Urban Development Funds ­
Lessons learned from the EIB experience
Workshop “Development of the Cities – JESSICA Initiative”
Gianni Carbonaro
JESSICA and Investment Funds, European Investment Bank Warsaw, 20 June 2011
European Investment Bank
European Investment Bank
JESSICA Mission and EIB Role
JESSICA: Joint European Support for Sustainable Investment in City Areas
An initiative of the European Commission developed jointly with the EIB, in co‐operation with the CEB
Mission: to promote the use of financial engineering instruments in the field of urban regeneration and development. EIB role in implementing JESSICA: • Support the establishment of a system of EU Urban Development Funds (UDFs);
• Utilizing resources of EU Structural Funds (esp. ERDF) through financial engineering;
• Technical assistance, feasibility studies;
• Management of JESSICA Holding Funds;
• Managing contributions from Operational Programmes (OPs) on behalf of MAs;
• Arranging selection of / establishment / investments into UDFs, which subsequently invest in Urban Projects eligible under the OPs.
European Investment Bank
European Investment Bank
22
Developing JESSICA Instruments ­ Strategic Objectives
1. To work in close cooperation with national and regional authorities and provide specific support to urban areas through the allocation of Structural Funds, as well as adequate financial resources and appropriate managerial structures.
2. To help urban authorities in attracting private sector investment and additional resources at competitive terms in favour of sustainable urban transformation by creating preconditions for effective investment (integrated urban plans, local economic analysis, project impact assessment, risk‐return assessment methodologies and tools, etc.).
3. To enhance the efficiency and productivity of capital deployed in urban areas through the creation of a system of Urban Development Funds (“UDFs”) as well as by improving the processes of performance evaluation, rating and monitoring of urban change and investment.
European Investment Bank
European Investment Bank
33
JESSICA funds in place (March 2011)
19 JESSICA Operations ‐ EUR 1.6 billion committed
HF
EIB
Wielkopolska (PL)
Andalucía (ES)
Lithuania
Portugal
Western Pomerania (PL) London (UK)
Northwest England (UK)
Sicily (IT)
Moravia Silesia (CZ)
Campania (IT)
Scotland (UK)
Greece
Silesia (PL)
Pomerania (PL)
Bulgaria
UDF
Other institutions
Estonia
(KredEx – loan and export guarantee fund)
Brandenburg (DE)
(ILB – promotional bank) East Midlands (UK) (King Sturge Financial Services)
Wales (UK)
(Amber Infrastructure and Lambert Smith Hampton)
Operational Agreements under HFs :
Estonia (Swedbank, SEB)
Lithuania
(Swedbank, 2 x Šiaulių bankas, SEB)
Wielkopolska (PL)
(Bank Gospodarstwa Krajowego)
Westpomerania (PL)
(Bank Ochrony Srodowiska, Bank Zachodni
WBK)
Andalucia (ES) (BBVA)
London (UK) (Foresight)
European Investment Bank
European Investment Bank
44
EIB JESSICA Implementation Progress
• 15 Holding Funds (HFs)
• Covering 43 NUTS 2 regions
• 2009 : 8 EIB HFs; EUR 911m committed
• 2010 : 15 EIB HFs; EUR 1.5bn committed
• Around 1/3 directed towards sustainable energy investments
• 2011 : Further mandates expected over coming months
• Urban Development Funds (UDFs)
• 9 UDF lots signed : Wielkopolska‐PL (1), Westpomerania‐PL (2), Lithuania (4), Andalucia‐ES (1), London‐UK (1)
• 7 further UDF selections completed : Andalucía‐ES (1), London‐UK (1), Northwest England‐UK (2), Portugal (3)
= 16 UDFs underway (Operational Agreements signed or under negotiation)
• further UDF selections currently underway : Scotland‐UK (1), Sicily‐IT (1), Pomerania‐PL, Silesia‐PL, Greece, Bulgaria
• First project investments made
European Investment Bank
European Investment Bank
55
EIB JESSICA Holding Funds (2009 ­ 2010)
EIB Holding Fund mandate
Implementation progress
Managing Authority
Volume
(EUR m)
HF FA
HF - Wielkopolska (PL)
79
II/09
HF - Andalucía (ES)
86
II/09
HF - Lithuania (LT)
227
II/09
0
1
2
3
4
5
6
Key implementation stages:
HF - Portugal (PT)
130
III/09
HF - WestPomerania (PL)
38
III/09
HF - London (UK)
115
IV/09
HF - NorthWest England (UK)
116
IV/09
HF - Sicily (IT)
HF - Moravia Silesia (CZ)
148
21
0
Pre‐negotiation Stage/ HF Agreement to be signed
1
HF 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)
IV/09
I/10
HF - Campania (IT)
100
I/10
HF - Scotland (UK)
57
II/10
HF - Greece (GR)
258
III/10
HF - Silesia (PL)
63
III/10
HF - Pomerania (PL)
60
III/10
HF - Bulgaria (BG)
33
III/10
Stage Achieved
Total signed 2010
Implementation of the stage imminent
1530
European Investment Bank
European Investment Bank
66
EIB JESSICA Holding Funds (2011)
EIB Holding Fund mandate
Managing Authority
HF - Energy Efficiency (ES) *
Implementation progress
Volume
(EUR m)
HF FA
128
II/11
15
II/11
HF - Sardegna (IT)
70
II/11
HF - Masovia (PL)
40
II/11
HF - Abruzzo (IT)
25
III/11
15
Total expected 2011
293
Total 2010 + 2011
1823
1
2
3
4
5
6
Key implementation stages:
HF - Galicia (ES)
HF - West Netherlands
0
0
Pre‐negotiation Stage/ HF Agreement to be signed
1
HF 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)
III/11
Stage Achieved
Implementation of the stage imminent
HFs volume expected to be signed, data and FX rates as of 31/05/2011
European Investment Bank
European Investment Bank
77
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”) 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.
European Investment Bank
European Investment Bank
88
Types of JESSICA UDFs (1)
• Urban regeneration funds (mainly area‐based)
• “Place making” locations / incubators / creative class attractors
• Brownfield locations, mostly in inner city areas
• Deprived city districts, urban sprawl voids
• Energy‐focused funds (regional or city‐based)
• EE / RE and energy / emission audit /certification systems
• Climate action strategies (EU 20/20/20 targets in urban areas)
• Regional upgrade of green technology and transmission systems
European Investment Bank
European Investment Bank
99
Types of JESSICA UDFs (2)
Volume
(EUR m)
Investment focus / Main area of activity
HF - Wielkopolska (PL)
79
Revitalisation of problem areas / Business enhancement institutions in urban
areas / Housing improvement
HF - Andalucía (ES)
86
Urban regeneration (tourism, culture / sports, housing)
HF - Lithuania (LT)
227
Energy efficiency in housing
HF - Portugal (PT)
130
Urban regeneration and energy efficiency
HF - WestPomerania (PL)
38
Urban regeneration / Urban infrastructure / Revitalisation of Szczecin
HF - London (UK)
115
Waste / Energy efficiency in urban infrastructure
HF - NorthWest England (UK)
116
Urban regeneration
HF - Sicily (IT)
148
Area-based development and energy efficiency
HF - Moravia Silesia (CZ)
21
Brownfield revitalisation
HF - Campania (IT)
100
Urban regeneration
HF - Scotland (UK)
57
Urban regneration, workspace creation, energy efficiency
HF - Greece (GR)
258
Urban regeneration, solid waste manageent
HF - Silesia (PL)
63
Brownfield and city regeneration
HF - Pomerania (PL)
60
Brownfield and city regeneration, public transport, energy infrastructure,
energy efficiency
HF - Bulgaria (BG)
33
Urban regeneration and energy
Managing Authority
European Investment Bank
European Investment Bank
10
10
10
LITHUANIA:
JESSICA scheme
Ministries of Finance and Environment
contribution of EUR 227m from Operational Programme:
« Promotion of Cohesion 2007-2013 »
JESSICA Holding Fund managed by
Investment Committee
EIB
Contingent
loans
Urban Development Fund
Lithuanian banks:
Modernisation Loans
Repayments
PROJECTS:
BORROWERS:
Eligible energy efficiency projects in
multi-apartment buildings
Individual owners of apartments in multiapartment buildings / administrators of
commonly used premises of multi-apartment
buildings
Housing and
Urban
Development
Agency
Technical
assistance
European Investment Bank
European Investment Bank
11
11
11
Role of Housing and Urban Development Agency (“HUDA”) in Lithuania
ƒ Since 2005 HUDA has been administering the modernization programme for multi‐apartment buildings in Lithuania by:
− Providing state support (100% grant for preparation of projects*) for homeowners implementing multi‐apartment renovation projects
− Evaluation of renovation project investment plans − Evaluation of implemented renovation projects
− Running public information campaigns
− Organising related training and education in the areas of management, accounting, housing administration and planning *Until 31/12/2013 after which the grant will be 50%
European Investment Bank
European Investment Bank
12
12
12
Key parameters of a JESSICA loan in Lithuania
for energy efficiency renovation of a multi‐apartment block building
State support elements
→
100% grant* for preparation of renovation
documentation (national budget)
→
15% loan rebate where a minimum energy efficiency level
is achieved (class “D” level)
Additional 15% grant when at least 40% of energy savings
is reached compared to initial energy consumption
→
Exceptional 100% subsidy on loan repayments for low‐
income persons
Maturity
→
up to 20 years
Interest rate →
fixed for entire loan period at 3% p.a. Re‐financing
→
allowed
Self‐financing
→
bank may require a down payment (not more than 5%) Maximum monthly
instalment
→
determined for each multi‐apartment building Insurance
→
no loan insurance requirements
Guarantees
→
no third party guarantee requirements
European Investment Bank
European Investment Bank
13
13
13
JESSICA in Lithuania
ƒ Multi‐apartment renovation projects support national and European objectives related to improving energy efficiency as well as security of energy supply objectives
ƒ National plans to refurbish 24,000 apartment block buildings by 2020
− JESSICA target: 1000 renovation buildings by 2015
ƒ Estimated cost to renovate one apartment block (60 apartments, each approx 50 m2) ‐ EUR 290,000
ƒ After the modernization, one block is expected to have energy savings in the range of 40‐50% ƒ To date, circa 100 projects have been approved for funding by HUDA. ƒ Future plans: renovation projects to be undertaken in student dormitories (classified as housing in Lithuania)
European Investment Bank
European Investment Bank
14
14
14
UK: London Waste UDF
• London Urban Development Plan
• Climate change
• Waste
• communities take more responsibility for their own waste • … [build] waste management facilities
→ increase re‐use and recycling and composting of waste, and reduce landfill disposal
→ minimise the amount of energy used, and transport impacts from, the collection, treatment and disposal of waste
→ promote generation of renewable energy and renewable hydrogen from waste
Vision for waste management
“London’s municipal
recycling rate is the
lowest of all English
regions”
£2 billion funding gap
European Investment Bank
European Investment Bank
“London is a world
leader in municipal
waste management”
15
15
15
Structure: selected bid
Structure: Selected bid
Pension Funds
Pension Funds
Pension Funds
Pension funds
Holding Fund
(EIB)
Foresight Environmental
Fund LP (UDF)
Investee
company 1
Project 1
Investee
company 2
Project 2
European Investment Bank
European Investment Bank
Foresight
(Manager)
5 -10 companies
10-20 projects
16
16
16
Governance of the UDF
Advisory committee
Consulted on any change to investment strategy or key staff, conflicts
EIB
LWaRB
Pension funds
Investment committee
Responsible for all investment decisions
5 key Foresight investment staff
European Investment Bank
European Investment Bank
Independent
member
17
17
17
Project selection criteria
Diversity
Create a portfolio of 10-20 Urban Projects
Inputs
Focus on four main waste streams
Outputs
Balance between energy and material outputs
Heat
Maximise heat value
Technology
Blend of proven advanced technologies
Structure
Provide equity and shareholder loans to companies that build,
own and operate Urban Projects
Location
Greater London, with priority for areas of opportunity and
regeneration
Partnering
Co-operate with established businesses
Sustainability
Resilience to foreseeable evolution of the environmental agenda
Timing
Fully deployed by December 2015
European Investment Bank
European Investment Bank
18
18
18
Investment pipeline
• 16 Projects
• £200 million total spend
• £70 million from UDF
European Investment Bank
European Investment Bank
19
19
19
UDFs in Urban Management
Urban management in EU will be increasingly difficult, however conditions for sustainable development can be created in local urban poles.
•
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, restructuring and optimization at the urban level with a focus on sustainability
•
Cities need clear objectives, strategic planning, quality governance, technical data and systems to tackle market distortions/ long‐term risks ‐ managed through strategic
impact investors.
JESSICA Urban Development Funds as strategic impact investors:
• Policy‐driven financial instruments
•
•
•
•
Enabling to address local implications of global problems Through geographically‐focused integrated strategies for urban investment
Reconciling a bottom‐up approach with a global vision
A strategy cannot be implemented without a financial instrument ‐ but a financial instrument is meaningless without an adequate and focused strategy for value creation in cities.
European Investment Bank
European Investment Bank
20
20
20
The Future of JESSICA UDFs
Main goal: Investment strategies focus on delivering sustainable growth,
creating jobs and promoting innovation
• JESSICA future UDF types:
• Urban infrastructure transformation funds (for city systems)
•
•
•
•
Investments in functional urban areas
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 • UDFs focused on sector investments (national funds):
• Levarage and scalability – synergies to be captured among strategic players (national, regional and local)
• Energy efficiency/ renewable energies/ transportation • Broadband and ICT funds
European Investment Bank
European Investment Bank
21
21
21
The Future of JESSICA as a…
… EC‐sponsored technical assistance initiative • Technical assistance to facilitate employing SF resources in 2007‐2013 as FEI for urban development
• Useful role so far, to be seen whether any similar initiative will be maintained for 2014‐2020
• an enhanced integration between ERDF and ESF possible
… EU financial engineering instrument for urban development
• Importance of urban agenda and financial engineering instruments likely to remain in next period
• However, will need to take into account context of financial perspectives and role of Cohesion policy • New regulatory framework under discussion – FEI to support EU urban agenda will have to fit with Cohesion policy instruments European Investment Bank
European Investment Bank
22
22
22
The Future of JESSICA as a…
… part of a wider picture
• New asset class requiring specific investment skills, organisational structures, metrics and benchmarks
• Wider set of players likely to be involved, e.g. institutional investors • So: a new segment taking shape in the European urban investment market
• Ultimately this may become the most important JESSICA legacy
… component of EIB operations
• Current and forthcoming mandates to remain until 2015 and some beyond that date
• Increasing integration with EIB products and services is likely
• Technical assistance / institutional building content also likely to increase
European Investment Bank
European Investment Bank
23
23
23
Contact JESSICA and Investment Funds
European Investment Bank
98‐100 Bvd Konrad Adenauer, L‐2950 Luxembourg
www.eib.org/jessica
Gianni Carbonaro, Economic Adviser, [email protected]
European Investment Bank
European Investment Bank
24
24
24