSICA propuesta

Holding Fund 16.0 M€

UDF Eficienciaenergética

Proyecto CALDERA BIOMASA

Proyecto REHABILIT. EDIFICIOS

Proyecto FLOTAS VEHICULOS

Créditos JESSICA: 11,8 M€

Entidades Financieras

(EEFF)

Management fees: 1,4M€

CréditosComerciales: 25,2 M€

3,6 M€15,2 M€6,4 M€

2,6 M€ 6,7 M€ 3,0 M€

Only invest in projets through loans and equities

Coste financiero: 5,2 M€

3,7 M€ 0,3 M€1,0 M€

Coste financiero:3,3 M€

0,5 M€ 2,5 M€ 0,4 M€

Equities: 1,3 M


Flowchart for proposed JESSICA architecture

Créditos JESSICA: JESSICA credits:UDF Eficiencia energética Energy Efficiency UDFEntidades Financieras Financial EntitiesCoste financiero: Financial cost:Créditos Comerciales: Commercial credits:Proyecto CALDERA BIOMASA BIOMASS BOILER Project Proyecto REHABILIT. EDIFICIOS REFURB. Project BUILDINGS

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Proyecto FLOTAS VEHÍCULOS VEHICLE FLEET Project

• Given the assumption of immediate application of the funds to the projects, no consideration is given to a return on the available JESSICA funds, since this return will be practically nil, and the average half‐yearly repayment to the HF from the return and the flows would be the same. Should any arise this would be transferred to the HF.

6.2 High environmental quality public buildings

6.2.1 Description of the project

The proposed pilot project involves the potential refurbishment of public buildings in order to give them a high environmental quality level by means of a range of work performed on the building enclosure and the heating and lighting facilities.

The most significant initiatives to be applied to buildings as a whole would be:

• Installation of a co‐generation plant (to meet heating needs and generating some of the electricity consumed by the building).

• Adaptation of lighting systems to the relevant energy needs (reduced electrical energy consumption while adequately meeting lighting requirements).

• Installation of power regulators on lighting screens in order to regulate flows depending on lighting needs.

• Installation of solar panels and hot water accumulators.

Given the nature of this project, which must be applied to publicly owned buildings, the proposed financial structure design is as follows:

A contribution of 30% equity for the investment, with the remaining 70% being funded by means of commercial credits (21% JESSICA funds and 49% commercial credit from credit institutions).

6.2.1.1 Reference framework

The INEGA (Galician Energy Institute) has been promoting initiatives intended to employ a range of renewable energy sources to meet energy needs in the urban buildings sector. These applications essentially focus on buildings in

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urban developments with high energy demands, such as for example public buildings for collective use and administrative buildings.

6.2.1.2 Desired objectives

The main objective of such projects is to achieve energy savings in those public buildings with a higher energy demand, and also to promote the use of alternative energy sources for other purposes.

Eligibility under ERDF OP Axis 4

This project is perfectly aligned with the eligibility criteria established for Axis 4 by the managing authority for the ERDF Operational Programme in Galicia. In fact, the Xunta itself each year organises funding rounds for local authorities in Galicia to present projects to improve the energy efficiency of the installations and buildings they own. The last funding round was approved by means of the Resolution of 21 July 2010, establishing the rules for the granting by competitive tender of subsidies for energy efficiency and saving projects for the financial year 2010 co‐funded by the ERDF within the context of the Galicia 2007‐2030 ERDF programme (published in Official Journal of Galicia 143 of 28/07/2010)

6.2.1.3 Possible agents involved

The initiative would be the responsibility of local councils, in the case of municipal buildings, and the Xunta itself for those buildings owned by it.

6.2.1.4 Execution Deadlines

The standard programme of action could be as follows:

• Investment start date: first year of the project • Investment Period: one year. • Project execution: first year of project • Operational start date: second year of the project • Duration of the project (reversion): 16 years

6.2.1.5 Estimate of costs and revenues

The tables below set out the presumed revenue/expenditure in the case of an intervention involving 10 standard buildings. The estimated costs are a theoretical average and are based on average unit costs for energy efficiency projects.

Table 8 Estimated cost and efficiency of thermal solar roofs on buildings for hot water and/or swimming pool heating

The economic viability of this type of installation will depend on the magnitude of the consumption substituted and the type of fuel employed.

Standard installation example (solar surface area >=100 m2)

Installed thermal solar surface area (m2) 100 Mean investment ratio (€/m2) 600 Total investment (€) 60,000 Estimated non‐refundable subsidy 20,000 Solar coverage for heating demands (%) 70 Primary solar energy ratio (kWh/m2) 700‐1,000 Annual solar output (kwh) 70,000 – 100,000 Conventional energy cost with natural gas (€/kwh) 0,042 Conventional energy cost, other fuels (€/kwh) 0.07 Annual saving vs. natural gas (€) 2,940‐ 4,200 Annual saving vs. other fuels (€) 4,900‐ 7,000 Simple Payback Period vs. natural gas (years) 9.5 ‐13 Simple Payback Period vs. other fuels (years) 6‐8 (*) Simple Payback Period = (Investment minus Subsidy)/Annual Saving

Source. INEGA

Table 9 Installation of electronic power regulation ballasts

Units 235

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Mean investment ratio (€/u) 76.72

Total investment (€) 18,030

Energy saving 113,877 kwh

Economic saving (€) 7,145 €

Payback Period (months) 30 Source. Energy Audit Manual. Chamber of Madrid

Table 10 Co‐generation plant

INSTALLATION OF A CO‐GENERATION POWER PLANT

WITH CO‐GENERATION

WITHOUT CO‐GENERATION

Annual cost of electricity (€/year) 155,463

Thermal cost (€/year) 62,629

Gas supply cost (€/year) 78,531 Cost of maintenance, installation and ancillaries (€/year) 13,173 Loss of profits and machinery insurance (€/year) 4,286

Contracted power required (€/year) 11,510

Imported electrical bill (€/year) 23,101

Non‐absorbed electrical bill (€/year) 16,402

Non‐absorbed thermal bill (€/year) 13,683

Estimated annual saving (€) 57,406

Investment (€) 273,160 The simple payback period for the investment 4.76 years.

Source. Energy Audit Manual. Chamber of Madrid

Table 11 Replacement of lights

Units 500

Mean investment ratio (€/u) 9.01

Total investment (€) 4,507

Energy saving 23,450 kwh

Economic saving (€) 1,475

Period of Return (months) 37 Source. Energy Audit Manual. Chamber of Madrid

6.2.2 Initial hypotheses: Project development without JESSICA funding.

The numerical values employed in the baseline hypothesis scenario, in other words without recourse to JESSICA funding, are as reflected in the enclosed table.

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Table 12 Hypothesis based on study projects. Project payback outcomes

PROJECT BUILDING REFURBISHMENT

BUSINESS THERMAL SOLAR ENERGY, BUILDING

COGENERATION PLANT

POWER REGULATORS

REPLACEMENT OF LIGHTING

PROJECT DURATION 16 16 16 16INVESTMENT PERIOD 1 1 1 1INVESTMENT START YEAR 1 1 1 1OPERATIONAL START YEAR 2 2 2 2CORPORATION TAX RATE 0% 0% 0% 0%OPERATING GRANTS (Thousands of Euros) 0 0 0 0INVESTMENT (thousands of Euros) 1,270 27,316 2,677 451OPERATIONAL FUNDING NEEDS (OFN) (Th. Euros) 0 0 0 0CAPEX (Thousands of Euros) 1,270 27,316 2,677 451EQUITY % LIABILITIES 45% 30% 30% 30%DEBT, CREDITS %LIABILITIES 55% 70% 70% 70%DEBT , JESSICA CREDIT (FIXED) 0.00% 0.00% 0.00% 0.00% PUBLIC CONTRIBUTION % NET WORTH 0.00% 0.00% 0.00% 0.00% PRIVATE ENTITY CONTRIBUTIONS % NET WORTH 100.00% 100.00% 100.00% 100.00% OTHER CONTRIBUTIONS % NET WORTH 0.00% 0.00% 0.00% 0.00%CONTRIBUTION % JESSICA NET WORTH 0.00% 0.00% 0.00% 0.00%CPI 1.01 1.01 1.01 1.01OPERATING COSTS (% INVESTMENT) 0.00% 10.61% 0.00% 0.00%AMORTISATION PROVISION (% INVESTMENT) 6.67% 6.67% 6.67% 6.67%OPERATING REVENUE (% INVESTMENT) 9.86% 19.01% 23.01% 18.00%RATE OF COST INCREASE 1.00 1.00 1.00 1.00RATE OF REVENUE INCREASE 1.00 1.00 1.00 1.00CONSTRUCTION MARGIN 0.00% 0.00% 0.00% 0.00%OPERATING MARGIN 0.00% 0.00% 0.00% 0.00%COMMERCIAL CREDIT INTEREST RATE 6.00% 6.00% 6.00% 6.00%JESSICA CREDIT INTEREST RATE ‐ ‐ ‐ ‐

IRR 5.31%

PAYBACK 12

JESSICA FUNDS (thousands of Euros) 0

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6.2.2.1 Profits and losses

In addition to complying with the eligibility criteria and rules established by the regulations governing administration of ERDF projects, JESSICA can be applied to those actions " which make repayable investments or provide guarantees for reimbursable investments", as laid down in Article 43.1 of Regulation 1828/2006. Table 1, setting out the results drawn from the financial model, illustrates that this requirement is met: EBITDA and aggregate Free Cash Flow, including the details for each of the actions included within this project in the annex. (details in annex)).

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Profits and Losses of the Building Refurbishment business group and its Cash Flows. In thousands of Euros.

UDF PROJECT CONSOLIDATION GROUP

ECONOMIC SITUATION/YEAR TOTAL‐IRR PAYBACK

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

ENER

GY‐INEG

A

BUILDING REFURB

ISHMEN

T

2 OPERATING REVENUE 90,234 0 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016

NET TURNOVER 90,234 0 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016

OTHER OPERATING REVENUE 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

OPERATING GRANTS 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

TOTAL OPERATING EXPENSES 75,167 0 5,011 5,011 5,011 5,011 5,011 5,011 5,011 5,011 5,011 5,011 5,011 5,011 5,011 5,011 5,011

PERSONNEL EXPENSES 30,482 0 2,032 2,032 2,032 2,032 2,032 2,032 2,032 2,032 2,032 2,032 2,032 2,032 2,032 2,032 2,032

MAINTENANCE COSTS 12,971 0 865 865 865 865 865 865 865 865 865 865 865 865 865 865 865

OPERATING CONSUMPTION 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

OTHER COSTS 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

AMORTISATION PROVISIONS 31,714 0 2,114 2,114 2,114 2,114 2,114 2,114 2,114 2,114 2,114 2,114 2,114 2,114 2,114 2,114 2,114

INVESTMENT AMORTISATIONS 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

TOTAL EXTRAORDINARY REVENUE 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

EXTRAORDINARY REVENUE 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

SUBSIDIES 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

EXTRAORDINARY EXPENSES AND LOSSES 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

EBITDA 46,780 0 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119

OPERATING PROFIT 15,067 0 1,004 1,004 1,004 1,004 1,004 1,004 1,004 1,004 1,004 1,004 1,004 1,004 1,004 1,004 1,004

FINANCIAL REVENUE 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

FINANCIAL COSTS 7,430 0 1,311 1,204 1,090 970 842 707 563 412 251 80 0 0 0 0 0

FIN. COST COMMERCIAL CREDITS 7,430 0 1,311 1,204 1,090 970 842 707 563 412 251 80 0 0 0 0 0

FIN. COST JESSICA 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

TAXES 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

CORPORATION TAX 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

OTHER TAXES 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

RESULT FOR YEAR 7,637 0 ‐307 ‐199 ‐86 35 163 298 441 593 754 924 1,004 1,004 1,004 1,004 1,004

FCF (1) 5.31% ‐31,714 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119

AGGREGATE FCF ( 2) 12 ‐31,714 ‐28,595 ‐25,476 ‐22,358 ‐19,239 ‐16,120 ‐13,001 ‐9,883 ‐6,764 ‐3,645 ‐527 2,592 5,711 8,829 11,948 15,067

CF( (3) 2.56% ‐31,714 1,807 1,915 2,029 2,149 2,277 2,412 2,555 2,707 2,868 3,038 3,119 3,119 3,119 3,119 3,119

AGGREGATE CF (4) 14 ‐31,714 ‐29,906 ‐27,991 ‐25,963 ‐23,814 ‐21,537 ‐19,125 ‐16,570 ‐13,863 ‐10,995 ‐7,956 ‐4,838 ‐1,719 1,400 4,518 7,637

(1) Free Cash Flow (2) Cumulative Free Cash Flow (3 )Accountable Cash Flow (4) Cumulative accountable Cash Flow

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6.2.2.2 Aggregate Free Cash Flow for the project.

The graphical representation of this Free Cash Flow may be seen in the enclosed figure. It should be reiterated that the Building Refurbishment project involves a project based on the aggregation of 4 separate actions the returns on which have been analysed separately, although the graphical representation of the Free Cash Flow is presented in figure 1 on an aggregate basis. This representation reveals the short payback period, making it more attractive to private investors and fulfilling the requirements that revenue be generated in order for an instrument such as JESSICA to be employed.

Figure 3 Aggregate Free Cash Flow from the Building Refurbishment business group

-40.000

-30.000

-20.000

-10.000

0

10.000

20.000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Mile

s de

Eur

os

Miles de Euros Thousands of Euros

6.2.2.3 Investment funding.

Article 44 of Regulation 1083/2006 provides that " When the Structural Funds are used to finance urban development funds, these funds shall be invested in public‐private partnerships or other projects included within an integrated sustainable urban development plan". While the recently approved Regulation 539/2010 extends the scope of possible applications to "repayable investments in the field of energy efficiency", the effect of leverage, in other words the capture of private equity, remains one of the main attractions of this type of investment. The tables illustrate the hypotheses for the composition of equity on each of the six projects.

Table 13 Funding of investment in the Building Refurbishment group. In Thousands of Euros

ECONOMIC SITUATION/YEAR TOTAL

INVESTMENT 31,714

FUNDING SOURCES 31,714

OPERATIONAL FUNDING NEEDS (OFN) 0

CAPEX 31,714

EQUITY 9,641

PUBLIC ENTITIES 9,641

PRIVATE ENTITIES

OTHER (OWNERS, BANKS…) 0

JESSICA (EQUITY) 0

DEBTS 22,073

COMMERCIAL CREDITS 22,073

JESSICA CREDITS 0

INVESTMENT GRANTS 0

NEG. RESULT FOR YEAR (WITHOUT AMORT.) 0

Table 7 presents the leverage planned for this project, with public entities being required to allocate 9.641 million euros, while 22.073 million euros

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would have to be attracted in the form of private credit from those financial institutions registering an interest in taking part on the basis of its attractive returns and short repayment period.

6.2.2.4 Returns

This section gives the returns which each of the agents or operators would obtain in accordance with the suppositions employed in this baseline scenario: without employing the JESSICA instrument

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Table 14 Return of the various funding parties in the building refurbishment business group. In thousands of Euros

UDF PROJECT CONSOLIDATED GROUP

BANK FLOWS (ENTITY PERSPECTIVE) FLOW SIGN

TOTAL‐IRR PAYBACK

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

ENER

GY‐INEG

A

REFU

RBISHMEN

T OF BU

ILDINGS

2

BANKS

COMMERCIAL CREDITS ‐ 22,073 22,073 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

P.D. COMMERCIAL(1) + 22,073 0 1,807 1,915 2,029 2,149 2,277 2,412 2,555 2,707 2,868 1,354 0 0 0 0 0

FIN. COST COMMERCIAL CREDITS + 7,430 0 1,311 1,204 1,090 970 842 707 563 412 251 80 0 0 0 0 0

OTHER (OWNERS, BANKS…) ‐ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

DIVIDENDS + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

CASH FLOW +/‐ 5.94% ‐22,073 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 1,434 0 0 0 0 0

CUMULATIVE CASH FLOW +/‐ 9 ‐22,073 ‐18,954 ‐15,835 ‐12,716 ‐9,598 ‐6,479 ‐3,360 ‐242 2,877 5,996 7,430 7,430 7,430 7,430 7,430 7,430

PRIVATE ENTITIES

PRIVATE ENTITIES ‐ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

DIVIDENDS + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

CONSTRUCTION MARGIN + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

OPERATING MARGIN + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

CASH FLOW +/‐ ‐ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

CUMULATIVE CASH FLOW +/‐ 17 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

PUBLIC ENTITIES

PUBLIC ENTITIES ‐ 9,641 9,641 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

DIVIDENDS + 17,278 0 0 0 0 0 0 0 0 0 0 1,685 3,119 3,119 3,119 3,119 3,119

CASH FLOW +/‐ 4.72% ‐9,641 0 0 0 0 0 0 0 0 0 1,685 3,119 3,119 3,119 3,119 3,119

CUMULATIVE CASH FLOW +/‐ 14 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐7,956 ‐4,838 ‐1,719 1,400 4,518 7,637

JESSICA

JESSICA CREDITS ‐ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

JESSICA (EQUITY) ‐ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

FIN. COST JESSICA + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

P.D.JESSICA(2) + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

DIVIDENDS + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

CASH FLOW +/‐ ‐ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

CUMULATIVE CASH FLOW +/‐ ‐ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

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6.2.3 Development with JESSICA funding.

In this case, the JESSICA funds (6.782 million euros) serve as a loan to develop the operation, not as an equity stake or guarantee.

Table 15 Hypothesis regarding the study projects. Project return outcomes

PROJECT BUILDING REFURBISHMENT CONSOLIDATION GROUP 2 BUSINESS THERMAL SOLAR

ENERGY, BUILDING COGENERATION PLANT

POWER REGULATORS

REPLACEMENT OF LIGHTING

PROJECT DURATION 16 16 16 16INVESTMENT PERIOD 1 1 1 1INVESTMENT START YEAR 1 1 1 1OPERATIONAL START YEAR 2 2 2 2CORPORATION TAX RATE 0% 0% 0% 0%OPERATING GRANTS (Thousands of Euros) 0 0 0 0INVESTMENT (thousands of Euros) 1,270 27,316 2,677 451OPERATIONAL FUNDING NEEDS (OFN) (Th. Euros) 0 0 0 0CAPEX (Thousands of Euros) 1,270 27,316 2,677 451EQUITY % LIABILITIES 40% 30% 30% 30%DEBT, CREDITS %LIABILITIES 60% 70% 70% 70%DEBT , JESSICA CREDIT (FIXED) 50% 29% 43% 43% PUBLIC CONTRIBUTION % NET WORTH 100.00% 100.00% 100.00% 100.00% PRIVATE ENTITY CONTRIBUTIONS % NET WORTH 0.00% 0.00% 0.00% 0.00% OTHER CONTRIBUTIONS % NET WORTH 0.00% 0.00% 0.00% 0.00%CONTRIBUTION % JESSICA NET WORTH 0.00% 0.00% 0.00% 0.00%CPI 1.01 1.01 1.01 1.01OPERATING COSTS (% INVESTMENT) 0.00% 10.61% 0.00% 0.00%AMORTISATION PROVISION (% INVESTMENT) 6.67% 6.67% 6.67% 6.67%OPERATING REVENUE (% INVESTMENT) 9.86% 19.01% 23.01% 18.00%RATE OF COST INCREASE 1.00 1.00 1.00 1.00RATE OF REVENUE INCREASE 1.00 1.00 1.00 1.00CONSTRUCTION MARGIN 0.00% 0.00% 0.00% 0.00%OPERATING MARGIN 0.00% 0.00% 0.00% 0.00%COMMERCIAL CREDIT INTEREST RATE 6.00% 6.00% 6.00% 6.00%JESSICA CREDIT INTEREST RATE 4.50% 4.50% 4.50% 4.50%IRR 5.31%

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PAYBACK 12 JESSICA FUNDS(thousands of Euros) 6,782 As might be expected, the return is positive (5.31% IRR) while the payback time is 12 years.

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6.2.3.1 Aggregate Free Cash Flow for the project

The graphical representation of this Free Cash Flow may be seen in the enclosed figure. It should be reiterated that the Building Refurbishment project involves a project based on the aggregation of 4 separate actions the returns on which have been analysed separately, although the graphical representation of the Free Cash Flow is presented in figure 2 on an aggregate basis. This representation reveals the short payback period, making it more attractive to private investors and allowing an instrument such as JESSICA to be employed.

Figure 4 Aggregate Free Cash Flow from the Building Refurbishment business group

-40.000

-30.000

-20.000

-10.000

0

10.000

20.000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

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s de

Eur

os


6.2.3.2 Investment funding

The following tables, as in the case of the hypothesis without JESSICA, present the structure of the sources of finance for the building refurbishment project as a whole.

Table 16 Funding of investment in the Building Refurbishment group. In Thousands of Euros

ECONOMIC SITUATION/YEAR TOTAL

INVESTMENT 31,714

FUNDING SOURCES 31,714

OPERATIONAL FUNDING NEEDS (OFN) 0

CAPEX 31,714

EQUITY 9,641

PUBLIC ENTITIES 9,641

PRIVATE ENTITIES 0

OTHER (OWNERS, BANKS…) 0

JESSICA (EQUITY) 0

DEBTS 22,073

COMMERCIAL CREDITS 15,290

JESSICA CREDITS 6,782

INVESTMENT GRANTS 0

NEG. RESULT FOR YEAR (WITHOUT AMORT.) 0

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6.2.3.3 Returns

This section gives the returns which each of the agents or operators would obtain in accordance with the suppositions employed on this scenario with recourse to use of the JESSICA instrument. As a result, in addition to public and private agents, commercial banks and the JESSICA fund itself are included on this scenario as operators with expectations of obtaining a sufficiently attractive return to encourage them to invest in such projects

Table 17 Return of the various funding parties in the building refurbishment business group. In thousands of Euros



TOTAL‐IRR PAYBACK

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

ENER

GY‐INEG

A

REFU

RBISHMEN

T OF BU

ILDINGS

2

BANKS

COMMERCIAL CREDITS ‐ 15,290 15,290 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

P.D. COMMERCIAL(1) + 15,290 0 1,908 2,022 2,142 2,269 2,404 2,546 2,000 0 0 0 0 0 0 0 0

FIN. COST COMMERCIAL CREDITS + 3,728 0 908 795 675 548 413 270 119 0 0 0 0 0 0 0 0


DIVIDENDS + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

CASH FLOW +/‐ 5.94% ‐15,290 2,816 2,816 2,816 2,816 2,816 2,816 2,119 0 0 0 0 0 0 0 0

CUMULATIVE CASH FLOW +/‐ 7 ‐15,290 ‐12,474 ‐9,657 ‐6,841 ‐4,024 ‐1,208 1,609 3,728 3,728 3,728 3,728 3,728 3,728 3,728 3,728 3,728

PRIVATE ENTITIES

PRIVATE ENTITIES ‐ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

DIVIDENDS + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

CONSTRUCTION MARGIN + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

OPERATING MARGIN + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

CASH FLOW +/‐ ‐ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

CUMULATIVE CASH FLOW +/‐ 17 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

PUBLIC ENTITIES

PUBLIC ENTITIES ‐ 9,641 9,641 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

DIVIDENDS + 18,438 0 0 0 0 0 0 0 0 0 0 2,844 3,119 3,119 3,119 3,119 3,119

CASH FLOW +/‐ 5.34% ‐9,641 0 0 0 0 0 0 0 0 0 2,844 3,119 3,119 3,119 3,119 3,119

CUMULATIVE CASH FLOW +/‐ 14 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐6,797 ‐3,678 ‐559 2,559 5,678 8,797

JESSICA

JESSICA CREDITS ‐ 6,782 6,782 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

JESSICA (EQUITY) ‐ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

FIN. COST JESSICA + 2,542 0 302 302 302 302 302 302 302 271 144 12 0 0 0 0 0

P.D.JESSICA(2) + 6,782 0 0 0 0 0 0 0 698 2,848 2,974 263 0 0 0 0 0

DIVIDENDS + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

CASH FLOW +/‐ 4.46% ‐6,782 302 302 302 302 302 302 1,000 3,119 3,119 274 0 0 0 0 0

CUMULATIVE CASH FLOW +/‐ 10 ‐6,782 ‐6,480 ‐6,178 ‐5,876 ‐5,574 ‐5,272 ‐4,969 ‐3,969 ‐851 2,268 2,542 2,542 2,542 2,542 2,542 2,542 (1) Amortisation of commercial credit (2) Amortisation of JESSICA credit

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It is worth highlighting the return on the JESSICA funds employed (4.46% IRR) and their application to the funding of this project maintains the return for private financial institutions (5.94% IRR), meaning that this project remains attractive.

6.3 Installation of biomass plants


The growth in household energy consumption has raised the need to introduce other sources of energy in urban areas which do not pollute the environment and can adequately meet rising demand.

Current technology allows for the development of small biomass boilers which generate energy at a neighbourhood community level at a low cost.

The pilot project presented involves equipping neighbourhoods for small population centres with biomass plants in order to replace boilers using conventional fuels with a system using biodegradable, sustainable fuels.

The standard installation proposed involves a power plant which could cover a maximum of approximately 800 residential properties per power plant (approximately 80,000 m²). Maintenance costs are low and supervision of combustion processes can be automated. There are two fundamental elements here: the power plant and the distribution network.

The power plant operation is based on a self‐feeding system which outputs hot water at 95° and receives it at 75°, reducing the fuel requirements involved in heating water. The plan is for the power plants also to have biomass stores allowing them to operate for a certain number of days.

Another option which could be financed under JESSICA would involve installing biomass boilers in public buildings, such as schools, sports centres, heated swimming pools, etc.

Energía por biomasa en un área urbana Energy from biomass in an urban area Cultivos energéticos Energy cropsResiduos agrícolas Agricultural wasteResiduos ganaderos Livestock wasteResiduos industriales Industrial wasteResiduos forestales Forestry wasteBarrio/área urbana District/urban areaBIOMASA BIOMASSCentral térmica Power PlantRed de distribución interna Internal distribution networkViviendas PropertiesExcedentes a red general Surplus to general grid

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Biomass energy use represents a considerable socio‐economic opportunity for Galicia, since the region has a considerable store of biomass given its large forested area and the mainly agricultural use of its land. It also has agri‐food industries which generate potential biomass by products.

Regions with similar energy resources have seen successful initiatives intended to implement biomass energy projects with the aim of achieving a high level of energy self‐sufficiency in local neighbourhoods and small towns.

Galicia's energy policies are intended to bring about a new model based on energy diversification with considerable use of endogenous and renewable resources. As for demand management, this model encourages savings measures, energy efficiency and self‐sufficiency of centres of consumption.


a) Ability to employ a renewable energy source to meet energy demand in the urban buildings sector.

b) A technologically innovative project, given the use of efficient installations, the use of efficient materials such as wood, and one which is in turn environmentally integrated, being developed in accordance with the contextual idiom.

c) Energy and financial savings compared with the use of other fuels for the same purposes.

ERDF OP eligibility


Local councils and Xunta as development agents. Energy operators, which would be responsible for construction and operation of the power plants.

6.3.1.4 Action periods


• Investment start date: first year of the project

• Investment Period: one year.

• Project execution: first year of project

• Operational start date: second year of the project

• Duration of the project: 10 years

6.3.1.5 Estimated costs and efficiency

Table 18 Estimated costs and efficiency of the biomass boiler

Standard example installation: 200 kW biomass boiler

Boiler power (kw) 200 Investment ratio (€/kW) 450 Total investment (€) 90,000 Additional investment ratio (€/kW) (*) 200 Additional investment versus other fuels (€) 40,000 % maximum biomass subsidy 30 % Grant 25,000 Estelas energy cost (€/kwh) 0.0125 Pellet energy cost (€/kwh) 0,036 Gas energy cost (€/kwh) 0,042 Other fuel energy cost (€/kwh) 0.07 Annual building heating demand (kWh) 200,000 PELLETS ESTELAS Annual saving vs. natural gas 1,200 5,900 Annual saving vs. other fuels 6,800 11,500

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Simple Payback Period vs. natural gas (years 12.5 2.2 Simple Payback Period vs. other fuels 3.7 1.3 Source: INEGA


The numerical values employed in the baseline hypothesis scenario, in other words without recourse to JESSICA funding, are as reflected in the enclosed table.

Table 19 Hypothesis based on study projects. Project return outcomes

PROJECT BIOMASS CONSOLIDATION GROUP 1

BUSINESS BIOMASS POWER PLANT

PROJECT DURATION 10INVESTMENT PERIOD 1INVESTMENT START YEAR 1OPERATIONAL START YEAR 2CORPORATION TAX RATE 30%OPERATING GRANTS (Thousands of Euros) 0INVESTMENT (thousands of Euros) 14,400OPERATIONAL FUNDING NEEDS (OFN) (Th. Euros) 0CAPEX (Thousands of Euros) 14,400EQUITY % LIABILITIES 36%DEBT, CREDITS %LIABILITIES 36%DEBT , JESSICA CREDIT (FIXED) 0.00% PUBLIC CONTRIBUTION % NET WORTH 50.00% PRIVATE ENTITY CONTRIBUTIONS % NET WORTH 50.00% OTHER CONTRIBUTIONS % NET WORTH 0.00%CONTRIBUTION % JESSICA NET WORTH 0.00%CPI 1.01OPERATING COSTS (% INVESTMENT) 18.30%AMORTISATION PROVISION (% INVESTMENT) 11.11%OPERATING REVENUE (% INVESTMENT) 30.00%RATE OF COST INCREASE 1.00RATE OF REVENUE INCREASE 1.00CONSTRUCTION MARGIN 0.00%

OPERATING MARGIN 0.00%COMMERCIAL CREDIT INTEREST RATE 6.00%JESSICA CREDIT INTEREST RATE ‐

IRR 5.38%

PAYBACK 8

JESSICA FUNDS(thousands of Euros) 0

6.3.2.1 Profits and losses.

In addition to complying with the eligibility criteria and rules established by the regulations governing administration of ERDF projects, JESSICA can be applied to those actions " which make repayable investments or provide guarantees for reimbursable investments", as laid down in Article 43.1 of Regulation 1828/2006.

The following table has been drawn up in order to ascertain fulfilment of this requirement, giving the EBITDA and the aggregate Free Cash Flow.

Figure 5 Aggregate Free Cash Flow from the Power Plant business group

-14.000

-12.000

-10.000

-8.000

-6.000

-4.000

-2.000

0

2.000

4.000

6.000

1 2 3 4 5 6 7 8 9 10

Mile

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Table 20 Profits and Losses of the Biomass Power Plant business group and its Cash Flow. In Thousands of Euros.


2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 2 3 4 5 6 7 8 9 10

OPERATING REVENUE 38,880 0 4,320 4,320 4,320 4,320 4,320 4,320 4,320 4,320 4,320

NET TURNOVER 38,880 0 4,320 4,320 4,320 4,320 4,320 4,320 4,320 4,320 4,320

OTHER OPERATING REVENUE 0 0 0 0 0 0 0 0 0 0 0

OPERATING GRANTS 0 0 0 0 0 0 0 0 0 0 0

TOTAL OPERATING EXPENSES 38,113 0 4,235 4,235 4,235 4,235 4,235 4,235 4,235 4,235 4,235

PERSONNEL EXPENSES 16,634 0 1,848 1,848 1,848 1,848 1,848 1,848 1,848 1,848 1,848

MAINTENANCE COSTS 7,078 0 786 786 786 786 786 786 786 786 786

OPERATING CONSUMPTION 0 0 0 0 0 0 0 0 0 0 0

OTHER COSTS 0 0 0 0 0 0 0 0 0 0 0

AMORTISATION PROVISIONS 14,400 0 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600

INVESTMENT AMORTISATIONS 0 0 0 0 0 0 0 0 0 0 0

TOTAL EXTRAORDINARY REVENUE 4,000 4,000 0 0 0 0 0 0 0 0 0

EXTRAORDINARY REVENUE 0 0 0 0 0 0 0 0 0 0 0

SUBSIDIES 4,000 4,000 0 0 0 0 0 0 0 0 0

EXTRAORDINARY EXPENSES AND LOSSES 0 0 0 0 0 0 0 0 0 0 0

EBITDA 19,167 4,000 1,685 1,685 1,685 1,685 1,685 1,685 1,685 1,685 1,685

OPERATING PROFIT 767 0 85 85 85 85 85 85 85 85 85

FINANCIAL REVENUE 0 0 0 0 0 0 0 0 0 0 0

FINANCIAL COSTS 988 0 309 298 216 129 36 0 0 0 0

FIN. COST COMMERCIAL CREDITS 988 0 309 298 216 129 36 0 0 0 0

FIN. COST JESSICA 0 0 0 0 0 0 0 0 0 0 0

TAXES 1,200 1,200 0 0 0 0 0 0 0 0 0

CORPORATION TAX 1,200 1,200 0 0 0 0 0 0 0 0 0

OTHER TAXES 0 0 0 0 0 0 0 0 0 0 0

RESULT FOR YEAR 2,579 2,800 ‐224 ‐213 ‐131 ‐44 49 85 85 85 85

FCF (1) 5.38% ‐11,600 1,660 1,660 1,660 1,660 1,660 1,660 1,660 1,660 1,660

AGGREGATE FCF ( 2) 8 ‐11,600 ‐9,940 ‐8,281 ‐6,621 ‐4,961 ‐3,302 ‐1,642 18 1,677 3,337

CF( (3) 4.05% ‐11,600 1,376 1,387 1,469 1,556 1,649 1,685 1,685 1,685 1,685

AGGREGATE CF (4) 9 ‐11,600 ‐10,224 ‐8,837 ‐7,368 ‐5,811 ‐4,162 ‐2,477 ‐792 893 2,579


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Taking advantage of the opportunities offered by the Xunta's policy of providing assistance for projects to improve energy efficiency and the use of renewable energy sources, it should be pointed out that in the case of the Biomass Power Plant project plans have been made for a subsidy of 4 million euros, in accordance with the provisions and grant schemes in place for this type of renewable energy.

Table 21 Funding of investment in the Biomass Power Plant business group. In Thousands of Euros

ECONOMIC SITUATION/YEAR TOTAL 2010 2011(1)

1 2 INVESTMENT 14,400 14,400 0

FUNDING SOURCES 15,600 14,400 1,200

OPERATIONAL FUNDING NEEDS (OFN) 0 0 0

CAPEX 14,400 14,400 0

EQUITY 5,200 5,200 0

PUBLIC ENTITIES 2,600 2,600 0

PRIVATE ENTITIES 2,600 2,600 0

OTHER (OWNERS, BANKS…) 0 0 0

JESSICA (EQUITY) 0 0 0

DEBTS 6,400 5,200 1,200

COMMERCIAL CREDITS 6,400 5,200 1,200

JESSICA CREDITS 0 0 0

INVESTMENT GRANTS 4,000 4,000 0

NEG. RESULT FOR YEAR (WITHOUT AMORT.) ‐1,200 0 ‐1,200 (1) In 2011 a credit is requested for payment of the taxes derived from the grant

Table 15 also present the planned leverage for this project, for which public entities would be required to allocate 2.6 million euros, while attracting a similar sum from private initiative which would take an equity stake in the company developing the project. The funding structure for the project would be completed by means of a further 6.4 million euros in the form of private commercial credit

from those financial institutions registering an interest in taking part on the basis of the attractive returns and short recovery period available.

6.3.2.3 Returns.

Such interest is well illustrated by the returns which each of the agents or operators would obtain on the basis of the supposition is employed in this hypothetical baseline scenario without employing the JESSICA instrument.

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Table 22 Return of the various funding parties in the power plant business group. In thousands of Euros



TOTAL‐IRR PAYBACK

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 2 3 4 5 6 7 8 9 10

ENER

GY‐INEG

A

POWER

PLANTS

1

BANKS

COMMERCIAL CREDITS ‐ 6,400 5,200 1,200 0 0 0 0 0 0 0 0

P.D. COMMERCIAL(1) + 6,400 0 1,376 1,387 1,469 1,556 611 0 0 0 0

FIN. COST COMMERCIAL CREDITS + 988 0 309 298 216 129 36 0 0 0 0

OTHER (OWNERS, BANKS…) ‐ 0 0 0 0 0 0 0 0 0 0 0

DIVIDENDS + 0 0 0 0 0 0 0 0 0 0 0

CASH FLOW +/‐ 5.94% ‐5,200 485 1,685 1,685 1,685 648 0 0 0 0

CUMULATIVE CASH FLOW +/‐ 5 ‐5,200 ‐4,715 ‐3,030 ‐1,344 341 988 988 988 988 988

PRIVATE ENTITIES

PRIVATE ENTITIES ‐ 2,600 2,600 0 0 0 0 0 0 0 0 0

DIVIDENDS + 3,889 0 0 0 0 0 519 843 843 843 843

CONSTRUCTION MARGIN + 0 0 0 0 0 0 0 0 0 0 0

OPERATING MARGIN + 0 0 0 0 0 0 0 0 0 0 0

CASH FLOW +/‐ 5.82% ‐2,600 0 0 0 0 519 843 843 843 843

CUMULATIVE CASH FLOW +/‐ 9 ‐2,600 ‐2,600 ‐2,600 ‐2,600 ‐2,600 ‐2,081 ‐1,239 ‐396 447 1,289

PUBLIC ENTITIES

PUBLIC ENTITIES ‐ 2,600 2,600 0 0 0 0 0 0 0 0 0

DIVIDENDS + 3,889 0 0 0 0 0 519 843 843 843 843

CASH FLOW +/‐ 5.82% ‐2,600 0 0 0 0 519 843 843 843 843


JESSICA

JESSICA CREDITS ‐ 0 0 0 0 0 0 0 0 0 0 0

JESSICA (EQUITY) ‐ 0 0 0 0 0 0 0 0 0 0 0

FIN. COST JESSICA + 0 0 0 0 0 0 0 0 0 0 0

P.D.JESSICA(2) + 0 0 0 0 0 0 0 0 0 0 0

DIVIDENDS + 0 0 0 0 0 0 0 0 0 0 0

CASH FLOW +/‐ ‐ 0 0 0 0 0 0 0 0 0 0

CUMULATIVE CASH FLOW +/‐ ‐ 0 0 0 0 0 0 0 0 0 0

(1) Amortisation of commercial credit (1) Amortisation of commercial credit (2) Amortisation of JESSICA credit

As may be seen in Table 16, the resulting IRRs are highly attractive both for the banks (5.94%) and for public and private entities (5.82% in both the latter cases). The same could be said of the short recovery period for the investment.

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Maintaining the same hypotheses as those employed in designing the baseline case, we must now ascertain the effect which would be seen if resources from the JESSICA initiative were to be employed. In this case the JESSICA funds are used not only as a loan for development of the operation but also as an equity stake (25%).

PROJECT BIOMASS CONSOLIDATION GROUP 1

BUSINESS BIOMASS POWER PLANT

PROJECT DURATION 10INVESTMENT PERIOD 1INVESTMENT START YEAR 1OPERATIONAL START YEAR 2CORPORATION TAX RATE 30%OPERATING GRANTS (Thousands of Euros) 0INVESTMENT (thousands of Euros) 14,400OPERATIONAL FUNDING NEEDS (OFN) (Th. Euros) 0CAPEX (Thousands of Euros) 14,400EQUITY % LIABILITIES 36%DEBT, CREDITS %LIABILITIES 36%DEBT , JESSICA CREDIT (FIXED) 50% PUBLIC CONTRIBUTION % NET WORTH 25.00% PRIVATE ENTITY CONTRIBUTIONS % NET WORTH 50.00% OTHER CONTRIBUTIONS % NET WORTH 0.00%CONTRIBUTION % JESSICA NET WORTH 25.00%CPI 1.01OPERATING COSTS (% INVESTMENT) 18.30%AMORTISATION PROVISION (% INVESTMENT) 11.11%OPERATING REVENUE (% INVESTMENT) 30.00%RATE OF COST INCREASE 1.00RATE OF REVENUE INCREASE 1.00CONSTRUCTION MARGIN 0.00%OPERATING MARGIN 0.00%

COMMERCIAL CREDIT INTEREST RATE 6.00%JESSICA CREDIT INTEREST RATE 4.50%

IRR 5.38% PAYBACK 8 JESSICA FUNDS(thousands of Euros) 3,900

Profits and losses

In addition to complying with the eligibility criteria and rules established by the regulations governing administration of ERDF projects, JESSICA can be applied to those actions "which make repayable investments or provide guarantees for reimbursable investments", as laid down in Article 43.1 of Regulation 1828/2006.

Table 17 illustrate compliance with this requirement, setting out the EBITDA (1.685 million euros/year from the first financial year onwards) along with the aggregate Free Cash Flow, allowing the investment to be recovered from year 9 onwards.

Figure 6 Aggregate Free Cash Flow from the Power Plant business group

-14.000

-12.000

-10.000

-8.000

-6.000

-4.000

-2.000

0

2.000

4.000

6.000

1 2 3 4 5 6 7 8 9 10

Mile

s de

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Table 23 Profits and Losses of the Biomass Power Plant business group and its Cash Flow. In thousands of Euros.

UDF PROJECT ECONOMIC SITUATION/YEAR TOTAL‐IRR PAYBACK

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 2 3 4 5 6 7 8 9 10

ENER

GY‐INEG

A

POWER

PLANTS

OPERATING REVENUE 38,880 0 4,320 4,320 4,320 4,320 4,320 4,320 4,320 4,320 4,320

NET TURNOVER 38,880 0 4,320 4,320 4,320 4,320 4,320 4,320 4,320 4,320 4,320

OTHER OPERATING REVENUE 0 0 0 0 0 0 0 0 0 0 0

OPERATING GRANTS 0 0 0 0 0 0 0 0 0 0 0

TOTAL OPERATING EXPENSES 38,113 0 4,235 4,235 4,235 4,235 4,235 4,235 4,235 4,235 4,235

PERSONNEL EXPENSES 16,634 0 1,848 1,848 1,848 1,848 1,848 1,848 1,848 1,848 1,848

MAINTENANCE COSTS 7,078 0 786 786 786 786 786 786 786 786 786

OPERATING CONSUMPTION 0 0 0 0 0 0 0 0 0 0 0

OTHER COSTS 0 0 0 0 0 0 0 0 0 0 0

AMORTISATION PROVISIONS 14,400 0 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600

INVESTMENT AMORTISATIONS 0 0 0 0 0 0 0 0 0 0 0

TOTAL EXTRAORDINARY REVENUE 4,000 4,000 0 0 0 0 0 0 0 0 0

EXTRAORDINARY REVENUE 0 0 0 0 0 0 0 0 0 0 0

SUBSIDIES 4,000 4,000 0 0 0 0 0 0 0 0 0

EXTRAORDINARY EXPENSES AND LOSSES 0 0 0 0 0 0 0 0 0 0 0

EBITDA 19,167 4,000 1,685 1,685 1,685 1,685 1,685 1,685 1,685 1,685 1,685

OPERATING PROFIT 767 0 85 85 85 85 85 85 85 85 85

FINANCIAL REVENUE 0 0 0 0 0 0 0 0 0 0 0

FINANCIAL COSTS 812 0 270 258 173 91 20 0 0 0 0

FIN. COST COMMERCIAL CREDITS 353 0 154 142 57 0 0 0 0 0 0

FIN. COST JESSICA 459 0 116 116 116 91 20 0 0 0 0

TAXES 1,200 1,200 0 0 0 0 0 0 0 0 0

Corporation Tax 1,200 1,200 0 0 0 0 0 0 0 0 0

OTHER TAXES 0 0 0 0 0 0 0 0 0 0 0

RESULT FOR YEAR 2,755 2,800 ‐185 ‐172 ‐87 ‐6 65 85 85 85 85

FCF (1) 5.38% ‐11,600 1,660 1,660 1,660 1,660 1,660 1,660 1,660 1,660 1,660

AGGREGATE FCF ( 2) 8 ‐11,600 ‐9,940 ‐8,281 ‐6,621 ‐4,961 ‐3,302 ‐1,642 18 1,677 3,337

CF( (3) 4.34% ‐11,600 1,415 1,428 1,513 1,594 1,665 1,685 1,685 1,685 1,685

AGGREGATE CF (4) 9 ‐11,600 ‐10,185 ‐8,757 ‐7,245 ‐5,651 ‐3,986 ‐2,300 ‐615 1,070 2,755


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It should be pointed out that the Biomass Power Plant project has also been allocated a grant of 4 million euros in accordance with the provisions and grant schemes in place for this type of renewable energy. As laid down in Article 46.2 of Regulation 1828/2006, "urban projects receiving grant assistance from an operational programme may also be supported by urban development funds". On this JESSICA scenario there is, then, no incompatibility between the two forms of administering ERDF funds, provided that the maximum aid limits established in the ERDF OP itself are not exceeded.

Table 24 Funding of investment in the Biomass Power Plant business group. In Thousands of Euros

ECONOMIC SITUATION/YEAR TOTAL 2010 2011(1)

1 2 INVESTMENT 14,400 14,400 0

FUNDING SOURCES 15,600 14,400 1,200

OPERATIONAL FUNDING NEEDS (OFN) 0 0 0

CAPEX 14,400 14,400 0

EQUITY 5,200 5,200 0

PUBLIC ENTITIES 1,300 1,300 0

PRIVATE ENTITIES 2,600 2,600 0

OTHER (OWNERS, BANKS…) 0 0 0

JESSICA (EQUITY) 1,300 1,300 0

DEBTS 6,400 5,200 1,200

COMMERCIAL CREDITS 3,800 2,600 1,200

JESSICA CREDITS 2,600 2,600 0

INVESTMENT GRANTS 4,000 4,000 0

NEG. RESULT FOR YEAR (WITHOUT AMORT.) ‐1,200 0 ‐1,200

(1) In 2011 a credit is requested for payment of the taxes derived from the grant

6.3.3.2 Returns

This section gives the returns which each of the agents or operators would obtain in accordance with the suppositions employed on this scenario with recourse to use of the JESSICA instrument. As a result, in addition to public and private agents, commercial banks and the JESSICA in itself are included on this scenario as operators with expectations of obtaining sufficiently attractive returns to encourage them to invest in the project.

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Table 25 Return of the various funding parties in the power plant business group. In thousands of Euros



TOTAL‐IRR PAYBACK

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 2 3 4 5 6 7 8 9 10

ENER

GY‐INEG

A

POWER

PLANTS

1

BANKS

COMMERCIAL CREDITS ‐ 3,800 2,600 1,200 0 0 0 0 0 0 0 0

P.D. COMMERCIAL(1) + 3,800 0 1,415 1,428 957 0 0 0 0 0 0

FIN. COST COMMERCIAL CREDITS + 353 0 154 142 57 0 0 0 0 0 0

OTHER (OWNERS, BANKS…) ‐ 0 0 0 0 0 0 0 0 0 0 0

DIVIDENDS + 0 0 0 0 0 0 0 0 0 0 0

CASH FLOW +/‐ 5.94% ‐2,600 369 1,569 1,014 0 0 0 0 0 0

CUMULATIVE CASH FLOW +/‐ 4 ‐2,600 ‐2,231 ‐661 353 353 353 353 353 353 353

PRIVATE ENTITIES

PRIVATE ENTITIES ‐ 2,600 2,600 0 0 0 0 0 0 0 0 0

DIVIDENDS + 3,978 0 0 0 0 0 607 843 843 843 843

CONSTRUCTION MARGIN + 0 0 0 0 0 0 0 0 0 0 0

OPERATING MARGIN + 0 0 0 0 0 0 0 0 0 0 0

CASH FLOW +/‐ 6.21% ‐2,600 0 0 0 0 607 843 843 843 843


PUBLIC ENTITIES

PUBLIC ENTITIES ‐ 1,300 1,300 0 0 0 0 0 0 0 0 0

DIVIDENDS + 1,989 0 0 0 0 0 304 421 421 421 421

CASH FLOW +/‐ 6.21% ‐1,300 0 0 0 0 304 421 421 421 421

CUMULATIVE CASH FLOW +/‐ 9 ‐1,300 ‐1,300 ‐1,300 ‐1,300 ‐1,300 ‐996 ‐575 ‐154 268 689

JESSICA

JESSICA CREDITS ‐ 2,600 2,600 0 0 0 0 0 0 0 0 0

JESSICA (EQUITY) ‐ 1,300 1,300 0 0 0 0 0 0 0 0 0

FIN. COST JESSICA + 459 0 116 116 116 91 20 0 0 0 0

P.D.JESSICA(2) + 2,600 0 0 0 555 1,594 451 0 0 0 0

DIVIDENDS + 1,989 0 0 0 0 0 304 421 421 421 421

CASH FLOW +/‐ 5.32% ‐3,900 116 116 671 1,685 774 421 421 421 421

CUMULATIVE CASH FLOW +/‐ 8 ‐3,900 ‐3,784 ‐3,668 ‐2,997 ‐1,312 ‐538 ‐116 305 726 1,148 (1) Amortisation of commercial credit (2) Amortisation of JESSICA credit

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6.4 Renewal of efficient urban bus fleets (financial leasing)

6.4.1 Description of the Project

The proposed pilot project involves the possible renewal/introduction of four urban bus fleets using energy‐efficient vehicles (electric vehicles, for example), under a leasing system. The estimated average fleet size would be 10 vehicles, which would be equipped for persons with reduced mobility. The plans for implementation of this project involve recourse to an operational subsidy from public bodies, as currently occurs. There would in addition be a public stake held in the operating company, in the form of equity. The proposal is for the concession‐holding company to contribute 50% of the investment funding, with the other 50% being funded in the form of commercial credits. The planned distribution of stakes between public and private entities would be 25%/75%, strengthening the presence of private initiative in urban public transport, as has recently been the predominant model in Galicia's cities.


A number of municipalities in Galicia have undertaken sustainable mobility studies, private companies have drawn up work transportation plans, etc., all with a focus on promoting a change in the structure of mobility, shifting towards more energy‐efficient modes. Meanwhile, the development of this type of initiative represents one of the priorities of the policy to improve energy efficiency and achieve more sustainable mobility funded by the INEGA by means of the ERDF funding round for the period 2007‐2013. One example would be the recent Resolution of 21 July 2010, establishing the rules for the granting by competitive tender of subsidies for energy efficiency and saving projects for the financial year 2010 co‐funded by the ERDF (published in Official Journal of Galicia 143 of 28/07/2010)

Within this context, the introduction of electric bus fleets represents a further step towards achieving the goals set out in the various plans.


The project presented for the JESSICA initiative involves the renewal/introduction of four urban bus fleets of approximately 10 vehicles, using electric low‐floor vehicles acquired under a leasing system. The aims pursued are as follows:

• Create a new, more sustainable mobility model.

• Promote public transport, offering a more efficient and environmentally friendly alternative to private vehicle travel.

• Offer the possibility of connecting areas which currently have deficient public transport. Offer a quality service to the population.

• Improve the urban environment and tourism potential in the case of replacing or introducing an urban fleet. Reduced pressure from car use facilitates the policy of pedestrianisation and renewal of city centres.


Local councils would be the owners of the urban service, along with concession‐holders.

6.4.1.4 Execution Deadlines


• Investment start date: first year of the project

• Investment Period: one year.

• Project execution: first year of project

• Operational start date: second year of the project

• Duration of the project: 6 years

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The numerical values employed in the baseline hypothesis scenario in this initial estimate, in other words without recourse to JESSICA funding, are as reflected in the enclosed table.

PROJECT BUS FLEET CONSOLIDATION GROUP 3

BUSINESS BUSES

PROJECT DURATION 6INVESTMENT PERIOD 1INVESTMENT START YEAR 1OPERATIONAL START YEAR 2CORPORATION TAX RATE 30%OPERATING GRANTS (Thousands of Euros) 900INVESTMENT (thousands of Euros) 12,000OPERATIONAL FUNDING NEEDS (OFN) (Th. Euros) 0CAPEX (Thousands of Euros) 12,000EQUITY % LIABILITIES 50%DEBT, CREDITS %LIABILITIES 50%DEBT , JESSICA CREDIT (FIXED) 0.00%PUBLIC CONTRIBUTION % NET WORTH 25.00%PRIVATE ENTITY CONTRIBUTIONS % NET WORTH 75.00%OTHER CONTRIBUTIONS % NET WORTH 0.00%CONTRIBUTION % JESSICA NET WORTH 0.00%CPI 1.01OPERATING COSTS (% INVESTMENT) 67.00%AMORTISATION PROVISION (% INVESTMENT) 10.00%OPERATING REVENUE (% INVESTMENT) 81.00%RATE OF COST INCREASE 1.00RATE OF REVENUE INCREASE 1.00CONSTRUCTION MARGIN 0.00%OPERATING MARGIN 0.00%COMMERCIAL CREDIT INTEREST RATE 6.00%JESSICA CREDIT INTEREST RATE ‐

IRR 3.24%

PAYBACK 6

JESSICA FUNDS(thousands of Euros) 0

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6.4.2.1 Profits and losses.

Compliance with this requirement is demonstrated by Table 20, illustrating the EBITDA and the aggregate Free Cash Flow The results obtained (2.58 million euros) from the first year of operations onwards give a short investment recovery period which, together with the positive IRR, underpins the attractiveness of the project, while also guaranteeing its eligibility as a revenue generator.

Figure 7 Aggregate Free Cash Flow from the Bus Fleet business group

-14.000

-12.000

-10.000

-8.000

-6.000

-4.000

-2.000

0

2.000

4.000

1 2 3 4 5 6

Mile

s de

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Table 26 Profits and Losses of the Bus Fleet business group and its Cash Flows. In thousands of Euros.


2010 2011 2012 2013 2014 2015

1 2 3 4 5 6

OPERATING REVENUE 53,100 0 10,620 10,620 10,620 10,620 10,620

NET TURNOVER 48,600 0 9,720 9,720 9,720 9,720 9,720

OTHER OPERATING REVENUE 0 0 0 0 0 0 0

OPERATING GRANTS 4,500 0 900 900 900 900 900

TOTAL OPERATING EXPENSES 46,200 0 9,240 9,240 9,240 9,240 9,240

PERSONNEL EXPENSES 28,200 0 5,640 5,640 5,640 5,640 5,640

MAINTENANCE COSTS 12,000 0 2,400 2,400 2,400 2,400 2,400

OPERATING CONSUMPTION 0 0 0 0 0 0 0

OTHER COSTS 0 0 0 0 0 0 0

AMORTISATION PROVISIONS 6,000 0 1,200 1,200 1,200 1,200 1,200

INVESTMENT AMORTISATIONS 0 0 0 0 0 0 0

TOTAL EXTRAORDINARY REVENUE 3,600 0 0 0 0 0 3,600

EXTRAORDINARY REVENUE 3,600 0 0 0 0 0 3,600

SUBSIDIES 0 0 0 0 0 0 0

EXTRAORDINARY EXPENSES AND LOSSES 0 0 0 0 0 0 0

EBITDA 16,500 0 2,580 2,580 2,580 2,580 6,180

OPERATING PROFIT 6,900 0 1,380 1,380 1,380 1,380 1,380

FINANCIAL REVENUE 0 0 0 0 0 0 0

FINANCIAL COSTS 724 0 356 243 124 0 0

FIN. COST COMMERCIAL CREDITS 724 0 356 243 124 0 0

FIN. COST JESSICA 0 0 0 0 0 0 0

TAXES 2,933 0 307 341 377 414 1,494

CORPORATION TAX 2,933 0 307 341 377 414 1,494

OTHER TAXES 0 0 0 0 0 0 0

RESULT FOR YEAR 6,844 0 716 796 879 966 3,486

FCF (1) 3.24% ‐12,000 2,166 2,166 2,166 2,166 4,686

AGGREGATE FCF ( 2) 6 ‐12,000 ‐9,834 ‐7,668 ‐5,502 ‐3,336 1,350

CF( (3) 2.00% ‐12,000 1,916 1,996 2,079 2,166 4,686

AGGREGATE CF (4) 6 ‐12,000 ‐10,084 ‐8,087 ‐6,008 ‐3,842 844 (1) Free Cash Flow (2) Cumulative Free Cash Flow (3 )Accountable Cash Flow (4) Cumulative accountable Cash Flow

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The tables illustrate the hypotheses for the composition of equity for the project as set out in section 6.3.1. As may be seen, the total investment calculated at 12 million euros is financed by means of equity (6 M euros) and commercial credit amounting to the same sum. Meanwhile, the stake to be taken up by private initiative also involves a contribution of 4.5 million euros of equity in the transport operating company.

Table 27 Funding of investment in the Bus Fleet group. In Thousands of Euros.

ECONOMIC SITUATION/YEAR TOTAL 2010

1 INVESTMENT 12,000 12,000

FUNDING SOURCES 12,000 12,000

OPERATIONAL FUNDING NEEDS (OFN) 0 0

CAPEX 12,000 12,000

EQUITY 6,000 6,000

PUBLIC ENTITIES 1,500 1,500

PRIVATE ENTITIES 4,500 4,500

OTHER (OWNERS, BANKS…) 0 0

JESSICA (EQUITY) 0 0

DEBTS 6,000 6,000

COMMERCIAL CREDITS 6,000 6,000

JESSICA CREDITS 0 0

INVESTMENT GRANTS 0 0

NEG. RESULT FOR YEAR (WITHOUT AMORT.) 0 0

6.4.2.3 Return.

The returns which each of the agents or operators would obtain in accordance with the suppositions employed on this hypothetical baseline scenario without use of the JESSICA instrument are as set out in Table 22.

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Table 28 Return of the various funding parties in the bus fleet group. In thousands of Euros

UDF BANK FLOWS (ENTITY PERSPECTIVE) FLOW SIGN

TOTAL‐IRR PAYBACK

2010 2011 2012 2013 2014 2015

1 2 3 4 5 6

ENER

GY‐INEG

A

BANKS

COMMERCIAL CREDITS ‐ 6,000 6,000 0 0 0 0 0

P.D. COMMERCIAL(1) + 6,000 0 1,916 1,996 2,079 8 0

FIN. COST COMMERCIAL CREDITS + 724 0 356 243 124 0 0

OTHER (OWNERS, BANKS…) ‐ 0 0 0 0 0 0 0

DIVIDENDS + 0 0 0 0 0 0 0

CASH FLOW +/‐ 5.94% ‐6,000 2,273 2,239 2,203 9 0

CUMULATIVE CASH FLOW +/‐ 4 ‐6,000 ‐3,727 ‐1,488 715 724 724

PRIVATE ENTITIES

PRIVATE ENTITIES ‐ 4,500 4,500 0 0 0 0 0

DIVIDENDS + 5,133 0 0 0 0 1,618 3,515

CONSTRUCTION MARGIN + 0 0 0 0 0 0 0

OPERATING MARGIN + 0 0 0 0 0 0 0

CASH FLOW +/‐ 2.85% ‐4,500 0 0 0 1,618 3,515

CUMULATIVE CASH FLOW +/‐ 6 ‐4,500 ‐4,500 ‐4,500 ‐4,500 ‐2,882 633

PUBLIC ENTITIES

PUBLIC ENTITIES ‐ 1,500 1,500 0 0 0 0 0

DIVIDENDS + 1,711 0 0 0 0 539 1,172

CASH FLOW +/‐ 2.85% ‐1,500 0 0 0 539 1,172

CUMULATIVE CASH FLOW +/‐ 6 ‐1,500 ‐1,500 ‐1,500 ‐1,500 ‐961 211

JESSICA

JESSICA CREDITS ‐ 0 0 0 0 0 0 0

JESSICA (EQUITY) ‐ 0 0 0 0 0 0 0

FIN. COST, JESSICA + 0 0 0 0 0 0 0

P.D.JESSICA(2) + 0 0 0 0 0 0 0

DIVIDENDS + 0 0 0 0 0 0 0

CASH FLOW +/‐ ‐ 0 0 0 0 0 0

CUMULATIVE CASH FLOW +/‐ ‐ 0 0 0 0 0 0

(1) Amortisation of commercial credit (2) Amortisation of JESSICA credit

As may be seen, although the IRR achieved (2.85%) is lower than that for the other projects selected, it remains positive on the baseline scenario, and may therefore also be held to satisfy the requirement imposed by Community Regulation 1083/2006 for EU funds.

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In the following sections, maintaining the structure and parameters defined as the baseline case, we present the results which would be obtained with recourse to the JESSICA initiative. The JESSICA funds (2.4 million euros) serve as a loan for development of the operation, rather than an equity stake or guarantee.

PROJECT BUS FLEET CONSOLIDATION GROUP 3BUSINESS BUSESPROJECT DURATION 6INVESTMENT PERIOD 1INVESTMENT START YEAR 1OPERATIONAL START YEAR 2CORPORATION TAX RATE 30%OPERATING GRANTS (Thousands of Euros) 900INVESTMENT (thousands of Euros) 12,000 OPERATIONAL FUNDING NEEDS (OFN) (Th. Euros) 0CAPEX (Thousands of Euros) 12,000EQUITY % LIABILITIES 50%DEBT, CREDITS %LIABILITIES 50%DEBT , JESSICA CREDIT (FIXED) 40% PUBLIC CONTRIBUTION % NET WORTH 25.00% PRIVATE ENTITY CONTRIBUTIONS % NET WORTH 75.00% OTHER CONTRIBUTIONS % NET WORTH 0.00%CONTRIBUTION % JESSICA NET WORTH 0.00% CPI 1.01OPERATING COSTS (% INVESTMENT) 67.00%AMORTISATION PROVISION (% INVESTMENT) 10.00%OPERATING REVENUE (% INVESTMENT) 81.00%RATE OF COST INCREASE 1.00RATE OF REVENUE INCREASE 1.00 CONSTRUCTION MARGIN 0.00%OPERATING MARGIN 0.00%

COMMERCIAL CREDIT INTEREST RATE 6.00%JESSICA CREDIT INTEREST RATE 4.50%

IRR 3.24%PAYBACK 6JESSICA FUNDS(thousands of Euros) 2,400

6.4.3.1 Profits and losses

Table 23 illustrates compliance with this requirement as the financial model gives the EBITDA and the aggregate Free Cash Flow for the project. The positive EBITDA (2.58 million euros) from the first year of operations onwards reduces the payback period to 6 years, thereby making this project more attractive for inclusion within the JESSICA UDF.

Figure 8 Aggregate Free Cash Flow from the Bus Fleet business group

-14.000

-12.000

-10.000

-8.000

-6.000

-4.000

-2.000

0

2.000

4.000

1 2 3 4 5 6

Mile

s de

Eur

os


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Table 29 Profits and Losses of the Bus Fleet business group and its Cash Flows. In thousands of Euros.

UDF ECONOMIC SITUATION/YEAR TOTAL‐IRR PAYBACK

2010 2011 2012 2013 2014 2015

1 2 3 4 5 6

ENER

GY‐INEG

A

OPERATING REVENUE 53,100 0 10,620 10,620 10,620 10,620 10,620

NET TURNOVER 48,600 0 9,720 9,720 9,720 9,720 9,720

OTHER OPERATING REVENUE 0 0 0 0 0 0 0

OPERATING GRANTS 4,500 0 900 900 900 900 900

TOTAL OPERATING EXPENSES 46,200 0 9,240 9,240 9,240 9,240 9,240

PERSONNEL EXPENSES 28,200 0 5,640 5,640 5,640 5,640 5,640

MAINTENANCE COSTS 12,000 0 2,400 2,400 2,400 2,400 2,400

OPERATING CONSUMPTION 0 0 0 0 0 0 0

OTHER COSTS 0 0 0 0 0 0 0

AMORTISATION PROVISIONS 6,000 0 1,200 1,200 1,200 1,200 1,200

INVESTMENT AMORTISATIONS 0 0 0 0 0 0 0

TOTAL EXTRAORDINARY REVENUE 3,600 0 0 0 0 0 3,600

EXTRAORDINARY REVENUE 3,600 0 0 0 0 0 3,600

SUBSIDIES 0 0 0 0 0 0 0

EXTRAORDINARY EXPENSES AND LOSSES 0 0 0 0 0 0 0

EBITDA 16,500 0 2,580 2,580 2,580 2,580 6,180

OPERATING PROFIT 6,900 0 1,380 1,380 1,380 1,380 1,380

FINANCIAL REVENUE 0 0 0 0 0 0 0

FINANCIAL COSTS 617 0 321 205 91 0 0

FIN. COST COMMERCIAL CREDITS 312 0 214 99 0 0 0

FIN. COST JESSICA 305 0 107 107 91 0 0

TAXES 2,965 0 318 352 387 414 1,494

CORPORATION TAX 2,965 0 318 352 387 414 1,494

OTHER TAXES 0 0 0 0 0 0 0

RESULT FOR YEAR 6,918 0 741 822 902 966 3,486

FCF (1) 3.24% ‐12,000 2,166 2,166 2,166 2,166 4,686

AGGREGATE FCF ( 2) 6 ‐12,000 ‐9,834 ‐7,668 ‐5,502 ‐3,336 1,350

CF( (3) 2.18% ‐12,000 1,941 2,022 2,102 2,166 4,686

AGGREGATE CF (4) 6 ‐12,000 ‐10,059 ‐8,036 ‐5,934 ‐3,768 918 (1) Free Cash Flow (2) Cumulative Free Cash Flow (3 )Accountable Cash Flow (4) Cumulative accountable Cash Flow

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The hypotheses for the breakdown of funds set out in section 6.3.1 as the baseline case are as illustrated in Table 24. The contribution of funds from JESSICA is estimated at 2.4 million euros, solely as credits.

Table 30 Funding of investment in the Bus Fleet group. In thousands of Euros.

ECONOMIC SITUATION/YEAR TOTAL 2010

1 INVESTMENT 12,000 12,000

FUNDING SOURCES 12,000 12,000

OPERATIONAL FUNDING NEEDS (OFN) 0 0

CAPEX 12,000 12,000

EQUITY 6,000 6,000

PUBLIC ENTITIES 1,500 1,500

PRIVATE ENTITIES 4,500 4,500

OTHER (OWNERS, BANKS…) 0 0

JESSICA (EQUITY) 0 0

DEBTS 6,000 6,000

COMMERCIAL CREDITS 3,600 3,600

JESSICA CREDITS 2,400 2,400

INVESTMENT GRANTS 0 0

NEG. RESULT FOR YEAR (WITHOUT PAYBACK) 0 0

6.4.3.3 Return

This section gives the returns which each of the agents or operators would obtain in accordance with the suppositions employed on this scenario with recourse to use of the JESSICA instrument. As a result, in addition to public and private agents (3.10%), the commercial banks (5.94%) and the JESSICA fund itself (4.46%) would obtain positive returns, at a slightly lower rate than

that seen in the previous projects. However, given the current market circumstances this is sufficiently attractive to encourage investment in such projects. This attractiveness is reinforced by the short investment payback period.

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Table 31 Return of the various funding parties in the bus fleet group. In thousands of Euros

BANK FLOWS (ENTITY PERSPECTIVE) FLOW SIGN TOTAL‐IRR PAYBACK

2010 2011 2012 2013 2014 2015

1 2 3 4 5 6

BANKS

COMMERCIAL CREDITS ‐ 3,600 3,600 0 0 0 0 0

P.D. COMMERCIAL(1) + 3,600 0 1,941 1,659 0 0 0

FIN. COST COMMERCIAL CREDITS + 312 0 214 99 0 0 0

OTHER (OWNERS, BANKS…) ‐ 0 0 0 0 0 0 0

DIVIDENDS + 0 0 0 0 0 0 0

CASH FLOW +/‐ 5.94% ‐3,600 2,155 1,757 0 0 0

CUMULATIVE CASH FLOW +/‐ 3 ‐3,600 ‐1,445 312 312 312 312

PRIVATE ENTITIES

PRIVATE ENTITIES ‐ 4,500 4,500 0 0 0 0 0

DIVIDENDS + 5,189 0 0 0 50 1,625 3,515

CONSTRUCTION MARGIN + 0 0 0 0 0 0 0

OPERATING MARGIN + 0 0 0 0 0 0 0

CASH FLOW +/‐ 3.10% ‐4,500 0 0 50 1,625 3,515

CUMULATIVE CASH FLOW +/‐ 6 ‐4,500 ‐4,500 ‐4,500 ‐4,450 ‐2,826 689

PUBLIC ENTITIES

PUBLIC ENTITIES ‐ 1,500 1,500 0 0 0 0 0

DIVIDENDS + 1,730 0 0 0 17 542 1,172

CASH FLOW +/‐ 3.10% ‐1,500 0 0 17 542 1,172

CUMULATIVE CASH FLOW +/‐ 6 ‐1,500 ‐1,500 ‐1,500 ‐1,483 ‐942 230

JESSICA

JESSICA CREDITS ‐ 2,400 2,400 0 0 0 0 0

JESSICA (EQUITY) ‐ 0 0 0 0 0 0 0

FIN. COST JESSICA + 305 0 107 107 91 0 0

P.D.JESSICA(2) + 2,400 0 0 364 2,036 0 0

DIVIDENDS + 0 0 0 0 0 0 0

CASH FLOW +/‐ 4.46% ‐2,400 107 471 2,127 0 0

CUMULATIVE CASH FLOW +/‐ 4 ‐2,400 ‐2,293 ‐1,823 305 305 305

(1) Amortisation of commercial credit (2) Amortisation of JESSICA credit

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6.5 Sensitivity Analysis

One of the tools provided in the financial model is that it allows for a sensitivity analysis of the project returns (IRR) in the event of variations in some of the underlying suppositions. As with other parts of the model, this allows the tool to be applied to the different agents and operators involved in developing and funding the project, along with an analysis of the impact on IRR of variations in the different variables involved in the model: revenue, costs, investment costs, tax rate, etc.

In the case which here concerns us this analysis has been applied to the private entities, since they are the only agents involved in funding all three projects, thereby facilitating a comparison of the results. With regard to the variables selected for analysis of the impact of variations on the IRR for each project, consideration has been given to the most significant investment costs, the expenditure and revenue generated by each of the projects.

The results are as set out in the following figures and tables:

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Figure 9Analysis of the return of the business groups for variations in the investment for that part funded by private entities

Evolucion TIR

‐10,00%

‐5,00%

0,00%

5,00%

10,00%

15,00%

0,80 0,85 0,90 0,95 1,00 1,05 1,10 1,15 1,20

Variaciones de la variable

TIR

1 ENTIDADES PRIVADAS 2 ENTIDADES PRIVADAS 3 ENTIDADES PRIVADAS

Evolución TIR Evolution of IRR Variaciones de la variable Variations in variableENTIDADES PRIVADAS PRIVATE ENTITIESTable 32 Return of the business groups for variations in the investment for that part funded by private entities

GROUP ENTITIES/VARIABLES 0.85 0.88 0.91 0.94 0.97 1.00 1.03 1.06 1.09 1.12 1.15

1‐POWER PLANTS PRIVATE ENTITIES 12.75% 11.57% 10.35% 9.14% 7.56% 5.77% 3.83% 1.71% ‐0.75% ‐3.72% ‐7.51% 2‐Building Refurbishment PRIVATE ENTITIES 8.89% 8.10% 7.29% 6.47% 5.62% 4.73% 3.79% 2.76% 1.64% 0.35% ‐1.16% 3‐Bus Fleet PRIVATE ENTITIES 8.75% 7.57% 6.40% 5.22% 4.04% 2.85% 1.63% 0.38% ‐0.90% ‐2.23% ‐3.58%

Table 1 reveals that the biomass power plant project is the most sensitive to variations in the investment cost. With a reduction of 15% in the investment, for example, the IRR on this project rises to 12.75%; whereas with an unexpected increase of 15% in the investment, this would give a negative IRR of 7.51%, completely destroying its attractiveness on the basis of the suppositions made in the baseline scenario. In accordance with these results, Figure 1 presents the sharper return slope (IRR) on this project compared with the other two.

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Figure 10 Analysis of the return of the business groups for variations in the revenue for that part funded by private entities

Evolucion TIR

‐30,00%

‐25,00%

‐20,00%

‐15,00%

‐10,00%

‐5,00%

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

0,80 0,85 0,90 0,95 1,00 1,05 1,10 1,15 1,20


TIR


Evolución TIR Evolution of IRR Variaciones de la variable Variations in variableENTIDADES PRIVADAS PRIVATE ENTITIES

Table 33 Return of the business groups for variations in the revenue for that part funded by private entities


1‐POWER PLANTS PRIVATE ENTITIES ‐ ‐ ‐15.04% ‐4.15% 1.55% 5.77% 9.12% 11.38% 13.42% 15.39% 17.25% 2‐Building Refurbishment PRIVATE ENTITIES ‐ ‐7.27% ‐2.26% 0.69% 2.89% 4.73% 6.34% 7.80% 9.15% 10.42% 11.63% 3‐Bus Fleet PRIVATE ENTITIES ‐25.93% ‐16.15% ‐9.68% ‐4.86% ‐0.81% 2.85% 6.24% 9.47% 12.56% 15.52% 18.36%

Table 2 and the corresponding figure set out the sensitivity of each project to variations in the revenue generated. As would be expected, any downturn in the revenue figure leads to a drop in the returns, and hence makes the project less attractive to private entities. According to the suppositions employed in the baseline scenario, we now find that the bus fleet is the most sensitive, and consequently has the sharpest slope in the curve representing the path of IRR for the different levels of revenue considered. Lastly, Figure 3 and the corresponding table represent the sensitivity of the return for private entities on each of the three projects, although in this case with regard to any possible shocks which could occur in operating costs. In this case once again the bus fleet project is the most sensitive in terms of its returns (IRR) in response to variations in the costs figure.

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Figure 11 Analysis of the return of the business groups for variations in the costs for that part funded by private entities

Evolucion TIR

‐20,00%

‐15,00%

‐10,00%

‐5,00%

0,00%

5,00%

10,00%

15,00%

20,00%

0,80 0,85 0,90 0,95 1,00 1,05 1,10 1,15 1,20


TIR


Evolución TIR Evolution of IRR Variaciones de la variable Variations in variableENTIDADES PRIVADAS PRIVATE ENTITIES

Table 34 Return of the business groups for variations in the costs for that part funded by private entities


1‐POWER PLANTS PRIVATE ENTITIES 13.52% 12.29% 11.02% 9.65% 7.97% 5.77% 3.31% 0.49% ‐2.99% ‐7.62% ‐16.05% 2‐Building Refurbishment PRIVATE ENTITIES 8.36% 7.69% 7.00% 6.28% 5.53% 4.73% 3.88% 2.97% 1.97% 0.87% ‐0.40% 3‐Bus Fleet PRIVATE ENTITIES 15.91% 13.49% 10.97% 8.37% 5.66% 2.85% ‐0.15% ‐3.41% ‐6.97% ‐11.47% ‐17.23% The conclusions to be drawn from this analysis indicate that from the perspective of the return for private entities the three projects behave differently. In the event of changes in investment costs the project which sees its returns most heavily affected is the biomass power plant venture, whereas the bus fleet project will be more sensitive to possible variations in both revenue and operating costs. Naturally, the corollary derived from this sensitivity analysis is that the private operators or agents involved in funding each project must take particular care and monitor those variables which could have the greatest impact on their returns.

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6.6 Summary

6.6.1 Project eligibility criteria

The table enclosed presents in grid format compliance with the eligibility criteria on the part of the selected projects. An initial section refers to projects eligible under the Galicia ERDF OP and the Axis to which they belong. The following rows set out the specific JESSICA criteria for project eligibility.

Table 35 Compliance with eligibility criteria of the projects selected

PROJECT ERDF Eligibility / Axis

Accumulation of grants

Public/private partnership

Return on investment

Sustainable planning framework (IUP)

Legal Viability

Technical viability / termination

1. Energy efficiency in public buildings

YES Axis 4

NO YESCo‐funding ESCO lease

YES Fees

Within the context of the IUP covering energy efficiency

YES YES 2015

2. Biomass boilers YES Axis 4

NO / YES (Supplementary subsidy)

YESOperating concession

YES Rate

Within the context of the IUP covering energy efficiency

YES YES 2015

3. Funding of clean urban transport fleets.

YES Axis 4

NO YES Co‐funding Leasing

YES Leasing payment

In context of UIP. Sustainable mobility measures.

YES YES 2015

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6.6.2 Profitability

6.6.2.1 Without JESSICA

As may be seen in the enclosed table, summarising the main parameters employed in measuring the returns on the project, the results obtained illustrate a positive IRR both for the banks (5.94%) and for the investment agents, whether these are public (5.82% for buildings refurbishment and 2.85% for the bus fleet) and also private entities (5.80% for public refurbishment and 2.85% for the bus fleet).

Another of the attractions of these projects is the short timeframe for payback of the funds invested. The payback for the banks is particularly

attractive in the case of the bus fleet (4 years), compared with 9 years for buildings refurbishment and 5 years for the biomass power plants.

On this first scenario we find that all projects are capable of repaying the investments made by the operators within very reasonable periods, while offering attractive rates of return. The sensitivity analysis performed in the following paragraph, as represented by the figures, illustrates some of the weaknesses of these projects which will require careful monitoring by the managers involved in order to avoid any losses as a result of any deviations which may occur in operating costs or revenue.

Table 36 Summary

GROUP ENTITIES/VARIABLES IRR PAYBACK DURATION FUNDING (THOUSANDS OF EUROS)

BUSINESS GROUP IRR

BUSINESS GROUP PAYBACK

INVESTMENT (THOUSANDS OF EUROS)

1‐POWER PLANTS(1)

BANKS 5.94% 5

10

5,200

5.38% 8 14,400 PRIVATE ENTITIES 5.82% 9 2,600

PUBLIC ENTITIES 5.82% 9 2,600

JESSICA ‐ ‐ ‐

2‐BUILDING REFURBISHMENT

BANKS 5.94% 9

16

22,073

5.31% 12 31,714 PRIVATE ENTITIES ‐ ‐ ‐


JESSICA ‐ ‐ ‐

3‐BUS FLEET

BANKS 5.94% 4

6

6,000



JESSICA ‐ ‐ ‐

(1) This business group is provided with an investment grant of €4,000,000 (4,000 in thousands of Euros)

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6.6.2.2 With JESSICA

As may be seen in Table 31, summarising the main parameters employed in measuring the returns on the projects, the results obtained improve or maintain the positive results for banks (5.94%) and for investment agents, whether public or private, on the three projects considered. The same occurs for JESSICA, with an IRR (4.46%) which is likewise positive, and is highly attractive in accordance with the suppositions employed in defining this scenario. It should be pointed out that the biomass power plant gives JESSICA a return of 5.32% as a result of the dual revenue streams obtained in this case: by dividends and by fees.

Another of the attractions of these projects is the short timeframe for payback of the funds invested. The payback for the banks is particularly attractive in the case of the bus fleet (3 years), as opposed to 7 years for buildings refurbishment and 4 years for biomass power plants.

The same applies to JESSICA, which receives its payback in 8, 10 and 4 years, respectively.

Within the context of the baseline scenario defined for the projects analysed, the main conclusions are as follows:

The funding of projects mainly with JESSICA loans reduces the needs for outside funding and increases funding flexibility (longer repayment periods and amortisation subordinate to payment of the commercial debt). The hypothesis involving an equity stake in the company developing the biomass power plants is also an attractive one.

The stake of the financial entities in the UDF is justified by the following factors:

1. These are projects to be co‐funded with the public sector offering a positive rate of return.

2. This allows them to obtain returns in addition to the interest on the bank finance granted. UDF management fee.

3. Optimisation of management costs.

4. More direct involvement in managing the project by being a stakeholder (UDF).

Management of funds by means of an HF allows for:

• Reinvestment of funds over time. In the case which here concerns us the funds would, meanwhile, be recovered in a relatively brief period to an extent which would at this point allow new projects on a substantial scale to be funded.

• Attraction of private investment on certain public‐private projects which would not be funded under current conditions. The contribution of funds opens up the possibility that private shareholders could take a stake and develop projects which it would otherwise be difficult to finance.

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Table 37 Summary

UDF GROUP ENTITIES/VARIABLES IRR PAYBACK DURATION FUNDING (THOUSANDS OF EUROS)

BUSINESS GROUP IRR

BUSINESS GROUP PAYBACK

INVESTMENT (THOUSANDS OF EUROS)

ENERGY‐INEGA

1‐POWER PLANTS(1)

BANKS 5.94% 4

10

2,600



JESSICA(2) 5.32% 8 3,900

2‐BUILDING REFURBISHMENT

BANKS 5.94% 7

16

15,290

5.31% 12 31,714 PRIVATE ENTITIES 0.00% ‐ 9,641

PUBLIC ENTITIES 5.34% 14 0

JESSICA(2) 4.46% 10 6,783

3‐ BUS FLEET

BANKS 5.94% 3

6

3,600



JESSICA(2) 4.46% 4 2,400

(1) This business group is provided with an investment grant of €4,000,000 (4,000 in thousands of Euros)

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6.7 Other projects analysed

Table 38 Selected Pilot Projects

PROJECT DESCRIPTION ADMINISTRATOR/DEVELOPER4. Elviña Campus Rental accommodation

to students. University of A Coruña

5. Arieiro area. Vigo Rental accommodation and supplementary services for users of Meixueiro Hospital.

IGVS/ Vigo City Council

6. Pacios Enterprise Park, Baamonde

Creation of productive fabric in small towns in rural Galicia.

Xestur Lugo

7. Monforte de Lemos Dry Port

Logistics area located in inland Galicia connected by rail with the port of Vigo.

DG Mobility / IGVS

8. Nautical Tourism in Muros

Muros Marina SG Tourism / DG Ports

The analysis of these projects (see Annex X) allowed the following grid to be drawn up. The remaining project were either not considered eligible (the Monforte Dry Port or land development for economic activity in Pacios‐Baamonde), or have otherwise been switched to a second phase of JESSICA. Once approval has been given by the Managing Authority, new UDFs would be structured on the basis of new resources allocated to this initiative.

Table 39 Compliance with eligibility criteria of the projects selected

PROJECT ERDF Eligibility / Axis

Accumulation of grants

Public/private partnership

Return on investment

4. Elviña University Campus. A Coruña.

YESAxis 1

NOOnly JESSICA

YESAccommodation concession

YESJESSICA Loan Return through accommodation rent

5. Arieiro area. Vigo

YESAxis 5

NOOnly JESSICA

YESHotel, car park and transport station (possible)

YESJESSICA Loan Return through hotel and car park charges


YESAxis 2

YESNon‐reimbursable expropriation part

YESMixed urban development and land developer

YESReturned through sale of developed urban plots


YESAxis 2

YESNon‐reimbursable expropriation part

YESPrivate or mixed urban development and land developer

YESReturned through sale of developed urban plots


YESAxis 5

NOOnly JESSICA

YESMooring berth concession and supplementary uses

YESRevenue through usage and rental fees

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PROJECT Sustainable planning framework (IUP) Legal Viability

Technical viability / termination

4. Elviña University Campus. A Coruña.

YESGeneral Municipal Plan/Modification/Partial Plan

YES YESOctober 2012

5. Arieiro area. Vigo

YESVigo General Plan

YES YES2014


DOUBTFUL Sectoral Territorial Regulation Plan for Enterprise Areas/Begonte Enterprise Reserve Park

YES YES2012


DOUBTFUL Galician Logistics Areas Plan

YES YES


YESGalician Marinas Steering Plan

YES YESJuly 2011

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7 JESSICA STRUCTURE FOR GALICIA

7.1 The three JESSICA funding tools: Holding Fund, Urban Development Fund and Projects

7.1.1 Holding Fund (HF)

The creation of a Holding Fund as a "fund of funds" allows the funds allocated to JESSICA to be received immediately, certified, and allocated to the UDFs which have been set up. As a result, the creation of an HF must go hand in hand with the establishment of at least one UDF which can be used to channel JESSICA funds to the selected projects. Article 44 of Regulation 1083/2006 gives the managing authority two options in selecting an HF manager, either by public contract tender in accordance with the corresponding legislation, or by awarding a subsidy directly to the EIB, this solution having been preferred in other cases because of the advantages it offers.

This solution serves to reduce the time required for implementation of the initiative, and offers the Xunta all the financial experience of this EU institution. Nonetheless, the establishment of such an arrangement must take into consideration the additional provisions applicable to certain holding funds as set out in Article 44 of Regulation 1828/2006, with these provisions being set out in a "funding agreement" to define the mechanisms and objectives of the finance.

The tasks to be performed by the HF are, among others, that of establishing the selection criteria for UDF investments, the evaluation of UDFs in order to establish which are most suited for the purpose of investment, negotiation of contracts and supervision of the functioning of the UDFs.

Once the urban projects are generating sufficient revenue in order to repay the funds loaned, they will be reimbursed via the UDFs (and, as applicable, the HF) to the Managing Authority, which will decide whether once again to implement the JESSICA initiative or to use the recovered funds conventionally.

The HF structure is not autonomous. Whatever the corporate formula adopted, the HF is at all times controlled by the Managing Authority for the ERDF Operational Programme which, when the circumstances arise, can rule as to the withdrawal or modification of the resources employed.

Advantages of setting up an HF

• It allows for allocation of all funds dedicated to JESSICA at once, thereby facilitating the task of EU certification.

• It facilitates and organises the application of the funds to each of the UDFs, as they are managed by one single administrator (the EIB) which conducts the relevant analyses and studies in order to make efficient use of them.

• It allows for an improved design for the UDFs and the competitive tenders to select projects, since an experienced manager can structure and coordinate the entire support architecture for the JESSICA tool.

• It can allow for rapid reinvestment of the returns from a UDF in other investment areas within JESSICA.

Disadvantages:

The main drawback occurs when the volume of resources allocated and the type of projects do not involve an obligation to establish several UDFs. In this case, the creation of an HF as a superstructure for just one UDF may lead to overlaps unless proper planning of tasks and allocation of the corresponding responsibilities is performed.

7.1.2 Urban Development Funds (UDFs)

The UDF is the financial platform allowing JESSICA funds to be allocated to the eligible projects. The UDF can involve public and private credit entities contributing a part of the financial resources. JESSICA resources are drawn

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directly from the Holding Fund, which acts as one additional investment entity within the UDF.

The structuring of several UDFs within one JESSICA programme has followed classification criteria in accordance with a) the spatial context (mainly the size of the cities where the UDFs are to be implemented); b) sectoral (based on the project type); and c) in accordance with the investor which may accompany the JESSICA funds. In the case of Galicia, given the sum of resources which the Managing Authority is planning to allocate to this initiative, the most appropriate procedure would be to create one single UDF.

This UDF will have a manager responsible for:

• Developing the eligible project and establishing the criteria and competitive tender rules for selection.

• Promoting, if necessary, cooperation among public and private agents in each project area.

• Monitoring the JESSICA investment and guaranteeing repayments to the HF in accordance with the established agreements and forecasts.

7.1.3 Eligible projects

The characteristics of each project type demand that different agents be involved. The eligible projects will therefore have in place:

• a development company, which may be public, private or mixed. The public body may be at the municipal or autonomous regional level. Meanwhile, the private stakeholder may be a technical or financial agent.

• A loan or loans for investment and operation, or subordinated loans throughout the construction period.

JESSICA funding can be applied either by means of equity investments or as a stake in the loan or loans to be implemented for the project. The lending

entity is, in this case, the corresponding UDF, while the development agent may benefit from other public and private loans and, by complying with certain requirements, may also receive non‐refundable public subsidies.

7.2 JESSICA structure for Galicia

The availability of funds, halfway through the period covered by the 2007‐2013 Operational Programme, along with the need to put forward a simple structure facilitating rapid implementation of JESSICA with no negative impact, make it desirable to establish just one Urban Development Fund (UDF) at this initial stage.

An analysis of the projects proposed and the facilities offered by their managers reveals that the projects proposed lie within the area of sustainable development through improvements in energy efficiency and the use of renewable energies. These are the projects which have been selected to perform a financial simulation of the UDF and analyse their viability, as will be seen in the chapter. As these are sustainable urban development projects, the view is that the UDF should obtain funds under Axis 4 of the ERDF OP.

The structure proposed JESSICA in Galicia is based on three levels:

• Level 1: Establishment of a Holding Fund with the ERDF resources allocated to JESSICA. This Fund would all times be overseen by the Xunta and, in accordance with the agreement established, by the EIB.

The Xunta, as the Managing Authority for the funds, would at an initial stage allocate ERDF resources from Axis 4 which, in terms of the Monitoring Committee, would involve no changes in the transfer of resources across different ERDF Axes.

• Level 2: Establishment of an Urban Development Fund (UDF) which could be entitled "Sustainable development through greater efficiency in the use of energy sources". This UDF could be

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administered by the same manager as the HF, with the involvement of one or more credit entities which could take up a stake.

• Level 3: competitive tender for projects open to UDF finance, compliance with eligibility conditions and design of the funding and arrangements for the repayment of the funds allocated. This study has taken into consideration three eligible projects: a) High environmental quality public buildings b) Installation of biomass plants and c)Renewal of efficient urban bus fleets.

7.3 Alternatives for the design of a UDF in Galicia

7.3.1 Basic architecture

As mentioned earlier, the functioning of JESSICA is based on the creation of one or more Urban Development Funds which, with the resources contributed by the Managing Authority (Xunta de Galicia) and other entities registering an interest in taking part, invest in those sustainable urban development projects which fulfil the criteria imposed for JESSICA investments.

Arquitectura básica de JESSICA en Galicia

Xunta de GaliciaAutoridad de Gestión

Holding Fund (BEI)

Entidades Financieras gestoras UDF

Proyectos

Recursos deJESSICA

Recursos deJESSICA

Manifestación de interés

Recursos deJESSICA

Recursos de Entidades Financieras

Arquitectura básica de JESSICA en Galicia

Basic JESSICA architecture in Galicia


Xunta de GaliciaManaging Authority

Recursos de JESSICA JESSICA ResourcesManifestación de interés Declaration of InterestEntidades financieras gestoras UDF UDF managing financial entitiesRecursos de Entidades Financieras Financial Entity ResourcesProyectos Projects

This Urban Development Fund, as it is managed by financial entities, allows the Managing Authority to entrust the task to professionals within the financial sector with considerable experience in the implementation of financial products.

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7.3.2 Distinctive aspects of JESSICA in Galicia

The architecture proposed for Galicia is dictated by three distinctive factors which shape the final structure of the JESSICA Initiative, namely:

a) The sum allocated: In the case of Galicia, the JESSICA Initiative will be allocated 16 million euros (11.7 exclusively for credits), drawn from ERDF funds and serving to finance one part of an investment calculated at 58 million Euros.

b) The role within the JESSICA Initiative which the Xunta wishes to give to the INEGA. Its inherent nature, since it is not a financial entity and its area of operations focuses heavily on energy efficiency projects, will dictate the structure to be set up.

c) The unquestionable lead role played by local authorities in the initiative and the implementation of the pre‐selected projects.

7.3.3 Other possible structures for the Galician UDF

Taking into consideration the distinctive factors which apply in the case of Galicia, other alternatives do exist for the JESSICA architecture design. Of these, perhaps the most attractive would be to base the system on a mixed model by adding into the basic structure described above the involvement of a public management entity (INEGA), and, given the particular nature of the project, the involvement of those local entities which served as its development agents.

Mixed Model: Private management, but with involvement of public entities in administration and with technical support from the INEGA.

Gestión mixta con participación del INEGA y de las Entidades Locales


Holding Fund (BEI)

Entidades Financieras gestoras UDF+ Entidades locales

Proyectos

Apoyo Técnico: INEGA

Recursos deJESSICA

Recursos deJESSICA

Manifestación de interés

Recursos deJESSICA

Recursos de Entidades Financieras

Gestión mixta con participación del INEGA y de las Entidades Locales

Mixed administration and involving the INEGA and Local Entities


Xunta de GaliciaManaging Authority

Recursos de JESSICA JESSICA ResourcesManifestación de interés Declaration of InterestEntidades financieras gestoras UDF + Entidades locales

UDF managing financial entities + Local entities

Recursos de Entidades Financieras Financial Entity ResourcesProyectos Projects

The procedure to be followed if this model were to be chosen would be as follows:

1) The Xunta, as the Managing Authority, proposes the Funding Agreement for the creation of a Holding Fund and entrusts administration to the EIB, which would be supported by the

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INEGA (public entity) in decision‐making and as a technical advisor to the Fund.

2) The EIB is, together with this public entity, responsible for the task of supporting the Xunta in definition and implementation of the UDF created.

3) Following its definition, the Holding Fund manager (the EIB) would launch a declaration of interest in order, by means of competitive tender, to select those entities to be included as being most suitable for involvement in the JESSICA Initiative.

4) The financial entity or entities ultimately selected would, together with the Local Entities involved as development partners, manage and administer the resources assigned by the Holding Fund, along with any additional resources which they or third partners may contribute to the Initiative.

7.4 Outcomes for the UDF and the HF

In order to model the UDF level we have adopted the baseline structure defined for JESSICA in Galicia at this initial stage, as further explained in Chapter 7.2. The Holding Fund (HF) is thus developed by means of one single UDF, bringing together the three projects the viability of which has been analysed in previous sections.

Hypothesis:

HF : ERDF = € 16M

UDF : TOTAL = €34.8M

HF Investment JESSICA credits = € 12M

JESSICA Equities = € 1.3M

Non‐commercial credits = € 21.5M

Projects : TOTAL = €58.2M

UDF Credits (JESSICA credits + Non‐commercial credits) = € 33.3 M

UDF Equities = €1.3 M

Public Entities (Equity) = € 12.5 M

Private Entities (Equity) = € 7.1 M

Subsidies = €4M

The HF provides ERDF funds allocated to the JESSICA initiative to the UDF in order for the latter in turn to make them available to each of the projects. Although the UDF channels and receives the flows and returns from the JESSICA funds managed, these flows correspond to the HF. Each year the HF pays the EIB a fee of 1.5% of the JESSICA funds managed over the first 10 financial years, falling to 0.20% over the following 10, as set out in Table 34.

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Management of the UDF will be performed by the financial entities selected to fund the project. The flows to be obtained by the financial entities will be at the interest rate for the finance, plus the agreed management fees.

• Incurring annual management costs, considered as minimal, of 155 thousand euros over the first five years. This period coincides with the greatest effort involved in the work associated with initial start‐up, thereby requiring greater supervision, and initial project operations. From year 5 onwards the fees drop to 0.5% of the JESSICA funds managed for the following two years, and lastly 0.10% for the remaining financial years. The total volume of management costs amounts to 860 thousand euros.

• It receives a commission of 3% on the funds managed during the first three years, 2% during the following two years and 0.30% for the remaining financial years up until the date when all JESSICA funds are repaid. In total, 1.614 million euros, as detailed in Table 35, providing a breakdown of the evolution of these magnitudes over the period, applying the hypotheses included in the enclosed table for their calculation.

• In short, a gross margin obtained as the difference between the two flows of 754 thousand euros.

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Table 40 Bank fee hypothesis.

HF/UDF COMMISSION ITEM 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

HF MANAGEMENT FEES MINIMUM 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

RATE (%) 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%

ENERGY‐INEGA

MANAGEMENT FEES

MINIMUM 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

RATE II (1) 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

RATE (%) 3.00% 3.00% 3.00% 2.00% 2.00% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30%

MANAGEMENT COST MINIMUM(2) 155 155 155 155 155 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

RATE (%) 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%

(1)A 0 refers to fees paid directly from the Holding Fund contribution, while a 1 reveals that they would be drawn from returns on the project. (2) In thousands of Euros

Table 41 Flows for the UDF. In thousands of Euros

FLOWS (ENTITY PERSPECTIVE) FLOW SIGN

TOTAL‐IRR PAYBACK

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

COMMERCIAL CREDITS ‐ 22,690 21,490 1,200 0 0 0 0 0 0 0 0 0 0 0 0 0 0

P.D. COMMERCIAL(1) + 22,690 0 5,265 5,108 3,099 2,269 2,404 2,546 2,000 0 0 0 0 0 0 0 0

FIN. COST COMMERCIAL CREDITS + 4,393 0 1,277 1,035 732 548 413 270 119 0 0 0 0 0 0 0 0


DIVIDENDS + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

COSTS ‐ 860 155 155 155 155 155 39 37 6 3 0 0 0 0 0 0 0

FEES + 1,614 392 392 382 203 171 23 22 19 10 1 0 0 0 0 0 0

THREE‐COSTS + 754 237 237 227 48 16 ‐16 ‐15 12 6 1 0 0 0 0 0 0

CASH FLOW +/‐ 7.08% ‐21,253 5,579 6,370 3,878 2,832 2,801 2,802 2,131 6 1 0 0 0 0 0 0

CUMULATIVE CASH FLOW +/‐ 6 ‐21,253 ‐15,674 ‐9,304 ‐5,426 ‐2,594 207 3,009 5,140 5,146 5,147 5,147 5,147 5,147 5,147 5,147 5,147

(1) Amortisation of commercial credit

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Figure 12 UDF aggregate cash flow. In thousands of Euros

Aggregate Cashflow UDF BANCOS 1

-25.000

-20.000

-15.000

-10.000

-5.000

0

5.000

10.000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

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Table 42 Breakdown of fees and costs. In thousands of Euros

FEES OBJECT Fees TOTAL 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

MANAGEMENT FEES OUTSTANDING DEBT 1,440 353 353 343 177 145 20 20 18 10 1 0 0 0 0 0 0

DIVIDENDS 174 39 39 39 26 26 3 2 0 0 0 0 0 0 0 0 0

TOTAL MANAGEMENT FEES 1,614 392 392 382 203 171 23 22 19 10 1 0 0 0 0 0 0

MANAGEMENT COST OUTSTANDING DEBT 333 59 59 57 44 36 34 34 6 3 0 0 0 0 0 0 0

DIVIDENDS 41 7 7 7 7 7 5 3 0 0 0 0 0 0 0 0 0

TOTAL MANAGEMENT COST 860 155 155 155 155 155 39 37 6 3 0 0 0 0 0 0 0

NET FEES 754 237 237 227 48 16 ‐16 ‐15 12 6 1 0 0 0 0 0 0

Table 43 Breakdown of Management Fees. In thousands of Euros

MF FEES MF BREAKDOWN TOTAL 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

MANAGEMENT FEES 0 OUTSTANDING DEBT 1,371 353 353 343 177 145 0 0 0 0 0 0 0 0 0 0 0

DIVIDENDS 169 39 39 39 26 26 0 0 0 0 0 0 0 0 0 0 0

TOTAL MANAGEMENT FEES 0 (1) 1,540 392 392 382 203 171 0 0 0 0 0 0 0 0 0 0 0

MANAGEMENT FEES 1 OUTSTANDING DEBT 69 0 0 0 0 0 20 20 18 10 1 0 0 0 0 0 0

DIVIDENDS 5 0 0 0 0 0 3 2 0 0 0 0 0 0 0 0 0

TOTAL MANAGEMENT FEES 1 (2) 75 0 0 0 0 0 23 22 19 10 1 0 0 0 0 0 0

TOTAL MANAGEMENT FEES 1,614 392 392 382 203 171 23 22 19 10 1 0 0 0 0 0 0

(1) Fees paid directly by the Holding Fund. (2) Fees paid from project returns.

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Table 44 JESSICA Fund Flow on investments. In thousands of Euros

FLOWS (ENTITY PERSPECTIVE) FLOW SIGN

TOTAL‐IRR PAYBACK

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

JESSICA CREDITS ‐ 11,782 11,782 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

JESSICA (EQUITY) ‐ 1,300 1,300 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

FIN. COST JESSICA + 3,306 0 525 525 509 393 322 302 302 271 144 12 0 0 0 0 0

P.D.JESSICA(1) + 11,782 0 0 364 2,592 1,594 451 0 698 2,848 2,974 263 0 0 0 0 0

DIVIDENDS + 1,989 0 0 0 0 0 304 421 421 421 421 0 0 0 0 0 0

FEES ‐ 5 0 0 0 0 0 1 1 1 1 0 0 0 0 0 0 0

CASH FLOW +/‐ 4.68% ‐13,082 525 889 3,100 1,987 1,075 722 1,420 3,539 3,540 274 0 0 0 0 0

CUMULATIVE CASH FLOW +/‐ 9 ‐13,082 ‐12,558 ‐11,669 ‐8,569 ‐6,581 ‐5,506 ‐4,784 ‐3,364 176 3,716 3,990 3,990 3,990 3,990 3,990 3,990

(1) Amortisation of JESSICA credit

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Table 45 JESSICA Fund Flow. In thousands of Euros

CHAPTER FLOWS (ENTITY PERSPECTIVE) FLOW SIGN

TOTAL/IRR/ PAYBACK

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

1 JESSICA CREDITS ‐ 11,782 11,782 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

2 JESSICA (EQUITY) ‐ 1,300 1,300 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

3 FIN. COST JESSICA + 3,306 0 525 525 509 393 322 302 302 271 144 12 0 0 0 0 0

4 P.D.JESSICA + 11,782 0 0 364 2,592 1,594 451 0 698 2,848 2,974 263 0 0 0 0 0

5 DIVIDENDS + 1,989 0 0 0 0 0 304 421 421 421 421 0 0 0 0 0 0

6 MANAGEMENT FEES HF + 1,157 202 200 193 149 122 105 94 73 19 0 0 0 0 0 0 0

7 MANAGEMENT FEES 0 UDF + 1,540 392 392 382 203 171 0 0 0 0 0 0 0 0 0 0 0

8 MANAGEMENT FEES 1 UDF + 75 0 0 0 0 0 23 22 19 10 1 0 0 0 0 0 0

9 CASH FLOW(1) +/‐ 2.83% ‐13,475 132 507 2,898 1,817 1,100 746 1,440 3,550 3,541 274 0 0 0 0 0

10 CUMULATIVE CASH FLOW +/‐ 10 ‐13,475 ‐13,342 ‐12,835 ‐9,938 ‐8,121 ‐7,021 ‐6,275 ‐4,835 ‐1,286 2,255 2,529 2,529 2,529 2,529 2,529 2,529

11 % MANAGING AUTHORITY RETURN (2) 108.23% 0.00% 3.33% 5.63% 19.65% 12.60% 6.82% 4.59% 9.01% 22.43% 22.43% 1.74% 0.00% 0.00% 0.00% 0.00% 0.00%

(1) 9=‐1‐2+3+4+5‐7+8 (2) 11= (3+4+5)/TOTAL211(1+2+6+7)

Table 46 Basic Variables. Monetary variables in thousands of Euros

VARIABLE VALUE EXPLANATION

IRR 2.83% CHAPTER 9 OF TABLE 6

PAYBACK 10 CHAPTER 10 OF TABLE 6

FUNDS INVESTED 14,622 FROM TABLE 6 CHAPTERS 1+2+7

HOLDING FUND FEES 1,157 FROM TABLE 6 CHAPTER 6

FUNDS MANAGED 15,779 FROM TABLE 6 CHAPTERS 1+2+6+7

NOMINAL HF 16,000 TOTAL JESSICA FUNDS

MF UDF 0 1,540 FROM TABLE 6 CHAPTER 7

MF UDF 1 75 FROM TABLE 6 CHAPTER 8

FUNDS NOT USED 221 DIFFERENCE BETWEEN NOMINAL HF AND MANAGED FUNDS

INVESTMENT RETURNS 17,152 FROM TABLE 6 CHAPTERS 3+4+5+8

OVERALL RATIO 108.58% (INVESTMENT RETURN + FUNDS NOT USED)/NOMINAL HF

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Figure 13 Aggregate JESSICA Flow Figure

Aggregate Cashflow Jessica

-16.000

-14.000

-12.000

-10.000

-8.000

-6.000

-4.000

-2.000

0

2.000

4.000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

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Lastly, the two following figures illustrate the funding of the architecture proposed for JESSICA in Galicia at this initial stage, along with the returns and payback for each of the agents involved in the funding:

Financiación de la arquitectura de JESSICA propuesta

Holding Fund16.0 M€

UDF Eficienciaenergética

Proyecto 1CALDERA BIOMASA

Proyecto 2REHABILIT. EDIFICIOS

Proyecto 3FLOTAS VEHICULOS

IRR: 2,83%Pay Back: 10 yDuration: 16 y

Inversion: 12,0 M€Fondos Propios: 6,0 M€Créditos Com.: 3,6 M€Créditos JESSICA: 2,4 M€

Inversion: 31,7 M€Fondos Propios: 9,7 M€Créditos Com.: 15,3 M€Créditos JESSICA: 6,8 M€

Inversion: 14,4 M€Fondos Propios: 5,2 M€Equities JESSICA: 1,3 M€Créditos Com.: 2,6 M€Créditos JESSICA: 2,6 M€Subvención: 4,0 M€

Financiación de la arquitectura de JESSICA propuesta

Funding of proposed JESSICA architecture

UDF Eficiencia energética Energy Efficiency UDFProyecto 1 CALDERA BIOMASA Project 1 BIOMASS BOILERProyecto 2 REHABILIT. EDIFICIOS Project 2 REFURB. BUILDINGSProyecto 3 FLOTAS VEHÍCULOS Project 3 VEHICLE FLEETSInversión: Investment:Fondos propios: Equity:Créditos com.: Commercial credits:Créditos JESSICA: JESSICA credits:Subvención Grant

Total investment: € 58.1 M2

ERDF Leverage: € 16 M2

: € 1 M2 >€ 3.7M2

Rentabilidad de la arquitectura de JESSICA propuesta

Returns on proposed JESSICA architecture

UDF Eficiencia energética Energy Efficiency UDFProyecto 1 CALDERA BIOMASA BIOMASS BOILER Project 1Proyecto 2 REHABILIT. EDIFICIOS BUILDINGS REFURB. Project 2Proyecto 3 FLOTAS VEHÍCULOS VEHICLE FLEET Project 3BANCOS BANKSENTIDADES PRIVADAS PRIVATE ENTITIESENTIDADES PÚBLICAS PUBLIC ENTITIES

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Flowchart for proposed JESSICA architecture

Créditos JESSICA credits:UDF Eficiencia energética Energy Efficiency UDF

Entidades Financieras Financial EntitiesCoste financiero Financial costCreditos Comerciales Commercial credits

Proyecto CALDERA BIOMASA Project BIOMASS BOILER

Proyecto REHABILIT. EDIFICIOS Project REFURB. BUILDINGS

Proyecto FLOTAS VEHÍCULOS Project VEHICLE FLEETS

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8 CONCLUSIONS: JESSICA SOLUTION FOR GALICIA

The evaluation study performed for implementation of the JESSICA Initiative in Galicia leads to the following conclusions:

1. Galicia, a Convergence Objective and with a 2007‐2013 ERDF Operational Programme of some 2.191 million euros, would be a very favourable territory for use of the JESSICA tool. The system of cities comprises seven main centres of population with between 80,000 and 300,000 inhabitants, along with a tier of medium and small‐sized towns spread throughout the territory. As opposed to the major industrial centres of Vigo and Ferrol, the smaller‐sized towns fulfil the function of district service centres, strongly interconnected with their rural context.

2. Urban municipalities have a long tradition of urban development planning and the implementation of land, housing and urban refurbishment development operations. The URBAN projects developed in the leading cities have, along with other regional lines of funding, facilitated the revitalisation of numerous old town centres in Galicia.

3. There exists a broad spectrum of urban and sectoral plans which, although they are not unified on the basis of one single sustainable planning concept (an Integrated Urban Plan, or IUP), could offer sufficient support for those projects to be covered by the JESSICA initiative, and allow IUPs justifying the eligibility of the projects to be drawn up.

4. Galicia has no widespread experience in the development of business lines by means of public‐private partnership. The main operations focus on shadow toll motorway concessions, bus station concessions, marinas and, very recently, a hospital concession in Vigo. Meanwhile, there are two Mutual Guarantee Societies (or SGRs) which have been in operation for some considerable time in Galicia, providing personal guarantees by means of bonds or other systems for small and medium‐sized enterprises (SMEs).

5. The list of credit entities in Galicia is clearly headed by the two savings banks (Caja Galicia and Caixa Nova). Together they could account for more than 50% of financial operations in the region. The savings banks are currently in the process of merger. The most significant regional bank is the Banco Pastor, a medium‐sized entity. Galicia is also home to the leading Spanish credit entities (Banco Santander, BBVA, Caja Madrid and La Caixa).

The Galician savings banks have considerable experience in offering financial support to public authorities for the use of ERDF funds, and so properly understand the objectives and procedures of the JESSICA initiative.

6. There are enough types of project in Galicia which are open to funding under the JESSICA initiative. We have identified projects which, supported by the corresponding fund managers, could be financed by means of this system and could provide an initial structure for the JESSICA initiative.

7. We have in this regard selected from the ERDF OP 14 Priority Issues, belonging to 5 Axes. All of these could be covered by JESSICA funding and be eligible.

8. The criteria for a project to be eligible for JESSICA funding has been divided into two groups:

a. Compliance with ERDF eligibility criteria

b. Compliance with JESSICA eligibility criteria

i. Project with an urban impactful context

ii. Supported by a sustainable planning framework (inclusion in an IUP)

iii. Developed by public‐private partnership.

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iv. Return provided on the investment.

v. Although they may be cumulative with other types of aid, the conditions must be met in order to avoid classification as State Aid.

vi. Viable from a legal perspective.

vii. Viable from the technical perspective.

viii. The investment must be concluded in accordance with ERDF criteria (2015).

9. Some of the Operational Programme fund managers, although they appreciate this form of funding, are reluctant to dedicate some of their funds to projects which allow for a return on the public investment. Perceived administrative difficulties, a lack of experience on public‐private operations or the idea that ERDF funds should be dedicated exclusively to projects offering social returns are among the arguments presented.

In summary, with certain exceptions there is no culture of management of public‐private partnership projects allowing managers to understand the need or desirability of dedicating a proportion of resources to JESSICA funding.

10. For the purpose of this analysis of implementation of the JESSICA initiative, four working areas were initially selected:

a. Axis 2: Land development for economic activities. Managed by IGVS and provincial Xestur bodies. This line of work was abandoned when it was confirmed by the IGVS that the economic activity land market is practically at a standstill.

b. Axis 3: Funding of renewable energy and energy efficiency projects. Managed by INEGA and DG Mobility (funding of public

transport fleets). This line of projects is that which gave rise to the UDF proposed in this evaluation study.

c. Axis 5: Nautical Tourism. Managed by the Secretariat‐General for Tourism and the Directorate‐General for Ports. Considered at a second stage of JESSICA implementation.

d. Axis 5: residential facilities for students, third‐age residences, hospital support amenities, etc. Various managers, mainly local councils and the IGVS. In the case of the IGVS, we are awaiting confirmation of acceptance of this line of projects.

11. The detailed analysis of the availability of OP funds for JESSICA concludes that those funds not yet committed amount to 25% of the total (540 million EUR). The availability of funds also varies considerably depending on the Axis. All this limits the application of funds for JESSICA finance under certain axes, although the process is facilitated on the others.

12. The channels for JESSICA funding could be extremely useful for compliance with the N+2 rule, within a context where the committed funds are limited and expenditure capacity may not reach the total limit. This problem could arise in the certification process for the current year, 2010, and subsequent years.

13. JESSICA has, at the initial stage, been structured on the basis of creating:

a. A Holding Fund (HF), the proposal being that this should be administered by the EIB, with the Xunta allocating around 16 million euros of ERDF funds drawn from Axis 3 "Transport and Energy".

b. Development of an Urban Development Fund with a JESSICA investments similar to that of the HF, around 14 M euros. This UDF could involve public or private credit entities, the estimated figure being 21.8 M euros.

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c. The UDF would allow for the implementation of projects focusing on renewable energies and energy efficiency. Three types of project have been modelled:

i. Biomass boilers

ii. Conditioning of public buildings to achieve greater energy efficiency.

iii. Funding of public urban transport fleets.

14. Phase 2: Ongoing conversations with managers and the Managing Authority should serve to clarify the current doubts regarding the remaining projects included in the Annex. In the event that any of these were to prove viable, the solution would then involve aggregating a new UDF which would cover those projects involving the creation of spaces for economic activities, with the corresponding IUPs being drawn up in order to define with greater detail and precision the financial structure for these new initiatives.

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JESSICA. JESSICA EVALUATION STUDY FOR GALICIA

Document: Final Report. Draft

Version: Version 3.2, 30 May 2010

Author: ETT

Identification:

09032‐DE‐3.2 JESSICA Galicia Info Final

Text:

ERDF Framework/ JESSICA Design: AGG‐LL

Project Selection: MLE

Financial model: JAV‐APP

Supervision: PPP

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Annexes

1 STUDENT ACCOMMODATION ON THE ELVIÑA UNIVERSITY CAMPUS, IN A CORUÑA.

1.1 Description of the Project

The Elviña University Campus in A Coruña, although in a peripheral location, is close to the city, with solutions gradually being provided for its inclusion within the neighbouring urban context, where a wide variety of uses are seen. Its facilities are in the process of completion with ambitious projects such as a Technology Park, a Campus Centre as a service area and Enterprise Incubator, with the introduction of a local railway or tram system in accordance with the existing nearby infrastructure and a modal interchange providing a considerable number of potential users, not simply university students but also workers and consumers of the surrounding commercial and leisure areas. The bicycle is the focal point connecting up all the facilities.

Its main and most pressing problem currently is the provision of rental accommodation on the Campus, with the IGVS (the Galician Housing and Land Institute) having organised a competitive tender for the construction of accommodation with a distinct bio‐climatic approach.

The Elviña area, where the Campus is located, lies alongside the Castro de Elviña hill fort, an important archaeological site where there are plans for a Visitor Centre. The surrounding context also includes two traditional population centres for which it would be desirable to draw up a Special Plan and develop this by integrating both within the Campus, since they have so far been popular places for both faculty and students to live, although there have not been improvements to infrastructure and services in line with population levels, suggesting in the short term the implementation of an integrated regeneration project, a process beginning with the Residential Area by providing these

population centres with the open public spaces, shopping area and services which they currently lack.

Such an initiative to create new land for urban development would gradually incorporate the existing fabric, requiring far‐reaching intervention in order to generate a high‐quality urban space in line at all times with principles of sustainability. This would be performed while incorporating social, economic and environmental aspects, in particular the inclusion of buildings which constitute heritage of ethnographic and historical interest, as part of the evolution of a broad territory.

The planned provision of residential accommodation is viewed as supplementing the University of A Coruña, an essential aspect of the Educational Facilities System for higher education in the Galician public sector. In principle the estimated needs would involve accommodation for 70% of students who currently turn to the private rental market. The construction of accommodation will serve to improve the quality of public service in university education.

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This is, meanwhile, a proposal which covers environmental aspects, such as the treatment and recovery of rainwater and grey water and energy initiatives, such as for example the use of geothermal energy or the installation of biomass district heating derived from an agreement with rural communities.

1.1.1 Urban development planning context

The Elviña University Campus is being developed on the basis of a Partial Plan covered by a Planning Area, incorporated within the General Municipal Regulation Plan for A Coruña, currently under review. The Residential Area will be constructed in accordance with an Individual Modification to the General Plan which has already received definitive approval. The surface area covered is 35,000 m², with 28,697 m² allocated for construction.

URBAN DEVELOPMENT: ‐ Plaza _____ 11,706.81 m2

‐ Green ____ 5,722.17 m2

BUILDINGS: 311 homes _______________________ 26,511.99 m2

5 common services premises __________ 2,185.01 m2

118 underground parking spaces __ 3,214.27 m2

1.1.2 Desired objectives

The project presented for the JESSICA initiative involves the construction of rental accommodation for 622 students. The aims pursued are as follows:

d) Housing for some of the students at the University of A Coruña, with the corresponding reduction in the use of both public and private transport to reach the campus.

e) Integration within the urban service project to serve both students and residents of the adjacent population centres (San Vicenzo and Castro de Elviña).

f) Reinforcement of the population centres of San Vicenzo and Castro de Elviña through the introduction of a residential fabric (Urban Renewal Area), serving as a corridor connecting the two areas.

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g) Private housing market open to students. This constitutes the most significant initiative implemented for the student rental system.

h) A technologically innovative project, given the use of efficient installations, the use of efficient materials such as wood, and one which is in turn environmentally integrated, being developed in accordance with the contextual idiom.

i) It involves the creation of a broader complex and the diversification of a university area focusing solely on the education sector by introducing residential uses.

1.1.3 Development and administration agents

For the purposes of project execution, it will be the IGVS which will be responsible for obtaining the land and for constructing the accommodation. As for maintenance, preservation and management, the University of A Coruña will be responsible, with plans for the inclusion of private operators under a concession system to run both the accommodation and the various associated services.

1.1.4 Action periods

The update to the most recent action programme is as follows:

• Planning: Definitive Approval

• Building permit: Granted

• Expropriation: Concluded

• Works adjudication: June 2010

• Project execution: June 2010‐June 2012

• Initial occupancy permit: September 2010

• Operational start date: 2012‐2013 academic year (October 2012)

With regard to operations, the plans are for the accommodation to be leased, with the price being the regional public sector protected rental price.

1.1.5 Estimate of costs and revenues

The enclosed table sets out the basic details of the costs and revenue expected from the project.

Municipality A Coruña Province and Autonomous Region Galicia GALICIA USE Land Characteristics Leased residential Type of Action Expropriation‐Purchase Corporation Tax Rate (%) Residential Construction Limit 26,511 m2s Premises Construction Limit 2,185 m2 Parking. 3,214 m2

COSTING BUDGET Acquisition of land and compensation Property Transfer Tax and Stamp Duty Municipal Land Gains Tax

Documentation costs Notaries and Register

Additional costs at Local Bodies Topographical profile and others Segregations, groupings, etc.

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Total Land Budget 5,000,000 Construction: Civil Engineering and Installations Properties Garages Premises Storage rooms Internal urban development Connections Price review and works sundries Installation Certificates Quality Control Health and Safety

Total Works Budget 18,169,231

Economic Result. Lease euros

Lease without Common Services: 5.23€/m2 Lease with Common Services: 6.65€/m3 Annual Lease Revenue(100% occupancy) 1,835,400 Investment Payback Period (Total Cost/Annual Revenue) 12.62 years Lease revenue Expenses: Maintenance, administration, financial, taxes

1.2 A-7-38 Arieiro area, in Vigo


This is an area intended for a Tertiary Centre, public car park and transport interchange at the O Meixoeiro Hospital Complex.

The Hospital Centre was, as with many facilities in the city, originally constructured in an outlying location on land bordering commonweal countryside areas now classified as Protected Rural Land. It was set up to serve not only Vigo but also other municipalities, many of them located beyond what would be viewed as the city's Metropolitan Area. Access is extremely difficult and entirely dependent on private transport, since in order to reach the site one must first travel to the city bus station and take a return trip by bus or taxi to the hospital.

This situation meanwhile requires that land be set aside for off‐street parking, since parking is currently very difficult given the existing lack of capacity. Meanwhile, the introduction of a transport interchange will serve to improve access to the city, underpin public transportation (currently shared in part with the university service) and improve the fleet through the inclusion of low‐emission buses.

Its outlying position means that there is a complete lack of commercial, catering and hotel services, the latter being a requirement for long‐term stays.


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The Vigo PGOM (General Municipal Regulation Plan) classifies the land as Non‐Consolidated Urban Land, and a Special Interior Reform Plan will be drawn up. The land is currently covered by reforestation areas, along with two residential and catering buildings. Consideration has been given for

connections with the required service networks. It should be pointed out that PGOM classifies the O Meixoeiro service complex as a key factor in the territorial structure of the south of the province of Pontevedra.

According to the PGOM data file, this initiative is viewed as an essential aspect of the set of services for the O Meixoeiro Hospital. According to the planning file, construction will cover 7,223 m² which, in accordance with the General Plan Strategy, will be 80% general tertiary use, essentially commercial and office space, 20% hotel, and 650 car parking spaces.

‐ CONSTRUCTION LIMITS

‐ HOTEL ___________ 5,778.00 m2 ‐Tertiary/hotel ___ 3,612.00 m2

‐ Modal transport interchange with parking provision (underground)

‐ 745 spaces (26,200 m2 built area)

‐ Land reserved for amenities: 800.00 m2

‐ Land reserved for green zone: 4,000.00 m2


The project allows for the development of operations providing a return, focusing on the following uses:

• Hotel or long‐term residential area for patients' companions. Hotel or rental accommodation system.

• Off‐street parking.

• Public transport interchange with the possibility of applying a usage fee for this.


In terms of administration the proposal is for a public project using the expropriation system, although as this is commonweal countryside execution is planned within the first four‐year period.

Planning, expropriation and urban development will be performed by Vigo City Council, using its own funds from the municipal budget, and with funding being incorporated. Consideration must be given to the revenue through external permits (3.15% of the budget).

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Private initiative will be involved by means of a concession system to build and operate the car park, the hotel centre and tertiary centre.

1.2.5 Execution Deadlines

The duration of the project will be:

• Municipal administration, 1 year

• Concession procedure, 6 months

• Drafting of construction projects and issuing of permits, 8 months

• Construction and issuing of permits for initial occupancy and hotel and tertiary operations, 24 months

• Car park construction, 12 months

Car park operations could begin within three years and two months and tertiary and hotel operations within four years and two months from establishment of the UDF.

The timeframe is calculated based on the Vigo City Council's schedule. It is expected to be completed by 2015.

1.3 Estimate of costs and revenues

Costs:

• Special Plan ('PERI') € 42,753.44

• Land expropriation € 1,026,360.00

• Inland urban development € 1,444,500.00 (€ 50/m2 x s)

• Network connections € 771,690.00 € 145/m2s

• Network allocations € 261,748.73

• Car park construction € 11,747,873.40

• Tertiary use construction € 3,884,345.62

• Total investment € 19,179,271.20

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2 PACIOS-BAAMONDE ENTERPRISE PARK

2.1 Description of the Project

This is a project being worked on by Xestión Urbanística de Lugo S.A. (Xestur Lugo) the public enterprise functionally operating under the IGVS (Galician Housing and Land Institute). This enterprise has considerable experience in the creation of urban development land for sale for industrial operations, although it is now beginning to work with other ownership systems.

The aim is to establish a project the area of influence of which should extend not only to the Autonomous Region of Galicia and Northwestern Spain but also Northern Portugal, as a project of these characteristics should serve a hinterland of at least 300 km.

The Park is located in the Borough of Begonte (Lugo province) in the parishes of Pacios‐Baamonde, being planned at the meeting point of A‐6 Northwestern

Motorway, the A‐8 Cantabrian Motorway and the N‐634 National Highway, a strategic location for logistical roads distribution operations.

The plans cover an area of 1,062,151 m², distributed as follows: ZONING AND USES

OWNERSHIP Surface area m2 INDUSTRIAL USE Plots for industrial use Private 652,415 PRIVATE AMENITIES SYSTEM Commercial Amenities Private 29,456 Social Amenities Private 12,109 PUBLIC AMENITIES SYSTEM Sporting amenities Public 31,324 OPEN PUBLIC USE AND OWNERSHIP AREA SYSTEMS Green zones Public 147,890 Infrastructure and services Public 55,561 Main roads network, access routes, reserves and associated car parks

Public 133,396 TOTAL 1,062,151

The minimum surface areas established for industrial plots are 1500 m² for contiguous buildings and 4500 m² for stand‐alone buildings, with the predominant size being around 7000 m². The largest plot has a capacity of 100,000 m². The plans are compatible with Transport Centres, the corresponding Service Areas and logistical support.

The Commercial Facilities allow for Catering, Hotels, Automobile Service and Fuel Supply, along with inherent commercial uses.

The following construction volumes have been established, in terms of the area occupied on each plot and the overall buildable area.

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CONSTRUCTION VOLUMES

Maximum occupied area Maximum buildable area m2 m2 INDUSTRIAL USE Plots for industrial use 468,812 490,382 PRIVATE AMENITIES SYSTEM Commercial Amenities 17,050 27,280 Social Amenities 7,156 11,450 PUBLIC AMENITIES SYSTEM Sporting amenities 1,160 1,160 TOTAL 494,178 530,272 USE No. of PLOTS Surface area (m2 SPORTS 1 31,324 SOCIAL 1 12,109 INFRAESTRUCTURE 1 26,016 COMMERCIAL 1 29,456 INDUSTRIAL 18 FROM 5,000 TO 12,000 20 FROM 12,000 TO 30,000 1 66,263 1 90,990 TOTAL 44 751,320

The plans are for 1330 public parking spaces and 5302 private spaces.

The location of the green zones fulfils the mission of landscape integration and visual screening. A green zone of 62,294 m² is positioned at the point of contact with the N‐634, acting as a visual screen and integrating the Santiago Pilgrims' Way.


A Sectoral Project was drawn up for the Park, entitled the Sectoral Project for the Begonte Enterprise Reserve Park, receiving definitive approval in 2007 as a development of the Sectoral Plan for Territorial Regulation of Enterprise Areas within the area of the Autonomous Region of Galicia, with the project being classified under the aegis of that Plan as a Major Sub‐Regional Specialist Central Park.


• As it is located away from any Galician provincial capital or major city, its capacity to impact on its immediate environment is considerable, along with its potential to regenerate a rural area with considerable environmental qualities which has gradually seen the disappearance of its traditional activities as a result of the population moving away towards urban areas, along with the ageing of the population still in residence.

• This therefore presents an opportunity to create employment along with the dissemination of urban development across a broader territory, as a catalysing element providing infrastructure, with sustainability principles being included in aspects including the water cycle, waste treatment and the inclusion of renewable energy sources.

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Xestur Lugo is the body responsible for administering the project.

Land is to be obtained by expropriation, although in some cases it may be acquired by mutual consent, where possible. Under the terms of Rural Environment Regulation Act 9/2002, of 30 December 2002, with the modifications derived from Act 15/2004, of 29 December 2004, there is no reason why the land owners could not be involved in the administrative process, and in fact an analysis is currently being performed of the possibility of including business owners in administration operations on the part of the Xestur bodies in the various provinces. In this case, a development model would be agreed, with land management taking part on the basis of public‐private partnership.

The deeds for the sale of the plots of land include a series of obligations in order to avoid any speculation or land being withheld on the basis of strong economies preventing access on the part of new or emerging economies in acquiring such land.

2.1.4 Execution Deadlines

The planned deadline for execution of the works, once the urban development and electrical connection works for the park have already been awarded and the contract signed, is 19 months, with the work therefore expected to be completed by early 2012, the investment being recovered by means of sales over a period of five years.

Once 40% of the urban development and electrical connection works have been completed, a public competitive tender process will be launched for Purchase Options over the developed plots, and once the park has been completed, the plots reserved in the options process will be sold, along with sale on the open market of those plots remaining pending. The average sale price is € 40‐50/m2.


The enclosed table sets out the basic cost and revenue parameters estimated for the Pacios‐Baamonde project.

Municipality Lugo Province and Autonomous Region Galicia GALICIA USE Land Characteristics Industrial‐Commercial Type of Action Expropriation‐Purchase Corporation Tax Rate (%) 25.00 Gross Sector Area 1,062,151 m2s TOTAL ASSIGNMENTS 336,847 m2s TOTAL NET PLOT 725,304 m2s

COSTING BUDGET Land acquisition Property Transfer Tax and Stamp Duty Municipal Land Gains Tax

Documentation costs Notaries and Register

Additional costs at Local Bodies Topographical survey and others Segregations, groupings, etc. Cost of Acquisition of Private Land 5,089,551 Development Planning Modification to Urban Planning Ordinance Detailed Study Partial plan Compensation Project Urban Development Works Urban Development Project Works Management (% of Project) Other Urban Development Administration Fees

Drafting of Compensation Board bylaws

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Environmental Impact Study Works Execution Director Works Management Health and Safety Plan

Works Settlement Health and Safety Coordination and Supervision

Health and Safety Plan Quality Control Plan Official architectural approval for all Projects Professional Fees 134,600

URBAN DEVELOPMENT PROJECT Water supply Earthmoving Electrical energy Road surfacing Lighting Drains ANCILLARY WORKS IN THE SECTOR AND OUTSIDE CONNECTIONS Price Adjustment Quality and Health and Safety Control (regarding B1+B2+B3) Urban Development Project (PEC) 21,039,043 Urban Development Works Permit (ICIO) Urban Development Works Bond Interest (PEM) Executed Project rates Modification to Urban Planning Ordinance Urban Development Project

Partial plan Drafting of Compensation Board bylaws

Detailed Study Environmental Impact Study Compensation Project Other projects Registration of Compensation Board bylaws Notary office (not required)

Registration of Urban Development Entities

Deed and Registration of Compensation Stamp Duty (exempt)

Notary office Land Register Legal development charges 458,486

Administration: Management: Economic Activities Tax (IAE) Real Estate Tax General Costs 826,443

Economic Result from sales Euros Total Sales and Revenue 31,500,000 Total Operating Costs 27,548,123 Gross Operating Margin 3,951,877 Commercial sale costs 945,000

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3 MONFORTE DE LEMOS DRY PORT

3.1 Description of the project

The Monforte de Lemos Dry Port involves a logistics and warehousing area located close to the town of Monforte, specialising in dry rail port functions, in other words a logistical activities centre directly connected to its ports by rail, essentially the port of Vigo.

It is located alongside the Palencia‐A Coruña railway line, on the right‐hand side, as indicated in the enclosed plan. Current access is from the regional highway LU‐546 Nadela (N‐VI) ‐ Monforte (LU‐664). The Dry Port is located 1.8 km from the centre of Monforte. The plans are for a future access route connecting the northern end of the dry port first with the regional highway LU‐933 Monforte ‐provincial border ‐ A Rúa, and connecting the southern end with the CN‐120 highway.

The construction plans are currently being drawn up.

Plan 1 Location and access routes.

The planned structure for the dry port includes industrial and tertiary economic uses, along with an intermodal rail platform. The uses and corresponding intensities are as follows:

Use Surface area (m2) Description Facilities 19,380 Railway Museum. Industrial and/or Tertiary 173,086 Car parks 4,643 172 spaces. Road network 41,082 2‐lane roadways, 4 m per lane. Green zones 58,313 Intermodal platform 10,549 650 m long and 30 m wide band directly alongside the current platform. TOTAL 307,053

The enclosed table indicates the profitable surface area covered by economic activities.

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Block Surface area (m2)

Description

A: plot for offloading of freight

7,675 No division of plots or construction other than the road/rail freight interchange is permitted.

B: Block for small plots

4,546 No plot division is proposed, although guidelines are set out: Minimum plot area: 500 m2. Minimum plot frontage: 15.5 m2. Building conditions: Contiguous; maximum height 7 m, GF+1; maximum plot occupancy, 100%; maximum building permitted 1.25 m2/m2.

E: Block for medium plots

36,391 No plot division is proposed, although guidelines are set out: Minimum plot area: 1,000 m2. Minimum plot frontage: 20 m2.

C, D and F: Block for large plots

124,474 No plot division is proposed, although guidelines are set out: Minimum plot area: 5,000 m2. Minimum plot frontage: 75 m2. Building conditions: Stand‐alone, maximum frontage 60 m; maximum height 15 m, GF+3; maximum plot occupancy, 75%; maximum building permitted 0.95 m2/m2 or 11 m3/m2.


The Monforte Dry Port has followed the municipal planning and development planning guidelines. A Special Regulation Plan is in place, serving as the basis for development of the urban development project. These regulations have in turn been taken into consideration in the General Urban Regulation Plan for the Local Council of Monforte and are covered by the Xunta's logistics areas programme.

Plan 2 Regulation plan.

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Plan 3 Zoning plan.


The creation of this logistics area at a strategic point in inland Galicia, from the point of view of communications, is intended to serve as an engine for activity throughout the district of Monforte. The area has traditionally specialised in rail transport and supplementary activities, although the district has gradually lost importance as rail transport has become less widely used and a less important factor in regional transportation as a whole. The consolidation of road access routes to the north (Lugo‐A Coruña) and to the south (Verón‐Ourense‐Vigo) has also led the traditional central access route via the River Sil to lose its strategic importance. The initiative is thus planned as a district revitalisation strategy tied to the urban recovery of Monforte.


The IGVS has initially acquired the land, which is available for the property developer.

No private developer at present wishes to take on the project. Two scenarios would be possible:

1. A property developer has an interest in acquiring the land and developing this activity centre. The steps to be taken are:

a. Extend the partnership agreement signed by the CPTOPT and the IGVS on 20 May 2008, under the terms of which the CPTOPT agreed to present a proposal for a flagship enterprise project, while the IGVS would transfer the land to the corresponding company. This agreement lapsed on 31 January 2010.

b. The IGVS may issue a ruling in which:

i. The SEMAT guarantee is executed.

ii. The flagship business project presented by SEMAT is cancelled.

c. The new company would be required to present the CMATI with a new flagship enterprise project.

d. The IGVS MUST APPROVE THE FLAGSHIP ENTERPRISE PROJECT PRESENTED BY THE CMATI.

e. The company will have to compensate the IGVS for the cost of expropriation (approximately 4 million euros) and execute the urban development works in accordance with the approved urban development plans (8.6 million euros), accepting the control and supervision of the Directorate‐General for Mobility during execution of the works.

2. In the event that no development company wishes to take on the project:

a. The IGVS may issue a ruling in which:

i. The SEMAT guarantee is executed.

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ii. The flagship business project presented by SEMAT is cancelled.

b. The IGVS would have to perform the urban development works for the dry port.

c. Once urban development of the area has been completed, in order for a company to begin operations the IGVS would have to:

i. Complete the urban development plot division procedure with Monforte Local Council.

ii. Run a competitive tender for acquisition of the plot.

The JESSICA tool could be used on the first scenario, in other words, provided that there is a public‐private or purely a private developer. In the event that this developer were to take on 100% of the cost of expropriation and execution of urban development, it is possible that the Public Authorities could cover a part of the expropriation. JESSICA would be employed as a low‐interest loan meaning that the proportion of the expropriation covered by the public authorities on a non‐refundable basis would be as low as possible.

3.1.4 Deadlines

The execution period for the works is 18 months.


The enclosed table summarises the cost parameters and estimates of the revenue from the Monforte Dry Port.

Municipality Monforte Province and Autonomous Region Galicia GALICIA USE Land Characteristics Industrial‐Commercial Type of Action Expropriation‐Purchase Corporation Tax Rate (%) 25.00 STRUCTURE OFFLOADING 7,675 PLOTS>500M2 4,546 PLOTS>1000M2 36,391 PLOTS>5000M2 124,474

COSTING BUDGET Expropriation 4,000,000

URBAN DEVELOPMENT WORKS Water supply Earthmoving Electrical energy Road surfacing Lighting Drains ANCILLARY WORKS IN THE SECTOR AND OUTSIDE CONNECTIONS Price adjustment Quality and Health and Safety Control (regarding B1+B2+B3) Urban Development Project (PEC) 12,573,060

Economic Result from sales euros Total Sales and Revenue 13,327,622 Total Operating Costs 12,573,060 Gross Operating Margin 754,562

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3.2 "Fishing Port/Marina Project for Improved Port/Town Integration in Muros"

3.2.1 Description of the Project

The project involves the internal regulation of Marina and fishing port mooring berths along with urban development (car park, urban amenities and plantation) in the port of Muros.

The project comprises:

• The creation of 229 pontoon mooring berths, 212 of which will be for recreational vessels of between 6 and 16 m in length, the remaining 17 being for mussel‐picking vessels with a length of between 16 and 20 m.

• Improvement and provision of new structural elements to facilitate the main economic activity of the municipality: fisheries.

• Urban development of the inner wharf of the port of Muros and the southern dock of the central harbour, creating a perimeter promenade, generating a central wharf area with 102 parking spaces, to serve the proposed new marina, the aim being to improve integration of the port within the town.


The Galician Marinas Steering Plan serves as the planning framework. The urban development operations have also been included in the urban development plans of Muros Local Council.


This initiative is covered by the development of medium and small‐sized ports alongside towns and population centres on the Galician coastline. The aim is to

promote fishing and leisure/tourism activities at port facilities, which are often underused in terms of their actual capacity.

It should in this regard be pointed out that the introduction of tourism activities to Galicia's ports could over the coming months be covered by a joint initiative run by the Secretariat‐General for Tourism and the Directorate‐General for Ports. Against this background, the Muros project could be used by both public agencies as a pilot experiment in the development of a Nautical Tourism Promotion Programme.


The project was initially conceived of as a traditional concession‐based development, in other words with the public authorities organising a competitive tender with the chosen bidder setting the rates for the mooring berths and other activities connected with the concession (car park, etc.).

The aim of introducing JESSICA funding will be to reduce the financial costs, and consequently the rates imposed for the concession activities.

3.2.5 Deadlines

• The works are at the tender phase.

• Estimated start of works: 01 October 2010

• Estimated end of works: 31 July 2011

• Once the works have been completed, the mooring berths for recreational marina use will be assigned under an operation concession system, while use of the mooring berths intended for mussel picking vessels will be agreed.

• Investment Period: 10 months (October 2010 – July 2011)

• Operational start year: 2012

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The total investment is €3,996,562.01, although the actual investment will be less as the process is being run by public competitive tender.

As operation of the mooring berths for the fishing facilities is assigned to the port, the standard operating expenses borne by the concession‐holder (staff, maintenance and operational consumption) are very low. As for the remaining infrastructure works, the ongoing maintenance costs are those typical for this type of project.

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