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JESSICA JESSICA Holding Fund in BulgariaHolding Fund in Bulgaria

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Status, types and selection of UDFs – Next stepsStatus, types and selection of UDFs – Next steps

Christos Kontogeorgos

Jessica and Infrastructure Funds, EIB

8 December 2010

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WHAT IS JESSICA?WHAT IS JESSICA?

Joint European Support for Sustainable Investment in City Areas

Initiative of the European Commission (DG REGIO) launched beginning of 2006, supported by EIB & CEB, to establish a common approach for financing urban development and strengthening the urban dimension in cohesion policy through the “transformation of grants” in repayable/recyclable assistance

Applying “financial engineering” techniques to EU Structural Funds

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WHY JESSICA?WHY JESSICA?

To make Structural Fund support more efficient and effective by using tailor-made “non-grant” financial instruments, thus creating stronger incentives for successful project implementation

To mobilise additional financial resources for urban development projects and PPPs with a focus on sustainability/recyclability

To utilise financial and managerial expertise from international financial institutions, such as EIB

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The role of the EIB - Contributing to JessicaThe role of the EIB - Contributing to Jessica(NB: EIB is a not-for-profit making institution)(NB: EIB is a not-for-profit making institution)

Taking a leading role, alongside DG REGIO, in promoting and developing JESSICA in Member States

Providing complementary loan financing, where possible

Providing technical assistance and dissemination of best practice, based on established expertise in lending to urban regeneration projects across the EU

Operating the JESSICA Holding Fund on the basis of Regulations specifically providing for EIB involvement

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The role of EIB: Promoting JESSICA, delivering UDFsThe role of EIB: Promoting JESSICA, delivering UDFs

• Pre-implementation phase: technical assistance, Evaluation Studies• Implementation: Shaping UDFs together with the MA and according

to MA’s needs• JESSICA Holding Funds & Technical Assistance• Managing JESSICA Holding Funds: transitory vehicles accelerating

UDF creation• Selection of UDF, preparation of Operational Agreement with UDF• Helping to solve regulatory issues• Advice on integrated urban investment strategies• Tailored technical assistance in UDF development• Dissemination of best practice, based on established expertise in

lending to urban regeneration projects across the EU• Match-making with local or international investors• Potential for tailored EIB co-financing to UDFs/projects

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55 Evaluation Studies(national, regional, sectoral)

19 Memoranda of Understanding on cooperation in JESSICA implementation

15 JESSICA Holding Funds under EIB management

3 JESSICA operations directly with national/regional financial institutions

JESSICA OperationsJESSICA Operations

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HF Manager

European CommissionERDF – DG Regio

Managing Authority

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JESSICA IMPLEMENTATION MODELJESSICA IMPLEMENTATION MODEL

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WHAT IS A HOLDING FUND…WHAT IS A HOLDING FUND……AND WHAT ARE ITS ADVANTAGES?…AND WHAT ARE ITS ADVANTAGES?

A Holding Fund is a fund of funds (optional) set up to invest in several Urban Development Funds

Main advantages of using a Holding Fund:• fund projects ex-ante v. ex-post (Structural Funds)• accelerate project implementation of strategic nature• catering for absorption capacity issues (paid-in amounts

accounted for as “interim payments” under EU Reg/s)• exploiting expertise and experience in fund and/or

investment selection and management• additional leverage opportunity (EIB, banks, private sector)• reduction of administrative burden for MAs

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WHAT IS AN URBAN DEVELOPMENT FUND (UDF)?WHAT IS AN URBAN DEVELOPMENT FUND (UDF)?

Simply defined as “funds investing in public-private partnerships and other projects included in an integrated plan for sustainable urban development”

Art. 43 of Commission Regulation 1828/2006 is not specific on the legal form, although a UDF should be set-up as an independent legal entity or possibly a “separate block of finance within a financial institution”

There is a need for a tendering procedure and a “business plan”, specifying items such as target market, operational budget, ownership structure, exit and winding up provisions

Managing Authorities shall take precautions to minimize distortion of competition in the market (combine Jessica with private funds)

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UDF can be tailor-madeUDF can be tailor-made

ObjectiveArea-based regeneration fundsAsset improvement funds

• Social housing• Brownfield regeneration

Infrastructure funds Energy Efficiency Funds for citiesIntegrated urban energy fundsMulti-sector funds for cities

Geographic focusProject poleCity districtMunicipalityFunctional urban/metropolitan areaRegion

GovernancePublic – PublicPublic – Private (local)Public – Private (international)Private – Private (merchant bank for urban

development)

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SPECIFIC TYPES of UDFs SPECIFIC TYPES of UDFs (i)(i)

POTENTIAL UDF STRATEGY IMPLEMENTATION

General fund (general investments covered)

Geographical level (cities, islands, regions)

Thematical level (waste, energy efficiency, urban regeneration)

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SPECIFIC TYPES of UDFsSPECIFIC TYPES of UDFs (ii) (ii)

POTENTIAL UDF FUNDING PARTNERS

JESSICA funds ► loans, private investors at project level

JESSICA funds + EIB lending

JESSICA funds + bank lending

JESSICA funds + municipality/public/private investors

or

any other combination of the above, depending on estimated demand and strategic decision of MA on UDF structure

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SPECIFIC TYPES of UDFsSPECIFIC TYPES of UDFs (iii) (iii)

POTENTIAL TENDERING STRATEGY

The tendering procedure for selection of a UDF can focus on different categories…

UDF manager (banks, financial institutions, mixed cos etc) Projects to be financed (waste, energy efficiency, etc) Specific strategic project to be financed

orany other combination of the above, depending on demand, sustainability of projects and strategic urban planning of MA

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Implementation structureImplementation structure

Managing Authority of an Operational Programme

JESSICA HF (managed by EIB)

Urban Development Fund (UDF)

Contribution from OP(2010)

Urban projects

Investment into UDF(2011)

Loans & equity for projects(2011)

Resources repaid from projects to UDF

(2012/13 )

Key features of a UDFRevolving financial instrument for financing

sustainable urban development• OP contribution (core resources)• Possible leverage of other resources

(UDF-level or project-level)

Provides loans, guarantees, or equity to urban projects

Projects must meet objectives of the OP and be included in an integrated plan for sustainable urban development

UDFs can be selected by and organized through a Holding Fund

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Reserve account

Revolving – flows of funds (HF ↔ UDF ↔ Project)Revolving – flows of funds (HF ↔ UDF ↔ Project)

Possible UDF remuneration/reward structure2010-2015Fixed fee (% p.a. from amount transferred by HF into UDF)Performance incentive for early disbursement (% from amount transferred by HF into UDF)From 2016 onwardsContingent fee (% p.a. from amount repaid back to UDF)

Holding Fund

Investment account

Repayment account

UDF

Deposit account

Urban Projects

Mgt fees(a, b)

Contingent fee(c)

OPERATIONAL AGREEMENT

INVESTMENT AGREEMENT

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WHAT TYPES OF PROJECTS CAN BE FINANCED?WHAT TYPES OF PROJECTS CAN BE FINANCED?

Site remediation and preparation

Basic urban infrastructure (parking, street furniture, green)

Public networks (transport, water & wastewater, energy)

Urban e-government infrastructure (tech-parks, clusters)

Health/education (hospitals, rehabs, universities, R&D)

Tourism (hotels, leisure facilities)

Restoration of “signature/landmark” buildings

Cultural and multi-use recreational complexes

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What tWhat types of projects can be financed?ypes of projects can be financed?

Projects generating revenue• Enabling repayment of the loan,

guarantee or equity investment back to the UDF

• JESSICA financing (e.g. loan) can be also combined with grants

Projects included in an Integrated Urban Development Plan

Projects fulfilling requirements of the relevant OP

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JESSICA in Bulgaria State of Play JESSICA in Bulgaria State of Play

Until today Finalised an Evaluation Study for the capital and 6 major cities of Bulgaria

(Sofia, Bourgas, Pleven, Plovdiv, Rousse, Stara Zagora and Varna) Positive outcome ►Projects’ potential high! Still, a lot of work to be done at preparation level

Funding agreement signed on 29 July 2010 for the establishment of JHF in Bulgaria (EUR 33m), financed by the Operational Program “Regional Development”2007-2013

Next steps Identification of projects’ needs Preparation of Call for Expression of Interest

15 December 2010 1st Investment Board meeting – Defining and updating of Investment Strategy

Mar 2011 Launching of Call for EoI

Q3 2011 UDFs selection

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…….SELECTION OF UDF …..

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Call for EoI: Documents typically requiredCall for EoI: Documents typically required

1) Expression of Interest Expression of Interest – filled-in form Declaration• Registration details, authorized representatives, no

bankruptcy, no liquidation, information on penalties and pending proceedings, conflict of interest, tax and social obligations, relevant experience

Supporting documents

Exclusion criteria Selection criteria (mainly complete file and track record)

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2) Final proposal – The Offer Deed of undertaking Declaration (similar as with the EoI) Submission of Business Plan

Award criteria

Call for EoI: Documents typically requiredCall for EoI: Documents typically required

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ExampleExample of a p of a potential otential Call for EoICall for EoI

Specific characteristics of a Call for EoI Lot 1 – Metropolitan Area Lot 2 – Other urban areas outside Metropolitan Area Projects could be realized under different thematic priorities of

OP• 61 – Integrated project for regeneration of rural urban areas

(urban, post-military and post-industrial sites)• 78 – Housing infrastructure• 43 – Energy efficiency

The total amount disbursed for Lot 1 should be 40% and for Lot 2 the remaining 60% of the total funds allocated

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Example: required UDF business plan contentExample: required UDF business plan content

1. Investment strategy2. Financial forecasts and operational budget of the UDF3. Portfolio of potential Urban Projects4. Methodology for the identification and evaluation of Urban Projects5. The policy of the UDF concerning exit from Urban Projects6. Legal and ownership structure of the UDF7. The by-laws of the UDF 8. Governance structure and key experts9. Annual management fee 10. Co-financing 11. Winding-up provisions of the UDF

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…SOME EXAMPLES…

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UDF Financial Product

Managing Authority: Ministry of FinanceOP for Promotion of Cohesion 2007-13

Measure: Holding Fund for the modernization of multi-family houses Administering Authority of the measure: Ministry of Environment

ERDF + national match-funding: EUR 227 M

Repayments

PROJECTS:energy-efficiency actions in common parts of multi-family residential buildings

BENEFICIARIES:associations of apartment owners, owners acting under partnership agreement, administrators of shared parts of apartment houses

HF within EIB: 227 M

JESSICA HF Lithuania: Housing Energy Efficiency

UDF(Separate block of finance)

Lithuanian commercial banks

BUSINESS PLAN

INVESTMENT STRATEGY

UDF selection; JESSICAFinancing In some cases leveraged by

commercial co-financingfrom banks’ own resources

Repayments

Technical assistance in project preparation:

Housing and Urban Development Agency

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Esp. equity and subordinated debt

OP London, priority axis 3 (Sustainable places for business)ERDF £50m, London Development Agency £32 m,

London Waste and Recycling Board £18 mFocus on selected regeneration areas in East London

Repayments/Exits

URBAN PROJECTS(additional public and private co-

financing at project level)

HF managed by EIB: £100M

JESSICA HF London (London Green Fund): Decentralized Energy & Waste management / re-use

Waste UDF Decentralized Energy & Energy Efficiency UDF(s)

LoanGuaranteeEquity

URBAN PROJECTS (additional public and private co-

financing at project level)

Repayments/Exits

BUSINESS PLAN BUSINESS PLAN

Expected private sector co-investment

(pari passu)

The London Waste and Recycling Board is coordinating with / providing support to project promoters Brokering the preparation of a project pipeline for the Waste UDF

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Prospective Project in Wielkopolska, PolandProspective Project in Wielkopolska, PolandRegeneration of Old Gas-Works Regeneration of Old Gas-Works buildingsbuildings in Pozna in Poznańń

Conversion of a brownfield to a new cultural-commercial centre1) Galleries, theatre auditorium, concert hall, cinema/conference room, coffee shops, bookshop, multi-media library, office and technical background

Whole complex to be administered by one institution, headed by a team of curators and managers

2) Office spaces, commercial spaces, services and apartments Making the project financially feasible

Expected implementation: Special purpose company of the city and the brownfield’s private owners

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EIB JESSICA Holding Funds (Implementation Process EIB JESSICA Holding Funds (Implementation Process December 2010)December 2010)

Funding agreement signed

Implementation of the stage iminent

Signature expected in coming moths

Legenda

Managing Authority Volume (EUR m) HF FA 0 1 2 3 4 5 6

HF - Wielkopolska (PL) 67 II/09

HF - Andalucía (ES) 86 II/09

HF - Lithuania (LT) 227 II/09

HF - Portugal (PT) 130 III/09

HF - WestPomerania (PL) 33 III/09

HF - London (UK) 110 IV/09

HF - NorthWest England (UK) 110 IV/09

HF - Sicily (IT) 148 IV/09

HF - Moravia Silesia (CZ) 20 I/10

HF - Campania (IT) 100 I/10

HF - Scotland (UK) 55 II/10

HF - Greece (GR) 258 III/10

HF - Silesia (PL) 60 III/10

HF - Pomerania (PL) 57 III/10

HF - Bulgaria (BG) 33 III/10

HF - Energy Efficiency (ES) 150 IV/10

HF - Castilla La Mancha (ES) 50 IV/10

HF - West Midlands (UK) 80 IV/10

Total 1,774

of which already signed 1,494

Implementation progressEIB Holding Fund mandate

Key implementation stages:

0 Pre-negotiation Stage/ HF Agreement to be signed in 2010

1HF Agreement signed/ Investment strategy/ Investment board

2 Call(s) for Expression of Interest in preparation

3 Call(s) for Expression of Interest launched

4 Call(s) for Expression of Interest closed

5 UDF(s) selected

6 Operational agreements in place (HF/ UDF)

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JESSICA ActivitiesJESSICA ActivitiesHolding Fund Type of Intervention

1 Wielkopolska (PL) Urban Development and Regeneration2 Andalucía (SP) Urban regeneration / Energy Efficiency3 Western Pomerania

(PL)Urban Regeneration / Urban Infrastructure

4 Lithuania Energy Efficiency (Housing)5 Portugal Urban Regeneration (Several Ops)6 London (UK) Decentralized Energy, Waste Reutilization7 Northwest England

(UK)Urban Regeneration

8 Sicily (IT) Urban Development / Energy Efficiency9 Moravia Silesia

(CZ)Urban Regeneration (Brownfield revitalisation)

10 Campania (IT) Urban Regeneration (Medium-sized cities)11 Greece Urban Development / Urban Regeneration12 Bulgaria Urban Regeneration / Energy Efficiency13 Pomerania (PL) Urban Development / Energy14 Silesia (PL) Urban Development / Brownfield Development15 Scotland Urban Development, Urban Regeneration/ Energy Efficiency /

Renewables

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…NEXT STEPS…

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Next Steps for CitiesNext Steps for Cities……??

… in order to finance “their” projects

• Discuss the main aspects of the project with Managing Authorities (interactive process…)

• Prepare - mature the project (in cooperation with private investors) for … ensuring recyclability

• Present the project to candidate UDF (financial institutions, other schemes)

• Update or develop an Integrated Plan for Sustainable Urban Development

• Initiate immediately project preparation procedures

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Next Steps for Candidate UDF Managers ?Next Steps for Candidate UDF Managers ?

• Familiarize themselves with the Operational Program

• Create a project portfolio which will constitute a basic part of the business plan which will be submitted in the context of the tendering procedure

• Discuss with municipalities/cities their Integrated Plans for Sustainable Urban Development and the potential to incorporate revenue generating projects

• Initiate immediately project preparation procedures

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Next Steps for Project Owners ?Next Steps for Project Owners ?

• Familiarize themselves with the requirements of the OP

• Prepare properly the revenue generating projects− Feasibility study / project business plan

• Discuss with municipalities/cities the potential to incorporate their project into Integrated Plans for Sustainable Urban Development

• Discuss the main project aspects, mainly, with Managing Authority

• Initiate immediately project preparation procedures

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INGREDIENTS FOR SUCCESS…INGREDIENTS FOR SUCCESS…

A reference integrated urban development plan

Revenue generating capability (directly / indirectly)

Possibility to combine with grants

Commitment and clear benefits for all public stakeholders – Ministries, Regions, Cities

Transparent and efficient planning process

Contributions in kind – publicly owned land and buildings

Technical assistance for project preparation

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ContactContact

JESSICA and Infrastructure Funds Division

European Investment Bank

100 Blvd. Konrad Adenauer, L-2950 Luxembourg

www.eib.org/jessica