JESSICA Holding Fund in Bulgaria - Status, types and selection of UDFs – Next steps

1. JESSICA Holding Fund in Bulgaria - Status, types and selection of UDFs – Next steps Christos Kontogeorgos Jessica and Infrastructure Funds, EIB 8 December 2010

2. WHAT IS JESSICA? • JointEuropeanSupport forSustainableInvestmentinCityAreas • 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

3. 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

4. The role of the EIB - Contributing to Jessica(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

5. The 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

6. JESSICA Operations • 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

7. European Commission ERDF – DG Regio EU Level € Programming Authority National /or regional Level Managing Authority € € € € HF Manager Holding Fund (« HF ») Urban Development Funds National/regional /Local Level € € € € Projects Sustainable Urban Development Plan Regional /Local Level JESSICA IMPLEMENTATION MODEL

8. WHAT IS A HOLDING FUND……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

9. 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)

10. Objective Area-based regeneration funds Asset improvement funds Social housing Brownfield regeneration Infrastructure funds Energy Efficiency Funds for cities Integrated urban energy funds Multi-sector funds for cities Geographic focus Project pole City district Municipality Functional urban/metropolitan area Region UDF can be tailor-made Governance • Public – Public • Public – Private (local) • Public – Private (international) • Private – Private (merchant bank for urban development)

11. SPECIFIC TYPES of UDFs (i) • POTENTIAL UDF STRATEGY IMPLEMENTATION •  General fund (general investments covered) •  Geographical level (cities, islands, regions) •  Thematical level (waste, energy efficiency, urban regeneration)

12. SPECIFIC TYPES of UDFs (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

13. SPECIFIC TYPES of UDFs (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 • or • any other combination of the above, depending on demand, sustainability of projects and strategic urban planning of MA

14. Implementation structure Managing Authority of an Operational Programme • Key features of a UDF • Revolving 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 Contributionfrom OP (2010) JESSICA HF (managed by EIB) Investment into UDF (2011) Urban Development Fund (UDF) Loans & equity for projects (2011) Resources repaid from projects to UDF (2012/13  ) Urban projects

15. Revolving – flows of funds (HF ↔ UDF ↔ Project) • Possible UDF remuneration/reward structure • 2010-2015 Fixed fee (% p.a. from amount transferred by HF into UDF) Performance incentive for early disbursement (% from amount transferred by HF into UDF) • From 2016 onwards Contingent fee (% p.a. from amount repaid back to UDF) Deposit account Mgt fees(a, b) Investment account Urban Projects Holding Fund UDF INVESTMENT AGREEMENT OPERATIONAL AGREEMENT Repayment account Contingent fee(c) Reserve account

16. 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

17. 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 What types of projects can be financed?

18. 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

19. …….SELECTION OF UDF …..

20. Call 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)

21. Call for EoI: Documents typically required • 2) Final proposal – The Offer • Deed of undertaking • Declaration (similar as with the EoI) • Submission of Business Plan  Award criteria

22. Example of a potential Call 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

23. Example: required UDF business plan content • Investment strategy • Financial forecasts and operational budget of the UDF • Portfolio of potential Urban Projects • Methodology for the identification and evaluation of Urban Projects • The policy of the UDF concerning exit from Urban Projects • Legal and ownership structure of the UDF • The by-laws of the UDF • Governance structure and key experts • Annual management fee • Co-financing • Winding-up provisions of the UDF

24. …SOME EXAMPLES…

25. JESSICA HF Lithuania:Housing Energy Efficiency Managing Authority: Ministry of Finance OP 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 HF within EIB: 227 M INVESTMENT STRATEGY Lithuanian commercial banks UDF selection; JESSICAFinancing UDF (Separate block of finance) In some cases leveraged bycommercial co-financingfrom banks’ own resources BUSINESS PLAN Repayments Repayments UDF Financial Product 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 Technical assistance in project preparation:Housing and Urban Development Agency

26. JESSICA HF London (London Green Fund): Decentralized Energy & Waste management / re-use OP London, priority axis 3 (Sustainable places for business) ERDF £50m, London Development Agency £32 m,London Waste and Recycling Board £18 m Focus on selected regeneration areas in East London • 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 Expected private sector co-investment (pari passu) HF managed by EIB: £100M Decentralized Energy & Energy Efficiency UDF(s) Waste UDF BUSINESS PLAN BUSINESS PLAN Loan Guarantee Equity Esp. equity and subordinated debt Repayments/Exits Repayments/Exits URBAN PROJECTS (additional public and private co-financing at project level) URBAN PROJECTS (additional public and private co-financing at project level)

27. Prospective Project in Wielkopolska, PolandRegeneration of Old Gas-Works buildings in Poznań Conversion of a brownfield to a new cultural-commercial centre 1) 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

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

29. JESSICA Activities

30. …NEXT STEPS…

31. Next 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

32. 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

33. 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

34. 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

35. Contact JESSICA and Infrastructure Funds Division European Investment Bank 100 Blvd. Konrad Adenauer, L-2950 Luxembourg www.eib.org/jessica