jessica stara zagora

1. The Role of the JESSICA Holding Fund
in Bulgaria
Implementation of the JESSICA Initiative in Bulgaria
JESSICA and Investment Funds
European Investment Bank
Stara Zagora, 7 April 2011
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2. What is JESSICA?
JESSICA: Joint European Support for Sustainable Investment in City Areas
MISSION: To assist European cities in defining long-term, sustainable
and viable patterns of development through investment activity
financed with the utilization of “revolving” financial instruments.
 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
 More efficient and effective utilisation of Structural Funds through tailor made
“non-grant financial instruments” and mobilising additional financial resources
 Financial and managerial expert support of international financial institutions
(EIB, CEB)
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3. JESSICA implementation model
European Commission
Level
EU
National /or ERDF – DG Regio
€
regional
Managing Authority
Level
Holding Fund (« HF ») HF
Manager
€ € €
Regional /Local National/regional
€
/Local Level
Urban Development
Funds
€ € € €
Projects
Level
Sustainable Urban
Development Plan
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4. UDFs as "impact funds" for urban transformation
The terms “impact funds” or “impact investors” refer to investors and investment
vehicles that have an interest, in addition to achieving remuneration to their
investment, in achieving measurable “impacts” (in our definition “sustainable ERR
target”) on policy-defined, non-financial objectives, constituting a key dimension
in the investment vehicle performance assessment.
Urban Development Fund (UDF) as an urban impact fund:
 a specific policy tool within the wider financial engineering concept in the
programming period 2007-2013
 to promote, by employing Structural Funds in close cooperation with
DG-REGIO, the development of a system of financial engineering
instruments (so-called Urban Development Funds) for urban development
 policy-driven, geographically-focused and planning-led investment
vehicle supporting the sustainable transformation processes of city areas
 impact investing to be seen as a new asset class requiring specific
investment skills, organisational structures, metrics and benchmarks.
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5. Which types of UDFs?
 Urban regeneration funds  Energy-focused funds
(mainly area-based) (regional or city-based)
 “Place making” locations / incubators /  EE / RE and energy / emission audit
creative class attractors /certification systems
 Brownfield locations, mostly in inner  Climate action strategies (EU 20/20/20
city areas targets in urban areas)
 Deprived city districts, urban sprawl  Regional upgrade of green technology and
voids transmission systems
 City infrastructure
transformation funds
(for city systems)
 Addressing infra / urban imbalances
from changes in city hierarchy
 Focusing on the provision of capital in
less competitive areas
 Focusing on transformation of
strategic urban infrastructure
 IT broadband, waste to energy, water,
electric public transport, etc.
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6. State of play of existing JESSICA mandates
EIB Holding Fund mandate Implementation progress
Volume (EUR
Managing Authority HF FA 0 1 2 3 4 5 6
m)
HF - Wielkopolska (PL) 67 II/09
HF - Andalucía (ES) 86 II/09
HF - Lithuania (LT) 227 II/09
HF - Portugal (PT) 130 III/09
Key implementation stages:
HF - WestPomerania (PL) 33 III/09
HF - London (UK) 110 IV/09
Pre-negotiation Stage/ HF
0
Agreement to be signed in 2010
HF - NorthWest England (UK) 110 IV/09
HF Agreement signed/ Investment
HF - Sicily (IT) 148 IV/09 1 strategy/ Investment board
HF - Moravia Silesia (CZ) 20 I/10
Call(s) for Expression of Interest
2
HF - Campania (IT) 100 I/10 in preparation
HF - Scotland (UK) 55 II/10 Call(s) for Expression of Interest
3
launched
HF - Greece (GR) 258 III/10
Call(s) for Expression of Interest
HF - Silesia (PL) 60 III/10 4
closed
HF - Pomerania (PL) 57 III/10
5 UDF(s) selected
HF - Bulgaria (BG) 33 III/10
Operational agreements in place
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Total signed 2010 1,494 (HF/ UDF)
HF - Energy Efficiency (ES) 142 II/11
HF - Galicia (ES) 15 II/11
HF - Sardenia (IT) 60 II/11
HF - Masovia (PL) 40 II/11
Stage Achieved
HF - Abruzzo (IT) 25 III/11
Legend Implementation of the stage imminent
HF - Czech National Fund (CZ) 40 III/11
Signature expected in coming months
HF - Hungary (HU) 50 III/11
HF - Slovakia (SK) 20 III/11
HF - North East (CZ) 20 IV/11
Total expected 2011 412
Total 2010 + 2011 1,906
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7. State of play of existing JESSICA mandates
 62 Evaluation Studies (national, regional, sectoral)
 18 Memoranda of Understanding on cooperation in JESSICA implementation
 By the end of 2010, EUR 1.65 billion of Structural Funds has already been legally
committed to 19 JESSICA HF / UDF vehicles in 11 Member States (and nearly
50 NUTs-2 regions):
 15 Holding Fund agreements signed by EIB (EUR 1.49bn)
 1 Holding Fund set up with a national financial institution (Estonia)
 3 Urban Development Funds established without Holding Fund (Brandenburg/DE,
East Midlands/UK and Wales/UK)
 7 fund structures out of 19 have an energy component, committed to invest
amounts of up to EUR 784m in energy efficiency and renewable energy
infrastructure
 UDF selection and disbursements to final recipients take place in all JESSICA
countries
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8. Global challenges in urban transformation
1. EU & globalization => “single market for cities” (1200 – 2000 functional urban
areas compete for scarce resources: Human capital, Economic activity,
Budgetary transfers, etc.)
2. MS and regions face difficult challenges in ensuring the transformation of the
urban systems due to both market and institutional factors
3. New modes of interaction with the private sector to achieve public goals
4. National budget discipline ( pressure on sovereign and municipal debt levels;
limits on transfers from national to local level; lower expenditure capacity of cities
for investment without taking on additional debt
5. De-leveraging of banking activity (financial markets offer less co-financing for
investment activity)
6. Highly volatile real estate economic cycle (from overinvestment & over-aluation
to under-investment and under valuation )
7. Impact on viability of private investments (PPPs) in urban infrastructure and
urban development
8. Reduced collateral value of land and buildings in non-core areas
9. Institutional investors reshuffling their sovereign and sub-sovereign portfolios
10. End of baby-boomers’ era => from asset accumulation to management of existing
property and infrastructure
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9. The Central EU demographic scenario
Births & Deaths in Bulgaria
Livebirths in Germany and
Central-Eastern Europe, 1970-2007 140,000
1100000 120,000
1980 DE 100,000
1000000
PL + Baltics
1989 80,000
CZ + SK + HU Births
Deaths
RO + BG 60,000
900000
40,000
2005 20,000
800000
0
1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035
700000
-21% Population in Bulgaria
9,000,000
600000
8,000,000
7,000,000
500000 -47% 6,000,000
5,000,000
4,000,000
400000
3,000,000
2,000,000
300000 -45% 1,000,000
0
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
200000
-36% According to Eurostat, Bulgaria is expected to illustrate the sharpest
70
73
76
79
82
85
88
91
94
97
00
03
06
decline among EU Member States between 2008-2060:
19
19
19
19
19
19
19
19
19
19
20
20
20
2008-2035: -14.5% 2008-2060: -28.2%
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10. Functional urban areas and metropolitan areas
Integrated urban investment strategy
for highly dense functional areas
Holistic Approach Urban wealth
(Natural, Fixed, Human, Economic)
Jobs & economic activity
Financials / Fiscal Population density in Bulgaria
Sustainability
Capital & enterprise transfers
Human capital ageing / migration
Asset value creation processes
… focus on the functional urban
area (Urban Labour Market
Areas, ULMAs) and the role of
European Metropolitan areas over
the next 20 years
Development of Sofia area, Bulgaria
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11. Ageing impacts on city infrastructure functionality and public
finance
Retirement Dependency Ratio
(65%+ / 15-64)
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12. Raising “financial resources” for cities
What drove growth in 1970-2010?
What will happen to these (largely financial) drivers in 2010-2030?
City Operating cash flows,
Geography matters:
Technological progress,
Banking leverage Foreign Direct Investment
 Transform your city areas into growth
Efficiency/Reprocessing poles
2030 (?)  Focus on latent capital
2010  Keep your cities “slow”/ “low cost”
(maintenance, obsolescence)
 Think new ways to finance inner city
areas, housing stock refurbishment
Public debt
1970
Pension rights  Attraction from external sources is
crucial (investment, capital…)
 For all this, combine various sources
2010 of leverage
2030 (?) – Regions: SF
Increasing value of – Cities: land & buildings
land rent and
Inflation – Banks: financial resources
buildings
– Private: additional resources
Urban sprawl
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13. Global challenges: Conclusions
A macroeconomic conclusion for urban policy:
• For 30 years, (urban) expansion took place naturally, because of market
forces and demographic (baby boom) factors
• Cities initially built on revenue generation, later expanded via debt/consumption
• In the next 30 years (ageing process), the process of urban
transformation must be guided in a completely different way as
compared to the past
• What will additional debt be used for? Not for debt-addict structures
• The core element is to have efficient, productive, attractive and livable
cities characterized by low maintenance/management costs and low
“break-even point” on fixed assets
• Competitive cities in a shrinking/restructuring environment
• Can be achieved by rationalization, reprocessing, restructuring and
optimization at the urban level with a focus on sustainability
Cities need clear objectives, strategic planning, a roadmap,
governance, technical data and systems to tackle market distortions/
long-term risks - managed through strategic impact investors.
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14. Implementation of the JESSICA Initiative
in Bulgaria

15. Current status of JESSICA in Bulgaria
 Completed pre-implementation phase
 Funding Agreement between the EIB and the Government of the
Republic of Bulgaria signed on 29 July 2010
 JESSICA Holding Fund for Bulgaria organised as a separate block of
finance within EIB established
 UDFs selection procedure launched (call for the EoI)
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16. The role of the EIB at the current stage in Bulgaria
 Operating the JESSICA Holding Fund for Bulgaria on the basis
of Regulations specifically providing for EIB involvement and in
line with the Funding Agreement:
 Launching and managing of one or more calls for EoI to identify
and select one or more UDFs for submission for approval to the
Investment Board
 Negotiating of the Operational Agreements with UDFs
 Monitoring and controlling of the UDFs operations in accordance
with the terms and conditions of the applicable Operational
Agreement
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17. Flow of funds within JESSICA in Bulgaria
Directorate General “Programming of Regional
Development” in the Ministry of Regional Development
and Public Works
Contribution from OP
(2010)
JESSICA HF for Bulgaria (managed by the EIB)
Investment into UDF
(2011)
EUR ca. 31.3 m
Urban Development Funds (UDFs) selected through the Call for EoI
Loans, equity or guarantees Resources repaid from
for projects projects to UDF
(2011-2015) (2015  )
Urban projects conform to the criteria of the Investment Strategy and are
compliant with eligibility and state aid rules
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18. Call for EoI – Structural Elements (1/2)
 2 Lots
Amount to be invested - EUR ca. 31.3 m - divided into two lots:
 Lot 1: EUR ca.12.5 m earmarked for investments in Urban Projects in Sofia
 Lot 2: EUR 18.8 m earmarked for investments in Urban Projects in the six
major cities of Bulgaria (Plovdiv, Stara Zagora, Burgas, Varna, Ruse and
Pleven)
 Structure of the Call for EoI
 Annex 1 – General Information about the Applicant
 Annex 2 – Declarations to be made by the Applicant
 Entry in trade register, representative, representations on not being subject to insolvency
proceedings, conflict of interest as well as on compliance with public law obligations (tax, social
security)
 Statement of relevant experience (execution of different types of Urban Projects and different roles
held by the applicant in the project)
 Supporting documents
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19. Call for EoI – Structural Elements (2/2)
 Annex 3 – Terms of Reference
 Background of JESSICA and its operational characteristics
 Amount allocated to the Call for EoI
 Selection procedure and criteria (exclusion and selection criteria)
 Business Plan template
 Characteristics of potential Urban Projects
 Financial model
 Conditions for the financial products
 Management fee
 Award criteria (Appendix A)
 Selected Terms of the Operational Agreement (Appendix B)
 Instructions on Financial Forecasts and Operational Budget of the UDFs, incl. financial statements
template (Appendix C)
 Instruction on Economic Analysis of Urban Projects (Appendix D)
 Definitions and Abbreviations (Appendix E)
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20. EoIs Evaluation Principles
 Exclusion criteria
 Being in bankruptcy or analogous situation
 Proof of professional misconduct
 Non-fulfilment of social security and tax payment obligations
 Criminal conviction
 Proof of misrepresentation
 Selection criteria
 Proper submission of the relevant documentation and supporting material,
according to the specifications of the Call for EoI
 Possession of adequate experience
 Completion of declarations (Annex 2) to the satisfaction of EIB
 Minimum co-financing
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21. Detailed Business Plan
1. Investment Policy
2. Financial forecasts and operational budget of the UDF
3. Portfolio of potential Urban Projects
4. Methodology for the identification and evaluation of Urban Projects
5. The policy of the UDF concerning exit from Urban Projects
6. Legal and ownership structure of the UDF
7. The by-laws of the UDF
8. Governance structure and key experts
9. Annual management fee
10. Interest rate on Available Funds
11. Co-financing – leverage
12. Winding-up provisions of the UDF
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22. Offers Evaluation Principles – Award Criteria
Maximum
Criterion
scoring
Investment Policy 0-15
Financial forecasts and operational budget of the UDF 0-10
Projects portfolio 0-10
Methodology for the identification and evaluation of urban projects 0-10
Governance structure 0-20
Key experts 0-5
Annual management fee 0-10
Interest rate 0-5
Co-financing leverage 0-15
Total Score 0-100
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23. Call for EoI indicative timetable
EIB
UDF
Call for expressions of interest
candidates
April 2011
Evaluation of the offers:
Offers
-exclusion criteria
(incl. business plan) -selection criteria
May 2011 -award criteria
May / June 2011
Presentation of the successful
bidders to the IB
Signature of the
Operational
UDF selection – June 2011 Agreement
July 2011
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24. Next steps
 For cities
 Discuss the main aspects of the project with Managing Authority (interactive process…)
 Prepare / elaborate the project (in cooperation with private investors) in order to ensure recyclability
 Ensure that these projects constitute a part of an Integrated Plan for Sustainable Urban
Development. According to the Funding Agreement, each JESSICA project shall be in compliance
with the relevant Urban Master plans/detailed spatial plans and the Municipal Development Plans,
which are considered as Integrated Urban Development Plans according to Article 43, 1(b) of
Regulation 1828/2006
 Initiate immediately project preparation procedures
 For candidate UDFs
 Familiarize themselves with the Operational Programme
 Create a project portfolio which will constitute a basic part of the business plan which will 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
 For project promoters
 Familiarize themselves with the requirements of the OP
 Prepare properly the revenue generating projects
- Feasibility study / project business plan
 Discuss with municipalities/cities the potential to incorporate their project into Integrated Plans for
Sustainable Urban Development
 Initiate immediately project preparation procedures
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25. Thank you for your attention
JESSICA and Investment Funds
European Investment Bank
100 Bvd Konrad Adenauer, L-2950 Luxembourg
www.eib.org/jessica
Gianni Carbonaro, Economic Advisor, g.carbonaro@eib.org
Elias Papageorgiou, Holding Fund Officer, papage@eib.org
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