Marek Szczepański

Wielkopolska UDFDirector of European Programmes Department in BGK

5th meeting of JESSICA Networking PlatformBrussels, 31 March 2011

JESSICA implementationin Wielkopolska – first experiences

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Bank Gospodarstwa Krajowego (BGK)

• State-owned bank – the one and only in Poland, the largest in Central and Eastern Europe

• Established in 1924

• Supervised by the Ministry of Finance

• Mission including supporting programmes for local and regional development

• Leader in local governmentsfinancing

• Key clients: central administration and self-governments

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• Goals:

– the revitalization of disadvantaged areas in cities

– strenghtening of the regional innovation system by reinforcing the potential of the institutions that supportbusiness environment

• Available amount: approx. € 73.1 m (PLN 290 m)

– 60% (€ 43.9 m) for large cities (over 50 thous. inhabitants)

– 40% (€ 29.2 m) for smaller cities

– € 10 m for urban projects strenghtening institutions thatsupport the business environment

JESSICA in Wielkopolska – goals and resources

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Wielkopolska Urban Development Fund (1)

• Signing of the Operational Agreement: 29th September 2010

• UDF functions as a separate block of finance within BGK

• Currently available financial product: preferential loans

• Loan maturity: maximum 20 years

• Grace period: maximum 4 years (for capital)

• Loan interest rate: set on the basis of the reference rate of the National Bank of Poland (currently 3.75%), possiblyreduced by „Revitalization Index”

• No fees or commissions from Investors required

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Wielkopolska Urban Development Fund (2)

• Share of loans in investment costs: maximum 75%of the total eligible investment cost (on the basis of regional investment aid rules)

• Potential Investors: local governments, municipal companies, private investors, public-private partnerships, NGOs and others (entities conducting business activity)

• Number of projects to be financed: about 20 (according to the Wielkopolska ROP)

• Call for applications – 29th October 2010

• First applications submitted – late December 2010

• First Investment Committee meeting – 22nd February 2011

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Investment Committee

• Investment Committee:

– 4 representatives of the UDF includingthe Chairperson with a casting vote and

– a representative of the Association of Polish Cities (countrywide self-government union of municipalities)

• Representatives of the Managing Authority andthe European Investment Bank as observers(without voting rights)

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Revitalization Index

Possible reduction of the loan interest rate

• On the basis of the Revitalization Index (maximum – 2 percentage points)

• Revitalization Index is estimated on the basis of superiority of economic elements over the commercial nature of the project

• Non-measurable / non-financial, descriptively presented future benefits (influence on the social sphere, on the economic sphere and on the sphere of natural environment and spatial planning) are also being taken into consideration

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• Three-level shopping mall with about 120 retail and service premises (total area about 28 000 m2)

• The investment situated in the post-industrial facilities areain the city centre (near the old town market)

• Total investment value approx.: PLN 219 m• Loan: approx. PLN 50 m• Social elements: improving the image of the old town, bike

path, parking, the place for a city library and tourist informationin the old tenement house to be bought by the Investor

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Urban projects to be financed (1)

JESSICA loan Own resources Commercial credit Total

PLN thous. 50 000 61 666 66 533 178 199

% 28% 35% 37% 100%

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Urban projects to be financed (2)

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Urban projects to be financed (3)

• Creation of a modern office building for rent by general overhaul and modernization of post-industrial property

• Creation of a park (on adjacent public land), construction or modernisation of access roads and pedestrian crossings

• Creation and maintaining of a visual monitoring system• Creation of professionally equipped lecture room, free

lectures and trainings for the local population• Creation of permanent and temporary workplaces• Loan: PLN 22.5 m• Total investment value: PLN 30 m

• Institution supporting business environment – the three-stage investment including renovation of historic buildings

• Each building will include a separate technological part and typical offices

• Need for loan approx.: PLN 18,5 m• Total investment value approx.: PLN 30,3 m• Public Investor• Social elements: business incubator

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First observations (1)

• High interest of investors (both private and public) but considerable project development usually required before loan can be agreed

• Diverse scope of planned projects: bowling centre, shopping mall, business incubator, office spaces, hostel,hotel, underground car parks, municipal market place…

• Diverse size of projects: from PLN 1 million (€ 252 000)to nearly PLN 220 million (€ 55.4 m) and value of expected JESSICA financing: from a few hundred thousand zlotys up to the PLN 50 m

• Private investors underestimate the loan pricing advantage brought by revitalization effects of urban projects and simultaneously have high expectations in relation to the preferential interest of loans

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First observations (2)

• Rather small influence of projects on cities in comparisonto the scale of integrated plans for sustainable urban development

• Insufficient cooperation of private investors with cityauthorities on revitalization elements of investments

• Lack of projects in the form of the public-private partnership ready to be financed, not even at early stagesof preparation

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What might be improved going forward?

• Possible start of the implementation – early readiness of the regulation

• Clarity of the regulation (eg. rules for monitoring, exit strategy)

• Financing projects which do not generate income? (eg. loan paid back from the self-goverment’s budget)

• Consequence in non-grant approach (durability of the project, financial corrections)

• State aid rules

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Thank you for your attention

Marek SzczepańskiDirector of European Programmes DepartmentBank Gospodarstwa Krajowego

mail: dpe@bgk.com.pl, JESSICA@bgk.com.plwww: www.bgk.com.pl