JESSICA Evaluation Study for Silesia Disclaimer

Developed for the European Investment Katowice ul. Karłowicza 13

Bank Tel: 32 730 2510, 32 730 2509, 32 730 2511

This report takes into account the particular instructions and requirements of our client. It is not intended for and should not be relied upon by any third party and no responsibility is undertaken to any third party.

This document has been produced with the financial assistance of the European Union. The views expressed herein can in no way be taken to reflect the official opinion of the European Union.

City Consulting Institute Sp. z o.o.

C i t y C o nsulting Institute Page 2

Table of Contents

1. Review of the market for urban regeneration projects in the Silesia region ...... 14

1.1. Regeneration projects implemented in Silesia ...... 14

1.1.1. Financing sources of regeneration projects ...... 14

1.1.2. Principles of financing regeneration projects ...... 14

1.1.3. Formal conditions necessary to implement regeneration projects ...... 16

1.1.4. Availability of resources for regeneration projects ...... 18

1.1.5. Characteristics of the completed projects ...... 19

1.1.6. Conclusions for JESSICA ...... 26

1.2. Possibility of financing regeneration projects within ROP SL ...... 26

1.2.1. Project eligibility criteria ...... 26

1.2.1.1. Formal conditions ...... 26

1.2.1.2. Eligibility of costs ...... 27

1.2.1.3. Beneficiaries ...... 29

1.2.2. Analysis of the existing lists of project selection criteria and indicators as regards their relevance for JESSICA ...... 29

1.2.3. List of key potential projects to be implemented in the years 2010-2013 ...... 39

1.2.4. List of key projects financed after a restricted call of proposals ...... 41

1.2.5. Conclusions for JESSICA ...... 45

1.3. Analysis of strategic documents ...... 45

1.3.1. Local Revitalisation Programmes ...... 45

1.3.2. Multi-annual Investment Plans ...... 50

1.3.3. Conclusions for JESSICA ...... 53

1.4. Identification and evaluation of specific potential JESSICA projects ...... 55

1.4.1. Projects reported in a survey research ...... 55

1.4.2. Other potential projects ...... 60

C i t y C o nsulting Institute Page 3

1.4.3. Assessment of the interest of potential beneficiaries in a revolving financial instrument 60

1.5. SWOT analysis for JESSICA ...... 61

1.6. Conclusions for JESSICA ...... 63

2. Financial and social analysis for JESSICA implementation ...... 64

2.1. Present financial instruments for urban regeneration projects ...... 64

2.2. Budgetary implications of JESSICA for the Silesia Managing Authority ...... 74

2.2.1. Cash flow in case of the traditional donation system - variant 0 ...... 75

2.2.2. Cash flow in case of JESSICA implementation – V1 – one UDF...... 77

2.2.3. Cash flow in case of JESSICA implementation – V2 – 1 UDF created from the ROP and investors (JST) funds...... 83

2.2.4. Cash flow in case of JESSICA implementation – Variant 3 – HF, 2 UDFs from the ROP and shareholders (JST, banks) funds...... 89

2.2.5. Cash flow in case of JESSICA implementation – Variant 4 – 1 HF/EIB and >2 UDFs created from the ROP and shareholders’ funds (JST, banks)...... 96

2.3. Non-budgetary effects of JESSICA implementation ...... 104

2.4. PPP as a method of optimising the JESSICA implementation process...... 105

2.5. Summary. Conclusions for JESSICA implementation...... 112

3. Institutional analysis of JESSICA implementation...... 114

3.1. Description of potential market participants in JESSICA...... 114

3.1.1. Public administration...... 114

3.1.2. Public institutions ...... 118

3.1.3. Financial sector institutions ...... 122

3.1.4. Private sector ...... 126

3.2. Ability and willingness of the private and public sectors to support urban regeneration in Silesia through JESSICA ...... 131

3.2.1 Conclusions: willingness to engage in JESSICA projects and institutional structure of the Programme...... 134

3.3. Analysis of institutional models of JESSICA operation ...... 136

C i t y C o nsulting Institute Page 4

3.3.1 Potential JESSICA organizational structures ...... 136

3.3.2. Establishment of a Holding Fund ...... 139

3.3.2.1. Basic tasks of holding funds (HF) ...... 145

3.3.2.2. Benefits resulting from the HF establishment...... 147

3.3.2.3. Entities that may potentially establish a HF ...... 147

3.3.3. Establishment of Urban Development Funds ...... 152

3.3.3.1. UDF business models ...... 156

3.3.3.2. UDF operating as a credit – guarantee institution ...... 156

3.3.3.3. UDF operating as a capital investor ...... 157

3.3.4. HF/UDF model ...... 157

3.3.4.1. Advantages and disadvantages of the full model of JESSICA implementation. .. 158

3.3.5. One UDF model ...... 159

3.3.5.1. Conditions and advantages of the one UDF model ...... 159

3.3.5.2 Institutions that may establish one UDF ...... 160

3.3.6. Institutional model and project financing possibility ...... 162

3.3.6.1. One UDF model ...... 162

3.3.6.2. HF and 2 UDFs model ...... 162

3.3.6.3. HF and a greater number of UDFs ...... 162

3.3.6.4. EBI involvement and possibility of project financing ...... 163

3.3.7. Institutional model and participation ability ...... 163

3.3.7.1. One UDF model ...... 163

3.3.7.2. HF and 2 UDFs model ...... 163

3.3.7.3. HF and a greater number of UDFs ...... 163

3.3.7.4. EBI and a possibility of other entities involvement ...... 163

3.3.8. Institutional model and PPP ...... 164

3.3.8.1. One UDF model ...... 164

3.3.8.2. HF and 2 UDFs model ...... 164

3.3.8.3. HF and a greater number of UDFs ...... 164

C i t y C o nsulting Institute Page 5

3.3.8.4. EBI involvement and PPP ...... 164

3.4. Comparison and evaluation of different institutional models of JESSICA implementation 165

3.4.1. Analysis of advantages and disadvantages resulting from entrusting the EIB with the HF function ...... 169

3.4.2. Recommendations for the Śląskie Voivodship ...... 170

3.4.2.1. Recommendations concerning the Holding Fund establishment ...... 170

3.4.1.1. Recommendations concerning the number of UDFs ...... 171

3.4.1.2. Recommendation concerning organisational changes in time...... 172

4. JESSICA implementation strategy in Silesia ...... 174

4.1. Recommendations on how JESSICA should be taken forward in Silesia in short-, medium- and long-term perspective ...... 174

4.2. JESSICA implementation methodology ...... 175

4.3. Indicative timeline of the new structure implementation ...... 176

4.4. Potential risks for the Managing Authority ...... 177

4.4.1. Managing Authority’s financial obligations resulting from RPO SL ...... 177

4.4.2. State aid and project sustainability issues ...... 179

4.5. Recommendations...... 181

C i t y C o nsulting Institute Page 6

Index of tables

Table: Financing sources of regeneration projects in Silesia until 2008...... 14 Table: Principles of financing regeneration projects ...... 14 Table: Formal conditions necessary to implement regeneration projects ...... 17 Table: Basic formal limitations influencing the adopted regeneration development directions ...... 18 Table: Availability of resources for regeneration projects ...... 18 Table: Regeneration projects implemented in Silesia ...... 20 Table: Basic types of projects ...... 28 Table: Product and result indicators ...... 32 Table: Key potential regeneration projects (years 2010 – 2013) ...... 39 Table: List of key projects financed after a restricted call of proposals ...... 42 Table: Strategic planning model ...... 47 Table: Budgeting in a self-government entity ...... 52 Table: Analysis of selected projects ...... 58 Table: The EIB funds for regional development...... 67 Table: Maximum value of financial support from the Surcharge Fund...... 69 Table: Summary of the objective, value, crediting period and interest rate of TBS Programme loans.73 Table: Analysis assumptions – V0...... 75 Table: Cash flow for subsiding mechanisms of the ROP SL (in million PLN) ...... 75 Table: Financial flow for the subsiding mechanism of the ROP SL in PLN (V0)...... 76 Table: Analysis assumptions – V1...... 77 Table: Advantages and disadvantages of V1...... 78 Table: Financial flows for variant 1 [million PLN] - V1...... 79 Table: Analysis assumptions– V2 ...... 83 Table: Advantages and disadvantages of V2...... 84 Table: Financial flow for variant 2 [million PLN] – V2...... 85 Table: Analysis assumptions – V3...... 89 Table: Advantages and disadvantages of V3...... 90 Table: Financial flow for Variant 3 [million PLN] – V3...... 91 Table: Analysis assumptions – V4...... 96 Table: Advantages and disadvantages of V4...... 97 Table: Financial flow for Variant 4 (million PLN) - V4...... 99 Table: PPP objectives...... 106

C i t y C o nsulting Institute Page 7

Table: Conclusions for PPP implementation ...... 109 Table: Critical factors of PPP from the JESSICA perspective...... 110 Table: Opportunities for cooperation in PPP with JESSICA support...... 111 Table: Potential engagement of public administration units in JESSICA...... 114 Table: Potential engagement of public institutions into JESSICA...... 118 Table: Engagement of the financial sector in JESSICA...... 122 Table: Analysis of ability and willingness to implement projects financed within the JESSICA frame...... 132 Table: Units’ engagement on project level...... 133 Table: Interest in engaging in JESSICA projects...... 134 Table: Model: HF (EIB) + UDF ...... 137 Table: Model HF + UDF ...... 138 Table: Model UDF ...... 138 Table: Choosing the HF operator in accordance with the Public Procurement Law...... 144 Table: Entrusting HF management to the EIB...... 145 Table: The Upper Silesian Fund – advantages and disadvantages ...... 147 Table: EIB – advantages and disadvantages ...... 149 Table: Advantages and disadvantages of the full JESSICA implementation model...... 158 Table: Comparative analysis of chosen organizational models...... 165 Table: Comparative analysis of chosen organizational models – financial aspect...... 166 Table: Analysis of advantages and disadvantages of chosen organizational models...... 167 Table: Organizational model with the HF involvement...... 172 Table: Recommendations for JESSICA ...... 173 Table: Main problems that may be encountered throughout JESSICA implementation ...... 175

C i t y C o nsulting Institute Page 8

List of Acronyms

BGK Bank Gospodarstwa Krajowego CEB Council of Europe Development Bank Consultant City Consulting Institute Sp. z o.o. EC European Commission EIB or Bank European Investment Bank ERDF European Regional Development Fund GZM Metropolitan Association of Upper Silesia (Górnośląski Związek Metropolitalny) HF Holding Fund IA Implementing Authority IRDOP Integrated Regional Development Operational Programme (Polish: ZPORR) IUDP Integrated Urban Development Plans / Programmes JESSICA Joint European Support for Sustainable Investment in City Areas JST Territorial self-government units KFM, NHF Krajowy Fundusz Mieszkaniowy (National Housing Fund) LRP Local Regeneration Plan / Programme MA Managing Authority for a Regional Operational Programme MIDF The Municipal Investment Development Fund MRR Ministry of Regional Development NBP National Bank of Poland NFEPWM National Fund for Environmental Protection and Water Management PPP Public-private partnership Region Śląskie Voivodship Report Report prepared according to the consultancy contract with EIB ROP Regional Operational Programme ROP SL Śląskie Regional Operational Programme SDPSV Spatial Development Plan of the Silesian Voivodship SF Surcharge Fund TBS Towarzystwa Budownictwa Społecznego (Social Housing Societies) The Study, Advisory project named ‘JESSICA Evaluation Study for Silesia. Project UDF Urban Development Fund UMSL Marshal Office of Śląskie Voivodship (regional government of Silesia)

C i t y C o nsulting Institute Page 9

Introduction

The JESSICA Evaluation Study for Silesia has been contracted by the European Investment Bank and developed by experts of City Consulting Institute Sp. z o.o.

The Study has been conducted with reference to regional conditions, in cooperation with all Silesian self-governments. The analysis has been possible thanks to the commitment of representatives of the Department of Regional Development of the Marshal Office of the Śląskie Voivodship.

JESSICA is a chance for further dynamic development of the region. The possibility of financing projects from revolving mechanisms is welcomed by self-government authorities as well as by entrepreneurs. JESSICA may be also a chance for the development of public – private partnerships and an initiative promoting interesting projects.

Mateusz Górka Chairman of City Consulting Institute Sp. z o.o.

C i t y C o nsulting Institute Page 10

Summary

Chapter Summary

Review of the The market of regeneration projects in Silesia has been shaped primarily by market for urban the guidelines of the Integrated Regional Development Operational regeneration Programme. Beneficiaries (mostly communes) willing to apply for a grant, projects in the adapted their projects and Local Revitalization Programmes to the guidelines. Silesia Region In result, most projects were non-profit, limited to visual and functional development of city centres, buildings or post-industrial areas. The most interesting projects have been financed primarily from own resources of the investors. The present guidelines on regeneration are more liberal and most projects are thus eligible. However, it is still obligatory to calculate the funding gap which may in turn result in financing non-profit projects, similar to those implemented within IRDOP. In case of JESSICA, it is not obligatory to calculate the funding gap. Co-financed projects may be thus much more interesting. Present ROP SL guidelines concerning revitalization are coherent with JESSICA regulations. There is thus no need to introduce any changes to eligibility criteria, types of projects or product and result indicators. Financial and social Financial and economic analysis of possible JESSICA implementation options analysis for has been developed on the basis of the following criteria: JESSICA  data from potential beneficiaries (possible engagement in JESSICA, implementation institutional analysis and financial conditions of participation in UDFs);  ratio analysis resulting from a review of documents concerning JESSICA elaborated so far. In result of the analysis of possible variants of JESSICA implementation in Silesia it should be stated that the optimum solution is to implement the option: HF + >3 UDFs + shareholders (self-government entities, banks). Higher number of UDFs results in the so called leverage effect, consisting in the ability of encouraging public (self-government entities) and private (banks) sectors to contribute shares to UDFs. Higher JESSICA resources will in turn result in the

C i t y C o nsulting Institute Page 11

possibility of financing a greater number of projects and continuous increase of the UDF value (e.g. by profit from interest rates). Institutional Institutional analysis has been elaborated with regard to the binding home analysis of JESSICA and Community law as well as interministerial arrangements concerning implementation financial mechanisms similar to JESSICA. The analysis has taken into account all institutions whose participation in JESSICA would be possible from the financial or institutional point of view. The analysis has proven that taking into account the present institutional conditions as well as the time remaining to the end of the programming period 2007-2013, the only solution that may have considerable impact on regional development is the model based on the institutional division of the HF and the UDF. In order to minimise the risk for the Marshal Office, it is recommended to base the HF on EIB structures. After the year 2013, one should consider the purposefulness of further HF operation or handing over its operation to a local entity. JESSICA Efficient JESSICA implementation necessitates the following actions: implementation  Establishment of a HF within EIB structures (no need to apply the strategy in Silesia public procurement procedure, EIB experience, advantageous financial conditions as well as experience of other countries prove that this institutional solution is the best possible one).  Initial establishment of two UDFs (financial and investment ones).  Preparing potential beneficiaries in the following areas: o information (knowledge on JESSICA is still very poor, a number of trainings and information campaigns should be organised); o technical (the most considerable problem seems to be the lack of Integrated Urban Development Plans that are necessary in order to apply the systemic approach to revitalization and prove the impact of a particular project on other projects to be implemented in the area. As JESSICA encourages public – private partnership, it would seem necessary to implement PPP Implementation Plans, facilitating the contracting procedures).  Implementation of a JESSICA application system as well as control and monitoring procedures.

C i t y C o nsulting Institute Page 12

Conclusions Revolving financial mechanisms are welcomed by the market. Due to the character of the EU granting system, most regeneration projects are of social, non-profit character. There is a need on the market to implement projects that may become local development factors in the area of revitalization. Large number of potential JESSICA projects and advanced stages of technical plans development are considered the major success factors. Problems include legal issues and know-how of potential beneficiaries. A cycle of trainings on JESSICA should be organised, Integrated Urban Development Plans and PPP Implementation Plans should be developed in order to implement the future JESSICA projects efficiently.

C i t y C o nsulting Institute Page 13

1. Review of the market for urban regeneration projects in the Silesia region

1.1. Regeneration projects implemented in Silesia

1.1.1. Financing sources of regeneration projects The beginning of the regeneration process in Silesia is related with the possibility of applying for European Union funds within the Integrated Regional Development Operational Programme in the years 2004 – 2006r.

All previous efforts of local authorities in this respect had been standard investment actions resulting from current needs or development programmes other than Local Revitalization Programmes.

Table: Financing sources of regeneration projects in Silesia until 2008.

grants loans own resources

• IRDOP; • commercial banks; • total financing; • ROP; • EIB; • co-financing; • EEA FM; • ministry funds; • voivodship contracts;

1.1.2. Principles of financing regeneration projects General principles of financing regeneration projects have been presented in the table below:

Table: Principles of financing regeneration projects

Grants Source General co-financing principles

IRDOP General principles of financing were the following:

 75% - ERDF  10% - state budget  15% - own resources (including loans/credits)

EEA FM Two regeneration projects have been financed within the EEA FM in

C i t y C o nsulting Institute Page 14

Silesia:

 Revitalization of the Old Castle Complex and the Habsburg Park in Żywiec  Protection and conservation of written heritage of Cieszyn

General principles of financing were the following:

 up to 85% - the Donor Countries  15% - own resources (including loans/credits)

ROP SL General principles of financing are the following:

 85% - ERDF  15% - own resources (including loans/credits)

Due to the fact that the call of proposals has been witheld and projects are selected only within the Subregional Development Programmes of the ROP 2007 – 2013, their implementation has only just started.

Other A number of projects have been financed from the resources granted by regional or national authorities. Thermal efficiency and water and sewage management projects have been co-financed from the resources of the National and the Regional Environment Protection Funds.

A few projects have been also co-financed within INTERREG 3A.

Loans Most projects have been co-financed by loans. This fact resulted from the following:

 necessity of providing own resources [in case of refunding, loans ensured financial liquidity of beneficiaries];  necessity of covering the difference between the sum applied for and the real project cost [project evaluation periods were relatively long and during that time exchange rate differences as well as price increase occurred];

Some beneficiaries financed regeneration projects by loans only [this solution was most frequently applied by municipal companies or entrepreneurs implementing profitable projects].

Own resources Financing projects partially from own resources took place in case of all projects co- financed by the European Union. The share of own resources in case of projects co-

C i t y C o nsulting Institute Page 15

financed by loans was determined by bank contract conditions. Projects implemented solely from own resources occurred rarely. However, some local authorities decided to choose this solution.

With regard to the above compilation, it should be stressed that most regeneration projects in Silesia have been co-financed from the European Union resources [IRDOP]. Limitations resulting from the IRDOP application guidelines have strongly influenced the character of the projects and defined regeneration directions to be continued for many years.

1.1.3. Formal conditions necessary to implement regeneration projects The beginning of the process of implementing regeneration projects in Silesia was undoubtedly related with the possibility of applying for the resources from the Integrated Regional Development Operational Programme (Polish acronym: ZPORR). According to the guidelines defined by the Programme Complement to the Integrated Regional Development Operational Programme for the years 2004 – 20061 and Revitalization Guidelines2 it was necessary to develop a Local Revitalization Programme in order to meet the formal conditions of applying for EU resources. The general scope of a Local Revitalization Programme was defined in an Appendix to IRDOP.

First Local Revitalization Programmes were developed mostly in order to meet the formal criteria. These were frequently analyses based on minimum eligibility criteria, pointing only the projects to be potentially co-financed. That in turn caused the present situation in which many representatives of local governments see a Local Revitalization Programme as a strategic document of poor functionality and not as an important spatial document determining the development of degraded areas.

1 Programme Complement to the Integrated Regional Development Operational Programme for the years 2004 – 2006 (appendix to the resolution of the Minister of Economy and Labour of 25 August 2004 on the adoption of Programme Complement to the Integrated Regional Development Operational Programme, Offical Gazzette No 200, item 2051) 2 Revitalization Guidelines, Principles, Procedures and Methods of Contemporary Revitalization Processes (Polish: Podręcznik Rewitalizacji, Zasady, procedury i metody działania współczesnych procesów rewitalizacji), 2003, GTZ Gesellschaft für Technische Zuzammenarbeit i Urząd Mieszkalnictwa i Rozwoju Miast, Warszawa.

C i t y C o nsulting Institute Page 16

Table: Formal conditions necessary to implement regeneration projects

Technical plans, licences, permits

Technical plans and building permits were obligatory in order to apply for IRDOP grants; in result only those projects were financed that had been previously planned and included in the required strategies;

Strategic documents

Development of strategic documents was primarily aimed at meeting the formal criteria. In many cases, local government bodies adapted their LRP to the contents of a technical plan and to feasibility study analyses.

Application Form

Together with a feasibility study and other appendices (including LRP), an application form was the document enabling local government bodies to apply for an IRDOP grant.

The above scheme of regeneration project implementation was characteristic to most Silesian gminas applying for IRDOP grants.

Perceiving a Local Revitalization Programme as an appendix necessary to meet the formal criteria of project evaluation processes results in development of Local Revitalization Plans in isolation from urban development procedures. The document is thus called a development plan but the projects included in it do not have to be coherent and integrated with each other in any way (apart from location).

C i t y C o nsulting Institute Page 17

Table: Basic formal limitations influencing the adopted regeneration development directions

•the area on which a particular project is to be ownership implemented should be the property of the beneficiary; right

•project should by design be non-profitable; project •no possibility of implementing projects within PPP profitability (legislative errors);

•projects located only within administrative borders of cities; location •post-industrial areas; •post-military areas;

•little resources compared to demands; financial •limited scope/value of a project aimed at increasing limitations chances for a grant;

1.1.4. Availability of resources for regeneration projects Resources for regeneration projects implemented in Silesia have been and still are considerably limited. It is only possible to implement projects in two basic forms, both having advantages and disadvantages.

Table: Availability of resources for regeneration projects

grant own resources / loans

• possibility of financing only 85% of • possibility of financing any project; project value from external resources; • possibility of financing profitable • complicated procedure of applying, projects; settling and monitoring projects; • simple system of financial settlement; • necessity of ensuring project sustainability; • necessity of monitoring the assumed indicators; • necessity of participating in a call of proposals [the value of applications filed exceeds several times the value of available resources];

C i t y C o nsulting Institute Page 18

Most projects implemented in Silesia have been co-financed from IRDOP grants. Only a few projects that had not been selected during a call for proposals procedure were financed from other resources. This fact proves that there are no efficient mechanisms developed to finance and co-finance regeneration projects in Silesia.

1.1.5. Characteristics of the completed projects The character of completed regeneration projects has been defined mostly by the following factors:

 IRDOP regulations;  ROP SL regulations;  Information included in guidelines describing the principles of developing regeneration programmes.

Silesian regeneration projects may be divided into three basic groups3:

Innovative, designer projects, resulting from integrated strategies of actions leading to a certain aim (economic, social, etc.)

Projects developed on the basis of IRDOP, ROP SL guidelines in order to obtain the best possible essential evaluation results.

Investment projects not related with regeneration areas but coherent with Local Revitalization Programmes.

3 The division is based on the number of projects implemented.

C i t y C o nsulting Institute Page 19

Table: Regeneration projects implemented in Silesia

Location Project Beneficiary Financing source Bielsko Biała Bielsko-Biala Old Town Bielsko Biała ERDF, state budget, own resources

Bieruo Repair and redevelopment of social infrastructure in Bierun, 15 Bieruo ERDF, state budget, own resources Rynek Street. Bieruo Construction of a footbridge on a fitness trail in Bieruo Bieruo ERDF, state budget, own resources Bieruosko-Lędzioski poviat Adaptation of a building at 24 Ledzinska Street for Business and Bieruosko-Lędzioski poviat ERDF, state budget, own resources NGO Incubator Bytom Adaptation of a building for the Silesian University of Technology Bytom ERDF, state budget, own resources in Bytom Bytom Revitalization of the main building of the Municipal Library in Bytom ERDF, state budget, own resources Bytom Bytom Revitalization of the Bytom Market Square Bytom Municipal budget including municipal bonds, Fund for Silesia Bytom Bytom Industrial Park Partnership agreement signed on 9 July 1.3 The Sectoral Operational Programme 2004 between the Upper Silesian "Improvement of the Competitiveness of Enterprise Transformation Agency Joint Enterprises Stock Company in Katowice, Bytom Municipality, "Orzeł Biały" Joint Stock Company, PUMECH-Orzeł Sp. z o.o. w Bytomiu, and Mines Restructuring Company. Project participants were also: Partnership for Environment Fund, and Association of Bytom Employers. Bytom “Dolomity” Sports Valley “Dolomity” Sports Valley Project “Modernization of the company aimed at improvement of service quality, introduction of new services and increase of sales” was co- financed (in 50%) from Phare 2002. Location Project Beneficiary Financing source

Project “Orderman – virtual orders” was co- financed (in 50 %) from The Sectoral Operational Programme "Improvement of the Competitiveness of Enterprises”.

Project “Investment planning – swimming pools in Dolomity Sports Valley” was co-financed (in 50 %) from The Sectoral Operational Programme "Improvement of the Competitiveness of Enterprises”.

Project “Development of technical plans of a ski centre in Sosnowiec” was co-financed (in 50 %) from The Sectoral Operational Programme "Improvement of the Competitiveness of Enterprises”.

Project „High service quality in Dolomity Sports Valley” was co-financed (in 50%) from Phare 2003. Bytom Revitalization of Jana III Sobieskiego Square in Bytom Bytom ERDF, state budget, own resources Bytom Adaptation of a building for the Polish-Japanese Institute of Polish-Japanese Institute of ERDF, state budget, own resources Information Technology in Bytom Information Technology Bytom Reconstruction of a nursing home in Bytom Nursing home city budget, National Disabled Persons Rehabilitation Fund, Bytom Fund for

C i t y C o nsulting Institute Page 21

Location Project Beneficiary Financing source Environmental Protection and Water Management Bytom Development of a Professional Career Centre in Bytom Professional Career Centre City budget, Integrated program of alleviating the restructuring effects in the mining industry. Bytom Reconstruction of Świętochłowicka and Łagiewnicka Streets in Bytom City budget Bytom Bytom Ringroad of the Upper Silesia Agglomeration Bytom ERDF, state budget, own resources Chorzów Revitalization of Amelung industrial reservoirs in Chorzów Chorzów ERDF, state budget, own resources Cieszyn Revitalization of a post-industrial building on 4 Wałowa Street in Cieszyn ERDF, state budget, own resources Cieszyn for the purposes of a Social Education Centre Czechowice - Dziedzice Development of areas neighbouring with the Północ district in Czechowice - Dziedzice City budget, RPO SL Czechowice-Dziedzice Czeladź Revitalization of the medieval Old Town in Czeladz – stage I Czeladź 69,66% - ERDF, 10% - state budget (infrastructure) Częstochowa, Revitalization of the Jasna Góra Park in Częstochowa Częstochowa, ERDF, state budget, own resources Częstochowa Reconstruction of Berka Joselewicza Street Częstochowa City budget Częstochowa Reconstruction and development of a post-industrial building for Zachęta Association City budget the purposes of a Modern Art Gallery Częstochowa Reconstruction and repair of the Exhibition Pavilion B and the Museum of Częstochowa City budget Museum of Mining on 7 Kamienic Street in Częstochowa Częstochowa Repair, reconstruction and modernisation of a monumental Częstochowa - ZGM TBS Sp. z o.o. City budget building on 24 Najświętszej Maryi Panny Avenue in Częstochowa Częstochowa Modernization and adaptation of a former House of Orthodox Museum of Częstochowa City budget Clergy called “Popówka” for the purposes of the Museum of Pilgrimage

C i t y C o nsulting Institute Page 22

Location Project Beneficiary Financing source Gliwice Regeneration of the Castle of the Piasts – establishment of a Gliwice, Museum ERDF, state budget, own resources Centre of Cultural Information and Regional Education

Gliwice Regeneration of a post-industrial zone in Nowe Gliwice PHARE 2003, city budget Gliwice Revitalization of the Radiostation Gliwice City budget Gliwice Development of the cycle path network in Gliwice Gliwice City budget Gliwice Thermal efficiency improvement of the Gliwice Music Theatre The Music Theatre City budget and the Regional Fund for Environmental Protection and Water Management Jastrzębie Zdrój Modernization of buildings in the Zdrojowy Park for the purposes University of Silesia City budget of the University of Silesia Jastrzębie Zdrój Modernization of buildings in the Zdrojowy Park for the purposes Jastrzębie Zdrój, University of City budget of a library and reconstruction of a fountain in Jastrzębie Zdrój Silesia Jastrzębie Zdrój Adaptation of a hospital building for the purposes of the District District Court in Jastrzębie Zdrój City budget Court in Jastrzębie Zdrój Jastrzębie Zdrój Modernization of a swimming pool on Witczaka Street in Jastrzębie Zdrój City budget Jastrzębie Zdrój Katowice Adaptation of a post-military building on 17 Koszarowa Street for Academy of Fine Arts in Katowice ERDF, state budget, own resources the purposes of the Academy of Fine Arts in Katowice Katowice International Congress Centre in Katowice Katowice RPO SL and city budget Katowice New seat of the Museum of Silesia in Katowice Museum of Silesia in Katowice Voivodship government resources Katowice The heart of Nikiszowiec. Revitalization of the Museum of Museum of Katowice History ERDF and city budget Katowice History building in Katowice Katowice Szyb Wilson Gallery Szyb Wilson Gallery Own resources and grants from the city of Katowice Kłobuck Development of the Kłobuck Market Square and its surroundings Kłobuck ROP SL and city budget

C i t y C o nsulting Institute Page 23

Location Project Beneficiary Financing source Łaziska Górne Revitalization of the monumental City Hall in Łaziska Górne Łaziska Górne City budget and the Regional Fund for Environmental Protection and Water Management Łaziska Górne Construction of a sports hall on Ogrodowa Street in Łaziska Łaziska Górne Ministry of Sports and Tourism grant within the Górne Fund for Development of Physical Culture Łaziska Górne Construction of a sports and recreation centre "Żabka" Łaziska Górne City budget, Integrated program of alleviating the restructuring effects in the mining industry. Marklowice, gmina Revitalization of a post-industrial area – Tropical Island – stage I Marklowice ERDF, state budget, own resources Mierzęcice, gmina Modernization of the transport system and water and sewage Mierzęcice ERDF, state budget, own resources management on post-military areas Mikołów Revitalization of a post-industrial area – construction of a Mikołów City budget, Integrated program of alleviating swimming pool and a communication system in Mikołów. the restructuring effects in the mining industry, Ministry of Sports and Tourism grant Mikołów Development of the Environment and Ecology Centre of the Silesian Botanical Garden ROP SL and city budget Silesian Botanical Garden in Mikołów Upper Silesia Museum, Bytom Revitalization of buildings of the Upper Silesia Museum Upper Silesia Museum ERDF, state budget, own resources Ożarowice Post-military area revitalization in Ożarowice – stage I: Ożarowice ERDF, state budget, own resources Construction of Transportowa and Nowa Streets and a water supply system Ożarowice Post-military area revitalization in Ożarowice - II stage: internal Ożarowice ERDF, state budget, own resources roads, utilities, adaptation for business purposes Pszczyna Revitalization of the Pszczyna Old Town Pszczyna ERDF, state budget, own resources Ruda Śląska Development of a trade – exhibition – cultural centre in Ruda Ruda Śląska City budget, Integrated program of alleviating Śląska - Wirek the restructuring effects in the mining industry Ruda Śląska Council housing in the city Ruda Śląska City budget Ruda Śląska Adaptation of a building in Ruda Śląska for the purposes of the Addiction Treatment Centre and ERDF, state budget, own resources Municipal Prevention Centre Municipal Prevention Centre Rybnik Renovation of a monumental tenement house on the Market Rybnik, Public Utilities Department ERDF, state budget, own resources

C i t y C o nsulting Institute Page 24

Location Project Beneficiary Financing source Square in Rybnik and its adaptation for business purposes Rydułtowy Rydułtowy Cultural Centre Rydułtowy ROP SL, own resources Siemianowice Śląskie Development of the Market Square Siemianowice Śląskie City budget Siemianowice Śląskie Development of the “Siemion” sports centre Siemianowice Śląskie City budget Siemianowice Śląskie Modernization of the “Michał” sports centre Siemianowice Śląskie, City Sports City budget, grant from the Fund for and Leisure Centre Development of Physical Culture Sławków Revitalization of the monumental Sławków city centre Sławków City budget Sławków Revitalization of the monumental inn in Sławków Sławków Ministry of Culture, voivodship contract for the year 2004, city budget Sosnowiec Adaptation of a post-industrial building for the purposes of the The Silesian University of ERDF, state budget, own resources Silesian University of Technology Technology Tarnogórski poviat Business Incubator – development in advantageous conditions Tarnogórski poviat, Inkubator ERDF, state budget, own resources Przedsiębiorczości Sp. z o.o. Ustroo Revitalization of the Market Square in Ustroo Ustroo ERDF, state budget, own resources Żywiec Renewal of the Żywiec Old Castle elevation Żywiec Marshal Office of Śląskie Voivodship, Ministry of Culture, own resources Żywiec Revitalization of the Old Castle Complex and the Habsburg Park Żywiec Financial Mechanism of the European Economic in Żywiec Area Ministry of Culture, own resources Żywiec Revitalization and development of the Old Castle complex and Żywiec ERDF, state budget, own resources the Habsburg Park in Żywiec Żywiec Preservation of the Żywiec cultural heritage – cooperation Żywiec INTERREG IIIA Poland-Slovakia, own resources between the Żywiec library and Kysucka Kniznica in Cadcy.

C i t y C o nsulting Institute Page 25

1.1.6. Conclusions for JESSICA

•Due to the necessity of ensuring project eligibility and The market of regenation more importantly, smooth process of formal appraisal, beneficiaries avoided projects that did not directly projects that are innovative, result from the list of exemplary projects; profitable and result from •Information on regeneration reached local integrated municipal strategies governments shortly before the deadline for filing is very limited and requires application forms. Several local authorities did not considerable support. manage to prepare good projects on time.

The problem of regeneration is •It is the guidelines that create the picture of Silesian substantive and results regeneration. The basic aim of local government authorities is to win a grant. Only in case of failure, primarily from the guidelines alternative solutions are considered, such as PPP, of IRDOP and ROP. The present changes in technical drafts, combining the project with state of Silesian regeneration is other projects implemented in the direct the reflection of formal neighbourhood (also by other institutions). requirements not urban planning.

•The market expects a mechanism enabling application in long term perspective (revolving mechanism). The market expects financial •The projects implemented should be profitable and related (logically and economically) with other actions mechanisms enabling implemented in the region. implementation of profitable projects.

1.2. Possibility of financing regeneration projects within ROP SL

1.2.1. Project eligibility criteria

1.2.1.1. Formal conditions If IRDOP formal conditions set regeneration frames not only for Silesia but also for the whole country, ROP SL guidelines are to a considerable extent based on local conditions.

From the formal point of view, application procedure in case of regeneration projects is similar to IRDOP.

The key element is obviously the application form with several appendices, one of them being a Local Revitalization Programme. The scope of LRPs is defined by separate guidelines. According to these guidelines, Local Revitalization Programmes do not introduce the notion of “integrated municipal plans”. It is thus possible to apply for resources to finance projects that are not systemically related. The guidelines do not also define detailed procedures of setting revitalization areas, depending on factors such as:

 degradation degree,  poverty,  unemployment,  development perspectives.

This approach means that on the one hand beneficiaries are free to choose regeneration projects and the choice does not have to be limited by indicators excluding certain locations and on the other that they can also develop LRP with no detailed analyses.

1.2.1.2. Eligibility of costs The basic difference between IRDOP and ROP SL results from the eligibility criteria and the types of projects that may be co-financed.

According to the Complement to ROP SL:

 All project costs must be borne in accordance with the public procurement law.  All project costs must be documented by invoices issued by contractors or by other, equivalent documents.  Only the expenses necessary to implement the project may be considered eligible.  Within measure 6.2, sub-measures 6.2.1. and 6.2.2 only the costs borne in accordance with the National Eligibility Guidelines for Structural Funds and the Cohesion Fund implemented in the years 2007 – 2013, defined in the regulation 1083/2006/WE and Eligibility Guidelines for the ROP SL implemented in the years 2007 – 2013 (Appendix no 2 to the Śląskie Regional Operational Programme 2007-2013) may be considered eligible.

C i t y C o nsulting Institute Page 27

Table: Basic types of projects

Measure Types of projects

Measure 6.2. Revitalization of 1. Reconstruction and repair of post-industrial/post-military/post- degraded areas state farm environments, including their adaptation for business,  Submeasure 6.2.1. educational, tourism, social or cultural purposes, as well as Revitalization of large development of neighbouring areas, resulting in solving cities economic or social problems in the revitalized area (except for  Submeasure 6.2.2. housing estates). Revitalization of small 2. Development of municipal areas, including construction, cities reconstruction and repair of buildings for business, educational, tourism, social or cultural purposes, as well as development of neighbouring areas, resulting in solving economic or social problems in the revitalized area (except for housing estates). 3. Supplementation and repair of built-up areas, including infill buildings, repair of occupied and unoccupied buildings and their adaptation for business, educational, tourism, social or cultural purposes, as well as development of neighbouring areas, resulting in solving economic or social problems on the revitalized area (except for housing estates). 4. Complex development of land for business purposes, except for infrastructure for inhabitants. 5. Development of monitoring systems aimed at increasing safety in public spaces. 6. Replacing asbestos elements of multi-family housing developments with less harmful materials, only with asbestos utilization4.

4 Housing projects have to be implemented in areas meeting any three criteria defined by indicators published in the Guidelines of the Minister of Regional Development on housing projects, based on Article 474 of Regulation no 1828/2006

C i t y C o nsulting Institute Page 28

1.2.1.3. Beneficiaries5 1. Territorial self-government units, their associations, societies.

2. Entities in which the majority of shares is owned by territorial self-government units or their associations and societies.

3. Entities contracted by territorial self-government units in accordance with the public procurement law.

4. Schools of higher education.

5. Churches and denominations and legal persons of churches and denominations.

6. Non-government organisations.

7. Public finance sector units with legal personality (not listed above)

8. Housing communities, social housing associations,

9. Partnerships of the entities mentioned in 1-8 represented by a leader.

10. Entities acting in accordance with the Law on public-private partnership.

1.2.2. Analysis of the existing lists of project selection criteria and indicators as regards their relevance for JESSICA Project selection criteria have been presented in the compilation below.

Project type 1. Reconstruction and repair of post-industrial/post-military/post-state farm environments, including their adaptation for business, educational, tourism, social or cultural purposes, as well as development of neighbouring areas, resulting in solving economic or social problems in the revitalized area (except for housing estates).

Project type 2. Development of municipal areas, including construction, re construction and repair of buildings for business, educational, tourism, social or cultural purposes, as well as development of neighbouring areas, resulting in solving economic or social problems in the revitalized area (except for housing estates).

Project type 3. Supplementation and repair of built-up areas, including infill buildings, repair of occupied and unoccupied buildings and their adaptation for business, educational, tourism, social or

5 According to the Complement of the Regional Operational Programme of Śląskie Voivodship 2007-2013

C i t y C o nsulting Institute Page 29 cultural purposes, as well as development of neighbouring areas, resulting in solving economic or social problems on the revitalized area (except for housing estates).

No Criterion Weight 1. Number of project objectives – economic, social, cultural, tourist, 4,0 recreational, educational:  2 objectives other than the economic one - 1p.  economic - 2p.  economic and one other objective - 3p.  3 objectives and more – 4p. 2. Degree of implementation of LRP priorities. 2,0 3. Innovativeness of project solutions. 1,5 4. Project availability to general public. 1,5 5. Adjustment for the needs of the disabled. 1,0

Project type 4. Complex development of land for business purposes, except for infrastructure for inhabitants.

No Criterion Weight 1. Availability of the investment area. 4,0 2. Degree of implementation of LRP priorities. 2,0 3. Project impact on the development of economic infrastructure. 3,0 4. Project location in the light of area investment attractiveness. 1,0

Project type 5. Development of monitoring systems aimed at increasing safety in public spaces.

No Criterion Weight 1. Functionality of the solutions applied. 5,0 2. Degree of implementation of LRP priorities. 2,5 3. Common initiatives (of different entities) aimed at complex protection of the 2,5 project area.

C i t y C o nsulting Institute Page 30

Project type 6. Replacing asbestos elements of multi-family housing developments with less harmful materials, only with asbestos utilization .

No Criterion Weight 1. Degree of urgency (assessment of the present state and possibility of safe usage 4,5 of asbestos elements). 2. Degree of implementation of LRP priorities. 2,0 3. Quantity of asbestos removed. 3,5

C i t y C o nsulting Institute Page 31

Table: Product and result indicators

Measure 6.2. Revitalization of degraded areas Submeasure 6.2.1 Revitalization – large cities 1. Reconstruction and repair of post-industrial/post-military/post-state farm environments, including their adaptation for business, educational, tourism, social or cultural purposes, as well as development of neighbouring areas, resulting in solving economic or social problems in the revitalized area (except for housing estates).

Product N Number of post-industrial/post-military/post-state farm environments reconstructed for the purpose of at least two of the objectives Psc. Product N Area of post-industrial/post-military/post-state farm environments reconstructed for the purpose of at least two of the objectives m2 Product N Number of post-industrial/post-military/post-state farm environments reconstructed for business activity purposes psc. Product N Area of post-industrial/post-military/post-state farm environments reconstructed for business activity purposes m2 Product N Number of buildings with technical (including municipal) infrastructure reconstructed pcs. Product N Area of buildings with technical (including municipal) infrastructure reconstructed m2 Product N Length of reconstructed technical (including municipal) infrastructure m Product N Number of buildings adapted to the needs of the disabled pcs. Result T Number of events organised with the use of project infrastructure pcs. Result T Number of people using the buildings covered by the project people Result N Number of the disabled using the buildings covered by the project people Result N Number of buildings protected pcs. Result N Area of reconstructed and regenerated public infrastructure m2 Result N Number of new service points in the revitalized area pcs. Result N Usable area m2 Result N Area of developed grounds neighbouring with the buildings covered by the project m2 Result N Area of post-industrial/post-military/post-state farm environments reconstructed for the purpose of at least two of the objectives m2 Result T Number of new enterprises in the area covered by the project pcs. Result T Regenerated area m2 2. Development of municipal areas, including construction, reconstruction and repair of buildings for business, educational, tourism, social or cultural purposes, as well as development of neighbouring areas, resulting in solving economic or social problems in the revitalized area (except for housing estates). Product N Number of buildings restored for the purpose of at least 2 of the objectives pcs. Product N Area of buildings restored for the purpose of at least 2 of the objectives m2 Product N Number of buildings constructed for the purpose of at least 2 of the objectives pcs. Product N Area of buildings constructed for the purpose of at least 2 of the objectives m2 Product N Number of buildings reconstructed for the purpose of at least 2 of the objectives pcs. Product N Area of buildings reconstructed for the purpose of at least 2 of the objectives m2 Product N Number of buildings reconstructed for business activity purposes pcs. Product N Area of buildings reconstructed for business activity purposes m2 Product N Number of buildings with technical (including municipal) infrastructure reconstructed pcs. Product N Area of buildings with technical (including municipal) infrastructure reconstructed m2 Product N Length of reconstructed technical (including municipal) infrastructure m Product N Usable area of the reconstructed buildings m2 Product N Green areas developed around the buildings covered by the project m2 Product N Small architecture area m2 Product N Number of small architecture elements pcs. Product N Number of parking places pcs. Product N Parking area m2 Product N Area of reconstructed and regenerated public infrastructure m2 Product N Length of internal roads built in the area covered by the project m Product N Length of internal roads reconstructed/repaired in the area covered by the project m Product N Number of road infrastructure elements built pcs. Product N Number of road infrastructure elements reconstructed / repaired pcs. Product N Number of buildings adapted to the needs of the disabled pcs. Result T Number of events organised with the use of project infrastructure pcs. Result N Number of buildings protected pcs. Result N Usable area m2 Result N Number of new service points in the revitalized area pcs. Result N Area of developed grounds neighbouring with the buildings covered by the project m2 Result N Area of regenerated public spaces that became available for the purpose of at least 2 of the objectives m2 Result N Area of grounds that became available in result of the project m2 Result T Number of people using the buildings covered by the project people Result N Number of the disabled using the buildings covered by the project people Result T Number of new enterprises in the area covered by the project pcs. Result T Regenerated area m2 3. Supplementation and repair of built-up areas, including infill buildings, repair of occupied and unoccupied buildings and their adaptation for business, educational, tourism, social or cultural purposes, as well as development of neighbouring areas, resulting in solving economic or social problems on the revitalized area (except for housing estates).

C i t y C o nsulting Institute Page 33

Product N Number of buildings with technical (including municipal) infrastructure reconstructed pcs. Product N Area of buildings with technical (including municipal) infrastructure reconstructed m2 Product N Length of reconstructed technical (including municipal) infrastructure m Product N Number of buildings adapted to the needs of the disabled pcs. Result T Number of events organised with the use of project infrastructure pcs. Result N Number of the disabled using the buildings covered by the project people Result N Number of buildings protected pcs. Result T Number of people using the buildings covered by the project people Result N Usable area m2 Result N Number of new service points in the revitalized area pcs. Result N Area of grounds that became available in result of the project m2 Result N Number of people using the developed / regenerated empty public spaces. people Result T Number of new enterprises in the area covered by the project pcs. Result T Regenerated area m2 4. Complex development of land for business purposes, except for infrastructure for inhabitants. Product N Number of buildings constructed pcs. Product N Area of buildings constructed m2 Product N Usable area in the buildings constructed m2 Product N Number of buildings reconstructed for business activity purposes pcs. Product N Area of buildings reconstructed for business activity purposes m2 Product N Number of buildings with technical (including municipal) infrastructure reconstructed pcs. Product N Area of buildings with technical (including municipal) infrastructure reconstructed m2 Product N Length of reconstructed technical (including municipal) infrastructure m Product N Length of access roads built in the area covered by the project m Product N Length of access roads reconstructed/repaired in the area covered by the project m Product N Number of road infrastructure elements built pcs. Product N Number of road infrastructure elements reconstructed / repaired pcs. Product N Number of buildings adapted to the needs of the disabled pcs. Result N Number of incubators established in result of the project pcs. Result N Area of incubators established in result of the project m2 Result N Number of new service points in the revitalized area pcs. Result T Regenerated area m2 Result N Usable area m2 Result N Area of grounds that became available in result of the project m2 Result T Number of new enterprises in the area covered by the project pcs. 5. Development of monitoring systems aimed at increasing safety in public spaces. Product N Number of monitoring appliances installed pcs.

C i t y C o nsulting Institute Page 34

Product N Area covered by the monitoring system m2 Product N Number of districts covered by the monitoring system pcs. Product N Number of monitoring systems implemented pcs. Result N Number of crimes in the city pcs. Result N Number of people covered by the monitoring system people Result N Crime detection rate % Result N Number of offences / crimes recorded by the monitoring system pcs. 6. Replacing asbestos elements of multi-family housing developments with less harmful materials, only with asbestos utilization .

Product N Number of buildings from which asbestos was removed pcs. Product N Area of buildings from which asbestos was removed m2 Product N Area from which asbestos was removed m2 Result N Amount of asbestos containing materials removed Mg Result T Number of people living in the regenerated buildings people Measure 6.2. Revitalization of degraded areas Submeasure 6.2.2. Revitalization – small cities 1. Reconstruction and repair of post-industrial/post-military/post-state farm environments, including their adaptation for business, educational, tourism, social or cultural purposes, as well as development of neighbouring areas, resulting in solving economic or social problems in the revitalized area (except for housing estates).

Product N Number of post-industrial/post-military/post-state farm environments reconstructed for the purpose of at least two of the objectives pcs.

Product N Area of post-industrial/post-military/post-state farm environments reconstructed for the purpose of at least two of the objectives m2

Product N Number of post-industrial/post-military/post-state farm environments reconstructed for business purposes pcs.

Product N Area of post-industrial/post-military/post-state farm environments reconstructed for business purposes m2

C i t y C o nsulting Institute Page 35

Result N Usable area m2 Result N Area of developed grounds neighbouring with the buildings covered by the project m2 Result N Area of post-industrial/post-military/post-state farm environments reconstructed for the purpose of at least two of the objectives m2

Result T Number of new enterprises in the area covered by the project pcs. Result T Regenerated area m2 2. Development of municipal areas, including construction, re construction and repair of buildings for business, educational, tourism, social or cultural purposes, as well as development of neighbouring areas, resulting in solving economic or social problems in the revitalized area (except for housing estates). Product N Number of buildings restored for the purpose of at least 2 of the objectives pcs. Product N Area of buildings restored for the purpose of at least 2 of the objectives m2 Product N Number of buildings constructed for the purpose of at least 2 of the objectives pcs. Product N Area of buildings constructed for the purpose of at least 2 of the objectives m2 Product N Number of buildings reconstructed for the purpose of at least 2 of the objectives pcs. Product N Area of buildings reconstructed for the purpose of at least 2 of the objectives m2 Product N Number of buildings reconstructed for business activity purposes pcs. Product N Area of buildings reconstructed for business activity purposes m2 Product N Number of buildings with technical (including municipal) infrastructure reconstructed pcs. Product N Area of buildings with technical (including municipal) infrastructure reconstructed m2 Product N Length of reconstructed technical (including municipal) infrastructure m Product N Usable area of the reconstructed buildings m2 Product N Green areas developed around the buildings covered by the project m2 Product N Small architecture area m2 Product N Number of small architecture elements pcs. Product N Number of parking places pcs. Product N Parking area m2 Product N Area of reconstructed and regenerated public infrastructure m2 Product N Length of internal roads built in the area covered by the project m Product N Length of internal roads reconstructed/repaired in the area covered by the project m Product N Number of road infrastructure elements built pcs. Product N Number of road infrastructure elements reconstructed / repaired pcs. Product N Number of buildings adapted to the needs of the disabled pcs. Result T Number of events organised with the use of project infrastructure pcs. Result N Number of buildings protected pcs. Result N Usable area m2 Result N Number of new service points in the revitalized area pcs. Result N Area of developed grounds neighbouring with the buildings covered by the project m2

C i t y C o nsulting Institute Page 36

Result N Area of regenerated empty public spaces that became available for the purpose of at least 2 of the objectives m2

Result N Area of grounds that became available in result of the project m2 Result T Number of people using the buildings covered by the project people Result N Number of the disabled using the buildings covered by the project people Result T Number of new enterprises in the area covered by the project pcs. Result T Regenerated area m2 3. Supplementation and repair of built-up areas, including infill buildings, repair of occupied and unoccupied buildings and their adaptation for business, educational, tourism, social or cultural purposes, as well as development of neighbouring areas, resulting in solving economic or social problems on the revitalized area (except for housing estates).

Product N Number of buildings restored for the purpose of at least 2 of the objectives pcs. Product N Area of buildings restored for the purpose of at least 2 of the objectives m2 Product N Number of buildings reconstructed for the purpose of at least 2 of the objectives pcs. Product N Area of buildings reconstructed for the purpose of at least 2 of the objectives m2 Product N Number of infill buildings developed for the purpose of at least 2 of the objectives pcs. Product N Area infill buildings developed for the purpose of at least 2 of the objectives m2 Product N Number of buildings reconstructed for business activity purposes pcs. Product N Area of buildings reconstructed for business activity purposes m2 Product N Number of buildings with technical (including municipal) infrastructure reconstructed pcs. Product N Area of buildings with technical (including municipal) infrastructure reconstructed m2 Product N Length of reconstructed technical (including municipal) infrastructure m Product N Number of the disabled using the buildings covered by the project pcs. Result T Number of events organised with the use of project infrastructure pcs. Result N Number of buildings protected pcs. Result T Number of people using the buildings covered by the project people Result N Number of the disabled using the buildings covered by the project people Result N Usable area m2 Result N Number of new service points in the revitalized area pcs. Result N Area of grounds that became available in result of the project m2 Result N Number of people using the developed / regenerated empty public spaces. people Result T Number of new enterprises in the area covered by the project pcs. Result T Regenerated area m2 4. Complex development of land for business purposes, except for infrastructure for inhabitants. Product N Number of buildings constructed pcs. Product N Area of buildings constructed m2 Product N Usable area in the buildings constructed m2 Product N Number of buildings reconstructed for business activity purposes pcs.

C i t y C o nsulting Institute Page 37

Product N Area of buildings reconstructed for business activity purposes m2 Product N Number of buildings with technical (including municipal) infrastructure reconstructed pcs. Product N Area of buildings with technical (including municipal) infrastructure reconstructed m2 Product N Length of reconstructed technical (including municipal) infrastructure m Product N Length of access roads built in the area covered by the project m Product N Length of access roads reconstructed/repaired in the area covered by the project m Product N Number of road infrastructure elements built pcs. Product N Number of road infrastructure elements reconstructed / repaired pcs. Product N Number of buildings adapted to the needs of the disabled pcs. Result N Number of incubators established in result of the project pcs. Result N Area of incubators established in result of the project m2 Result N Number of new service points in the revitalized area pcs. Result N Usable area m2 Result N Area of grounds that became available in result of the project m2 Result T Number of new enterprises in the area covered by the project pcs. Result T Revitalized area m2 5. Development of monitoring systems aimed at increasing safety in public spaces. Product N Number of monitoring appliances installed pcs. Product N Area covered by the monitoring system m2 Product N Number of districts covered by the monitoring system pcs. Product N Number of monitoring systems implemented pcs. Result N Number of crimes in the city pcs. Result N Number of people covered by the monitoring system people Result N Crime detection rate % Result N Number of offences / crimes recorded by the monitoring system pcs. 6. Replacing asbestos elements of multi-family housing developments with less harmful materials, only with asbestos utilization . Product N Number of buildings from which asbestos was removed pcs. Product N Area of buildings from which asbestos was removed m2 Product N Area from which asbestos was removed m2 Result N Amount of asbestos containing materials removed Mg Result T Number of people living in the regenerated buildings people

C i t y C o nsulting Institute Page 38

Project selection criteria are general and all refer to non-profitable projects. In case of JESSICA, it is necessary to broaden the criteria by the following aspects:

 Profitability / self-financing ability of projects [crucial in the light of the method of financing projects within JESSICA]  Compatibility with an Integrated Municipal Development Plan [crucial in the light of necessity to implement a systemic approach to urban regeneration]

The present list of product and result indicators is very complex and enables applicants to characterise potential JESSICA projects. There is no need to introduce any changes as their implementation would additionally lengthen the process of JESSICA implementation.

1.2.3. List of key potential projects to be implemented in the years 2010-20136 An analysis has been conducted of potential ROP SL projects. The projects (listed in the compilation below) correspond to ROP SL guidelines on eligibility.

The general profile of the projects comprises actions in the following spheres:

 revitalization of public spaces;  development and modernization of historical buildings and museums;  modernization of transport infrastructure.

The character of these projects is non-commercial. However, some of them, especially concerning modernization of sports, cultural and post-industrial infrastructure could generate considerable income.

Table: Key potential regeneration projects (years 2010 – 2013)

No City Project 1. BIELSKO – BIAŁA Revitalization of the Bielsko Old Town – “Visit and rest” – stage II. 2. BIELSKO - BIAŁA Revitalization of the Słowackiego Park in Bielsko-Biała. 3. BIELSKO-BIAŁA Revitalization of the Bielsko Old Town. 4. BIERUO Reconstruction of XVI century dyke on Chemików Street. 5. BIERUO Revitalization of the area of Paciorkowce in Bieruo Nowy for sports and recreation purposes. 6. BIERUO Construction of an impounding reservoir in Bijasowice.

6 The list was developed on the basis of information supplied by self-government units in response to the request of the Marshall Office of Śląskie Voivodship. 7. BIERUO Development of new cycle paths. 8. BIERUO Development of the Łysina reservoir area in Bieruo Stary. 9. BIERUO New city monitoring system. 10. BIERUO Modernization of roads, pavements, power utilities and fibre networks within the Old Town. 11. BIERUO Reconstruction and repair of a post-industrial building including its adaptation for business, social and cultural purposes. 12. BIERUO Reconstruction and repair of the Jutrzenka Cinema and Theatre. 13. BIERUO Reconstruction and repair of the Gama Community Centre. 14. BIERUO Gallery and museum of the city of Bieruo. 15. BIERUO Reconstruction and adaptation of a sports hall in the Homer district. 16. BIERUO Revitalization of the area of a former crystal grinding workshop on Borowinowa Street. 17. CIESZYN Monitoring system in the Cieszyn Down-Town. 18. CIESZYN Regeneration of the building on 7 Limanowskiego Street in Cieszyn – construction of a public parking. 19. CIESZYN Regeneration of the building of the former border crossing by the Friendship Bridge. 20. CZĘSTOCHOWA Modernization of the Wieluoski Square and Rocha Street 21. DĄBROWA GÓRNICZA Construction of a school and education centre with a sports centre for disabled children and youth in Dąbrowa Górnicza: stage I – development of the area and external utilities. 22. DĄBROWA GÓRNICZA Reconstruction of the monumental Zagłębie Culture Palace in Dąbrowa Górnicza. 23. DĄBROWA GÓRNICZA Reconstruction of the DAMEL city stadium in Dąbrowa. 24. DĄBROWA GÓRNICZA New parking places and reconstruction of the communication system in the Morcinek district of Dąbrowa Górnicza. 25. DĄBROWA GÓRNICZA New parking places and reconstruction of the communication system in the Sikorskiego district in Dąbrowa Górnicza. 26. GLIWICE Development of the areas around the Radiostation. 27. GLIWICE Revitalization of the Radiostation – Gliwice.eu 28. GLIWICE Reconstruction and development of the stadium on Okrzei Street in Gliwice. 29. GLIWICE Reconstruction of the Municipal Theatre ruins. 30. GLIWICE Modernization of the “Forrest” swimming pool. 31. GLIWICE Development of the Rzeźniczy Square in Gliwice. 32. GLIWICE Modernization of the square on Narutowicza Street.

C i t y C o nsulting Institute Page 40

33. ŁAZISKA GÓRNE Revitalization of fitness trails around the “Żabka” swimming pool in Łaziska Górne. 34. MYSZKÓW Revitalization of the Myszków Market Square. 35. RUDA ŚLĄSKA Revitalization of the Kozioła Park. 36. RUDA ŚLĄSKA Revitalization of the historical centre of the Wirek district. 37. RUDA ŚLĄSKA Revitalization of the Sobieskiego Park. 38. RUDA ŚLĄSKA Revitalization of recreation grounds – development of the Achtelika Valley. 39. RUDA ŚLĄSKA Hill of New Ideas – revitalization of a park for sports and business purposes – stage II. 40. RUDA ŚLĄSKA Development of green areas – Planty Kochłowickie. 41. RUDA ŚLĄSKA Renovation of St. Paul Church and a viewing tower in Ruda Śląska. 42. SIEWIERZ Reconstruction of the Market Square in Siewierz. 43. SIEWIERZ Complex conservation of the Siewierz castle – stage II. 44. SIEWIERZ Development of active tourism and recreation infrastructure “Pogoria Summer and Water Sports Centre”. Cycle path from Kuźnica Warężyoska Reservoir to Siewierz Castle ruins. 45. SIEWIERZ Development of the Siewierz Castle surroundings for recreation, tourism and sports purposes. 46. SOSNOWIEC Reconstruction of the “MUZA” building in Sosnowiec as a chance to promote culture. 47. SOSNOWIEC Adaptation of the Sielecki Castle. 48. SOSNOWIEC Reconstruction of Chemiczna Street. 49. SOSNOWIEC Revitalization of the monumental Schoen Park in Sosnowiec. 50. SOSNOWIEC Revitalization of the Three Caesars’ Triangle and adaptation of the Biała Przemsza river for tourism and recreation purposes. 51. SOSNOWIEC Revitalization of the Rudna district – stage II. 52. STRUMIEO Revitalization of the monumental Strumieo Old Town. 53. ZAWIERCIE Development of the local cultural infrastructure by building a new seat of the Zawiercie Municipal Library. 54. ZAWIERCIE Development of the local sports infrastructure by modernizing the Zawiercie municipal swimming pool.

1.2.4. List of key projects financed after a restricted call of proposals

C i t y C o nsulting Institute Page 41

Table: List of key projects financed after a restricted call of proposals

No Measure/Sub-measure (no Project title Beneficiary Total project cost (PLN) Grant (PLN) and name) (leader + partners) Western Subregion Development Programme 24 Sub-measure 6.2.1. Modernization of a sports and entertainment arena Rybnik - Gmina 5 571 478,57 3 999 764,47 Revitalization - "large cities" in Rybnik - Boguszowice 25 Sub-measure 6.2.1. Monitoring system in the City of Rybnik - Stage II Rybnik - Gmina 2 190 631,24 1 840 000,00 Revitalization - "large cities" 26 Sub-measure 6.2.2 Establishment of a "Culture and Entertainment Rydułtowy - Gmina 11 045 000,00 6 160 000,00 Revitalization – “small cities” Centre" in Rydułtowy 27 Sub-measure 6.2.2 Social and cultural centre with exhibition areas Pietrowice Wielkie - 8 004 664,00 6 800 000,00 Revitalization – “small cities” Gmina 28 Sub-measure 6.2.2 Modernization of a sports and entertainment arena Czerwionka – 13 508 816,00 11 480 000,00 Revitalization – “small cities” for the purpose of a cultural and educational centre Leszczyny - Gmina 29 Sub-measure 6.2.2 Development of public spaces for the purposes of a Czerwionka – 3 764 920,00 3 200 000,00 Revitalization – “small cities”” municipal open – air market in Czerwionka Leszczyny Leszczyny - Gmina 44085509,81 33479764,47

Southern Subregion Development Programme 39 Sub-measure 6.2.2 Revitalization of degraded areas and development of Bestwina - Gmina 2 600 000,00 2 200 000,00 Revitalization – “small cities” technical infrastructure for the purposes of the Water Sports and Recreation Centre 40 Sub-measure 6.2.2 Time for Business – reconstruction of the railway Czechowice-Dziedzice - 5 002 000,00 3 900 000,00 Revitalization – “small cities” station in Czechowice-Dziedzice Gmina 41 Sub-measure 6.2.2 Revitalization of degraded areas of the Silesia coal Bielski - Poviat 2 488 556,00 1 900 000,00 Revitalization – “small cities” mine 42 Sub-measure 6.2.2 Revitalization of buildings of the former cement mill Goleszów - Gmina 1 416 517,60 1 204 000,00 Revitalization – “small cities” 43 Sub-measure 6.2.2 INTEGRATOR – Municipal Centre – repair of the Skoczów - Gmina 2 924 960,00 2 456 000,00 Revitalization – “small cities” monumental tenement house on 9 Mickiewicza Street in Skoczów 44 Sub-measure 6.2.2 Revitalization of the monumental Old Town in Strumieo - Gmina 2 967 040,00 2 516 000,00 Revitalization – “small cities” Strumieo 45 Sub-measure 6.2.2 Revitalization of Great Houses – stage I Ustroo - City 2 230 701,68 1 896 000,00 Revitalization – “small cities” 46 Sub-measure 6.2.2 Development of the area neighbouring with the Czechowice – 2 552 946,89 2 141 232,36 Revitalization – “small cities” Północ district in Czechowice - Dziedzice Dziedzice - Gmina 47 Sub-measure 6.2.2 Revitalization of areas neighbouring with the Castle Cieszyn - Gmina 1 548 120,00 1 101 600,00 Revitalization – “small cities” Hill in Cieszyn – modernization and development of the public parking 48 Sub-measure 6.2.2 Revitalization of the park in Łękawica Łękawica - Gmina 703 031,28 565 940,18 Revitalization – “small cities” 49 Sub-measure 6.2.2 Development of the quarry area in Glinka Ujsoły - Gmina 620 603,33 526 209,56 Revitalization – “small cities” 50 Sub-measure 6.2.2 Revitalization of post-industrial infrastructure for Węgierska Górka - 990 712,71 805 059,89 Revitalization – “small cities” business, recreation and social purposes Gmina 26045189,49 21212041,99

Northern Subregion Development Programme 37 Measure 6.1 Enhancement of Sports centre on Żużlowa Street in Częstochowa Częstochowa - City 70 000 000,00 29 520 000,00 regional growth centres 38 Sub-measure 6.2.1. Reconstruction and repair of the Youth Community Częstochowa - City 4 470 592,00 3 800 000,00 Revitalization - "large cities" Centre in Częstochowa 39 Sub-measure 6.2.1. Repair and adaptation of the former astronomical Częstochowa - City 2 646 153,85 1 720 000,00 Revitalization - "large cities" observatory for cultural and educational purposes in Częstochowa 40 Sub-measure 6.2.2 Business Activity Zone Poczesna - Gmina 14 117 647,06 12 000 000,00 Revitalization – “small cities” (project leader), partner gminas: Kamienica Polska, Starcza, Konopiska 41 Sub-measure 6.2.2 Development of the Market Square in Kłobuck Kłobuck - Gmina 6 559 789,54 5 575 821,10 Revitalization – “small cities” 42 Sub-measure 6.2.2 Reconstruction of the Market Square in Krzepice as Krzepice - Gmina 2 380 708,00 2 023 601,80 Revitalization – “small cities” an element of the town revitalization programme – stage I 43 Sub-measure 6.2.2 Reconstruction of the Old Town and Jana Pawła II Żarki - Gmina 2 761 000,00 2 295 000,00 Revitalization – “small cities” Square in Żarki 44 Sub-measure 6.2.2 Revitalization of the Market Square in Koziegłowy Koziegłowy - Gmina 1 936 025,88 1 622 400,00 Revitalization – “small cities” 45 Sub-measure 6.2.2 Myszków Business Initiative Centre in former factory Myszków - Gmina 3 025 352,20 1 193 548,88 Revitalization – “small cities” buildings from the beginning of the XXth century; Myszków, 12 Kościuszki Street 46 Sub-measure 6.2.2 Revitalization of areas degraded by excavation of Niegowa - Gmina 783 070,92 665 610,28 Revitalization – “small cities” moulding sand in the gmina of Niegowa for tourism and recreation purposes 47 Sub-measure 6.2.2 Revitalization of the Market Square in Myszków - Myszków - Gmina 3 285 590,21 651 507,28 Revitalization – “small cities” Mrzygłód 41 965 929,66 31 547 489,34

C i t y C o nsulting Institute Page 43

Central Subregion Development Programme 84 Sub-measure 6.2.1. Revitalization Adaptation of a building for a Social Initiative Chorzów – Gmina with 1 729 411,78 1 470 000,00 - "large cities" Centre in Chorzów poviat rights 85 Sub-measure 6.2.1. Revitalization Adaptation of a building for a Social Initiative Bytom - City 1 935 940,00 1 470 000,00 - "large cities" Centre in Bytom 86 Sub-measure 6.2.1. Revitalization Adaptation of a building for a Social Initiative Świętochłowice - City 3 526 419,77 1 353 985,95 - "large cities" Centre in Świętochłowice 87 Sub-measure 6.2.1. Revitalization Adaptation of a building for a Social Initiative Ruda Śląska - City 1 729 411,78 1 470 000,00 - "large cities" Centre in Ruda Śląska 88 Sub-measure 6.2.1. Revitalization Safe Mysłowice – city monitoring system Mysłowice - 1 684 490,60 1 200 000,00 - "large cities" Municipality Total 10 605 673,93 6 963 985,95

Total resources in all sub-regional programmes 122 702 302,9 93203281,8

C i t y C o nsulting Institute Page 44

1.2.5. Conclusions for JESSICA

•Due to the necessity of ensuring project eligibility and more importantly, smooth process of formal appraisal, Formal requirements of ROP beneficiaries avoided projects that did not directly result from the list of exemplary projects; SL (Priority 6) correspond to •Information on regeneration reached local JESSICA implementation governments shortly before the deadline for filing application forms. Several local authorities did not conditions manage to prepare good projects on time.

•It is the guidelines that created the picture of Silesian regeneration. The basic aim of local government Implementation of JESSICA authorities is to win a grant. Only in case of failure, alternative solutions are considered such as PPP, will not necessitate any changes in technical drafts, combining the project with changes to the list of other projects implemented in the direct product and result indicators neighbourhood (also by other institutions).

In response to the •The market expects a mechanism enabling application in long term perspective (revolving mechanism). revitalization market •The projects implemented should be profitable and demand, it is recommended related (logically and economically) with other actions to include rural communes implemented in the region. strongly influenced by large cities on the list of potential JESSICA beneficiaries

1.3. Analysis of strategic documents

1.3.1. Local Revitalisation Programmes

The objective of Local Revitalization Programmes is to elaborate social, economic and spatial development directions for degraded urban areas, post-industrial and post-military areas. These documents are parts of strategic planning actions, that is, actions undertaken by local self-government authorities to plan for the future, define project stages and provide for financing resources. Effective strategic planning may be characterised by the following features:

 It helps self-government entities define common objectives acceptable by the society and achieve them,

City Consulting Institute Page 45

 It presents development aims and tasks to do as well as necessary resources and achievement methods,

 It focuses on feasible (not desirable) enterprises by real and true assessment of local resources, chances and threats. Effective strategic planning necessitates also financial planning actions such as Multi-annual Investment Plans. It provides control and realism in the process of defining priorities and their selection. Strategic planning combines a large number of small projects (investment tasks) in order to achieve wider economic objectives. Strategic planning enables authorities e.g. to:

 avoid guesswork and accidental decisions,

 organise preferences of the local society,

 organise local problems and demands in order of precedence. Analysis of LRPs adopted by particular city councils has proven that these documents are multi-annual plans of economic, social and spatial actions covering the period of maximum 20 years. All the activities are planned for the years 2007 – 2013, in correspondence with the ERDF programming period.

City Consulting Institute Page 46

Table: Strategic planning model

Development strategy Spatial Development Plan

Policies, programmes, sectoral plans

Local Revitalization Programme

Multi-annual Investment Plan

Priorities

Annual budget

Investment expenditure Operating expenditure

Project Project Project Project

Local Revitalization Programmes assume the necessity of update as new demands appear and new development directions are defined. These Programmes are coherent with ROP SL or IRDOP (in case of not updated programmes) guidelines. Revitalization projects concern not only technical infrastructure but also improvement of local community life quality. Local Revitalization Programmes enable gminas and their partners to apply for European Union grants to finance their projects. Possibility of financing investments from external resources enables gminas and other self-government entities to implement the projects defined by the

City Consulting Institute Page 47

Programme. The major objective of a LRP is thus provision of coherence between all activities and tasks concerning a particular revitalization area. Revitalization projects defined by the LRPs analysed are primarily investments eligible for financing from the resources of the Śląskie Regional Operational Programme within Priority VI Sustainable urban development. In order to win a grant, it is necessary for a potential beneficiary to present a Local Revitalization Programme including the project to be co-financed. Local Revitalization Programmes include also key projects and investments covered by Subregion Development Programmes. The key projects are: 1. Podium – a modern sports and entertainment arena in Gliwice. 2. New seat of the Museum of Silesia in Katowice. 3. Enhancement of the role of the Pilgrimage Centre by modernizing Najświętszej Maryi Panny Avenue in Częstochowa. 4. Academic Information Centre and Library. 5. International Congress Centre in Katowice.

Investments defined by Local Revitalization Programmes are coherent with the types of projects defined by the Detailed Description of ROP SL Priorities, that is:  Construction (including outward extension, upward extension and reconstruction), conversion and repair of public buildings shaping the metropolitan image of the region.  Development and transformation of representative public areas characterised by high quality urban solutions and supraregional importance.  Construction (including outward extension, upward extension and reconstruction), conversion and repair of academic infrastructure.  Construction (including outward extension, upward extension and reconstruction), conversion and repair of cultural, tourism, sport and recreation infrastructure of supraregional importance, in which international meetings, congresses, fair, exhibitions, sports and entertainment events may be organised.  Construction (including outward extension, upward extension and reconstruction) and conversion of strategic public transport infrastructure (excluding means of transportation).  Establishment and development of economic activity zones, especially on post-industrial areas.  Reconstruction and repair of post-industrial/post-military/post-state farm environments, including their adaptation for business, educational, tourism, social or cultural purposes, as well as development of neighbouring areas, resulting in solving economic or social problems in the revitalized area (except for housing estates).

City Consulting Institute Page 48

 Development of municipal areas, including construction, reconstruction and repair of buildings for business, educational, tourism, social or cultural purposes, as well as development of neighbouring areas, resulting in solving economic or social problems in the revitalized area (except for housing estates).

 Supplementation and repair of built-up areas, including infill buildings, repair of occupied and unoccupied buildings and their adaptation for business, educational, tourism, social or cultural purposes, as well as development of neighbouring areas, resulting in solving economic or social problems on the revitalized area (except for housing estates).

 Complex development of land for business purposes, except for infrastructure for inhabitants.

 Development of monitoring systems aimed at increasing safety in public spaces.

 Replacing asbestos elements of multi-family housing developments with less harmful materials, only with asbestos utilization.

The Local Revitalization Programmes analysed have to be updated due to the following reasons:  LRPs have not been updated since the last call for proposals of the EU programming period 2004 – 2006 or since selected projects have been included in particular subregional development programmes of Śląskie Voivodship within ROP SL 2007 – 2013,  There has still been no call for proposals announced in the present programming period as the call has been withheld until further notice.  Introduction of new projects or modification of the already included ones in the course of the update process before the call for proposals. LRPs are usually updated after application documents had been prepared or after the planned deadline of applying within subregional development programmes had been announced. There is also a necessity to ensure coherence between multi-annual investment plans and local revitalization programmes of a particular self-government entity. Due to the new request of the ROP MA, it is obligatory to ensure financial resources for a particular project only when a co-financing contract is to be signed. There may be thus postponements of multi-annual plan completion dates (new project titles, costs, financing sources and time-tables).

City Consulting Institute Page 49

1.3.2. Multi-annual Investment Plans Certain competences of self-government entities to earn profit and bear expenses have considerable impact on the level, directions and types of investments.

Public investments of self-government entities may be divided according to the following scheme:

 social infrastructure (e.g. schools, community centres, social security centres, hospitals, out- patient clinics, etc.),

 technical infrastructure (e.g. roads, heat, water and waste water systems, sewage treatment plants, dumps, city transport). Investments in infrastructure contribute to improvement of life quality and business activity conditions. They may also have positive impact on the job market. One should also remember that investments in infrastructure (including revitalization projects) result in greater attractiveness of a particular area than investments in social infrastructure.

Investment policy of self-government entities implements the objectives of social and economic policies and influences the investment attractiveness of a particular entity. Investment policy is a type of expenditure policy and is combined with profit policy by defining possible sources of financing public investment and debt service. Investment policy of a self-government entity is a conscious and purposeful choice of:

 projects to be implemented in accordance with certain previously defined criteria – new, continued, modernization, material, financial projects (including the definition of investment potential of the particular entity);

 methods and sources of financing investment (grants, e.g. from the European Union as well as credits and loans), reflected in the development strategy, revitalization programme and multi-annual investment plan. A multi-annual investment plan of a self-government body comprises a compilation of investment projects to be implemented in the next few years. It is developed in result of strategic choice of investment directions in a long-term perspective and its aim is social and economic growth.

The bases for multi-annual investment plans are medium-term and long-term budget projections, taking into account the maximum debt level and the costs of debt service. These projections are the basic tool, integrating profit with expenditure.

City Consulting Institute Page 50

According to statutory regulations, the primary objectives of long-term investment policies are the following:

 improvement of road infrastructure, public transport – projects aimed at higher transport quality,  improvement of living conditions, e.g. by providing connection to the waste water system,  revitalization of historical and monumental buildings,  revitalization and activisation of degraded urban areas, degraded post-industrial, post- military and post-mining areas,  construction or modernization of buildings aimed at the development of sports, tourism and recreation,  providing conditions for entrepreneurship development,  providing conditions for housing development,  improvement of technical conditions of public buildings.

City Consulting Institute Page 51

Table: Budgeting in a self-government entity

Present financial situation of the entity Initial assumption Major tasks of budget values

Main Budget Investment threats assumptions projects

Forecast of macro- Grants economic indicators

Profit policy

The key assumptions and directions of investment policies of self-government entities are the following:  ensuring compatibility with social and economic development conditions of self-government entities, defined in strategic and urban planning documents,  ensuring continuation of the already began projects and the ones planned for the analysed period, including key social and economic tasks,  assuming the estimated expenses on the basis of the present and the long-term budget projections as well as macro-economic indicators,  assuming the expenses planned for the initial years on the basis of tender procedures, signed contracts or cost estimates,  adaptation of the projects to operational programmes for the years 2007 – 2013, financed by the EU (chance for a grant),

City Consulting Institute Page 52

 introducing projects in case of which the Council of the particular entity has already undertaken financial obligations,  maintaining indicators of debt and debt service on a reasonable level, not exceeding the statutory limits (Law on public finance). Limitations concerning debt levels for self-government entities are the following:  the total sum of instalments to be paid in the particular year as well as potential payoff of sums resulting from guarantees granted by a self-government entity, together with due interest from credits and loans, due interest, discount and redemption of securities issued by the entity must not exceed 15% of the income planned for the particular budget year,  in case the relation of the total sum of the public debt and amounts due from sureties and guarantees granted by public finance sector entities to the GDP exceeds 55%, the total sum of debt and debt service increased by potential liabilities resulting from guarantees of a self-government entity must not exceed 12% of the income planned for the particular budget year, unless these liabilities had been incurred before the day this relation was published. There are also certain limitations concerning the debt level of self-government entities:  the total debt of a self-government entity at the end of a budget year must not exceed 60% of actual revenues of this entity in that particular year.  throughout a budget year, the total debt of a self-government entity at the end of each quarter must not exceed 60% of planned revenues of this entity in that particular year.

1.3.3. Conclusions for JESSICA  In order to formulate the directions of investment policy, being the basis for a Multi-annual Investment Plan, self-government entities: - define project selection criteria, e.g. in accordance with its long-term objectives defined in strategic documents such as development strategies or revitalization programmes, - define own business potential and economic situation, as well as financial, economic and technological feasibility of projects, - choose the cheapest methods of financing, adequate to the investment type as well as present and anticipated financial situation, - formulate and then update a Multi-annual Investment Plan at least once a year, in accordance with the investment policy, - adapt multi-annual plans to annual budgets, introducing modifications caused by demographic, financial or economic factors;  Multi-annual Investment Plans include:

City Consulting Institute Page 53

- principal assumptions, including those on the document update, - projection of revenues and expenditures for the period covered by the plan as well as debt and debt service ratios, - general characteristics, including the structure of investment expenditures, new and continued projects, - material and financial plan, divided into groups, e.g. roads, revitalization, health care, education, etc. The plan includes each project title, implementation period, total cost in particular years as well as sources of financing;  Multi-annual Investment Plans include mostly projects aimed at social and economic development (transport, investment attractiveness, sports, recreation, life quality and public safety);  as investment is one of the primary public functions of self-governments, influencing the life quality of inhabitants, resources devoted to investment are higher from year to year;  financial engineering of degraded areas regeneration projects comprises primarily resources from ROP SL (Priority VI) and own contribution;  most projects included in the investment plans analysed are not coherent with the ones included in Local Revitalization Programmes; this situation results from the following reasons: o LRPs have not been updated since the last call for proposals of the EU programming period 2004 – 2006 or since selected projects have been included in particular subregional development programmes of Śląskie Voivodship within ROP SL 2007 – 2013, o There has still been no call for proposals announced in the present programming period as the call has been withheld until further notice. o Introduction of new projects or modification of the already included ones in the course of the update process before the call for proposals.  Multi-annual Investment Plans and Local Revitalization Programmes have to be updated in order to introduce potential urban regeneration projects to be co-financed from the resources of ROP SL. Projects should be verified with regard to their scope, timetable and cost. Moreover, new projects should be added to strategic documents in response to social demands and needs.

City Consulting Institute Page 54

1.4. Identification and evaluation of specific potential JESSICA projects

1.4.1. Projects reported in a survey research The present list of potential JESSICA projects is very comprehensive. The value of the projects may exceed 150 mln EUR. The list has been developed on the basis of a survey research, conducted by City Consulting Institute Sp. z o.o. and the Marshal Office in Katowice, as well as on the basis of personal meetings of the Consultant representatives with members of local governments.

No City Project 1. BIELSKO – BIAŁA Construction of a City Stadium on Rychlinskiego Street in Bielsko – Biala. 2. BLACHOWNIA New Blachownia market. 3. BLACHOWNIA Repair of two business premises owned by the gmina of Blachownia 4. BLACHOWNIA Revitalization of recreation areas around the Blachownia water reservoir; a harbour and a yacht club. 5. CHORZÓW Adaptation of a monumental municipal slaughterhouse for the purpose of a business centre. 6. CHORZÓW Modernisation of a post-industrial shaft on Siemianowicka Street. 7. CHORZÓW Construction of indoor tennis courts. 8. CHORZÓW Reconstruction of commercial pavilions and a local community centre. 9. CHORZÓW Modernisation of the building of the Silesian College of Computer Studies. 10. CHORZÓW Regeneration of a building of The Poznan School of Banking, Faculty in Chorzow (66 Wandy Street). 11. CHORZÓW Regeneration of a building of The Poznan School of Banking, Faculty in Chorzow (29 Sportowa Street). 12. CHYBIE Regeneration of post-industrial areas in Chybie (Kuchenna and Polna Street). 13. CIESZYN Regeneration of the municipal market on Katowicka Street.

14. CIESZYN Regeneration of the Cieszyn Venice area.

City Consulting Institute Page 55

15. CZELADŹ Reconstruction and development of buildings for commercial purposes (Rynek 26/28). 16. CZELADŹ Reconstruction and development of a building (Rynek 22) for the purpose of a business centre. 17. CZELADŹ Reconstruction of a monumental pithead building for the purpose of a training and cultural centre. 18. CZELADŹ Construction of commercial pavilions within the medieval Old Town in Czeladz. 19. CZELADŹ Reconstruction of a monumental building of the “Elektrownia” Modern Art Gallery. 20. CZERNICHÓW Regeneration of the “Flamingo” Centre in Miedzybrodzie Zywieckie. 21. CZĘSTOCHOWA Development of a recreation centre in Lisiniec.

22. CZĘSTOCHOWA Reconstruction of a tenement building on 44 Wolności Street.

23. CZĘSTOCHOWA Construction of a building on Śląska and Waszyngtona Streets for service and hospitality purposes.

24. DĄBROWA GÓRNICZA Regeneration of Dabrowa Gornicza down-town – development of post-industrial areas of the Defum factory. 25. DĄBROWA GÓRNICZA Regeneration of Dabrowa Gornicza down-town –development of public space in the neighbourhood of the railway station. 26. DĄBROWA GÓRNICZA Regeneration of post-industrial buildings of the “Paryz” mine in Dabrowa Gornicza. 27. DĄBROWA GÓRNICZA Regeneration of post-industrial areas of the “Paryz” mine in Dabrowa Gornicza (Jadwiga heap). 28. GLIWICE Development of investment grounds – Science and Technology Park. 29. GORZYCE Development of a Recreation Centre “Olza “.

30. JAWORZNO Construction of a multi-storey car park with commercial premises in Jaworzno city centre. 31. KATOWICE Regeneration of Pawla, Wodna and Gornicza Streets in Katowice.

City Consulting Institute Page 56

32. KATOWICE Regeneration of Mariacka and Dworcowa Streets in Katowice. 33. KŁOBUCK Reconstruction of the municipal open-air market. 34. KŁOBUCK Adaptation of a palace to a conference centre and revitalization of the palace park in Kłobuck. 35. KŁOBUCK Development of the swimming pool area in the Sports and Recreation Centre in Kłobuck. 36. LUBLINIEC Construction of a swimming pool in Lubliniec. 37. MIASTECZKO ŚLĄSKIE Adaptation of areas neighbouring the Zinc Mill in Miasteczko Slaskie for business purposes. 38. OGRODZIENIEC “Krępa” Recreation Centre in Ogrodzieniec.

39. POWIAT BĘDZIOSKI Regeneration of Rogoznik and adaptation for the purpose of a water sports centre. 40. RUDA ŚLĄSKA Commercial Centre on Janasa Street.

41. SŁAWKÓW Regeneration of the monumental centre of Slawkow – stage I – commercial buildings. 42. ZAWIERCIE Cristal Valley – regeneration of post-industrial areas.

43. ZAWIERCIE Development of degraded urban areas surrounding the railway station in Zawiercie.

The above projects have been analysed by the Consultant with regard to the following issues:

 profitability (income generation capacity defined on the basis of a study of the documents supplied by potential beneficiaries as well as personal meetings);  location (attractive location of the project);  stage of document preparation (technical plans, concepts, drafts, feasibility studies).

On the basis of the analyses conducted it may be stated that all projects are profitable or combine the open access with commercial development.

Some projects are perfectly located (e.g. Development of a recreation centre in Lisiniec – 200 metres from the Jasna Gora Sanctuary) that will be directly translated to their attractiveness.

The projects are consistent with urban planning documents, most of them have ready functional – utility programmes and technical plans.

City Consulting Institute Page 57

On the basis of the above analysis one may state that as far as project maturity and readiness for implementation are concerned, potential JESSICA beneficiaries are ready for the initiative implementation.

Table: Analysis of selected projects7

No City Project 1. CZELADŹ Element Description Project title Construction of commercial pavilions within the medieval Old Town in Czeladz. Short The project concerns developing an area situated description in the historical and monumental centre of Czeladź. It consists in building a complex of historically styled commercial pavilions within the medieval Old Town (together with water and sewage systems and transport infrastructure). 39 commercial premises located in a few pavilions with arcades will be constructed. The project location is very advantageous – in direct neighbourhood of the Market Square and the National Road no 94 from Wrocław to Kraków. Project value Project value: 8.454.759 PLN The resources have been provided in the Multi- annual Investment Plan. Project timetable: 2010-2011. Compatibility The project is compatible with the LRP and other with the LRP strategic documents. The Local Revitalization Plan of the City of Czeladź was approved by the resolution LVI / 765 / 2005 of 21 July 2005. The Plan will be updated after the issue of state aid in regeneration projects will will have been regulated by appropriate laws (as it influences the financial engineering of projects) and after the Environmental Impact Assessment procedures will have been completed. The project is complementary with regeneration actions undertaken in the years 2006-2007 in the neighbouring areas: the project consisting in revitalization of the urban area and complete technical infrastructure supply of 10 streets and the Market Square was supported by an IRDOP grant. PPP The project does not directly necessitate a contribution of a private partner. However, there are private parties interested in it:

7 The above compilation has been developed for all projects mentioned in the present Study. The above examples are to prove the great diversity of actions to be undertaken and stages of preparation of particular beneficiaries.

City Consulting Institute Page 58

No City Project

 private entities willing to create a commercial network in cities  association of merchants (capital contribution) ENION S.A. (Turon Group) building its own power supply network will be a project partner. Technical conditions have been already agreed. Another project partners is ZIK Sp.o.o. – a company managing the municipal water and sewage system. Technical The project has: documentation  complete technical plans,  all necessary opinions and agreements,  building permission for public purpose investment,  decision on environmental conditions of approval of an undertaking,  building permit,  technical graphs,  cost estimates, bill of quantities, Specification for Work Accomplishment and Acceptance

2. CZĘSTOCHOWA Element Description Project title Development of a recreation centre in Lisiniec. Short Development of an urban area (about 40 ha), description situated in the neighbourhood of the city centre and the Jasna Góra Sanctuary. Planned usable area – 11.000m2. Functional programme:  high quality aquapark  wellness & Spa  sport & fitness  entertainment facilities Total water area – 1590 m2 Project value 127.000.000 PLN Compatibility The project has been included in the Municipal with the LRP Revitalization Programme (updated in 2008). PPP The project is anticipated to be implemented within PPP. Technical Functional – utility programme. documentation

3. JAWORZNO Element Description Project title Construction of a multi-storey car park with commercial premises in Jaworzno city centre. Short The aim of the project is to: description - provide parking places in the city centre (in the neighbourhood of the Old Town Market), - development of one of the key city districts for

City Consulting Institute Page 59

No City Project

the purposes of a pedestrian zone; construction of a fine arts square between the library and the museum; - combination of parking and service functions. The project product will be a four-storey building with 282 parking places (total area of 9 490 m2). The ground floor will be devoted to service points. Project value Estimated project value: 13 895 000 PLN No resources have been provided for the project in the Multi-annual Investment Plan as the city still searches for additional sources of financing. Compatibility The project is compatible with the Local with the LRP Revitalization Programme and is located in a revitalization area. It is also compatible with the objectives of measure 6.2.1 Revitalization of big cities of the ROP SL 2007-2013. PPP Possibility of establishing PPP. Technical Spatial conception of a multi-storey car park documentation (developed in 2009).

1.4.2. Other potential projects The list of potential JESSICA projects will be successively broadened, depending on the following factors:

 information and methods of reaching potential beneficiaries;  implementation of public-private partnerships;  JESSICA operation and opinions on the mechanism;

1.4.3. Assessment of the interest of potential beneficiaries in a revolving financial instrument In the course of work leading to the development of the Report, a survey research has been conducted and several meetings between City Consulting Institute Sp. z o.o. experts with representatives of local government authorities have been organised.

Interest of potential beneficiaries may be estimated on the basis of the following factors:

 list of potential projects;  interest in the financing method (including potential institutional solutions);  information transferred from Municipal Offices to their budget entities.

City Consulting Institute Page 60

List of potential projects Financing method Information on JESSICA

•over 150 projects have •local governemtns search •information on JESSICA is been reported, out of for attractive methods of still very poor; which 43 may be directly financing their projects, •main principles of placed in the JESSICA including revolving JESSICA operation have context; mechanisms enabling been presented during •preliminary list of them to obtain resources the meetings between projects has been in the most advantageous the Consultant and local prepared; moment of a particular government project implementation; representatives; •local governements •some local governement prove considerable entities informed their interest in participation in budget entities and other UDFs potential beneficiaries on the chance offered by JESSICA.

1.5. SWOT analysis for JESSICA The SWOT analysis has been developed on the basis of regional conditions concerning urban regeneration projects.

Possibility of financing projects

STRENGTHS WEAKNESSES

 large number of wide-range projects that are  relatively little resources, already prepared or implemented,  necessity of searching for additional sources of  continuity in financing regeneration projects, financing the mechanism in order to develop it,

 greater scope of project effect achieved thanks to  lack of experience with financial mechanisms implementation of integrated projects, aimed at urban development, characterised by wider scope and value, also commercial and generating considerable profit ,  little knowledge on JESSICA among potential beneficiaries,  participation of the private sector in project financing,  lack of Integrated Urban Development Plans; Local Revitalization Programmes comprise  fast payment schedule and availability of projects that are not systemically related, resources as well as possibility of quick use of resources,  unpreparedness of local governments to conclude PPP contracts,  wide range of financial products (loans, credits, capital contribution, guarantees),

 a revolving mechanism opening a long-term possibility of financing

City Consulting Institute Page 61

OPPORTUNITIES THREATS

 possibility to implement competitive, revolving  higher interest rates on credits and loans, financial mechanisms,  strict monetary policy of the state,  greater allocation of resources achieved thanks to participation of numerous institutions and  other competitive financial mechanisms, partners in JESSICA,  difficult situation on the credit market and  interest rate rebates, restrictions introduced by banks,

 mild monetary policy of the state,  engagement of self-governments in projects that are not related with revitalization,  failure to meet the funding gap criteria,  high debt and debt service ratios of local  readiness of self-governments and financial government entities, institutions to finance regeneration projects,  passive attitude of public entities towards  implementation of PPP projects, financed from projects implemented within PPP, private resources,

City Consulting Institute Page 62

1.6. Conclusions for JESSICA

The market of regeneration •beneficiaries prepare projects on the basis of guidelines that will enable them to apply for EU grants; projects in Silesia has been •formal requirements, eligibility criteria and lists of to a considerable extent potential beneficiaries correspond to JESSICA regulations; shaped by the formal •there is no need to introduce any key changes to ROP SL requirements of IRDOP and in the process of JESSICA implementation; ROP SL

•Beneficiaries mostly apply for grants, what results in the development of non-profit projects, whose maintenance There is a necessity to in long perspective becomes a burden for local governments; implement revolving •Revolving mechanisms offer a possibility of better financial mechanisms planning and searching for project partners;

•as there are no trainings on JESSICA, knowledge of self- government representatives on the initiative is very poor; There is no system of information and trainings on JESSICA

•most regeneration projects do not result from systemic solutions; Application procedure based •LRPs are developed in order to adapt the document to on Integrated Urban potential projects; Development Plans should •mechanisms should be introduced in order to necessitate be considered complex urban planning;

•in case of JESSICA projects it is necessary to evaluate their profitability and possibility of self-financing Project profitability should be added to the evaluation criteria

City Consulting Institute Page 63

2. Financial and social analysis for JESSICA implementation 8

2.1. Present financial instruments for urban regeneration projects

Currently there are no funds created from public resources and specialised in financing complex regeneration projects in Silesia. Most revitalization projects are financed externally, primarily by bank loans. Nevertheless, bank credits are available only for th entities meeting specific criteria and requirements. This option is also strongly dependent on the situation on the financial market, including interest rate strategy of national banks.

The main financial resources for regeneration projects in the Śląskie Voivodship are:  Internal funds of territorial self-government and other public institutions,  European Union funds,  European Investment Bank (EIB) funds,  Commercial banks’ funds,  Private equity (for commercial projects)

Financial resources obtained for renovation projects are often related to operational plans or funds, e.g. to regional development. Each individual financial instrument used in Silesia is described below.

The Śląskie Regional Operational Programme (ROP SL) for 2007 – 2013

The main European Union financial source for Silesian regeneration projects is the European Regional Development Fund (ERDF), within the Śląskie Regional Operational Programme for 2007-2013 – Priority VI. Sustainable urban development.

Priority VI supports projects related to reinforcing regional development centres and regeneration of degraded areas. This support includes ventures associated with the development of metropolitan functions (including projects concerning characteristic objects or representative areas) located in big cities of the Silesian agglomeration. As part of the local development centres’ strengthening plan, 20 million PLN was granted to support projects implemented in city agglomerations defined in the Spatial Development Plan of the Silesian Voivodship (19 urban districts/cities, combined into 4 city agglomerations).

8 The level of potential contribution of particular shareholders has been defined on the basis of the development perspective of the potential JESSICA projects. In the Consultant’s opinion, the engagement of particular shareholders may be even higher than the one adopted foe analysis purposes. Due to the fact that the potential JESSICA projects are well prepared and correspond to regional development strategies, it was assumed the EIB may also be interested in financing them.

City Consulting Institute Page 64

Revitalization of post-state farm environments, post-industrial and post-military degraded areas puts emphasis on restoring public space order. These projects concern development of urban areas, infilling the existing buildings, providing investment areas with access to the domestic and international road network. Apart from the full scope of revitalization activities for degraded areas, additional housing investments are planned, dedicated to remove asbestos from existing buildings. All degraded areas regeneration projects have to result from Local Revitalization Programmes. Projects putting emphasis on economical recovery, development of new forms of economic activity or creating new jobs, are prioritized.

Regeneration activities have been divided for government units with various population potential. Maximum grant amounts to 85% of the total eligible cost of investment.

Currently, projects to be financed are chosen in a competition within Subregional Development Programmes or from the indicative list of key projects. The ERDF’s total financial pool for Priority VI is 312,8 million PLN. The resources devoted to the key projects amount to 153,85 mln PLN. 47,29 mln PLN was devoted to subregional projects and 111,66 mln PLN to the contest ones.

Actions complementary to regeneration measures distinguished in ROP SL are the following:  Priority I: Technical research and development (R&D), innovation and entrepreneurship, Measure 1.3. Technology and innovation transfer.  Priority II: Knowledge society, Measure 2.1 Knowledge society infrastructure; Measure 2.2. Development of public e-services.  Priority III: Tourism, Measure 3.2. Tourism-related infrastructure. 3.3 Tourism information systems, 3.4. Tourism promotion.  Priority IV: Culture, Measure 4.1. Culture infrastructure, 4.2. Culture information systems, 4.3. Culture promotion.  Priority V: Environment, Measure 5.3. Quality air and renewable energy sources.  Priority VII: Transport, Measure 7.1. Modernization and development of transport system, 7.2. Public transport.  Priority VII: Educational infrastructure, Measure 8.1. Higher education infrastructure.  Priority IX: Health care and recreation, Measure 9.3. Local sport infrastructure.

Operational Programmes for the years 2007 – 2013

Renovation ventures may be also realized together with other operational programmes, e.g.:  Rural Development Programme for 2007 – 2013. Priority axis III. Quality of life in rural areas and differentiation of rural economy.

City Consulting Institute Page 65

 Infrastructure and Environment Operational Programme.

Priority axis XI. Culture and cultural heritage.

Priority axis XIII. Higher education infrastructure.

Priority axis VII. Environment friendly transport.  Human Capital Operational Programme for 2007 - 2013

Priority I. Employment and social integration, Priority VII. Social integration promotion.  Innovative Economy Operational Programme for 2007 - 2013

Priority axis VI. Polish economy on the international market in 2007-2013.  Operational Programme: Trans-border Cooperation – Republic of Poland – Slovak Republic – 2007 – 2013 and Operational Programme: Trans-border cooperation Czech Republic – Republic of Poland - 2007 – 2013.

A loan from the European Investment Bank for financing regional development – granted with the BGK support.

The loan for regional development in the BGK can be granted to the following entities:  Territorial self-government units (Polish acronym - JST): municipalities, associations of municipalities, districts and voivodships,  JST subsidiaries and budget entities,  Other units, if the credited project aims at regional development.

The condition to receive the loan is to dedicate it for:  Co-financing projects supported by structural funds of the EU,  Co-financing projects according to the regional development strategy (without the EU support),

The loan can embrace various economy sectors. The objectives of the loan may include: environment protection, infrastructure, knowledge economy development, education and health.

City Consulting Institute Page 66

Table: The EIB funds for regional development.

Sector The bank loan object Environment  Drinking water supply and distribution protection  Waste water and sewerage,  Environment protection equipment,  Reduction of noise and vibration,  Collection, transport and recycling of waste,  Renovation of protected monuments and buildings,  Regeneration of urban constructions,  Other activities related to environment protection. Infrastructure  Transportation (roads, rails, ports and airports),  Telecommunication (e.g. telecommunication network),  Industrial parks and zones,  Tourist infrastructure,  Sport, recreation and cultural objects. Knowledge  Human capital and society’s qualification in line with the concept Economy of lifelong learning, access to high quality information and Development communication technology infrastructure,  Education, commercial and administrative processes within the following areas: higher education, university research, media, logistic/mail processes, e-business, e-government,  Innovative products and processes/services supporting long-term competitiveness of the economy. Education  Educational infrastructure and auxiliary facilities (e.g. student accommodation, sport facilities),  Education equipment and teaching tools (e.g. textbooks),  Curricula, teacher training programmes etc.,  Vocational training and lifelong learning programmes in education,  Research components in higher education (e.g. science parks),  E-learning and open universities,  Development and knowledge dissemination via the media. Health  Buildings and equipment at all heath care levels, including primary health care, clinics, hospitals, hospices, psychiatric care,

City Consulting Institute Page 67

 Investment in research and development (education centres, equipment, hardware and software for staff training, laboratories, diagnostic centres),  Centres and programmes for public health and preventive care,  Infrastructure and programmes for preventive and social healthcare including: social support, nursery, care for the disabled etc.  Veterinary projects.

EIB funds can cover up to 50% of total project costs. In case of projects supported by other EU funds or loans, the total EU support can cover maximum 90% of the total cost.

The minimum and maximum cost of a project in case of this financing method is 40 thousand and 25 million EUR respectively. The total cost of the loan granted cannot exceed 12.5 million EUR.

A bank loan is granted in Polish zlotys for minimum of 4 and maximum of 5 years. The grace period for repayment is up to 5 years. Interest rate of loans is variable and covers:  Variable basis rate, settled by the EIB every 3 months,  Fixed margin for the BGK.

The Bank charges also commission for granting a credit.

Examples of regeneration projects co-financed by the EIB in Silesia are the following:  City of Częstochowa: Reconstruction of the areas surrounding Najświętszej Maryi Panny Avenues, project value: 12.370.000 PLN, EIB resources: 7.865.250 PLN  City of Częstochowa: Development of the amphitheatre by the Niemena Promenade for recreation purposes, project value: 5.300.000 PLN, EIB resources: 780.000 PLN,  City of Katowice: Reconstruction of the Katowice Down Town, project value: 120.742.701 PLN, EIB resources: 4.512.000 PLN,  City of Katowice: Reconstruction of the communication system around the Jantor ice rink, project value: 9.633.039 PLN, EIB resources: 1.144.000 PLN,  City of Katowice: Rawa Boulvars, project value: 20.127.272 PLN, EIB resources: 6.787.699 PLN.

Domestic funds

Funds for regeneration projects can also come from the following financial investment instruments:  Social housing support programme from the Surcharge Fund;  The Municipal Investment Development Fund;

City Consulting Institute Page 68

 The Thermomodernization Fund;  The TBS Programme (Polish: TBS - Towarzystwo Budownictwa Społecznego - Social Housing Society)  The National Fund for Environmental Protection and Water Management

The financial instruments mentioned above (except for the NFEPWM) are established, assigned or transferred on the basis of separate Acts to be realized by the BGK. The Bank plays a special and important role in the Polish banking system: it finances and supports housing development, expansion of small and medium sized companies and local government operations. The BGK, as a state financial institution of high credibility, specializes in serving the public finance sector. Governmental programme of financial support from the Surcharge Fund devoted to social housing, sheltered housing, flophouses and lodging houses for the homeless.

The Surcharge Fund supports the following projects:  Construction of a building, including extension of an existing property owned by the investor or in their perpetual usufruct;  Renovation and rebuilding of a property or its part (owned by the investor and fit for human habitation);  Change in the way of using a property or its part (owned by the investor and requiring renovation or rebuilding);  Purchase of a housing property or a building;  Purchase of a housing property or a building and its renovation;  Covering a part of costs of a TBS project – building a housing property by the Social Housing Society.

Table: Maximum value of financial support from the Surcharge Fund.

Venture Social Sheltered Flophouses and Council housing housing lodging houses for housing the homeless Municip Munici- Municipality, Municipalit Investor ality pality, association of y Type of investment county municipalities, public benefit organization Construction work, including 30% 30% 40% 30% extension or superstructure Renovation and rebuilding of a 40% 40% 50% 40% property or its part Changing the way of using a 40% 40% 50% 40% property or its part

City Consulting Institute Page 69

Purchase of a housing property or a 30% 30% -- 30% building Purchase of a housing property or a 30% 30% -- 30% building and its renovation Construction 40%2 40% -- 40% work, including Housing extension and property built superstructure by TBS Renovation or 50%2 50% -- 50% rebuilding Changing the way 50%2 50% -- 50% of using a property

The Municipal Investment Development Fund

The Municipal Investment Development Fund was established by the BGK on 1 January 2004 on the basis of the Act of 12 December 2003. The MIDF grants preferential loans to municipalities and their associations for the purpose of preparation of the documents necessary for municipal investment projects, to be co-financed by EU funds. The loan can be spent on a feasibility study, a cost and benefit analysis and other project documents, including analyses, expertises or studies necessary for the venture.

The municipalities applying for a MIDF loan may choose procurement by a single-source procedure instead of organizing a tender open to other banks.

The loan amount cannot exceed 500 000 PLN per one project and 80% of the net budgeted costs. The credit can be transferred at once or in instalments. In order to get the money off, 20% of the net cost of technical plans has to come from own resources.

The crediting period cannot be longer than 36 months. Nevertheless, the BGK can extend it by up to 18 months of grace period. The interest rate for the loan is calculated as 0.5 of bill of exchange rediscount rate accepted by the National Bank of Poland as a rediscount.

The BGK charges interest - 1% of the loan amount. The credit and interest payback is made on a monthly or quarterly basis.

The Thermomodernization Fund;

The basic goal of the Thermomodernization Fund is to support investments in thermomodernization, renovation projects and rebuilding of single-family houses, financed jointly with the loans from commercial banks. This support is called accordingly: “thermomodernization bonus”, “renovation

City Consulting Institute Page 70 bonus” and “compensation bonus”, and is accounted as a part of repayment of a bank loan taken for the particular project.

The thermomodernization bonus can be requested by an owner or administrator of:  a residential building,  multi-apartment residential buildings,  public buildings owned by local self-government units and used for public functions,  a local heating network,  local heat emitters.

The bonus cannot be granted to budgetary units or entities.

The thermomodernization bonus can be granted to investments in thermomodernization, if the goal of the venture is:  Reduction of energy consumption necessary for air and water heating in residential buildings, multi-apartment residential buildings and buildings owned by territorial self- government units, used for public functions,  Minimizing costs of acquiring heat, delivered to the above mentioned buildings via a technical connection to a centralized heat source created as a result of liquidation of local heat sources,  Decrease of initial energy losses in local heating networks and connected local heat sources,  Partial or total replacement of existing energy sources for renewable energy or application of high-efficiency cogeneration with obligatory savings in energy consumption, regulated by an adequate act.

In order for a project to be considered eligible, an internal energy audit has to be presented and positively verified by the BGK.

From 19 March 2009, the value of the thermomodernization bonus has been equal to 20% of the granted credit (no more than 16% of the total project cost and double expected annual savings on energy costs, evaluated on the basis of the energy audit).

BGK investment loans for territorial self-government units.

This loan may be spent on the following tasks:  financing the planned deficit in the JST’s budget,  paying off debt obligations resulting from issued securities as well as incurred loans and credits,

City Consulting Institute Page 71

 re-financing expenses borne in the particular budgetary year, in which the self-government unit was applying for a BGK loan,  funding other ventures and expenses.

The investment loan can be paid at once or as a non-renewable credit line, paid in tranches.

The bank can finance up to 100% of venture costs. The maximum payback period is 10 years, but the bank can decide to grant the investment credit for a longer period (if it is in line with the Specification of Essential Terms of a Contract) or agree on grace period for credit and interest repayment.

In order to receive an investment loan, a potential borrower has to:  provide legal protection of the loan repayment,  have a sufficient credit rating,  prove his own contribution to the credited project, if applicable.

The interest rate is based on fixed market rates and the bank’s profit margin is set up individually.

The Social Housing Society (TBS) Programme

In accordance with the Act of 2 April 2009, the BGK is obliged to undertake tasks resulting from the state housing and housing development policy (including rental building).

The main aim of the TBS Programme is to increase the availability of apartments for people whose income does not enable them to satisfy their housing needs on the market. The main tool to achieve this objective is a preferential loan for:  Social Housing Societies (TBS) and housing cooperatives for building and adapting apartments for rent;  Housing cooperatives for building new flats to be inhabited on the basis of cooperative housing tenancy law;  Municipalities for building technical infrastructure auxillary to housing estates.

TBSs as well as housing cooperatives are non-profit organizations; their statuary goal is to satisfy housing needs of a society. Apartments financed by loans from the TBS Programme can be rented to families/individuals, who do not have legal rights to any other living premises and have limited income per capita. Implementation of the social programme for rental housing is supported by territorial self-government units.

The programme in its current shape will be relevant for all applications sent before 30 September 2009.

City Consulting Institute Page 72

Table: Summary of the objective, value, crediting period and interest rate of TBS Programme loans.

Objective of the •Building or adapting apartments for rent with low rentals or loan assuring cooperative housing tenancy rights

Value •Max. 70% of costs

•Approx. 35 years, depending on the rediscount rate in the NBP Crediting period and inflation for construction and assembly production.

•Variable, set as an effective rate - 50% of rediscount rate in NBP, not less than 3.5% (current interest rate for all new loan Interest rate contracts is 3.5%, same for existing contracts if they were negotiated, 4.5% for all the remaining contracts signed before 6 May 2004.

The National Fund for Environmental Protection and Water Management (NFEPWM) The National Fund for Environmental Protection and Water Management (NFEPWM) is the biggest institution implementing the National Environmental Policy. The NFEPWM finances investments in environment protection and water management in the areas important from the perspective of accommodating to the European Union regulations and norms. The objective of the NFEPWM is to financially support ecological investments of nationwide and cross-regional importance as well as local projects, important from the environment protection perspective.

Distribution of financial resources within the NFRPWM is organized in the following areas:  air protection,  water protection and water management,  protection of the Earth surface,  nature, landscape and forestry preservation,  geology and mining,  ecological education,  the State Environmental Monitoring,  multidisciplinary programmes,  extraordinary environmental threats,  expertises and research.

There are three funding forms available in case of the NFRPWM:

City Consulting Institute Page 73

 loan (granted by the NFRPWM, loans or credit lines granted by other banks but from the NFRPWM’s resources, project co-financing from both NFRPWM and bank resources),  subsidy (investment and non-investment subsidies, surcharges to bank loans, amortization)  capital financing (taking over company’s stocks or shares in order to reach ecological effects).

2.2. Budgetary implications of JESSICA for the Silesia Managing Authority

In order to define the budgetary and financial effects of the JESSICA initiative, a cash flow forecast was prepared for the following options: Variant zero – V0 - without implementing the JESSICA initiative, with the subsiding mechanism of the Śląskie Regional Operational Programme for 2007-2013, as the sole funding source. Variants including the JESSICA initiative:  V1 – establishment of 1 Urban Development Fund (UDF) from the ROP SL funds,  V2 – establishment of 1 UDF from the ROP SL and shareholders’ funds (e.g. local self- government units),  V3 – establishment of a Holding Fund (HF) and 2 UDFs from the ROP SL and stakeholders’ funds, e.g. local self-government units and banks,  V4 – establishment of a HF managed by the EIB and >2 UDFs from the ROP SL and shareholders’ funds (e.g. local self-government units and banks)

For the purpose of this study, the initial value of resources available from the ROP SL for regeneration projects (within Priority VI) was estimated to be the same in all considered options, both in case of the granting system and in case of JESSICA. The projected cash flow was prepared in PLN. A fixed exchange rate 1 EUR = 4 PLN was assumed for the analysis purposes.

The analysis time horizon (years: 2010-2022) has been adopted for the period needed to establish JESSICA managing structures, develop implementation procedures, select first projects to be implemented, and the 10 year period of payoff of loans/credits, in order to show the financial leverage effect and the revolving mechanism.

City Consulting Institute Page 74

2.2.1. Cash flow in case of the traditional donation system - variant 0

Table: Analysis assumptions – V0.

Time horizon Years: 2010-2022

From 2010 – spending the first money from the ROP SL, Priority VI.

2015 – end of the spending period, e.g. according to the n+2 rule (binding in case of EU funds).

Financial sources European Regional Development Fund – Śląskie Regional Operational Programme for 2007-2013, Priority VI. Sustainable urban development.

Funding pool – initial 40 million EUR = 160 million PLN value

Income tax Subsidies are income tax free for legal persons (in accordance with the binding law).

Table: Cash flow for subsiding mechanisms of the ROP SL (in million PLN)

160,00

140,00

120,00

100,00

80,00

60,00

40,00

20,00

0,00 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 End of year balance Inflows Outflows - subsidy use

City Consulting Institute Page 75

Table: Financial flow for the subsiding mechanism of the ROP SL in PLN (V0).

Item Years 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 End of year balance 140,00 95,00 50,00 20,00 5,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00

Inflows 160,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 Outflows –subsidy use 20,00 45,00 45,00 30,00 15,00 5,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00

City Consulting Institute Page 76

2.2.2. Cash flow in case of JESSICA implementation – V1 – one UDF.

This variant assumes establishment of 1 UDF, for which the start-up capital would come from the Śląskie ROP for 2007-2013 funds only.

Table: Analysis assumptions – V1.

Time horizon Years: 2010-2022

Signing the contract for establishing and managing the UDF - end of 1st half of 2010.

Number of UDFs – 1.

2nd half of 2010 – transfer of funds to the UDF, arranging selection procedures, project preparation.

2011 – implementation of the first projects.

Financial sources ERDF – Śląskie ROP, Priority VI. Sustainable Urban Development

Funding pool – initial 40 million EUR = 160 million PLN value

Financial income Income from bank deposit interests: 3% per year.

Income from the granted loans: 4% per year.

Operational costs Management cost: maximum 3% per year of the registered capital (ROP SL resources).

Income tax Taxation of income on interest rate deposits and accounts: 19%

Taxation of income from granted loans 19%

Average payback 20 years period

Grace period 2 years

Granted loan None commission

Investing unused UDF Fund relocation for new ventures of minimum 30 million PLN. capital

City Consulting Institute Page 77

Table: Advantages and disadvantages of V1.

Disadvantages Advantages

High organisational costs of the MA related with Low costs of program management during setting up organizational structures, guidelines JESSICA implementation, primarily connected for JESSICA management (personal costs, external with simple organizational structure and low expertise, equipment etc.). demand for highly qualified human resources.

Impossibility to obtain the financial leverage Clear and standardized operation methods. effect. Low potential for finding shareholders due to low impact on the market and competitive mechanisms of financial and capital markets.

Insufficient MA experience or its complete lack in implementation of similar projects (financial mechanisms). Additional costs for expertise outsourcing or employing consultants.

Possibility of delay in JESSICA implementation, and even in the development of procedures.

Few years of standstill on loans, due to allocation of all available resources, 2 years of grace period and the loan payoff period.

City Consulting Institute Page 78

Table: Financial flows for variant 1 [million PLN] - V1.

Details Arranging Use of EU funds Long term operational plans UDF 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Year-end balance of UDF 159,54 159,59 160,53 161,90 163,36 164,02 164,86 165,91 168,25 170,02 172,01 175,22 177,97 funds 161,94 4,85 5,74 6,17 6,25 5,46 5,64 5,85 7,14 6,57 6,79 8,01 7,55

In-flow 160,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 Fund transfer from the Managing 1,94 4,85 5,74 6,17 6,25 5,46 5,64 5,85 7,14 6,57 6,79 8,01 7,55 Authority Net financial income from interest 2,40 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80 on deposits and loans 2,40 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80

Out-flow 1,94 4,85 5,74 6,17 6,25 5,46 5,64 5,85 7,14 6,57 6,79 8,01 7,55 Management fee 0,00 1,20 3,20 5,20 6,72 6,72 6,72 6,72 8,04 8,04 8,04 9,24 9,24 0,00 0,23 0,61 0,99 1,28 1,28 1,28 1,28 1,53 1,53 1,53 1,76 1,76

Financial income 0,00 0,97 2,59 4,21 5,44 5,44 5,44 5,44 6,51 6,51 6,51 7,48 7,48

2,40 4,79 3,89 2,42 1,00 0,03 0,24 0,51 0,77 0,08 0,34 0,65 0,08

Income from interest on loans 0,46 0,91 0,74 0,46 0,19 0,00 0,05 0,10 0,15 0,01 0,06 0,12 0,02 (gross) Tax for interest related income 1,94 3,88 3,15 1,96 0,81 0,02 0,19 0,41 0,63 0,06 0,27 0,52 0,07

Income from interests on loans (after taxation) 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00%

Income from interests on bank 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% deposits (gross) Tax for interest related income 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% Income from interests on deposits 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% (after taxation) 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00

City Consulting Institute Page 79

Important values: 0,00 30,00 50,00 50,00 38,00 0,00 0,00 0,00 33,00 0,00 0,00 30,00 0,00 UDF management costs - % 0,00 30,00 80,00 130,00 168,00 168,00 168,00 168,00 201,00 201,00 201,00 231,00 231,00 Deposit interest rate 0,00 0,00 0,00 1,50 4,00 6,43 8,13 7,80 7,40 7,01 8,29 7,94 7,52 Loan interest rate 0,00 30,00 80,00 128,50 162,50 156,08 147,95 140,15 165,75 158,74 150,45 172,52 164,99 Tax on credit and deposit related 159,54 129,59 80,53 33,40 0,86 7,95 16,91 25,77 2,50 11,28 21,56 2,70 12,97 income

City Consulting Institute Page 80

Authorised share capital 2010-2022 (million PLN)

Capitalkapitał przekazanytransfered przez by the IZ (środkiMA (ROP RPO) funds) 160 160

0 0 0 0 0 0 0 0 0 0 0 0

UDF funds balance at the end of each year [million PLN]

180,00 175,00 170,00 165,00 160,00 155,00 150,00 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

City Consulting Institute Page 81

Unused capital of UDF at the end of each year [million PLN]

200,00 150,00 100,00 50,00 0,00 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

UDF operations

180,00

160,00

140,00

120,00

100,00

80,00

60,00

40,00

20,00

0,00 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Loanspożyczki udzielone w danym roku Creditspłaty pożyczekpayback Balancesaldo udzielonych of loans pożyczek

City Consulting Institute Page 82

2.2.3. Cash flow in case of JESSICA implementation – V2 – 1 UDF created from the ROP and investors (JST) funds.

This variant assumes that there is 1 UDF established, with the initial capital created from the Śląskie ROP funds and shareholders’ funds (JST) Table: Analysis assumptions– V2

Time horizon Years: 2010-2022

Signing the contract for establishing and managing the UDF – end of 1 half of 2010.

Number of UDFs – 1.

2 half of 2010 – ROP funds transfer to the UDF, arranging selection and realization procedures, project preparation.

2011-2012 – transfer of shareholders’ funds to the UDF.

2011 – implementation of the first projects.

Financial sources European Regional Development Fund – Śląskie ROP 2007-2013 – Priority VI. Sustainable urban development.

Shareholders commitment – territorial self-government units (JST).

Funding pool – initial value ROP: 40 million EUR = 160 million PLN

JST: 24 million PLN

Financial income Income from bank deposits: 3% per year.

Income from bank loans: 4% per year.

Operational costs Management cost: maximum 3% per year of the registered capital (ROP SL resources).

Income tax Taxation of income on interest rate deposits and accounts: 19%

Taxation of income from granted loans: 19%

Average payback period 20 years

Grace period 2 years

Granted loan commission None

Investing unused UDF capital Fund relocation for new ventures of 30 million PLN.

City Consulting Institute Page 83

Table: Advantages and disadvantages of V2.

Disadvantages Advantages

High organisational costs of the MA connected with setting Low costs of management, primarily up organizational structures, guidelines for JESSICA resulting from simple organizational management (personal costs, external expertise, structure and low demand for highly equipment etc.). qualified human resources.

Low possibility of obtaining the financial leverage effect. Clear and standardized operation Few years delay in the process of contributing capital by methods. potential shareholders, due to lack of strong impact and competitive mechanisms on capital and investment markets.

Insufficient MA experience or its complete lack in implementation of similar projects (financial mechanisms). Additional costs for expertise outsourcing or employing experts.

Possibility of delay in JESSICA realization, even in the development of procedures.

As it would be one of many loan funds, potential shareholders (cities) would prove little interest in it.

Few years of standstill on loans, due to allocation of all available resources, 2 years of grace period and the loan payoff period.

City Consulting Institute Page 84

Table: Financial flow for variant 2 [million PLN] – V2.

Details Arranging UDF Use of EU funds Long term operational plans

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Year-end balance of UDF funds 157,60 153,77 151,89 159,95 160,01 160,30 177,33 178,36 179,86 180,89 182,89 184,90 186,90 160,00 0,97 2,92 12,86 5,18 5,41 22,15 6,79 7,25 6,79 7,76 7,76 7,95

In-flow 160,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 Capital granted by the MA 8,00 16,00 Capital granted by other shareholders (including 0,00 0,97 2,92 4,86 5,18 5,41 6,15 6,79 7,25 6,79 7,76 7,76 7,95 cities) Net financial income from interest on deposits and 2,40 4,80 4,80 4,80 5,12 5,12 5,12 5,76 5,76 5,76 5,76 5,76 5,94 loans 2,40 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80

Out-flow 0,00 0,00 0,00 0,00 0,32 0,32 0,32 0,96 0,96 0,96 0,96 0,96 1,14 Management fee 0,00 0,97 2,92 4,86 5,18 5,41 6,15 6,79 7,25 6,79 7,76 7,76 7,95 Profit commission from loan’s interests – for shareholders 0,00 1,20 3,60 6,00 6,00 6,00 7,20 7,20 7,20 7,20 8,40 8,40 8,40 Financial income 0,00 0,23 0,68 1,14 1,14 1,14 1,37 1,37 1,37 1,37 1,60 1,60 1,60 Income from interest on loans (gross, ROP capital) 0,00 0,97 2,92 4,86 4,86 4,86 5,83 5,83 5,83 5,83 6,80 6,80 6,80 Tax for interest related income 0,00 0,00 0,00 0,00 0,32 0,32 0,32 0,96 0,96 0,96 0,96 0,96 1,14 Income from loans (after taxation) Income from interest on loans (gross, 0,00 0,00 0,00 0,00 0,00 0,24 0,00 0,00 0,48 0,00 0,00 0,00 0,00 shareholders capital) Income from interests on bank deposits (gross) 0,00 0,00 0,00 0,00 0,00 0,01 0,00 0,00 0,02 0,00 0,00 0,00 0,00 Tax for interest related income 0,00 0,00 0,00 0,00 0,00 0,23 0,00 0,00 0,46 0,00 0,00 0,00 0,00 Income from interests on deposits (after taxation)

Important values: 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% UDF management costs - % 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% Deposit interest rate 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% Loan interest rate (ROP) 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00%

City Consulting Institute Page 85

Loan interest rate (shareholders) 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% Tax on the credit and deposit related income 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00 The payback period (years) 0,00 30,00 60,00 60,00 8,00 0,00 30,00 16,00 0,00 0,00 30,00 0,00 4,56 Loans granted YTD 0,00 30,00 60,00 60,00 30,00 30,00 Loans YTD (ROP capital) 8,00 16,00 4,56 Loans YTD (shareholders capital) 0,00 30,00 90,00 150,00 158,00 158,00 188,00 204,00 204,00 204,00 234,00 234,00 238,56 Loans – total 0,00 30,00 90,00 150,00 150,00 150,00 180,00 180,00 180,00 180,00 210,00 210,00 210,00 Loans total (ROP capital) 0,00 0,00 0,00 0,00 8,00 8,00 8,00 24,00 24,00 24,00 24,00 24,00 28,56 Loans total (shareholders capital) 0,00 0,00 0,00 1,50 4,50 7,43 7,60 7,23 8,35 8,79 8,37 7,93 9,01 Credit payback 0,00 0,00 0,00 1,50 4,50 7,43 7,20 6,83 7,97 7,63 7,23 6,85 7,99 Loans (ROP capital) 0,00 0,00 0,00 0,00 0,00 0,00 0,40 0,40 0,38 1,16 1,14 1,08 1,03 Loans (shareholders capital) 0,00 30,00 90,00 148,50 152,00 144,58 166,98 175,75 167,40 158,61 180,24 172,31 167,86 Granted loans balance 0,00 30,00 90,00 148,50 144,00 136,58 159,38 152,55 144,58 136,95 159,72 152,87 144,89 Loans (ROP capital) 0,00 0,00 0,00 0,00 8,00 8,00 7,60 23,20 22,82 21,66 20,52 19,44 22,97 Loans (shareholders capital) 157,60 123,77 61,89 11,45 8,01 15,72 10,36 2,62 12,46 22,28 2,65 12,59 19,04

City Consulting Institute Page 86

Authorised share capital 2010-2022 [million PLN]

Capitalkapitał przekazany transferred przez by the IZ (środki MA (ROP RPO)) Capitalfunds)kapitał przekazanytransferred przez by other pozostałych shareholders udziałowców (including (w tym cities miasta)) 160 160

24 16 8 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

UDF funds balance – at the end of each year [million PLN]

200,00 150,00 100,00 50,00 0,00 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

City Consulting Institute Page 87

Unused capital of UDF – at the end of each year [million PLN]

200,00 150,00 100,00 50,00 0,00 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

UDF operations

200,00

180,00

160,00

140,00

120,00

100,00

80,00

60,00

40,00

20,00

0,00 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Loanspożyczki granted i kredyty per udzielone year w danym roku Creditspłaty pożyczekpayback i -kredytów total ogółem Balancesaldo udzielonych of loans pożyczekgranted i kredytów

City Consulting Institute Page 88

2.2.4. Cash flow in case of JESSICA implementation – Variant 3 – HF, 2 UDFs from the ROP and shareholders (JST, banks) funds.

This variant assumes that will be 2 UDFs and 1 HF established, with the initial capital composed of the Śląskie Regional Operational Programme 2007-2013 funds and shareholders’ (JST and banks) funds. Table: Analysis assumptions – V3.

Time horizon Years: 2010-2022

Public procurement procedure, signing the contract for establishing and managing the HF – end of 2009.

1 half of 2010 – transfer of funds to the HF.

Choice of UDFs – end of 1 half of 2010.

Number of UDFs – 2.

2 half of 2010 – transfer of funds to UDFs, arranging selection and realization procedures, project preparation.

2011 – implementation of the first projects.

Financial sources European Regional Development Fund – the Śląskie ROP 2007-2013 – Priority VI. Sustainable urban development.

Shareholders commitment – territorial self-government units (JST, banks)

Funding pool – initial ROP: 40 million EUR = 160 million PLN value JST: 24 million PLN

Banks: 48 million PLN

Financial income Income from bank deposits: 3% per year.

Income from loans: 4% per year.

Operational costs Management cost:

HF: maximum 2% of the authorised capital (ROP funds) – per year.

UDF: maximum 3% of the authorised capital (ROP funds) – per year.

City Consulting Institute Page 89

Income tax Taxation of income on interest rate deposits and accounts: 19%

Taxation of income from granted loans: 19%

Average payback 20 years period

Grace period 2 years

Granted loan None commission

Investing unused UDF Fund relocation for new ventures of min. 30 million EUR. capital

Table: Advantages and disadvantages of V3.

Disadvantages Advantages

Costs connected with HF Low costs for the MA, resulting from the fact that the MA would operation, comprising a share not be responsible for managing the funds from operational of the initial capital (ROP programs and investing them in particular UDFs. The HF would take funds) over all the responsibilities of a managing authority.

More complex mechanisms in Possibility of accommodating financial instruments to a project. case of the investment UDF.

Necessity to individualize Possibility of obtaining the financial leverage effect. From the procedures, including finance public finance sector’s point of view, not only income from the and accounting. invested funds is important. Professional management of ROP funds is considered a key objective of the HF operation.

Necessity to employ highly Possibility of involvement of other financial institutions, including qualified stuff, leading to cost banks and other shareholders (e.g. cities). increase.

Possibility of relocation of resources for new ventures after paying off all loans, achieved thanks to the shares of self-government entities and banks.

City Consulting Institute Page 90

Table: Financial flow for Variant 3 [million PLN] – V3.

Details Arranging UDF Use of EU funds Long term operational plans

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Year-end balance of HF funds 0,00

160,34

In-flow 160,00 Authorised share capital contribution 0,34 160,34

Operational income 160,34 0,00

Outflows 0,00 Capital transfer to UDF Other 2,40 Operational loss (negative value) 0,46 1,94

Operating activities 1,60 Income from interest on deposits (gross) 159,89 208,92 227,63 245,46 270,44 279,84 289,15 291,82 293,86 296,25 299,99 303,40 307,91 Tax for interest related income 162,29 53,83 25,43 25,43 33,46 19,08 19,31 12,98 12,37 12,71 14,06 13,73 16,41

160,34

Income from bank deposits (after taxation) 8,00 8,00 8,00 Management fee (3%) 16,00 16,00 16,00 48,00

Year-end balance of UDF funds 1,95 5,83 9,43 9,43 9,46 11,08 11,31 12,98 12,37 12,71 14,06 13,73 16,41 2,40 4,80 6,72 7,60 8,48 9,68 10,00 10,32 10,32 10,32 10,32 10,32 11,90

In-flow 2,40 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80 Funds transferred from HF 0,00 0,00 0,00 0,88 1,76 2,64 2,64 2,64 2,64 2,64 2,64 2,64 3,37 Funds transferred by other shareholders 0,00 0,00 0,00 0,00 0,00 0,32 0,64 0,96 0,96 0,96 0,96 0,96 1,14 (including cities)

City Consulting Institute Page 91

Funds transferred by commercial banks 0,00 0,00 1,92 1,92 1,92 1,92 1,92 1,92 1,92 1,92 1,92 1,92 2,59 Funds transferred by EIB 1,95 5,83 9,43 9,43 9,46 11,08 11,31 12,98 12,37 12,71 14,06 13,73 16,41 Operational income net with interests on loans 0,00 2,40 4,80 6,40 6,40 6,40 6,40 7,68 7,68 7,68 8,88 8,88 9,78 and deposits 0,00 0,46 0,91 1,22 1,22 1,22 1,22 1,46 1,46 1,46 1,69 1,69 1,86

Out-flow 0,00 1,94 3,89 5,18 5,18 5,18 5,18 6,22 6,22 6,22 7,19 7,19 7,92 Management cost 0,00 0,00 0,00 0,88 1,76 2,64 2,64 2,64 2,64 2,64 2,64 2,64 3,37 Profit payout for moneylender – from interests on 0,00 0,00 0,00 0,00 0,00 0,32 0,64 0,96 0,96 0,96 0,96 0,96 1,14 bank loans Profit payout for shareholders – from income on 0,00 0,00 1,92 1,92 1,92 1,92 1,92 1,92 1,92 1,92 1,92 1,92 2,59 interests Profit payout for EIB – from income on interests 2,41 4,80 4,47 1,79 0,73 1,26 1,15 1,53 0,77 1,19 1,66 1,26 1,72 0,46 0,91 0,85 0,34 0,14 0,24 0,22 0,29 0,15 0,23 0,32 0,24 0,33

Operational income 1,95 3,89 3,62 1,45 0,59 1,02 0,93 1,24 0,63 0,97 1,35 1,02 1,39 Income from interest on loans (gross, ROP capital) Tax from interest related income 2,00% Income from bank loans (after taxation) 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% Income from interest on loans (gross) 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% Income from interest on loans (shareholders 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% capital) Income from interest on loans (EIB capital) 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% Income from interests on bank deposits (gross) 5,50% 5,50% 5,50% 5,50% 5,50% 5,50% 5,50% 5,50% 5,50% 5,50% 5,50% 5,50% 5,50% Tax for interest related income 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% Income from interests on bank deposit (after 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% taxation) 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00

Important values: 0,00 60,00 108,00 56,00 16,00 24,00 8,00 40,00 0,00 0,00 30,00 0,00 56,97 Management cost of the HF 0,00 60,00 60,00 40,00 0,00 0,00 0,00 32,00 0,00 0,00 30,00 0,00 22,38 UDF management costs - % 0,00 0,00 0,00 0,00 0,00 8,00 8,00 8,00 0,00 0,00 0,00 0,00 4,60 Deposit interest rate 0,00 0,00 0,00 16,00 16,00 16,00 0,00 0,00 0,00 0,00 0,00 0,00 13,19 Loan interest rate (ROP) 0,00 0,00 48,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 16,80 Loan interest rate (shareholders) 0,00 60,00 168,00 224,00 240,00 264,00 272,00 312,00 312,00 312,00 342,00 342,00 398,97

Commercial loan interest rate (1,5%+WIBOR) 0,00 60,00 120,00 160,00 160,00 160,00 160,00 192,00 192,00 192,00 222,00 222,00 244,38 EIB loan interest rate 0,00 0,00 0,00 0,00 0,00 8,00 16,00 24,00 24,00 24,00 24,00 24,00 28,60

City Consulting Institute Page 92

Tax from credits, loans and deposits’ income 0,00 0,00 0,00 16,00 32,00 48,00 48,00 48,00 48,00 48,00 48,00 48,00 61,19

Payback period for loans and credits [years] 0,00 0,00 48,00 48,00 48,00 48,00 48,00 48,00 48,00 48,00 48,00 48,00 64,80

Loans and credits granted YTD 0,00 0,00 0,00 3,00 8,40 11,05 11,43 12,08 11,91 13,30 12,71 12,04 12,91

Loans YTD (ROP capital) 0,00 0,00 0,00 3,00 6,00 7,85 7,55 7,16 6,78 8,02 7,68 7,28 8,40

Loans YTD (shareholders capital) 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,40 0,80 1,18 1,14 1,08 1,02

Loans YTD (commercial banks) 0,00 0,00 0,00 0,00 0,00 0,80 1,60 2,36 2,28 2,16 2,05 1,94 1,84

Loans YTD (EIB capital) 0,00 0,00 0,00 0,00 2,40 2,40 2,28 2,16 2,05 1,94 1,84 1,74 1,65

Loans and credits granted total 0,00 60,00 168,00 221,00 228,60 241,55 238,12 266,04 254,14 240,83 258,13 246,09 290,15

Loans total (ROP capital) 0,00 60,00 120,00 157,00 151,00 143,15 135,60 160,44 153,66 145,64 167,96 160,68 174,66

Loans total (shareholders capital) 0,00 0,00 0,00 0,00 0,00 8,00 16,00 23,60 22,80 21,62 20,48 19,40 22,98

Loans total (commercial banks) 0,00 0,00 0,00 16,00 32,00 47,20 45,60 43,24 40,96 38,80 36,75 34,81 46,16

Loans total (EIB funds) 0,00 0,00 48,00 48,00 45,60 43,20 40,92 38,76 36,71 34,78 32,94 31,20 46,35

Credit payback 159,89 148,92 59,63 24,46 41,84 38,29 51,03 25,77 39,73 55,41 41,86 57,31 17,76

City Consulting Institute Page 93

Authorised share capital 2010-2022 [million PLN ]

Capitalkapitał transferredprzekazany przez by the HF MA (środki (ROP RPO)) funds) Capitalkapitał transferredprzekazany przez by other pozostałych shareholders (includingudziałowców cit ies(w )tym miasta)

160,56 160 160,56 160 128

64 64 32 32 32 16 16 00 0000 00 0 00 0 0 0 0 00 0 00 0000 0000 0000 0000 0000 0000

UDF funds balance – at the end of each year [million PLN]

600,00

400,00

200,00

0,00 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

City Consulting Institute Page 94

Unused capital of UDF – at the end of each year [million PLN]

200,00

150,00

100,00

50,00 0,00 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

UDF operations

600,00

500,00

400,00

300,00

200,00

100,00

0,00 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Loanspożyczki granted i kredyty per udzielone year w danym roku spłatyCredit pożyczek payback i -kredytów total ogółem saldoBalance udzielonych of loans pożyczekgranted i kredytów

City Consulting Institute Page 95

2.2.5. Cash flow in case of JESSICA implementation – Variant 4 – 1 HF/EIB and >2 UDFs created from the ROP and shareholders’ funds (JST, banks).

This variant assumes the establishment of 1 HF managed by the EIB and >2 UDFs, whose initial capital would be composed of the Śląskie ROP 2007-2013 and shareholders’ funds (JST, banks).

Table: Analysis assumptions – V4.

Time horizon Years: 2010-2022

Signing the contract for establishing and managing the HF – end of 1 half of 2010.

1 half of 2010 – fund transfer to the HF managed by the EIB.

Choice of UDFs– by the end of 1 half of 2010.

Number of UDFs – >2.

2 half of 2010 – ROP funds transfer to each UDF, arranging selection and realization procedures, project preparation.

2011 – implementation of first projects

First UDFs would be established from the resources of the ROP SL. In a later perspective, the new UDFs would be financed from the shareholders’ resources (e.g. JST).

Financial sources European Regional Development Fund – the Śląskie ROP 2007-2013 – Priority VI. Sustainable urban development.

Shareholders commitment – territorial self-government units and banks.

Funding pool – initial value ROP: 40 million EUR = 160 million PLN

JST: 64 million PLN

EIB: 160 million PLN

Commercial banks: 128 million PLN

City Consulting Institute Page 96

Financial income Income from deposits in the EIB: 2,7% per year.

Income from bank deposits: 3% per year.

Income from loans given: 4% per year.

Operational costs Management fee:

HF: maximum 2% from the authorized capital (ROP funds) – per year

UDF: maximum 3% from the authorized capital (ROP funds) – per year.

Income tax Taxation of income on interest rate - deposits and accounts: 19%

Taxation of income from granted loans: 19%.

On an EIB account – 0%

Average payback period 20 years

Grace period 2 years

Granted loan commission None

Investing unused UDF Fund relocation for new ventures of minimum 30 million EUR. capital

Table: Advantages and disadvantages of V4.

Disadvantages Advantages

Costs connected with HF Low costs for the MA, resulting from the fact that the MA would not operation, comprising a be responsible for managing the funds from operational programs share of the initial capital and investing them in particular UDFs. The HF would take over all the (ROP SL funds). responsibilities of a managing authority.

There is also an option to pass management costs to territorial self- government entities of lower level.

Risk of too high institutional Possibility of fitting financial instruments to the project and local fragmentation. requirements. High knowledge transfer between the HF managed by the EIB and the UDFs.

City Consulting Institute Page 97

Necessity to individualize Possibility of obtaining the financial leverage effect. From the public procedures, including finance sector’s point of view, not only income from the invested finance and accounting. funds is important. Professional management of the ROP funds is considered a key objective of the HF operation. The EIB prestige as a HF adds to the great experience in JESSICA implementation.

Necessary individualization In accordance with the Roman Treaty, there will be no need to of procedures. perform a public procurement procedure for the HF, if the EIB decides to take over this function.

Necessity to employ highly The EIB acting as a HF has the highest possible credit rating (AAA) on qualified stuff, which leads the financial market. Thanks to this fact, the EIB may gather high to increase of costs. capital on favourable conditions. As the EIB is a non-profit oriented bank, conditions for loan granting are also favourable.

Ability to create good practice database and transfer of experience to self-government units.

High potential of finding new partners and financing sources.

Possibility to win over other financial institutions, including the EIB, commercial banks, other shareholders (e.g. cities).

The highest flexibility of this financial model.

Potential diversification of projects.

Due to a great variety of available tools, it would be possible to achieve the highest value added effect in realizing Integrated Programs.

Possibility of frequent relocation of financial resources to other projects (after paying back the previously granted loans), achieved thanks to the contribution of JST, commercial banks and the EIB. Implementation of PPP projects.

City Consulting Institute Page 98

Table: Financial flow for Variant 4 (million PLN) - V4.

Details Arranging HF Use of EU funds Long term operational plans and UDF 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Year-end balance of HF funds 0,00 160,56 In-flow 160,00 Authorised share capital contribution 0,56 Operational income 160,56 Out-flow 160,56 Capital transfer to UDF 0,00 Other 0,00 Operational loss (negative value)

Operating activities 2,16 Income from interests on deposits (gross) 0,00 Tax for interest related income 2,16

1,60 Income from bank deposits (after taxation) Management fee (3%) 322,05 327,02 363,14 398,52 480,18 499,34 534,48 537,75 540,84 544,93 548,84 553,42 559,96 324,45 12,17 45,72 48,34 96,38 38,04 54,66 24,07 25,15 26,15 25,97 26,65 32,05 Year-end balance of UDF funds 160,56 16,00 16,00 32,00

In-flow 32,00 32,00 64,00 Funds transferred from HF to UDF 160,00 Funds transferred by other shareholders 3,89 12,17 13,72 16,34 16,38 22,04 22,66 24,07 25,15 26,15 25,97 26,65 32,05 Funds transferred by commercial banks 2,40 7,20 9,60 12,96 14,72 18,88 19,52 20,80 22,06 22,06 22,06 22,06 25,52 Funds transferred by the EIB 2,40 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80 4,80 Operational income net from interests on loans 0,00 0,00 0,00 1,76 3,52 7,04 7,04 7,04 7,04 7,04 7,04 7,04 8,90 and deposits

City Consulting Institute Page 99

0,00 0,00 0,00 0,00 0,00 0,64 1,28 2,56 2,56 2,56 2,56 2,56 3,02 Out-flow 0,00 2,40 4,80 6,40 6,40 6,40 6,40 6,40 7,66 7,66 7,66 7,66 8,79 Management cost 3,89 12,17 13,72 16,34 16,38 22,04 22,66 24,07 25,15 26,15 25,97 26,65 32,05 Profit payout for moneylender –interests on 0,00 2,40 4,80 6,40 6,40 6,40 7,68 7,68 7,68 9,08 9,08 9,08 10,62 loans Profit payout for shareholders –from income on 0,00 0,46 0,91 1,22 1,22 1,22 1,46 1,46 1,46 1,73 1,73 1,73 2,02 interests Profit payout for the EIB –from income on 0,00 1,94 3,89 5,18 5,18 5,18 6,22 6,22 6,22 7,35 7,35 7,35 8,60 interests 0,00 0,00 0,00 1,76 3,52 7,04 7,04 7,04 7,04 7,04 7,04 7,04 8,90 Operational income 0,00 0,00 0,00 0,00 0,00 0,64 1,28 2,56 2,56 2,56 2,56 2,56 3,02 Income from interest on loans (gross, ROP 0,00 2,40 4,80 6,40 6,40 6,40 6,40 6,40 7,66 7,66 7,66 7,66 8,79 capital) Tax for interest related income 4,81 9,66 6,21 3,69 1,58 3,43 2,12 2,28 2,06 1,90 1,67 2,51 3,38 Income from bank loans (after taxation) 0,91 1,84 1,18 0,70 0,30 0,65 0,40 0,43 0,39 0,36 0,32 0,48 0,64 Income from interest on loans (gross) 3,89 7,83 5,03 2,99 1,28 2,77 1,72 1,85 1,67 1,54 1,36 2,03 2,74

Income from interest on loans (shareholders capital) Income from interest on loans (EIB capital) 2,00% Income from interests on bank deposits (gross) 2,70% Tax for interest related income 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% Income from interests on deposits (after 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% 3,00% taxation) 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00%

Important values: 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% HF management costs - % 5,50% 5,50% 5,50% 5,50% 5,50% 5,50% 5,50% 5,50% 5,50% 5,50% 5,50% 5,50% 5,50% Deposit interest rate in HF 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% UDF management costs - % 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% 19,00% Deposit interest rate in UDF 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00 20,00 Loan interest rate (ROP) 0,00 120,00 120,00 112,00 32,00 80,00 48,00 32,00 31,56 35,00 0,00 0,00 112,05 Loan interest rate (shareholders) 0,00 60,00 60,00 40,00 0,00 0,00 32,00 0,00 0,00 35,00 0,00 0,00 38,38 Commercial loan interest rate (1,5%+WIBOR) 0,00 0,00 0,00 0,00 0,00 16,00 16,00 32,00 0,00 0,00 0,00 0,00 11,56 EIB loan interest rate 0,00 0,00 0,00 32,00 32,00 64,00 0,00 0,00 0,00 0,00 0,00 0,00 33,90 Tax from credits, loans and deposits’ income 0,00 60,00 60,00 40,00 0,00 0,00 0,00 0,00 31,56 0,00 0,00 0,00 28,20

City Consulting Institute Page 100

Payback period for loans and credits [years] 0,00 120,00 240,00 352,00 384,00 464,00 512,00 544,00 575,56 610,56 610,56 610,56 722,61 Loans and credits granted YTD 0,00 60,00 120,00 160,00 160,00 160,00 192,00 192,00 192,00 227,00 227,00 227,00 265,38 Loans YTD (ROP capital) 0,00 0,00 0,00 0,00 0,00 16,00 32,00 64,00 64,00 64,00 64,00 64,00 75,56 Loans YTD (shareholders capital) 0,00 0,00 0,00 32,00 64,00 128,00 128,00 128,00 128,00 128,00 128,00 128,00 161,90 Loans YTD (commercial banks) 0,00 60,00 120,00 160,00 160,00 160,00 160,00 160,00 191,56 191,56 191,56 191,56 219,76 Loans YTD (EIB) 0,00 0,00 0,00 6,00 12,00 17,30 18,30 21,44 22,92 23,45 23,88 24,46 23,26 Loans and credit granted total 0,00 0,00 0,00 3,00 6,00 7,85 7,55 7,16 8,38 8,02 7,60 8,95 8,57 Loans total (ROP capital) 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,80 1,60 3,16 3,08 2,92 2,77 Loans total (shareholders capital) 0,00 0,00 0,00 0,00 0,00 1,60 3,20 6,32 6,16 5,84 5,54 5,24 4,97 Loans total (commercial banks) 0,00 0,00 0,00 3,00 6,00 7,85 7,55 7,16 6,78 6,42 7,66 7,34 6,96 Loans total (EIB) 0,00 120,00 240,00 346,00 366,00 428,70 458,40 468,97 477,60 489,15 465,27 440,82 529,60 Credit payback 0,00 60,00 120,00 157,00 151,00 143,15 167,60 160,44 152,06 179,04 171,44 162,49 192,29 Loans (ROP capital) 0,00 0,00 0,00 0,00 0,00 16,00 32,00 63,20 61,60 58,44 55,36 52,44 61,23 Loans (shareholders capital) 0,00 0,00 0,00 32,00 64,00 126,40 123,20 116,88 110,72 104,88 99,34 94,10 123,03 Loans (commercial banks) 0,00 60,00 120,00 157,00 151,00 143,15 135,60 128,44 153,22 146,80 139,14 131,80 153,04 Loans (EIB) 322,05 207,02 123,14 52,52 114,18 70,64 76,08 68,78 63,24 55,77 83,56 112,61 30,36

City Consulting Institute Page 101

Authorized share capital 2010-2022 [million PLN]

capital transferred by the HF (ROP resources)

capital transferred by other shareholders (including cities) 160,56160 capital transferred by commercial banks 160,56160

capital transferred by the EIB 128

64 64

32 32 32 16 16 00 0000 00 0 00 0 0 0 0 00 0 00 0000 0000 0000 0000 0000 0000

UDF funds balance – at the end of each year [million PLN]

600,00 500,00 400,00 300,00 200,00 100,00 0,00 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

City Consulting Institute Page 102

Unused capital of UDF – at the end of each year [million PLN]

400,00 300,00 200,00 100,00 0,00 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

UDF operation

600,00

500,00

400,00

300,00

200,00

100,00

0,00 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

loans granted per year credit payback - total balance of loans granted

City Consulting Institute Page 103

2.3. Non-budgetary effects of JESSICA implementation

The main effects of JESSCA implementation include:  Fund management effectiveness. In the JESSICA mechanism, management functions are outsourced to an external institution, which is responsible for the development of guidelines, document templates, potential projects evaluation and selection, funding ventures, etc.  Optimization of selection processes and mechanisms, as well as project implementation by applying objective and independent selection criteria, HF/UDF establishment, organizational structure, standardized application documentation, substance and financial services for projects.  High quality of projects – achieved in result of engagement of renewable resources, complex preparatory analyses, role of crediting institutions in financing ventures, involvement of private partners within PPP frames.  Increase of allocation achieved thanks to the engagement of a greater number of institutions and other partners in projects financed within JESSICA.  Greater project impact achieved thanks to the implementation of integrated projects of greater scope and value, as well as commercial and profitable ones. In the traditional granting system, the grant rate depended on the net income generated by a particular project, calculated as the so called “funding gap”.  Opportunity to re-invest the income generated by the financial instruments operating within JESSICA in new regeneration projects. Funds transferred to UDFs for investment are revolving and can be re-invested in several ventures. As the allocation of EU funds is limited, only JESSICA may enable potential beneficiaries to prolong the period in which ROP funds have to be consumed and at the same time to maintain continuity of regeneration projects financing.

Positive non-budgetary effects argue for JESSICA implementation in Silesia. The mechanism implementation will lead to: increase of quality and effectiveness of project preparation and realization processes as well as their positive influence on socio-economic and spatial development of the region.

City Consulting Institute Page 104

2.4. PPP as a method of optimising the JESSICA implementation process.

Public-Private Partnership is a form of long-term cooperation of private and public sectors in projects aiming at implementing public tasks. The objective of this cooperation is to achieve reciprocal benefits, including both social and commercial advantages. In case of profit-oriented ventures, which are implemented with the support of a revolving financial instrument, such a partnership of public and private entities offers a high development potential.

Wide application of PPP can contribute to significant savings, as costs of investment and public utility service may be reduced. In Great Britain, where PPP projects account for approx. 11% of all public sector’s investments, the benefits of PPP implementation are evaluated between 10-20%.

The principles of public and private cooperation have been defined in the Private-Public Partnership Law, which was enacted by the Sejm of the Republic of Poland (Lower Chamber of the Polish Parliament) on 21 November 2008. Currently, the bill is in the Senate.

According to this Law, the subject of PPP is common undertaking of an activity, based on task and risk division between private and public partners.

Public Partner Private Partner

•According to the PPP Law, a public •Accoding to the Law, a private partner is partner is any entity operating in the any “enterpreneur or foreign public finance sector (according to the entrepreneur “. Law on public finances) or any legal person established by these entities in order to satisfy common needs and demands.

City Consulting Institute Page 105

Table: PPP objectives.

Objectives of projects Construction or renovation of a building. Services. Performing a work, including installation of devices which increase the value or utility of a building. Other services related to maintenance or management of assets, used to implement a PPP investment or related to it.

The legislator purposefully did not restrict the list of activities, which can be the subject of a PPP venture. It allows flexibility in choosing projects for realization and precise description of the investment in a PPP contract. Nevertheless, apart from the Law mentioned above, the civil law provisions apply.

Once the partnership contract period ends, the subject of partnership (e.g. road, building, hospital, installations etc.) is transferred to the public partner. The PPP Law obligates also both parties to transfer the ownership of any other assets to the public partner (e.g. land which was used for the venture). Nevertheless, parties can agree otherwise in the partnership contract. In the contract, parties can for example agree to hand over the assets different to the subject of the venture to a self- government legal person or company, which is established for this purpose by the public partner. The private partner has a pre-emption right to buy the subject of partnership in the project duration period or after the end of the investment, if it was assumed to be transferable. This regulation assures project continuity, also after its completion.

An average PPP project may be divided into 4 stages: Table: PPP project stages

project evaluation and tender realization recognition preparation

Stage I

Before a PPP investment is prepared, it should be preceded by a preparation stage, when it is: identified, analyzed in terms of feasibility and organizational structure. During this stage, the originator should collect as much information about the project as possible. At this stage, detailed definition of the parties to be involved in the project should be developed, as well as a list of other

City Consulting Institute Page 106 entities engaged in this investment. Further on, socio-economic impact of a project has to be identified, together with its costs and benefits. The next step is to evaluate the real ability to finance the project by a public unit and its financial influence on other public entities. In the end, all potential sources of funding the project should be compared. Stage II

During this stage, it has to be examined whether the project fits into the definition of PPP projects and may be contracted as a partnership. It should be primarily evaluated if adapting the PPP approach will be more beneficial, than any other financial option available for public projects. Besides, it should be appraised, whether it can be attractive for the private sector. The rate of return for all financial flows of this project should be calculated. Shall the analysis reveal that the PPP method can be applied for the particular venture, advantages and disadvantages of various PPP models have to be considered, in order to choose the optimum one. In this stage, it is advised to analyze the experience of entities that have already implemented PPP projects within the same functional area. Stage III

The tender stage is very detailed, concentrated on creating the partnership structure and choosing the best private partner. The result of this stage is a complex network of potential solutions, which is later on structured into a PPP contract. This contract includes all technical, legal and financial regulations. It should be stressed that active and well structured partnership cooperation together with a clear hierarchy of own objectives, clear risk division and structure of obligations lead to best effects of a PPP venture. Stage IV

Realization consists in implementation of the PPP according to all the assumptions and schedules specified in the previous stages. Project success strongly depends on PPP contract provisions. The key principle of successful realization is the win-win rule, which assumes that successful partnership is a partnership in which risks and tasks are divided optimally and every party is responsible for the activities they are expert in. Therefore, both parties can benefit from realizing the venture objectives.

Realization of investments in the PPP model brings benefits and profits to all parties. Moreover, benefit in this case is not only material but also mediagenic.

City Consulting Institute Page 107

Benefits for the public party  The private partner engagement into the project enables the public party to reduce the costs and helps balance the entity’s budget.  The private capital significantly reduces the risk of stopping construction work due to shortage of financial resources and increases the probability of infrastructure’s quality improvement.  Involvement of a private entity means the application of newer technologies and know how.  More efficient management of the investment and human resources shortens the implementation time and therefore reduces costs.  The role of political impact exerted on the investment and other economic decisions may be reduced by engaging private companies.

Benefits for the private party  Possibility to invest in a project with an attractive rate of return.  Access to projects which could be previously implemented only by the public sector.  Cooperation with a public sector entity, ensuring new experience, knowledge and skills that may be further used in other ventures (learning curve).  On the top of the above benefits, involvement in a public project of media’s interest may be a strong PR element and good promotion for a company.

City Consulting Institute Page 108

Table: Conclusions for PPP implementation

Stream of capital, which can be used for investment in the public sector, achieved thanks to the involvement of the private sector. The PPP system faciliates implementation of projects with limited access to public funds as it offers a possibility to obtain capital from the private sector for public investments. This is very important, as it encourages public entities to apply for structural EU funds.

Spreading knowledge and experience of the private sector and increasing the effectiveness and quality of public works.

Sharing the risk related to the venture – in PPP the greatest risk is carried by the party with the biggest potential to successfully manage it with available resources. The goal is to share the risk in the optimum manner to maximise the added value (not to minimize it for partners).

Higher effectiveness in consuming available resources and higher service level – as previous experience shows, most activities related to a project can be performed more efficiently within PPP, because of management discipline and the private sector experience. Moreover, the service level within PPP is often much higher than in case of traditional investments. This is related to better organization, supervision, implementation of innovative solutions and motivation to reduce costs. It is also important that this motivation results from both private sector interest (concentrated on profits) and public supervision (concentrated on PPP contract provisions related to: breaching the contract by the private partner by not following the agreed standards and quality of services provided).

Ability to generate additional profit for third parties, which also reduces the demand for public funds for other investments.

Ensuring the optimum project management, with limited total cost – transferring part of project risk to a private partner encourages him to search for the optimum management method and therefore optimizes the process of spending the available financial resources. At the same time, the total project cost may be reduced. However, decrease of the total cost cannot result in lower quality of services or other standards provided for in the PPP contract, as the revenue of the private partner depends on the fulfilment of contract conditions.

Greater supervisory role of the public sector – As responsibility for the project is transferred to the private partner, the public party can concentrate on its regulatory functions, planning and monitoring of the implementation process (although the responsibility to provide public services stays with the public entity). Besides, public services become more competitive and market oriented, which helps maximise the return on investment.

Keeping the right proportions while agreeing on a hierarchy of objectives for both public and private partners as well as the scope of responsibilities. This should result from a clearly defined share of risk and obligations and lead to maximization of benefits and effectiveness of the project.

City Consulting Institute Page 109

In case of the JESSICA initiative, Public-Private Partnership is a necessary element, unavoidable and beneficial, although there are some critical points, which should be considered in the initial phase of application verification.

Table: Critical factors of PPP from the JESSICA perspective.

•The PPP Law was initially introduced in 2005, but due to a large number of errors and lack of relevant decrees, it was defective. Applying this Law without reference to other acts could be (and Legal problems with PPP often was) considered a crime. implementation •Due to numerous problems with PPP, self- government entities are afraid to establish such a partnership. Therefore PPP contracts are often very unfavourable to private partners.

•The PPP Law in its correct form has been binding since 2009. Therefore, there are no practical Lack of knowledge and examples of partnership projects implementation. experts •There are only few experts in developing contracts and implementing PPP to optimize investment results.

•PPP implementation in self-government units should be preceded by a detailed analysis of budgetary needs and opportunities. Lack of conditions for PPP •Local governments should introduce clear implementation strategy in schemes of PPP implementation consisting in the self-government units development of PPP Implementation Plans, which would describe the key investment areas, contract participation opportunities and PPP models for individual ventures.

•There is a need to adopt a standardized analytical Lack of conditions for model to enable unambiguous evaluation of evaluation of PPP economic profitability of each investment within a PPP perspectives. model, which can be implemented within the JESSICA initiative.

City Consulting Institute Page 110

The analysis of opportunities connected with JESSICA and PPP gives optimistic results. It should be stressed, that PPP is a new solution. Due to the fact that long time has been spent on preparing legal acts and faulty Law was adopted in the end, the new Law has a low acceptance level among most self-government entities.

On the other hand, local authorities expect the possibility to implement projects within PPP, as it is the only way to cure the current investment policy and implement profitable projects.

JESSICA has a chance to become a natural incentive for public entities and private investors to establish partnerships and jointly implement interesting and profitable investments.

In result of JESSICA implementation, Silesia may take the chance of developing advantageous conditions for investments, from legal, economic as well as financial perspectives (implementation of a new, revolving mechanism to support investment).

Table: Opportunities for cooperation in PPP with JESSICA support.

self- government units

business units

JESSICA + PPP

City Consulting Institute Page 111

2.5. Summary. Conclusions for JESSICA implementation.

A comparative analysis was performed for Variant 0 (representing the traditional granting mechanism of ROP SL funds) and Variants 1-4 (related to JESSICA implementation). The general conclusions have been summarized below.

Funds granted to JESSICA projects are returnable, contrary to those coming from the subsiding mechanism of the ROP SL. This fact enables the development of a long-term financial mechanism for regeneration projects.

One of the main short-term financial benefits of JESSICA is the option to withdraw the full ROP subsidy at once. Unused funds (e.g. not yet transferred or left after loan payback) may stay as a bank deposit and generate additional income from interest. This income should cover at least part of the management fees.

In comparison to the traditional system, JESSICA’s effects are the following:  The financial capital is revolving, therefore the total funds are not decreasing.  The value of funds transferred for project implementation will be relatively increasing, in comparison to the traditional mechanism. This will result from re-investment of available funds coming back to the UDFs as a loan payback. The financial assets will be increased by interests from loans granted for projects and from bank deposits.

The analysis of 4 variants of JESSICA implementation in Silesia revealed that Variant 4 (HF + >2 UDFs + other shareholders – JSTs, banks) is the optimum one. Establishment of a higher number of UDFs will result in the leverage effect, which means that the solution will offer a higher potential for public (JST) and private (banks) sector units to engage their funds in UDFs. Increase of financial resources within JESSICA means in turn that more projects will be implemented and the UDF value will increase (e.g. financial income on interests).

Thanks to the implementation of the above variant, an expert institution implementing the JESSICA initiative will be established. This will result in the following advantages:

• Low costs for the MA, resulting from the fact that the MA would not be responsible for managing the funds from operational programs and investing them in particular UDFs. The HF would take over all the responsibilities of a managing authority. • In accordance with the Roman Treaty, there will be no need to perform a public procurement procedure for the HF, if the EIB decides to take over this function.

City Consulting Institute Page 112

• Possibility of fitting financial instruments to the project and local requirements. High knowledge transfer between the HF managed by the EIB and the UDFs. • Possibility of obtaining the financial leverage effect. • Ability to create good practice database and support transfer of experience to self- government units. • High potential of finding new partners and financial sources. • Possibility to win over other financial institutions, including the EIB, commercial banks, other shareholders (e.g. cities). • Potential diversification of projects. • Due to a great variety of available tools, it would be possible to achieve the highest value added effect in realizing Integrated Programs. • Possibility of frequent relocation of financial resources to other projects (after paying back the previously granted loans), achieved thanks to the contribution of JST, commercial banks and the EIB. • Implementation of PPP projects.  Possibility of obtaining the financial leverage effect.

From the public finance sector’s point of view, not only income from the invested funds is important. Professional management of the ROP funds is considered a key objective of the HF operation. The EIB prestige as a HF adds to the great experience in JESSICA implementation.

The EIB acting as a HF has the highest possible credit rating (AAA) on the financial market. Thanks to this fact, the EIB may gather high capital on favourable conditions. As the EIB is a non- profit oriented bank, conditions for loan granting are also favourable.

City Consulting Institute Page 113

3. Institutional analysis of JESSICA implementation.

3.1. Description of potential market participants in JESSICA.

3.1.1. Public administration.

The parties that may potentially be interested in the JESSICA initiative include: central government administration, voivodeship (region), poviat (county) and gmina (commune) self-government entities as well as the Metropolitan Association of Upper Silesia.

Areas where JESSICA implementation is possible and desirable have been summarized in the table below. Table: Potential engagement of public administration units in JESSICA.

Unit Potential involvement in JESSICA Central Central administration is the owner of companies and properties which need government transformation and regeneration. It is interested in contributing a part of its units: regional assets for the purpose of their revitalization. offices of central The State Treasury owns post-industrial and degraded areas (waste dumps, institutions, post- exploitation areas, contaminated land) and post-industrial objects of high Voivodeship historical value. The State Treasury is also the owner of companies currently Office undergoing restructuring processes, being in possession of non-productive property situated in revitalization areas. Self- government Voivodeship self-government plays the role of the ROP Managing Authority and voivodeship is the entity responsible for taking decisions on strategy, development entities directions and effectiveness of the JESSICA mechanism. JESSICA is an efficient tool that may be applied in the process of implementing Priority 6 of the ROP SL. Moreover, voivodeship self-government owns properties situated in urban areas and other entities that may participate in PPP processes. JESSICA funds may be applied in the planned PPP investments in the Voivodship Park of Culture and Recreation or in health care transformation (additional analyses would be required).

City Consulting Institute Page 114

Poviat self- Poviat self-government entities are interested in two aspects of the initiative. government Firstly, poviat authorities in country districts would like to support smaller cities entities in creating effective financial mechanisms that would enable them to implement large investments in poviats. Secondly, self-government entities of both country and township districts may benefit from the initiative implementation in the areas of healthcare, upper-secondary education and road infrastructure. PPP initiatives in the sphere of development or renovation of hospitals and their auxilliary buildings, schools and health care restructuring processes are particularly interesting. These processes are still in initial phases, therefore JESSICA could be crucial for their success. Gmina self- Gmina self-government entities prove considerable interest in JESSICA government implementation. These entities implement urban regeneration projects and entities initiate investment processes as well as engage in partnerships aimed at revitalization of degraded or urban areas. Most self-government entities have and implement Local Revitalization Programmes. Nevertheless, there is no legal solution offering support as far as project financing is concerned. The only financial source is own budget and subsidies from the IRDOP or the ROP SL. There are also other funds available, but their impact is rather minor: EEA financial mechanism or funds related to environment protection and domestic loans. Most of these programmes / funds support non-profit projects. Therefore, there are no funds able to generate income or added value. Moreover, the market is lacking resources and legal regulations concerning PPP. All these factors result in weak financial leverage effects in the sphere of regeneration projects. Most revitalization projects are financed from communal budgets. In the light of the present crisis and decrease of income, even high potential projects may not be started. Seeing the possibility of financing the JESSICA projects outside own budget and engaging private partners in the process, gminas have proven considerable interest in the mechanism. Some gminas have even declared their ability to contribute own resources in order to reinforce the capital of local UDFs. Gmina self-governments own properties situated in urban areas and other entities that may participate in PPP processes. This approach guarantees the establishment of strong regional

City Consulting Institute Page 115

financial institutions. Metropolitan The special character of the most urbanized region in Poland was the reason to Association of establish the Metropolitan Association of Upper Silesia (Polish acronym: GZM). Upper Silesia - The main objective of GZM is to create a dynamically developing metropolitan GZM center, which will be able to effectively compete with other metropolitan centers in Poland and in Europe. Other GZM’s objectives are: - Harmonized development of the whole metropolis, achieved through the best allocation of member cities’ potential with respect to their autonomy and individual character. - Arising pride of being parts of a great city mechanism in the metropolis inhabitants and assuring that the metropolis potential is available for all of them. - Encouraging inhabitants and visitors to discover the metropolis, to settle and work there. - Building and popularizing a belief in comprehensive opportunities to choose a career, life style, encouraging young, well-educated people to move to and work in the metropolis. - Promoting, in and outside the country, all advantages of the metropolis: economical, cultural, touristic and environmental. Members of GZM: Bytom Chorzów Gliwice Dąbrowa Górnicza Jaworzno Katowice Mysłowice Piekary Śląskie Ruda Śląska Siemianowice Śląskie Sosnowiec Świętochłowice Tychy Zabrze According to the Associations’ status, it is a municipal association realizing the following tasks: - Defining the common development strategy for member cities, according to the Law on planning and spatial development. The strategy

City Consulting Institute Page 116

should be taken into account in studies of land use conditions and directions of particular cities. - Realization of the tasks included in the common development strategy, transferred by member cities to the Association on the basis of relevant agreements. - Acquisition of financial resources from domestic and international funds. - Managing roads handed over to the Association by member communities on the basis of relevant agreements. - Development of applications for public funds from the EU budget to co- finance statutory tasks. - Labour market activation in member cities, achieved through gathering and managing financial resources as well as through supporting projects innovative to economy, increasing competitiveness between member cities. The scope of these activities is based on relevant agreements. - Development of analyses and reports on current scarce professions, assessing the labour market and supporting public education, especially targeted at educating students in scarce professions. The scope of these activities is based on relevant agreements. - Issuing opinions on legislation and decision making processes (national and regional) in the areas of the Association interest. - Cooperation with territorial self-government units, including local and regional communities of other countries and government administration bodies. Currently, the Association is responsible for preparation and implementation of a programme of waste development through thermal processing. Many urban regeneration tasks of the Upper Silesia Metropolis have to be implemented by two or more neighbouring cities due to their geographical location. Therefore, the Association may be a natural partner in the process of implementing integrated urban projects on this territory.

City Consulting Institute Page 117

3.1.2. Public institutions

Among the entities interested in JESSICA, there are also public institutions like: Local Development Agencies, The Regional Fund for Environmental Protection, The Capital Group of the Upper Silesia Fund (The Upper Silesian Fund, The Center of Regional Projects, The Upper Silesian Regional Development Agency), The Upper Silesian Business Transformation Agency, TF Silesia and universities.

Summary of potential engagement areas has been presented in the table below. Table: Potential engagement of public institutions into JESSICA.

Unit Potential engagement in JESSICA

Local Agencies operating in the region have a broad knowledge on the local economy Development and its potential. They operate in the area where business and self-government Agencies meet, what gives them a possibility to participate or to counsel in PPP processes. Agencies show interest in advising, consulting and training in JESSICA projects development. Agencies can be also used as local consultation points for this mechanism.

Regional Fund RFfEP has at its disposal funds dedicated to regeneration of degraded and post- for industrial areas. It supports communes in this respect. The Fund can co-finance Environmental Integrated Programmes of Urban Development as it may grant loans for those Protection elements of programmes that do not generate income, but reinforce the overall project effect.

In case of regeneration of degraded post-industrial areas, the RFfEP may be the key to effective financial engineering of projects.

Capital Group of The Upper Silesian Fund is an entity owned in 100% by territorial self- the Upper government units of Śląskie Voivodeship. The company was established in 1995 Silesian Fund on the basis of the so called regional contract. Its scope of activity includes: (The Upper - Purchase of property and movable assets in order to use them for Silesian Fund, business purposes or dispose, The Center of - Attracting external capital to invest on the Śląskie Voivodeship territory, Regional Projects, The - Cooperation with domestic, foreign and international institutions aimed Upper Silesian at implementation of the Company’s objectives, Regional

City Consulting Institute Page 118

Development - Administration and management of funds for regeneration and Agency) development projects.

The entity has considerable experience in implementing projects that may be co-financed within the JESSICA frame. This experience has been gained thanks to the Department of Communal Investment Development. The Department aims at:

1. Organizing issuance and sales of securities issued by gminas, gmina associations and other communal entities on the market.

2. Investing the Fund’s resources in communal entities.

3. Capitalization of the Fund’s property, e.g. through shares in developer companies.

4. Provision of consulting services in the following areas:

- Financing communal investments with the use of not-budgetary commercial financial sources;

- Impact of the commune’s budget deficit on its financial credibility in 10 year periods;

- Assessing the effectiveness of communal investment projects;

- Planning and acquisition of financial resources for the purpose of covering current communal demands (use of different financial instruments).

5. Implementing financial instruments in gminas.

6. Organizing training sessions with territorial self-government units, primarily on public finance management.

There is also an Aid Programme Department within the structure of the Upper Silesian Fund, crediting projects from public funds (including funds from the European Union). The capital group comprises:

- Silesia Regional Guarantee Fund Ltd. (Polish: Śląski Regionalny Fundusz Poręczeniowy Sp. z o.o.) – providing guarantees thanks to e.g. the EU funds,

- Upper Silesian Investment Funds, joint-stock company (Polish:

City Consulting Institute Page 119

Górnośląskie Towarzystwo Funduszy Inwestycyjnych S.A.),

- Upper Silesian Restructuring Fund, joint-stock company (Currently: the Silesia Capital Fund SA).

Yet another Fund is currently being established. It will be co-financed from European Union funds in partnership with a subsidiary company of Bank Gospodarstwa Krajowego and private capital.

In the Upper Silesian Fund group, there is also a company established in order to cooperate with local authorities in the sphere of construction and spatial development (CPR Investor) and a company advising small and medium sized companies, which was in the past a Regional Financing Institution (GARR). Thanks to their experience, these companies may (in cooperation with the Fund) establish new subsidiary companies to play the functions of UDFs.

CPR Investor SA staff is highly qualified in urban regeneration and PPP projects. The company owns the Social Housing Association that may be a very active player on the regeneration market. The comapny manages post-industrial areas owned by the Upper Silesian Fund (Fundusz Górnośląski S.A.) and develops their revitalization strategies. CPR can act as an operator of the Real Estate Development Fund, regenerating post-industrial areas. On the basis of the above information, it should be stressed that the Upper Silesian Fund (Fundusz Górnośląski S.A.) is a unique institution in Upper Silesia, with no equivalent in terms of experience (best practices), human resources, relevant tools and know- how. The added value is the experience in cooperation with self-government entities (being its shareholders at the same time) and private capital (in public- private partnership).

The Upper Silesian Fund has established a Regional Loan Fund for small and medium-sized enterprises, assisting entrepreneurs in the process of applying for EU grants. Support is also granted to people starting up their own business acitivity, graduates and the unemployed.

Moreover, the Upper Silesian Fund has also created a regional venture capital fund aiming at innovative project and environment protection ventures. Its subsidiary – CPR Inwestor S.A. ,together with the local self-governement entity have established a regional Social Housing Association (TBS) to implement

City Consulting Institute Page 120

regeneration projects.

The Upper Silesian Fund is interested in creating two UDFs: loan and guarantee fund and investment fund for regeneration projects. Basing on its experience, the Fund has expressed the opinion that combining both functions within one UDF would not be effective. All banks differentiate these two types of activities, creating separate loan, mortgage or investment banks within one banking group. Due to the fact, the Upper Silesian Fund declares the establishment of two separate UDFs within its structures.

The Upper GAPP S.A. is a State Treasury Company. The goal of this firm is to break or Silesian Business mitigate barriers in structural and ownership transformation processes in Transformation companies, leading to development and growth of the region. One of the Agency (Polish: company’s priorities is to support competitiveness and growth of small and GAPP S.A.) medium-sized companies. The company is also engaged in transformation and management of degraded and post-industrial areas. It declares the will to create a platform for transformation processes in degraded areas. It would like to implement regeneration projects and play the role of an advisor in developing post-industrial areas.

TF Silesia This institution was established to support transformation of companies in the region. Due to the fact that most of them are located in attractive areas but posess de-capitalized assets, TF Silesia may be interested in using JESSICA to bring in assets to urban projects.

Universities Local universities have a great potential and knowledge on the conditions of post-industrial heritage. Due to the fact, they are interested in supporting intellectually the initative through research, own regeneration projects, knowledge sharing and qualification improvement.

City Consulting Institute Page 121

3.1.3. Financial sector institutions

There are financial institutions interested in engaging in the JESSICA initiative. These are commercial banks, BGK, CEB, EBRD and EIF. Table: Engagement of the financial sector in JESSICA.

Unit Potential engagement in JESSICA

Commercial Despite of a large number of banks operating on the Polish market, only banks communal investment and mortgage banks have shown interest in the initiative. Due to limited confidence of banks in developer investment (information valid for August 2009), a majority of them declare their will to participate, without providing the scope of cooperation they would be interested in. In general, commercial banks are interested in financing particular projects that self-government units are involved in. Banks do not have any experience in managing UDFs and HFs and due to specific requirements of banking legislation, they are not interested in it.

PKO BP –interested in financing regeneration investments up to 10 million PLN. It could potentially support bigger investments, after individual negotiations. The bank prefers financing investments of self-government units.

DEPFA BANK –oriented on cooperation with the public sector, regeneration and restructuring ventures, PPP. Its experience and cooperation with the EIB in Silesia opens the possibility of cooperation in implementing the JESSICA mechanism and PPP. The Bank would involve in investments over 5 million PLN.

ING Bank Śląski – interested in financing projects of self-government entities, mostly by issuing bonds. Due to its special connection with region, the bank is interested mostly in Silesian regeneration projects.

Dexia Kommunalkredit Bank – specialized in supporting public and communal sectors. The Bank is also keen on financing long term public projects, realized as PPP (long crediting period, up to 20 years). The bank offers also negotiations on the grace period and pay-back structures fitting the character of the investment. Funds in various currencies. Issue of bonds. Involvement in restructuring processes.

DnB NORD – the Banks’ offer includes full service for territorial self-government

City Consulting Institute Page 122

units. The bank finances even the most complicated investment projects, implemented directly by self-government units or in cooperation with private partners. It has a great experience in financing housing regeneration, restructuring of health care institutions and construction of technology parks. It offers European loans for financing ineligible costs of projects and bridge loans.

Commercial banks are not interested in managing the HF and UDFs or financing specific projects. Nevertheless, their experience and openness for PPP projects and public sector restructuring are very important.

BGK BGK, as a state-owned financial institution of high credibility, specializes in serving the public finance sector. It provides economically and operationally effective support for socio-economic state programmes and self-government programmes for regional development. It ensures modern and high quality offers and good relationship with customers by flexible approach towards their needs. The mission of BGK is to provide high performance and cost-effective realization of activities contracted by the state, supplemented by development of an attractive offer of self-operation for chosen segments of the market, where the bank can use its natural advantages. The bank’s offer includes:

Long-term loans

- Investment loans; - Loans for financing EU projects; - Loans granted by the EIB;

- Loans granted by the EIB with the European Commission grants. Securities and guarantees

Bonds

- Issue of bonds; - Consulting services for self-government bodies. State programmes

- Pre-financing; - Social housing support programme from the Surcharge Fund; - Energy Effectiveness Programme – Global Environment Facility. Special Purpose Funds

Thermomodernization Fund

Communal Investment Development Fund

City Consulting Institute Page 123

Credit Guarantee Fund

European Union Package

CEB CEB was established in 1955. It is the Europe’s oldest financial institution and Poland is one of its shareholders. The bank is a financial institution of the Council of Europe, which provides loans for the member states. CEB offers credits for 50% of the total net cost of an investment or a project.

CEB can finance self-government investment for very long crediting periods and on very convenient conditions. The bank is also experienced in projects run jointly with the EIB.

The bank can also co-finance regeneration projects in the sphere of social housing, health care, education and environment protection. The possibility to finance construction and modernization of hospitals and educational buildings seems particularly interesting in revitalization projects. Besides, in case of integrated renovation projects, the bank can finance some non-profit components without interest and with minimum bank’s margin.

The bank is not a contractor in terms of the public procurement Law. The European legislation and the Polish Public Procurement Law (Art. 4 point 1a) of 29 January 2004 as amended, refer to financing with the support from international organizations, to which the public procurement Law does not apply. Moreover, in case of the CEB, each application for funding is formally presented to the Administrative Board of the Bank after it had been agreed with the Ministry of Finance. Credits offered by the CEB are more favourable than the ones offered by commercial domestic banks. The bank can cover up to 50% of the total investment costs, regardless of other funding sources. This favourable offer includes: low cost of money (no interest), long crediting and payback period, freedom of choosing the investment type, flexible structure (option to use various currencies, formulas for interest rates calculation and characteristics of payback) together with the ability to apply special procedures for international organizations (in relation to granted credits, according to the public procurement Law).

The bank is not interested in taking over the functions of the HF and UDFs.

European Bank The EBRD bank has strongly supported the Polish transformation in 1990s.

City Consulting Institute Page 124 for Currently, the bank considers its strategy for Poland in 3 areas of potential Reconstruction engagement: and  private sector; Development  financial sector; (EBRD)  infrastructure and environment.

It is particularly interested in the possibility of engaging in the private sector transformation, private equity funds and venture capital. The bank will use its experience in financing projects within the public-private partnership, especially in the communal and transport sector.

Cooperation with the EBRD can lead to active cooperation on a project, as well as on a UDF level, where the UDF invests capital in restructuring and regeneration of urban areas. The bank shows no interest in direct management of the HF and UDFs.

EIF - European The European Investment Fund was created in 1994 to support small and Investment Fund medium sized companies. Its main shareholder is the European Investment Bank. Together with the EIF, the bank forms the EIB Group. The EIF provides

high risk capital for small and medium sized companies, especially for the young and technology oriented. It provides guarantees for loans granted by the EIB.

The EIF does not provide direct loans or subsidies, neither invests directly in companies. It acts through its middlemen: banks and other financial institutions. It uses its own funds or resources provided by the EIB or the EU.

The EIF is an institution responsible for implementation of the JEREMIE initiative in Poland. The JEREMIE initiative aims at supporting companies. There are potential benefits for JESSICA deriving from cooperation with the EIF, especially if one of the elements of a PPP regeneration project is reinforcing competitiveness of companies.

City Consulting Institute Page 125

3.1.4. Private sector

Among private institutions interested in JESSICA implementation, there are mainly municipal companies, State Treasury companies, restructuring companies, medical centres, developers, institutions supporting regeneration processes and other investors.

Table: Potential engagement of the private sector institutions in JESSICA.

Unit Potential engagement in JESSICA

Municipal Municipal enterprises may play a key role in the process of implementing enterprises and projects within JESSICA. the State The existing companies concentrate on municipal services, housing and Treasury environment protection. They posses or manage huge assets, located mostly in companies regeneration areas. The scope of their interest may include regeneration of particular areas, objects in PPP or restructuring of whole segments of their activity in revitalized areas. The main types of companies are:  Water supply companies;  Housing companies;  Heat power companies.

Municipal enterprises have significant experience in the sphere of regeneration, e.g. heating infrastructure programmes for regenerated districts (realized with the Heat Power Company support), infrastructural programs within PPP (water supply and sewage management).

Other units engaged in JESSICA may be municipal special purpose companies, established in order to implement particular regeneration projects within JESSICA or PPP. Setting up such a company is the most clear and transparent form of running a regeneration investment, and at the same time the most understandable by the commercial finance sector.

Municipal special purpose companies will be therefore interested in managing projects, applying for financial resources but also in coordinating integrated programs comprising a few projects. Municipal special purpose companies may be established by an association of municipalities interested in the establishment of local UDFs.

City Consulting Institute Page 126

Currently, municipalities of the northern sub-region are interested in establishing their own UDF as a partnership or investment fund.

State Treasury Companies - most of these companies are currently undergoing restructuring processes leading to privatization or reorganization of their operation. They possess huge non-productive assets. Most of them are located in areas under regeneration (or potential regeneration zones) and they are often the most interesting architectural objects in the centres of Silesian cities. These are also potentially interesting investment areas, unfortunately demanding great outlays for revitalization.

Examples may include Kompania Węglowa S.A. (coal mining company) – managing mining industry assets or the already presented TF Silesia.

These companies might be interested in running regeneration processes and contributing land for regeneration ventures together with municipalities. Decisions on these contributions would be made on a ministerial level. In order to receive positive results, it would be necessary to prepare a common project (e.g. Real Estate Development Fund) together with the Ministry of Economy and the Ministry of Treasury.

Restructuring Restructuring companies are very specific enterprises, created for the purpose companies of managing non-productive post-industrial assets. These are mainly properties, which in spite of their location require so significant investment in regeneration that no one wanted to buy them on the commercial market. These properties might be contributed to regeneration projects.

Spółka Restrukturyzacji Kopalo S. A. (Mines Restructuring Company) may be an example here as it owns properties in the following cities: Katowice, Bytom, Sosnowiec, Jaworzno and Zabrze.

Decisions on these contributions would be made on a ministerial level. In order to receive positive results, it would be necessary to prepare a common project (e.g. Real Estate Development Fund) together with the Ministry of Economy and the Ministry of Treasury.

Medical entities The JESSICA initiative does not concentrate on restructuring the public health care. Most buildings requiring resources for regeneration and restructuring are located in city centers. Major private companies as well as public health care

City Consulting Institute Page 127

sector employees are interested in restructuring these institutions. Restructuring in this case means economically justified expenditure on tangible and intangible assets. Poviats have shown considerable interest in these projects as they own most hospitals. It is also possible to combine private and institutional financing (e.g. by the CEB, the EIB or the JESSCA initiative). The role of JESSICA is to support PPP ventures implemented by self-government units in order to show profits.

Developers The main problem that developers face is the lack of well located investment areas. Therefore, they are natural partners for regeneration projects bringing back to life degraded and post-industrial areas. Another area of their interest is adaptation of post-industrial and de-capitalized objects, located in city centers, for the purpose of new functions oriented on development of the center. Developers could participate in the process of JESSICA implementation in the following ways:

 participation in property development companies or directly in UDFs. They could support financially ventures connected with property development. They could also manage the process of restructuring objects and land as well as engage their own funds.

 extensive cooperation - a developer becomes the owner of the land, initially prepared for regeneration projects. Cooperation between developers and self-government units starts already in the planning phase. The effect of this cooperation is market oriented management of the regeneration process, which guarantees success.

If more than one investor or developer is to be involved in PPP, it is crucial for local authorities to recognize what are the actual needs of investors already in the preparatory phase. Good examples may be German companies, like LEG (Landesentwicklungsgesellschaft). It is also crucial to use proper tools (e.g. Charrette workshops) in the process of developing complex investment projects. These objective tools should be preferred by implementing complex PPP projects based on the JESSICA mechanism.

Investors The main groups of investors indentified in this report are:  International holdings interested in cooperation in the communal services sector, and therefore also in regeneration of infrastructure in

City Consulting Institute Page 128

degraded city centers (e.g. Veolia, Suez, RWE, Remondis, etc.). These companies have considerable budgets and have initially declared their potential engagement in JESSICA projects.  International and domestic companies offering complex regeneration of cities and other areas (e.g. BIG-STÄDTEBAU GRUPPE) are willing to engage in integrated, complex regeneration processes and urban development of cities. These companies may also be shareholders of various projects and develop financial engineering models for entire processes. They are interested in operating a capital UDF, but not in running the HF. They also emphasize that they would like to cooperate with the EIB or other European institutions during the process (e.g. in the HF). In their opinion, this solution would assure greater flexibility of financial engineering models in case of complex regeneration projects financed from other EU resources.  Domestic and international companies interested in restructuring particular properties or companies that own properties situated in regeneration areas (e.g. TUP SA, Szpitale Polskie SA). These companies are experienced in regeneration processes, e.g. TUP SA has implemented regeneration projects in Poznan and is currently progressing with similar projects in Silesia. These companies are not interested in managing the HF or a UDF but would like to act as project operators, supporting local authorities. They have their own capital and may be active players in PPP processes.

Supporting Regeneration Forum Association institutions The Regeneration Forum is the most active unit in Poland and Silesia in terms of regeneration knowledge. The association is represented in Silesia by a few experts, experienced in developing regeneration programs as well as implementation and management of regeneration projects.

The Regeneration Forum cooperates on a daily basis with the Ministry of Infrastructure and the Ministry of Regional Development as well as the BGK. The Forum advises self-government units and has published numerous papers on regeneration. Forum experts have for several years cooperated with European institutions: the EIB and the EBRD. Several Forum experts have been

City Consulting Institute Page 129

European experts in countries from outside the Union (e.g. Georgia or the Balkans). The Forum cooperates closely with regions such as: North Westphalia, Nord-Pas-de-Calais, Burgundy, Mecklenburg-Vorpommern, Brandenburg.

The Forum declares its support for self-government units, UDFs and assistance in developing Integrated Development Plans for cities as well as assistance in project implementation processes.

This institution has created a regeneration best practice database and possesses the know how in regeneration management.

The Forum is not interested in institutional participation in the HF and UDFs but may provide experts to support the above institutions with their knowledge.

Silesian Association of Municipalities and Poviats

The Association mission is to serve the local society and self-government units of Śląskie Voivodeship. The SAMP has 114 member municipalities (including 19 cities with poviat rights) and 11 poviats. The spatial scope of its operation covers the area inhabited by over 4 million people. All activities and initiatives undertaken by the association aim at integration of the region and popularizing the best practices in terms of local development. The idea of the Silesian Association of Municipalities and Poviats is based on cooperation with other organizations, both national and international, which can jointly realize ventures leading to stimulation of regional development.

The main areas of SAMP interests are:

- shaping the common policy of local self-government units;

- representing local authorities;

- informing and training municipalities and poviats in European Union procedures and programmes;

- urban policies;

- initiatives for economic development of municipalities, poviats and their promotion;

- implementation of the “Rural Area Development Programme in Municipalities and Poviats of Śląskie Voivodeship”;

City Consulting Institute Page 130

- informational and educational actions aimed at municipalities and poviats.

The SAMP is also engaging in regeneration actions, supporting its members in these processes. The Association may play an advisory role in JESSICA projects.

3.2. Ability and willingness of the private and public sectors to support urban regeneration in Silesia through JESSICA

The interest of the public and private sectors as well as their ability to engage in projects implemented within the JESSICA initiative have been analyzed and summarized below. The comparison has been performed according to the particular unit’s interest in financial and strategic management of regeneration projects, consultant role, capital or material commitment. Moreover, the table below summarizes the interest of various institutions in managing projects or independent project implementation, financing, capital or material commitment, partnership commitment based on PPP. The table defines also the beneficiaries of credit-guarantee support. Preferred solutions are marked as “++”.

City Consulting Institute Page 131

Table: Analysis of ability and willingness to implement projects financed within the JESSICA frame.

Unit Financial Strategic Consulting Financing Capital Material management Management and control Commitment Commitment Central administration -- -- + + - ++ Voivodeship administration - ++ ++ + ++ + Poviats -- -- +/- -- -- + Municipalities -- ++ ++ + + ++ Development agencies +/- ++ ++ - - +/- Special purpose funds (environment, restructuring) - - + + + ++ The Upper Silesian Fund +/- ++ ++ + ++ ++ Commercial banks + - +/- ++ + -- International financial institutions ++ + +/- ++ + - EIB ++ ++ ++ ++ ++ -- TFI + +/- +/- - + - BGK + - +/- ++ + -- Polish and international public utility companies (i.e. municipal companies, - - - - - +/- health care) Developers, other institutions investing in real estates (FIN) ------Polish and foreign entities managing regeneration processes + ++ ++ - - - Institutions supporting regeneration and development of cities. -- +/- + - - -

-- Impossible or unit not interested, - Difficult or not beneficial, +/- Possible, few benefits, + Unit interested, possible solution, ++ Unit very interested, prefered solution.

City Consulting Institute Page 132

Table: Units’ engagement on project level.

Unit Project Independent Financing Capital or Capital Assignee of management project projects material partnership credit or realization commitment (PPP) guarantee commitment support Central administration - - - + - -- Voivodeship administration + + ++ + + +/- Poviats + + ++ + + +/- Municipalities + + ++ + + +/- Development agencies + + - +/- +/- +/- Special purpose funds (environment, restructuring) - - ++ +/- +/- - The Upper Silesian Fund ++ ++ ++ ++ ++ - Commercial banks - - ++ + - - International financial institutions - - ++ + + - EIB - +/- + ++ + - TFI - - ++ + - -- BGK + ++ - + + + Polish and international public utility companies (i.e. municipal companies, + + + + ++ + health care) Developers, other institutions investing in real estates (FIN) ++ + - - ++ + Polish and foreign entities managing regeneration processes + +/- - - - +

-- Impossible or unit not interested, - Difficult or not beneficial, +/- Possible, few benefits, + Unit interested, possible solution, ++ Unit very interested, prefered solution.

City Consulting Institute Page 133

3.2.1 Conclusions: willingness to engage in JESSICA projects and institutional structure of the Programme. Table: Interest in engaging in JESSICA projects.

Interest identified Experience of the entity

Institutions Except for the EIB, none of the The EIB is the only European entity interested in the units interested in the JESSICA experienced in creating and managing a HF establishment of initiative has shown willingness within the JESSICA initiative. The EIB is ready a HF to establish a HF. None of the to take over the HF creator role for indefinite European institutions, which time or for the initial period only (e.g. until could establish a HF without the 2013). After this time, this function may be time consuming public taken over by e.g. The Upper Silesian Fund or procumrement procedure, has by another institution which will in the shown interest in it. meantime gain necessary experience with the EIB support.

It is also possible to liquidate the HF after this time.

Institutions The Upper Silesian Fund Experience of the Upper Silesian Fund covers interested in together with the companies all aspects related with UDF management in formation or co- from its capital group is the JESSICA initiative. The Fund has broad formation of interested in creating two UDFs experience in self-government financing, UDFs. as separate financial financial engineering, as well as mechanisms. The Fund can also transformation of degraded areas. It is a manage a UDF established by unique institution in the entire country, which other units. can solely perform activities related to finance and regeneration processes management. Gminas of the northern subregion have shown interest Experience of northern subregion gminas is in forming a UDF and mainly based on long-term cooperation of the contributing their own funds in city of Czestochowa with the EIB and common order to create an important regeneration projects. The city employs institution financing a group of experienced experts, who run regeneration of this subregion. financial accounting of EU and EIB funds. The experts manage complex investment projects

City Consulting Institute Page 134

and have considerable knowledge on integrated regeneration processes.

Institutions Regeneration Forum, The RF and GAPP experience has been interested in described in the previous chapter. These GAPP content-related institutions have a broad knowledge on support on regeneration and transformation. They have a programme, cooperated with Śląskie Voivodeship for fund or project years. Therefore it is recommended to involve level them as experts in the content-related work.

Institutions Gminas. Financial commitment from gminas may at interested in the beginning be the main source of financial Banks declare that in the future capital leverage in JESSICA. The binding law allows they may financially support commitment to them to establish companies dedicated to UDFs, but currently the banking UDFs urban development. law does not allow them to participate in such projects. Besides, engagement of gminas gives the possibility to create solid regional financial institutions aimed at urban development.

Institutions Subjects managing regeneration Experience gained in various European interested in processes – e.g. BIG STADTBAU. regeneration projects. managing They are mainly interested in complex complex urban projects. sustainable projects for urban development

Institutions Gminas; Interest and experience of these companies is interested in very important and may lead to the second Private investors; capital step of the JESSICA financial leverage. International companies; commitment.

Institutions Gminas; Engagement of these institutions will result interested in from the Law on public procurement, International companies; managing concessions and on PPP. Public utility companies;

City Consulting Institute Page 135 projects Private companies;

Developers.

Institutions Investment funds; TFI experience in closed investment funds interested in may be very helpful in the process of creating BGK; financing an investment UDF. Moreover, formation of Commercial banks; projects or such a fund by gminas can reduce operational managing UDF International financial costs of the UDF and help in finding additional funds. institutions; financial resources on the market.

The BGK should also be an important partner, involved in the JESSICA implementation process from the beginning.

International financial institutions’ experience will be useful in planning big, integrated urban projects, after forming the UDFs.

3.3. Analysis of institutional models of JESSICA operation

3.3.1 Potential JESSICA organizational structures

Full organizational structure of the JESSICA initiative comprises the establishment of one Holding Fund (HF) and Urban Development Funds (UDFs). The HF is not an obligatory element, but an authority of the regions, giving various possibilities for more effective management of the mechanism and receiving higher level of financial leverage. The JESSICA initiative is flexible and basing on local conditions and European experience it can be easily adapted to the needs of Śląskie Voivodeship.

City Consulting Institute Page 136

Table: Model: HF (EIB) + UDF

Managing Authority

Holding Fund [HF] Created by EIB, technical support of EIB

Urban Urban Urban Development Fund Development Fund Development Fund [UDF] [UDF] [UDF]

formal procedure of choosing entities managing the UDFs

According to the above model, the HF will be established within the EIB structure. From the Managing Authority perspective, this solution offers real financial benefits, resulting from the reduction of technical support costs. The costs of establishing the HF within the EIB structures are lower than the interest rate on the sum contributed to the HF.

Within this structure, it is possible to create more UDFs, according to real needs of the region.

The above model applies to most cases and is the only one guaranteeing quick and smooth disbursement of financial resources for investment projects.

City Consulting Institute Page 137

Table: Model HF + UDF

Managing Authority

Holding Fund [HF] Procedures of choosing the entity managing the HF

Urban Urban Urban Development Fund Development Fund Development Fund [UDF] [UDF] [UDF]

Formal procedure of choosing the entities managing UDFs

EIB technical support (optional)

The above structure is similar to the first one, but the HF role is given to an external institution, in accordance with the public procurement law.

Implementation of this structure offers the possibility of creating more UDFs, but may be time consuming due the lack of knowledge and experience of the entity establishing the HF. Insufficient experience in managing revolving instruments may be a critical factor here.

Table: Model UDF

Managing Authority

Urban Urban Development Development Fund [UDF] Fund [UDF]

Formal procedure of choosing the entities managing the UDFs EIB technical support (optional)

City Consulting Institute Page 138

The above model is seems to be the simplest one. Nevertheless, due to the need of adapting UDFs to the character of projects and disbursement procedures, developing contracts and contacting EU institutions, it is highly probable that the UDF (or UDFs) will have to build complicated internal structures. As the Managing Authority is obliged to perform independent internal controls, it will have to copy the UDF structure and take over many of the Fund’s responsibilities.

In practice, this model has been adopted only in few German lands, but administrative problems formally connected to its functionality did not allow spending any financial resources so far. In these lands, UDF management is performed by regional banks. This solution results in the focus on financial engineering, instead of the key objectives of JESSICA. In result, these institutions still do not fully understand the needs and conditions of JESSICA. Basing on the German example it should be stated that this model is difficult to implement and may paralyze regional development.

3.3.2. Establishment of a Holding Fund

The Council Regulation (EC) no 1083/2006 lays down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund. These funds aim primarily at sustainable development of urban areas. Implementation details have been defined in the Commission Regulation (EC) no 1828/2006. The Regulation sets out in detail the conditions which financial engineering instruments should fulfil to be funded under an operational programme. According to the preamble to the Commission (EC) Regulation 1828/2006:

„contributions to financial engineering instruments from the operational programme and other public sources, as well as the investments made by financial engineering instruments in individual enterprises, are subject to the rules on State aid including the Community Guidelines on State aid to promote risk capital investments in small and mediumsized enterprises”.

The main tool to support sustainable development of urban areas is the EU support (including financial aid). Joint European Support for Sustainable Investment in City Areas Programme (JESSICA) is an innovative and very effective financial instrument aimed at regeneration, renovation and development of urban areas. It enables its beneficiaries to combine funds from various sources into one financial stream and use them to finance projects supporting regeneration and further development of city areas. The sources may include e.g. capital contributions, loans, guarantees, private-public partnership and other financial tools.

City Consulting Institute Page 139

The key role in JESSICA is played by the Holding Fund (HF) and the Urban Development Fund(-s) (UDF).

According to the European Union assumptions, the start up capital for these Funds will come from EU structural funds, distributed within Regional Operational Programmes. Therefore, the initial capital will be contributed from public funds, which according to Article 78, paragraph 6 of the Council Regulation (EC) no 1083/2006 are considered eligible costs.

Implementation of the JESSCIA initiative and establishment of HFs and UDFs in particular EU member countries, requires investigation of country specific legislation. It applies also to the following issues:

- legal form of the HF and the UDF, acceptable by country specific legislation;

- procedures of choosing the HF operator and establishing the UDF;

- participation principles for self-government entities and private companies;

- legal conditions resulting from the regional development policy;

- possibility to include PPP in sustainable development of urban areas.

In EU legislation, the problem of the Fund’s legal form is considered in article 43 paragraph 3 of the Commission Regulation (EC) no 1828/2006, which says that:  „Financial engineering instruments, including holding funds, shall be set up as independent legal entities governed by agreements between the co-financing partners or shareholders or as a separate block of finance within a financial institution.  Where the financial engineering instrument is established within a financial institution, it shall be set up as a separate block of finance, subject to specific implementation rules within the financial institution, stipulating, in particular, that separate accounts are kept which distinguish the new resources invested in the financial engineering instrument, including those contributed by the operational programme, from those initially available in the institution.”

Therefore, the Commission does not choose only one, specific legal form of the HF and the UDF. It says unambiguously that it should be an independent legal person or a financial entity allocated within a financial institution. It means that according to the Polish law, the HF and the UDF may take one of the following forms:

- company (joint stock or limited liability company, including private-public partnership participation);

City Consulting Institute Page 140

- investment fund managed by an entity selected for this purpose, e.g. Investment Fund Associations (TFI) or the European Investment Bank (EIB).

Each of these legal entities assures that theHF and UDFs have the legal capacity to:

- sign contracts;

- contribute to capital;

- grant loans and guarantees.

Establishment of the HF is optional. According to the Council Regulation (EC) No 1083.2006 Art. 44, in order to implement an operational programme, each EU member state may use financial engineering instruments, including Urban Development Funds and/or optionally – a Holding Fund.

Nevertheless, taking into account that Poland does not have any experience in implementing JESSICA and all procedures have to be created from scratch, there is strong rationale behind creating the HF. The potential benefits of this solution result mainly from the fact that the HF takes over a significant part of the administration from the Managing Authority (in this case a regional self-government entity). One should consider both the overall HF management and development (according to Article 43 of the EC Regulation No 1828/2006) of the Operational Plan of actions covering also financial engineering instruments. The Operational Plan should include a number of key elements mentioned in the Regulation and consider the methods, criteria, rules and conditions for financing city projects.

The Holding Fund takes over also the responsibility to choose the UDF operator(-s) by means of a competition.

According to Article 44 of the Council Regulation (EC) no 1083/2006, as part of an operational programme, the structural funds may finance expenditure in respect of an operation comprising contributions to support financial engineering instruments for enterprises, primarily small and medium-sized ones, such as venture capital funds, guarantee funds and loan funds, urban development funds, that is funds investing in public-private partnerships and other projects included in an integrated plan for sustainable urban development.

When such operations are organised through holding funds, that is funds set up to invest in several venture capital funds, guarantee funds, loan funds and urban development funds, the Member State or the managing authority shall implement them through one or more of the following forms:

(a) the award of a public contract in accordance with applicable public procurement law;

City Consulting Institute Page 141

(b) in other cases, where the agreement is not a public service contract within the meaning of public procurement law, the award of a grant, defined for this purpose as a direct financial contribution by way of a donation:

o to the EIB or to the EIF; or

o to a financial institution without a call for proposal, if this is pursuant to a national law compatible with the Treaty.

It has to be stressed, that Council Regulation (EC) No 1083/2006 states, that structural funds within an operational programme may be spent to support financial engineering instruments. At the same time, the regulation emphasizes that in case this operation is organized through holding funds, a member country or a managing authority disburses these resources by applying public procurement procedures.

This regulation allows skipping the procedure in case the contract for services is realized through a subsidy granted in the form of a direct contribution or donation. The legislator stresses that disregarding the public procurement procedure is only possible if a financial instrument (assignee) receives a grant within an operational programme. This form is acceptable for the EIB, the EIF and financial institutions.

In the Polish legislation, the problem of awarding public contracts from public funds (e.g. structural funds) is regulated by the Law of 29 January 2004 –Public Procurement Law. The Law does not apply only in cases described in Article 4. Point 7 of this Article states that this regulation does not apply to subsidies from public funds awarded on the basis of laws and acts.

There is no unambiguous, direct regulation, excluding the necessity of applying the public procurement procedure in the process of distributing resources from operational programmes to holding funds. As far as the EU legislation is concerned, Article 44 of Council Regulation No 1083/2006 regulates this issue unequivocally, as cited above.

Polish legal regulations defining the mechanism of supporting beneficiaries with public funds to implement projects co-financed from structural funds have been included in the Act of 30 June 2005 on public finances and the Act of 6 December 2006 on the principles of development policy. Unfortunately, it is impossible to find in these Acts as unequivocal regulations as in case of Article 44 of the Council Regulation (EC) 1083/2006.

City Consulting Institute Page 142

Taking into account the significant interest in financial engineering instruments in Poland, the Chairman of Public Procurement Office in his letter of 2 February 2009 No OZP/DP/0/2151/1305/09 presented the interpretation of the current legislation in this subject. He affirmed among others that: according to the provisions of Art.106, paragraph 2, point 3a of the Act of 30 June 2005 on public finances, there are development subsidies granted for programs, projects and financial assignments supported by structural funds and the Cohesion Fund (Art. 5, paragraph 3, point 2). Therefore, according to Art. 4, point 7 of the Public Procurement Law, while granting development subsidies based on the Act of 30 June 2005 on public finances, provisions of the Public Procurement Law do not apply. In this respect it should be assumed that financial resources awarded to beneficiaries within operational programmes as development subsidies (as in Act of 6 December 2006 on the development policy) are excluded from the obligation to follow the procedures of public procurement (Art. 4, Point 7 of the Public Procurement Law)

The cited act states also, that according to the Paying Authority Department in the Ministry of Finance (letter of 13 January 2009, No OP 3/063/22/LRE/09/09/14381) funds granted on the basis of Art. 44 of the Council Regulation (EC) No 1083/2006 are in line with the definition of a development subsidy defined in Art. 106, paragraph 2, point 3 of the Act of 30 June 2005 on public finances. The content of this article argues for this, as it states that grants are state budget expenses, which may be supported by the article stating that subsidies are state budget expenses dedicated for programmes, projects and financial assignments supported from structural funds. Transferring financial resources within a holding fund may be therefore performed according to the Act of 30 June 2005 on public finances.

According to Art. 27, paragraph 1, point 3 of the Act on development policy, projects may be financed within an operational programme after a competition organised in accordance with the criteria defined by the Monitoring Committee. Therefore, in accordance with Art 29-31 of the Act on development policy, the procedure leading to the selection of the beneficiary (in this case a holding fund) is open and transparent.

At the same time, according to the opinion of the Paying Authority Department in the Ministry of Finance, funds granted on the basis on Art. 44 of the Council Regulation (EC) No 1083/2006 are in line with the definition of a development subsidy defined in Art 4, point 7 of the Public Procurement Law. It should be thus assumed that transferring financial sources to a holding fund within an operational programme can be arranged on the basis of Art. 28, paragraph 1, point 3 of the Act on development policy and Art. 106, paragraph 2, point 3a of the Act of 30 June 2005 on public finances.

City Consulting Institute Page 143

In this case – according the to the quoted interpretation of the Chairman of the Public Procurement Office – the Act “Public Procurement Law” by exclusion (Art. 4, point 7) will not be applicable for the procedure of choosing the holding fund, mentioned in Art. 44 of Council Regulation (EC) No 1083/2006.

However, the consultant would like to emphasize that according to the common law doctrine, interpretation of current legal norms does not constitute the binding law.

The decision on the discussed issue has to be made by the Managing Authority (in this case the Voivodeship Management Board) on its own responsibility. Special attention should be given to maintaining full transparency while choosing the mechanism of granting the right to run the Holding Fund.

In the consultant’s opinion, only entrusting the EIB with the task of establishing and managing the HF or alternatively following the full procedure described in the Act on public procurement (as well as Art. 44 of the Council Regulation) would assure full transparency and chance to work out significant added value, e.g. additional income from deposits in commercial banks. According to the analyses conducted, it would be only possible, if the EIB was appointed as the holding fund operator. In the consultant’s opinion, in case the Voivodeship Board of Management prefers applying the competition procedure leading to the appointment of a holding fund operator, it has to be absolutely sure that:  it will be able to run the competition, keeping open and transparent procedures;  the Holding Fund operator will be the best one in all aspects – content-related, social, and financial. Table: Choosing the HF operator in accordance with the Public Procurement Law.

Disadvantages Advantages  Time consuming tender procedures (risk of  Additional mechanism mobilizing entities high number of offers, cancellations, operating on the Polish fund management protests); market to better understand and implement  Shortage of institutions experienced in the financial instruments within JESSICA. managing HFs in Poland;  High risk of offering HF management to an entity, which will need content-related support from the Managing Authority (via EIB);  Need to follow the provisions of the Public Procurement Law in the process of signing financing contracts with UDFs;  Significant delay in the UDF establishment process.

City Consulting Institute Page 144

Table: Entrusting HF management to the EIB.

Disadvantages Advantages None  Significant acceleration of procedures leading to signing the contract for Holding Fund management, and thereby acceleration of the UDF creation process;  Great substantive knowledge of the EIB on the implementation process of the JESSICA initiative, enriched by the experience in implementing similar projects in other member countries;  Guarantee that the EIB will prepare professional documentation, concerning especially the Operational Plan and the contest for the best UDF offer;  Signing financing contracts with UDFs on the basis of transparent selection procedures resulting from internal EIB regulations (no public procurement procedures).

3.3.2.1. Basic tasks of holding funds (HF)

The main tasks of holding funds include:

 taking over the majority of administrative work related with UDF establishment and project monitoring from the Managing Authority;

 consultancy on choosing the best UDFs;

 implementation of the Investment and Planning Strategy;

 implementation of all actions, including identification and consultancy by the process of selecting the UDFs that may receive funds from the JESSICA Holding Fund;

 evaluation of business plans presented by UDFs (in line with the Investment and Planning Strategy) and advising the Investment Council on potential options;

 negotiating Operational Contracts with UDFs and signing Operational Contracts for the JESSICA Holding Fund, when the key Operational Contracts are accepted by the Investment Council.

 monitoring and control of operations, according to the conditions of particular Operational Agreements and the Contract;

City Consulting Institute Page 145

 presenting to the Investment Council a report on every operation progress; the reports shall include information on financial inputs from UDFs to city projects as well as information on irregularities reported by UDFs;

 collecting and handing over to the Managing Authority all information received from UDFs concerning UDF investments in city projects, so that the MA would be able to follow all the binding home and EU regulations on state aid, considering that the MA will be the only party responsible for monitoring the compliance with EU regulations on state aid and informing the Commission or other relevant domestic institutions responsible for state aid;

 undertaking (to a sensible extent) informational and promotional actions on the JESSICA initiative and related operations, organizing and/or participating in conferences and seminars;

 managing JESSICA finances, according to the Financial Guidelines;

 under the Investment Council consent, the HF will also extemporaneously implement additional tasks leading to more efficient and effective implementation of JESSICA activities, like:

o providing (to a sensible extent) help in preparing documentation necessary for the MA to follow the EU regulations on state aid and/or information on big projects, their notification, with the reservation that the Managing Authority is the only party responsible for notifying all operations to the Commission, if the EU legislation requires such a notification;

o providing (to a sensible extent) support in interpretation of EU regulations concerning financial engineering and in particular the eligibility of costs;

o providing (to a sensible extent) help in choosing and/or putting the finishing touches on the integrated plans for permanent and sustainable development of urban areas and city projects;

o ensuring training for middlemen and other key partners, in order to support further development of the JESSICA initiative and the public-private partnership in the urban sector.

City Consulting Institute Page 146

3.3.2.2. Benefits resulting from the HF establishment Benefits resulting from the HF establishment include:

 Significant acceleration of absorption of structural funds (due to the fact that on the basis of the Council Regulation (EC) No 1083/2006 Art. 78, paragraph 6, contribution to a HF is considered eligible cost);

 Possibility to gain higher income from investing the Fund’s resources;

 Simplification and acceleration of procedures in case the HF was established within the EIB structures (the solution does not necessitate competition procedures);

 Possibility of implementing a greater number of financial tools through the establishment of separate credit-guarantee and capital UDFs;

 Possibility of engaging self-government units and the banking sector, which should result in better financial leverage effect achieved thanks to creating smaller UDFs for sub- regions and contributing self-government capital for this purpose.

3.3.2.3. Entities that may potentially establish a HF

Table: The Upper Silesian Fund – advantages and disadvantages

Important to function Disadvantages Advantages Speed of implementation Selection by means of a competition. Selection possibility Necessity to organize a competition. Experience in implementing None. JESSICA Experience in managing EU Great experience in managing funds loan instruments. Experience in managing Great experience. Various financial engineering financial tools. instruments Ability to assess feasibility Great experience.

City Consulting Institute Page 147

Important to function Disadvantages Advantages studies, business plans, investment strategies. Experience in regeneration Little experience - processes transformation processes only. Experience in developing None. Integrated Urban Development Programmes Experience in managing Through its subsidiary – CPR regeneration processes Investor Experience in negotiations with Little. European institutions Experience in PPP None. Knowledge on the needs of Extensive. local self-government entities Experience in leading complex Little experience in Experience in capital investment projects. infrastructural and real estate investments. investments. Knowledge of local companies’ Extensive. needs. Ability to negotiate None. interpretations of regulations related to JESSICA directly with the European Commission. Possibility of finding additional Average. partners to finance projects. European institutions Possibility of finding additional Great knowledge on the partners to finance projects. financial market. Banks and Polish institutions Impact of the regional self- Capital impact - as a Via the Programme Council, government on the shareholders meeting. capital impact - as the institution’s operation. shareholders meeting, supervision as the MA.

City Consulting Institute Page 148

Table: EIB – advantages and disadvantages

Important to function Disadvantages Advantages Speed of implementation Almost immediate implementation and disbursement. The mechanism has been tested in other regions. Selection possibility No necessity to organise a competition. Experience in implementing Institution responsible for the JESSICA initiative implementation in the EU. Experience in managing EU Multifaceted experience in funds managing funds. Experience in managing Great experience. Various financial engineering financial tools. instruments Ability to asses feasibility Great experience. studies, business plans, investment strategies. Experience in regeneration Experience in the processes implementation of regeneration strategies in EU member states. Possibility of implementing the experience of other countries. Experience in developing Consulting the processes of Integrated Urban Development developing IUDPs in other Programmes European countries. Experience in managing Little experience in direct Experience in financing big regeneration processes project management. regeneration projects in Europe Experience in negotiations with Great experience. European institutions

City Consulting Institute Page 149

Important to function Disadvantages Advantages Experience in PPP Considerable experience in developing projects and financial engineering with EU funds. Very important in the initial phase – the EIB as the high credibility institution for PPP. Knowledge on the needs of Little knowledge on the needs Considerable experience in local self-government entities of small cities. cooperation with bigger cities of the region. Experience in leading complex The main objective of the bank investment projects. is to involve in big investment projects. Knowledge of local companies’ Little knowledge on the market. needs. Ability to negotiate Considerable experience, interpretations of regulations enabling receiving related to JESSICA directly with interpretations in short time. the European Commission. Very important element in the initial phase of the mechanism implementation. Possibility of finding additional Cooperation with other EU partners to finance projects. institutions in many projects. European institutions Possibility of finding additional Extensive knowledge of the partners to finance projects. domestic and international Banks and Polish institutions financial markets. High credibility of the EIB. Impact of the regional self- Via the Programme Council. government on the Supervision as the MA. institution’s operation.

City Consulting Institute Page 150

Due to the fact that the only institution interested in establishing the HF is the EIB, other options engaging other financial institutions have not been analyzed. Basing on previous analyses, the Upper Silesian Fund can be also considered as a potential HF.

The following conclusions may be drawn on the basis of the above considerations:  In the first stage of the mechanism operation, the HF establishment should be entrusted to the EIB (if the MA decides to establish a HF). The solution guarantees the application of well known legal mechanisms and quick absorption of EU funds;

 Initially (in period 2010-2013), the best practices database of JESSICA will be created and in this period cooperation with the EIB is the most important and beneficial. The few months period for interpretation of the Polish law may be significantly shortened. Basing on the experience resulting from the implementation of Cohesion Fund projects, it may be stated that participation of a European bank in an investment may accelerate the decision making process by up to 1 year. Due to the fact that the investment cycle for regeneration projects lasts approximately for 5 years (profit-oriented investments eligible for JESSICA have not been prepared by self- governments in detail), a possibility to shorten the procedure is one of the key issues.

 PPP – implementation of PPP in Poland has for years faced many problems. Introduction of new legislation in this area at the beginning of this year has slightly improved the situation. Still, the ventures undertaken as partnership are saddled with high political risk. Involvement of an institution like the EIB will be a strong argument for PPP implementation;

 Term in office. In case of rigorous time frame for JESSICA implementation, in the initial phase the risk connected with different people coming to power after the end of each term in office should be eliminated. The possibility of supervision over the Upper Silesian Fund acting as the HF is both an advantage and a disadvantage. As a result of election, the authorities of subsidiaries change. Unfortunately, the change very often leads to interruptions in regular work and reluctance to make decisions in the period few months before and after the election. Despite of the best intentions of authorities of all levels to reduce this phenomenon, it is common all over the world. In this case, it is another prerequisite for appointing the EIB as the HF in the initial phase;

 Another positive effect of choosing the EIB is knowledge transfer to the institutions managing the UDFs. In result, in further phase of JESSICA operation, the HF function can be taken over by another organization (e.g. the Upper Silesian Fund);

City Consulting Institute Page 151

 After 3-4 years, if the number of UDFs is small and self-government entities (associations of cities) take over all HF activities, the HF might be liquidated. It may lead to a certain increase of MA administration, but this model may be effective from the economic perspective;

3.3.3. Establishment of Urban Development Funds

The key role of UDFs in JESSICA results from the principal aims of these funds. These are: strong and effective stimulation of regeneration and further development of urban areas in particular EU member countries. They should considerably contribute to:  improvement of competitiveness and attractiveness of cities for their citizens, students, scientists and investors;  optimization in absorption of the capital devoted to urban development, including in particular post-industrial and post-military areas;  creation of stimuli for efficient management of financial resources available for various entities, including private units and spending them for the purpose of project implementation within regeneration processes.

Implementation of the above objectives will be executed by innovative UDF products, like:  granting loans;  acquiring shares in companies providing public services;  granting guarantees for subjects financing projects, including private entities. According to Art. 43. of the Commission Regulation (EC) No 1828/2006, the decision to establish Urban Development Funds, their number, objectives and methods of operation belongs to the Managing Authority. The MA should also decide on the legal form of UDFs. The cited provisions of the Commission Regulation indicate the key MA role, in particular through the obligation to prepare the Operational Plan and Financing Contracts.

The decision of the MA concerning the number of UDFs should be preceded by an analysis revealing the number of potential projects eligible for this type of financing in each city and also the interest in JESSICA declared by cities of the region. Due to the fact, that in the initial phase UDFs will have limited financial funds granted from Regional Operational Programmes, it seems reasonable to reduce the number of UDFs to the essential minimum resulting from the direct initiative of particular cities.

It is possible to create one big UDF for the entire region. The main advantage of this solution is the possibility to create one central project database, which will diversify the risk related to the selection

City Consulting Institute Page 152 process of projects in terms of their socio-economic importance and profitability. Another advantage of this solution is the reduction of costs related with effective management of the Fund. However, the main disadvantage of this solution is the impossibility to define the Fund’s specialization and to target its geographical range to a specific region and its needs.

Another solution is to create 3-4 UDFs in the Region. Nevertheless, the initiative in this respect should come from particular self-government entities. Considering the great engagement of Silesia in the process of creating advantageous conditions for effective absorption of EU funds and great regeneration needs in both big and smaller cities, it should be stressed that this solution will have a positive impact on the interest of local self-government authorities and other entities being potential shareholders of the Fund aiming at financing ventures that are important from their point of view. The only shortcoming of this solution in the initial phase of the UDF existence would be dispersal of funds granted from the ROP and dedicated to the UDFs. Nevertheless, the main strength is the ease of accumulating experiences in the initial phase of JESSCIA implementation as well as lower risk of directing significant resources for a project which will not result in any added value.

As it was shown in point 3.3.1., the problem of the legal form of UDFs in the EU legislation has been regulated in Art. 43, paragraph 4 of the Commission Regulation (EC) No 1828/2006, which does not restrict or recommend one specific legal solution. It states unambiguously that it should be “an independent legal person” or “a financial entity allocated within a financial institution”. It means that in Polish legal conditions, UDFs may take two forms:

 company (joint stock or limited liability company, including private-public partnership participation);

 investment fund managed by an entity selected for this purpose, e.g. Investment Fund Associations (TFI) or the European Investment Bank (EIB).

Each of these legal entities assures that the HF and UDFs have the legal capacity to:

 sign contracts;

 contribute to capital;

 grant loans and guarantees.

It has to be emphasized that in each of these legal forms, partners of different legal status may be engaged:

City Consulting Institute Page 153

 Self-government units and legal persons established by self-government entities to implement public tasks;  Banks;  Agencies;  Private units (on the basis of the Public-Private Partnership Law)  Other financial institutions.

It means that there is a number of possibilities to establish an UDF operating as “as independent legal entities governed by agreements between the co-financing partners or shareholders” (Art.43, paragraph 3 of the Commission Regulation (EC) No 1828/2006).

These may include the following:  Limited company created by one self-government entity (as a subsidiary with 100% of shares owned by the self-government) or by several self-government entities with equal amount of shares and votes;  Limited company, whose shareholders may include: self-government entities, banks, agencies, already existing nationwide or regional Funds or private partners;  Limited company created on the basis of the Public-Private Partnership Act. The new PPP Act does not obligate the public partner to choose a particular cooperation mode. Self- government entities may choose from among various options resulting from the Act, including setting-up a subsidiary or applying the concession model for construction works or services;  UDF created in cooperation with an already existing Regional Fund (e.g. the Upper Silesian Fund established by Silesian self-government entities).

Participation in funds means in this case also profit sharing.

Territorial self-government units can establish and join companies without any restrictions. Nevertheless, the Report cannot omit certain restrictions resulting from the legal status of poviats and voivodeships. . These restrictions result from the currently binding Municipal Services Law (Art. 10), the Act on poviat self-government (Art. 6) and the Act on voivodeship self-government (Art. 13). These Acts narrow the scope of activities of the companies established with poviat’s involvement to public tasks, and in case of voivodeship self-government – to public tasks and promotional actions, education and editorial activities leading to regional development. On the other hand, UDFs (in accordance with the Commission Regulation (EC) No 1828/2006) may grant loans, guarantees, as well as invest in projects, whose scope may exceed the scope of public tasks of territorial self-

City Consulting Institute Page 154 government. It means that only gminas would be able to independently establish UDFs, whereas other local self-government units could participate in the UDFs being joint stock or limited liability companies, established in cooperation with other units.

There are similar conditions and restrictions regarding territorial self-government engagement in investment funds in the Polish legislation.

It should be emphasized that thanks to current actions undertaken by the Polish central government, whose aim is to provide favourable conditions for the development of small and medium sized companies, the restrictions described above will soon disappear.

On 24 August 2009, the Polish government approved a draft of an Act introducing changes to the Acts on municipal services, poviat and voivodeship self-government. The draft changes radically the content of the above cited articles, by widening the list of territorial self-governments which can act outside the public services sector (poviats and voivodeships are to be added to the list). A draft of these changes was directed to the Sejm already in September 2009.

The impulse for the Ministry of Economy to work on an amendment of these Acts was the document entitled “Directions for Development of Credit and Guarantee Funds for Small and Medium Sized Companies in the Years 2009-2013” that had been previously accepted by the Council of Ministers. According to this document, self-governments of voivodeship and poviats will play the key role in the process of shaping conditions for the development of small and medium sized companies in the years 2009-2013. In the Council’s opinion, this objective will be reached by allowing self- governments to create or participate in limited companies whose operation concentrates on granting credits, guarantees or securities in order to support the entrepreneurship.

It has to be underlined, that on the basis of the above cited EU legislation, holding funds and UDFs could theoretically take the form of state and self-government special purpose funds. However, according to the Polish legislation this solution would necessitate the Sejm to pass a law on the establishment of these Funds first.

To summarize, in the current legal situation, there are no obstacles to establish UDFs. It seems thus most reasonable to create UDFs in the form of limited companies or within public-private partnership.

City Consulting Institute Page 155

3.3.3.1. UDF business models

An analysis of EC guidelines on the initiative implementation proves that UDFs are not institutions managing investment projects but institutions financing such projects. Taking into account economic effectiveness and the objective to create a long term financial tool to support regeneration processes, one may distinguish two separate business models:  loan model (money lender);  capital model (capital investor).

Each model requires specific approach and set of tools. On the example of banking institutions it can be assumed that crediting and investment banking should be separated.

The loan approach is the easier one, related with lower risks, based on the passive UDF approach towards projects. However, this model gives significantly lower return rates and results in a burden of securing projects. In case of projects implemented by self-governments (self-government subsidiaries), the necessity to issue guarantees may result in a negative decision on project implementation.

The investment approach requires much deeper analysis of business risks. This model requires also much broader knowledge on regeneration mechanisms from UDFs. On the other hand, it gives much higher return rates on capital and results in a possibility to develop the UDF. From the perspective of PPP projects, the investment model increases the projects’ credibility in the eyes of a society.

In case of gminas’ capital contribution to UDFs and in case of PPP projects, none of the above models can function as a financial pool within an existing financial institution.

3.3.3.2. UDF operating as a credit – guarantee institution Required skills:  the ability to judge an organization with regard to income generation ability and ability to discharge liabilities;  the ability to judge the level of securities;  the ability to evaluate an investment project with regard to market risk and ability to discharge liabilities;  the ability to evaluate the project impact on the integrated effect of urban development, including the value of land.

City Consulting Institute Page 156

3.3.3.3. UDF operating as a capital investor

Required skills:  the ability to judge organisations being shareholders with regard to their abilities, experience and business credibility;  the ability to evaluate the market and credibility of business plan provisions. Expertise in judging market research and analyses;  the ability to evaluate an investment project with regard to market risk and ability to discharge liabilities;  the ability to evaluate the project impact on the integrated effect of urban development, including the value of land.

3.3.4. HF/UDF model Full model of JESSICA operation.

UDF - loans

Marshal Office of HF UDF - capital ŚląskieVoivodeship

UDF - cities (optional)

The above model is the optimum one in terms of functionality and technical aspects. An important issue influencing the financial leverage level in this model will be separation of the loan and investment UDFs as well as the UDF established by cities (one or few).

City Consulting Institute Page 157

3.3.4.1. Advantages and disadvantages of the full model of JESSICA implementation.

Śląskie Voivodeship is the biggest urbanized region in Poland. The result is the greatest diversity and amount of regeneration projects and programmes. In order to manage them effectively, it is necessary to involve in the process a regional institution that could provide administrative, financial and content-related support. This institution should be responsible for supervision, training, advising and control.  In Śląskie Voivodeship there are 4 strong sub-regions;  As the result of the mechanism implementation in the Wielkopolska region, an initiative to create own UDFs has appeared in some cities;  Operational costs of a HF are not higher than 2%, so if the initiative budget is assumed for approx. € 40 M, it would be around € 800 000 per year. The costs of establishing an entity that would serve one UDF and a few big projects may be significantly lower. The costs of establishing an entity that would serve two or more UDFs granting greater amounts of loans may exceed the 2% value;  In order to choose an institution that would establish the HF (other than the EIB), it is necessary to organize a competition procedure which may be time consuming;  In case a greater number of UDFs is established, the control over them without the HF support will be very difficult and could lead to the increase of the MA costs;  Creation of more than one UDF will result in a strong financial leverage effect, through financial contribution of gminas and other organizations. It is thus a chance to create an important financial institution to manage regeneration processes.

Table: Advantages and disadvantages of the full JESSICA implementation model.

Advantages Disadvantages

No need to extend the administration within the Higher direct costs. MA.

Possibility to obtain higher profits from investing Small possibility of financial leverage on the HF the Fund’s resources. level.

Possibility to establish UDFs specializing in loans, If the HF establishment is not entrusted to the capital investments and particular cities. Greater EIB, it will be necessary to prolong the process

City Consulting Institute Page 158 effectiveness and flexibility of operation. by organizing competitions leading to the choice of HF and UDF operators.

A strong financial leverage effect will appear In the long-term perspective, after gaining some with higher number of UDFs. experience and independence by UDFs and after clear interpretation of legislation is available, the HF should be liquidated.

High interest of gminas in creating UDFs, if content-related support from the HF is available.

An entity that may undertake integrated actions towards law interpretation. Especially advantageous, if the HF is operated by the EIB.

3.3.5. One UDF model

3.3.5.1. Conditions and advantages of the one UDF model This model is economically justified in case of a region implementing only few homogeneous projects in terms of business-economical models of the venture. The basic advantage of this model is the lack of HF management costs. However, only some HF responsibilities can be taken over by the UDF, whereas the rest will stay with the MA, which will also generate some additional costs and increase the MA responsibility.

In case of choosing the operational model based on one UDF, the choice of institution managing UDFs should be conducted by means of a competition. However, on the MA level, it would be necessary to create a separate department to analyze all the procedures from the banking, economical and ROP requirements perspective. Due to the fact that UDFs are to be profit oriented, the MA will have to judge the economic effectiveness of each project and credit worthiness of the beneficiaries (not gminas!).

It would be problematic to conduct the UDF activities in both crediting and investment areas. All market institutions separate these two types of operations. Therefore, in case of choosing the model based on one UDF, the MA should reduce the JESSICA character to only one operational form.

The choice of the model based on one UDF is reasonable in case of smaller entities and in case of implementing only few projects, e.g. crediting.

City Consulting Institute Page 159

In case of one complex UDF, costs of its operation may even exceed the total costs of HF creation, as it would be necessary to build control and decision making structures within the MA. The experience of existing regional credit funds concentrating on small loans for many assignees reveals that they are also generating high operational costs, exceeding the level acceptable for UDFs - 3%.

In addition, due to the lower interest of self-government entities to contribute capital to a central institution, the financial leverage in this model would be reduced to a minimum.

3.3.5.2 Institutions that may establish one UDF

Institution Conditions  Local financial No experience in JESSICA procedures; institution, e.g. the  Experience in finance and credit funds management; Upper Silesian Fund,  Little experience in managing investment processes; local Investment  Extensive knowledge on local market conditions; Fund  Possibility to receive little self-government support.

Due to the little experience in the mechanism operation, the Upper Silesian Fund is interested in the creation of a second level UDF (with a separate HF institution).  Local institution No experience in JESSICA procedures; dealing with  Experience in finance and credit funds management; regeneration,  Little experience in managing investment processes; restructuring, etc.  Extensive knowledge on local market conditions; E.g. GAPP,  Possibility to receive little self-government support.

Regeneration Due to the little experience in the mechanism operation and the obligation Forum, to build financial engineering tools from scratch, these institutions are not Development ready to implement JESSICA in the region. They may take part in a second Agencies. level UDF, with the HF support in terms of procedures as well as finance and risk management.  Banking institutions No experience in JESSICA procedures; - national or  Some German regional banks have little experience in the initiative international implementation in Germany. However, an analysis of the German case proves that bank concentration on financial engineering is

disadvantageous to the initiative and results in the impossibility to

City Consulting Institute Page 160

start the mechanism and spend resources for the projects. Presently, there is a discussion in those lands organized on the possibility to withdraw from this model and to shift to the HF/UDF model, applied in other EU countries.  Experience in managing finances and credits;  Great experience in risk management;  Little experience in direct management of investment processes;  Lack of knowledge on local conditions;  No experience in regeneration processes;  Impossibility to get any self-government support.

Banks have very little experience in creating JESSICA mechanisms and managing regeneration processes. Entrusting the role of one UDF to banks carries the great risk of wasting the chance that JESSICA offers in regeneration processes and local self-government activation.

Banks have a great role to play as:  institutions co-financing projects;  institutions managing the finance – related tasks of UDFs established by gminas (If gminas decide to create their own UDFs, with banks’ support only content-related issues will have to be controlled by them);

CONCLUSIONS:

Currently, there is no institution which could create the JESSICA model based on one central UDF. The choice of such a model will necessitate a great amount of preparatory work on the regional administration side. Further control of project implementation and financial policies will also be the responsibility of the Marshal Office.

The one UDF model requires the founding entity to be a financial institution, able to manage regeneration processes on the local scale.

The choice of any of the above mentioned entities will be related to risk - higher than potential benefits.

City Consulting Institute Page 161

This choice is also related with the risk of not spending the resources available until 2015, due to the necessity of working out all the procedures, preparing projects and implementing them, with limited experience of the people engaged in the process.

Another risk of this model is the fact that in order to simplify all the operations, the institution responsible for UDF establishment will decide on the crediting character of the mechanism. In result, interest in the application of the mechanism in regeneration processes will be considerably smaller and the impact of JESSICA on PPP will be marginal.

Currently, the Consultant suggests choosing the HF model and creating two or more UDFs. After the implementation period, liquidation of the HF and direct supervision of UDFs by the Marshal Office may be considered. After the implementation period, the HF interest may be reduced, to be fully covered from the UDF profits.

3.3.6. Institutional model and project financing possibility

3.3.6.1. One UDF model

In case of choosing this model, the UDF should be created as a crediting and guarantee institution. The value of projects should exceed 2 000 000 €. In case of crediting smaller projects, UDF costs (application evaluation, consulting point’s maintenance, training, financial services, administration) may exceed the 3% limit. In most projects, it has to be assumed that projects with high level of security will be preferred (e.g. with gmina guarantees).

3.3.6.2. HF and 2 UDFs model

This model gives the possibility to create two financial institutions, specialized in different tools of financial engineering. The establishment of the investment UDF gives the possibility to manage more complicated investment processes and receive securities in a form other than liabilities of self- government budgets. The business models of the finaced projects should be rather simple. Projects whose profitability will depend on special local conditions, difficult to be measured and evaluated by a central UDF will encounter difficulties in receiving the financing decision.

3.3.6.3. HF and a greater number of UDFs

This model offers the greatest flexibility in financing projects. Apart from the advantages mentioned above, within this solution it is easier to finance projects of sub-regional character. This model requires close cooperation with the HF, which can play the role of a supplier of financial evaluation tools for smaller UDFs. Without this support, running small UDFs may be too expensive.

City Consulting Institute Page 162

It seems reasonable to establish one bigger loan UDF and some more investment UDFs. In case of small UDFs, the investment form will bring better return on capital and will help increase their potency.

3.3.6.4. EBI involvement and possibility of project financing

The EIB involvement as the HF is crucial for project financing as the Bank has ready business tools that may be offered to UDFs. In addition, many projects will necessitate financial engineering, based on additional financing sources. Here the possibility to obtain some funds from other EU institutions is invaluable. The EIB declares at the same time that it can provide additional support from own funds, which should considerably increase the financial leverage.

3.3.7. Institutional model and participation ability

3.3.7.1. One UDF model

No institution has shown any interest in participation in this central institution. Both gminas and banks do not declare interest in the support on one UDF level. Participation is only possible on a project level.

3.3.7.2. HF and 2 UDFs model

External entities show interest in participation within this model. Initially, this interest in related to the possibility of engaging in an investment UDF, operating as a venture capital fund. Greater involvement is possible on a project level.

3.3.7.3. HF and a greater number of UDFs

As in case of the above model, also here some initial interest in the investment UDF fund may be noticed. In addition, there is a clear declaration of gminas to contribute capital to smaller subregional UDFs. Self-government units and companies declare contribution in-kind (in form of real estates) to UDFs. Also institutions engaged in regeneration of post-industrial areas (GAPP, CPR) are interested in this operational form.

3.3.7.4. EBI and a possibility of other entities involvement The EIB involvement improves the credibility of all actions, especially in the sphere of PPP. It may be thus a strong argument for other entities to participate in the project.

City Consulting Institute Page 163

3.3.8. Institutional model and PPP

3.3.8.1. One UDF model

In the one UDF model, the role of this institution will consist mostly in financial support of a private partner, in case the difference between commercial and preferential financing offered by the UDF decides on project profitability. In practice, financing PPP in this model is improbable.

3.3.8.2. HF and 2 UDFs model

PPP is highly possible within this model. UDFs may contribute capital to ventures; they may be originators of spatial development projects. In this model, the investment UDF can play the role of a real estate development company.

3.3.8.3. HF and a greater number of UDFs

This model offers the possibility to separate a fund, which will be directed at real estate development in particular gmina associations. This model increases the probability of engagement of gminas into PPP and managing projects with great UDF support. The existence of a HF may reduce the costs of project management thanks to common, transparent procedures for all UDFs.

3.3.8.4. EBI involvement and PPP In recent years, despite of the new legal solutions, PPP has encountered several implementation problems in Poland. It is large cities that are most interested in this form of cooperation. However, these projects wait for years to be implemented and are often used in the political game. Unfortunately, PPP is still the word synonymous to unclean business.

The main PPP failure reasons are:  Inability to understand partner’s needs (both private and public);  Inability to create proper business models;  Problems with finding a partner interested in the investment;  Wrong project assumptions, not reflected in the market needs.  Lack of single interpretation of laws jeopardizing the institution implementing PPP for legal risks.

The PPP contracts are signed for long periods of time and sole project preparation and implementation last for 5 and more years.

City Consulting Institute Page 164

Self-government entities intentionally avoid this risk, despite of obvious advantages resulting from PPP or even impossibility to realize some ventures in a different formula.

The EIB role can be crucial in this case. It is the key issue not only for projects, but also for PPP implementation throughout the whole region, also outside the JESSICA initiative.

 EIB, which has already worked out some legal and business procedures is able to implement projects in much shorter time;

 by shortening the time necessary to receive some binding interpretation of EU legislation, the EIB can accelerate project implementation even by 2 years (for two years it was impossible to receive an opinion concerning PPP assets produced with the Cohesion Fund support, whereas a similar interpretation was issued by the European Commission in 14 days on request of a European institution);

 EIB provides political security of self-government authorities. Engagement of a European institution as the coordinator of a PPP project reinforces the credibility of the process.

 Being experienced in financing PPP projects, the EIB may also facilitate the process of finding private partners from EU countries.

3.4. Comparison and evaluation of different institutional models of JESSICA implementation

The most probable organizational models have been chosen for the analysis: one UDF model, HF with two UDFs (credit-guarantee and capital) and HF and more UDFs - opening the possibility to create UDFs to gminas and their associations. Table: Comparative analysis of chosen organizational models.

UDF HF + 2 UDF HF + >2 UDF Time for absorption of funds +/- ++ (EBI) ++ (EBI) +/- +/- Time for project implementation +/- + (EBI) + (EBI) - - Flexibility and change opportunities -- + ++ Fitting financial tools to particular needs - + ++ Management costs + - -

City Consulting Institute Page 165

Direct costs of the MA - + +

Financial leverage -- +/- ++ Knowledge potential - ++ (EBI) ++ (EBI)

+/- +/-

Investment diversification - + ++ Financial risk minimization - +/- +

Project impact on regeneration effectiveness +/- +/- + Possibility to implement big integrated projects + ++ +/-

Possibility to implement PPP projects +/- + +

Possibility to implement low-budget elements +/- +/- ++ of integrated projects

-- very unfavourable, - unfavourable, +/- neutral, + favourable, ++ very beneficial

Table: Comparative analysis of chosen organizational models – financial aspect. Values UDF HF + 2 UDF HF + >2UDF Capital transferred to UDF – total (mln PLN) 184,00 280,34 512,56 ROP SL 160,00 160,34 160,56 Shareholders – cities (in mln PLN) 24,00 24,00 64,00 Commercial banks 0 48,00 128,00 EIB 0 48,00 160,00 Capital transferred to UDF as % of ROP 13,04% 42,80% 68,67% contribution Shareholders – cities in % 13,04% 8,56% 12,49% Commercial banks 0,00% 17,12% 24,97% EIB 0,00% 17,12% 31,22% Balance of UDF(-s) funds at the end of 2022 186,90 307,91 559,96 (last year) Value of granted loans and credits in PLN 238,56 398,97 722,61

City Consulting Institute Page 166

Table: Analysis of advantages and disadvantages of chosen organizational models.

Model Description

UDF Disadvantages Advantages High organizational costs for the MA Initially, lower costs of program operation, assuming that there is no technical support necessary (the UDF is created by an entity having knowledge on revolving instruments). Little institutional flexibility Simple business and organizational structure. Small possibility of obtaining the Clear and recurrent schemes of financial leverage effect (limited operation. interest of gminas and commercial banks) One of many credit funds Allocating all resources to the loan fund will result in the establishment of a financial instrument that is well known to self-government authorities. Low educational value Little demand for highly educated staff.

HF + 2 UDF Disadvantages Advantages Costs resulting from the HF operation (if Low operational costs for the MA. No established by an institution other than necessity to employ competent staff the EIB). resulting from the HF managed by another institution (e.g. EIB). Difficult mechanisms in the investment Possibility to adapt financial tools to UDF. projects. Necessity of greater individualization of Possibility to obtain the financial procedures. leverage effect. Possibility to support gminas in terms of content-related issues. Possibility to find additional financial institutions. Low HF operational costs (only if the HF

City Consulting Institute Page 167

is established by the EIB, the operational costs will be compensated by income from interest on invested capital and value of technical support).

HF + >2 Disadvantages Advantages UDFs Costs resulting from the HF operation (if Low operational costs for the MA, established by an institution other than possible takeover of some costs by self- the EIB). government entities of lower level. Possibility of strong institutional Possibility to adapt financial tools to fragmentation projects and local conditions. Considerable knowledge transfer. Difficult mechanisms in the investment High possibility to obtain the financial UDFs leverage effect. Necessity of greater individualization of Possibility to create a best practices procedures database and content-related support of self-government entities. High possibility to find additional partners and financial sources. The greatest flexibility of the model. Possibility of great diversification of the model. Thanks to the variety of tools, it will be possible to obtain the added value effect in implementing Integrated Programmes Low HF operational costs (only if the HF is established by the EIB, the operational costs will be compensated by income from interest on invested capital and value of technical support).

City Consulting Institute Page 168

3.4.1. Analysis of advantages and disadvantages resulting from entrusting the EIB with the HF function

 Entrusting the HF management to the European Investment Bank having the biggest knowledge on the JESSICA mechanism would be the fastest possible option, as no competition procedure would have to be organized. In this case, all funds could be transferred directly after completing negotiations of the management contract between the Marshal Office and the EIB.

 EIB offers professional support for newly opened institutions and the MA. The value and quality of technical support is in this case an added value that is not offered by other entities (the cost of the EIB technical support is estimated as € 200 000 / quarter)9.

 The solution enables faster disbursement of ROP SL funds.

 As an EU institution, the EIB is able to obtain direct legal interpretations and explanations from the European Commission, which can be crucial for new projects. The EIB may act as a middleman between the Marshal Office, central administration and the European Commission.

 Educational actions of the EIB aimed at UDFs and other entities implementing projects are based on unique experience.

 EIB involvement in PPP ventures increases their credibility and assures positive social perception. At the same time, it offers a possibility of significant economic development of the region.

 The solution introduces a strong partner in the area of finance management to the region.

 The solution facilitates JESSICA implementation, thanks to the possibility of using procedures developed by the EIB and tested for many years of the bank’s operation.

 It provides direct contact with the European Commission and other institutions responsible for developing and interpreting law for the JESSICA initiative.

9 Assessed on the basis of average prices of consulting services provided by experts, in the scope necessary for HF operation (legal and economical services, translations, negotiations, development of contracts).

City Consulting Institute Page 169

3.4.2. Recommendations for the Śląskie Voivodship

3.4.2.1. Recommendations concerning the Holding Fund establishment

In the light of the above analyses, the Consultant recommends the establishment of a HF for the period 2009-2013 and offering HF tasks to the EIB.

The analysis reveals, that the choice of the simplified model (one UDF), in case of a region with such complex urban functions, consisting of four not fully integrated regions, will not guarantee reaching all the assumed effects. With the planned amount of money to spend (of approx. 40 € M), with no financial leverage effect, operation based on one UDF only will not have a considerable impact on the regeneration process and integrated development of urban areas. In practice, a Fund with no leverage will be disfunctional and expensive, as it will require building competent structures within the UDF and the MA. In case of delays of disbursement procedures (delays will occur due to the necessity of the UDF to acquire the knowledge required to launch the financial mechanism), the region may lose the chance for dynamic development of PPP, connected to new financial possibilities.

Entrusting HF tasks to the EIB will enable specification of all legal interpretations concerning UDF operation and benefiting from the bank’s know-how at the same time.

In case of choosing an institution other than the EIB, the Consultant recommends the establishment of only one UDF in the initial phase, due to the significant acceleration of disimbursement of funds. However, this choice will cause significant constrains for the JESSICA mechanism implementation.

CONCLUSIONS – separation of tasks between two different entities is the most effective solution for regional development.

The Holding Fund will be responsible for:  implementation of the initiative;  preparation of self-government entities;  training sessions;  supervision of financial engineering;  development of procedures;  database of best practices.

The UDF should be responsible for:  choice of projects exerting the greatest impact on regional development and regeneration;  analysis of local needs;

City Consulting Institute Page 170

 provision of support for the beneficiaries.

The UDF should be also responsible for the choice of projects to be implemented. The HF would only choose projects with regard to their profitability.

As the German example shows, combining these two functions (as in case of the one UDF model) results in concentration on financial instruments only. The influence of project implementation on regional sustainable development is neglected. This model will result also in the lack of self- government interest in this initiative and treating it only as yet another place to receive a loan. Adopting this business model will affect implementation of small, not necessarily effective projects and stop PPP.

In the Consultant’s opinion, despite of the revolving character of the instrument, the one UDF model will not be more effective on this stage of experience than the current subsiding model. Moreover, it will increase the number of risks connected to disbursement of funds. Therefore, the model of one UDF managed by a financial institution should be dismissed on the basis of past experience and the Consultant’s opinion.

Considering the current stage of institutional preparation and little time left to the end of the 2007-2013 perspective, in the Consultant’s opinion the only solution that may significantly influence regional development is the model based on responsibility split between HD and UDF institutions. In order to significantly reduce potential risks for the Marshal Office, the Consultant recommends basing the HF on the EIB structure.

After 2013, further existence of the HF as well as potential takeover of HF functions by some local entity should be reconsidered.

3.4.1.1. Recommendations concerning the number of UDFs

Taking into account the fact that Silesia is the most urbanized region in the country, and that it already has institutions like the Upper Silesian Fund (experienced in managing crediting-guarantee and investment activities for self-governments), the Consultant recommends the choice of the full JESSICA model.

Initially, two UDFs should be created in accordance with the current EIB procedures, based on the Upper Silesian Fund that is institutionally ready for this solution. Each fund should concentrate on different financial engineering tools.

City Consulting Institute Page 171

In the initial phase, the actual interest of cities (or their associations) in the engagement of capital in own UDFs has to be unambiguously identified. In case such an option is confirmed, one should consider establishing additional UDFs. Due to the threat of organizational fragmentation, it would be reasonable to reduce the number of city UDFs to 2-5. Investment UDFs should be preferred as they may work out better capital payoff by concentrating on the implementation of Integrated Programmes.

3.4.1.2. Recommendation concerning organisational changes in time. After 2013 (or earlier, in case of any prerequisites for change), the following elements should be analysed:  rationale of further HF operation;  possibility of transferring the HF role to a local institution;  possibility of particular UDFs operation, potential changes in their operation, including mergers, ownership structural changes, privatization etc.

Full analysis should be obligatorily prepared after using all the resources provided for project support in the programme. After this period, the following elements defined by the Marshal Office may change: guidelines on priorities and eligibility of costs.

Table: Organizational model with the HF involvement.

MA Śląskie Voivodeship

HF (EIB)

UDF UDF UDF UDF crediting capital crediting capital

project project project project

City Consulting Institute Page 172

Table: Recommendations for JESSICA

Entrusting the HF •Regional institutions are unprepared establishment to for independent implementation of financial revolving instruments - there the EIB is the is a need of both technical and content-related support. best solution, •Takeover of HF funtions by a regional instituion will be possible not earlier considering the than in the third year of the speed and mechanism operation. •The time neccessary for the effectiveness of mechanism implementation and the speed of disbursement of funds will the mechanism be crucial in terms of regional development. implementation •A chance resulting from the effective mechanism implementation is the as well as the development of PPP in the Śląskie Voivodeship, which will lead to best stimulus of numerous interesting investment regional projects. development.

Greater number •The greater number of UDFs will enable better response to local needs. According of UDFs and their to the assumptions from the initial stage of this JESSICA implementation study, the differentation self-government involvement in UDFs will depend on the number of Funds. will lead to an •There is a need to create crediting and investment UDFs resulting from the analysis of potential JESSICA projects. This increase of solution will have the greatest impact on regional development. financial •The number of UDFs will directly translate to the financial leverage effect. On the engagement of basis of the initial analysis it can be stated that the difference in the leverage gminas and other between the 1 UDF and the HF + >2 UDFs options will be at least 484 million PLN. entities Having this in mind, there is no rational (including justification for the 1 UDF model. commercial banks)

City Consulting Institute Page 173

4. JESSICA implementation strategy in Silesia

4.1. Recommendations on how JESSICA should be taken forward in Silesia in short-, medium- and long-term perspective

•Appointing the EIB as the institution within which the Holding Fund will be established [thanks to this solution it will be possible to transfer the resources fast, avoid lenghty public procurement procedures and assure short-term correct JESSICA implementation]. •Start of promotional actions, aimed at disseminating perspective knowledge on the mechanism as well as on PPP. •Arising interest of regional institutions and self- governemnt entities in participation in UDFs (with capital or substance).

•Analysis of the system operation, adopting procedures aiming at optimization of the number of UDFs and mid-term handing the HF to a regional institution. •Assessment of the engagement of potential beneficiaries perspective in JESSICA.

•Actions aimed at increasing the financial leverage within long-term particular UDFs. •Increasing the number of UDFs with regard to perspective geographical and sectoral division.

City Consulting Institute Page 174

4.2. JESSICA implementation methodology The mechanism implementation methodology comprises actions whose timetable has been presented in chapter 4.3.

Actions concerning decision making processes in the Managing Authority, the HF and UDFs will be crucial for the mechanism implementation.

Table: Main problems that may be encountered throughout JESSICA implementation

Problem area Scope of remedial actions

Substantive knowledge of the  Presently, there is no regional financial institution that institutions that may be would have substantial knowledge and experience in responsible for the management and implementation of revolving mechanism implementation mechanisms; due to the fact, cooperation with the EIB seems the best solution as far as establishment of the HF and UDFs is concerned.  There is a need to obtain technical support offered by the EIB in order to optimise the mechanism implementation and speed up the disimbursement procedures. Promotion and dissemination  The mechanism is very little known and requires of knowledge on JESSICA promotion. Information and promotional campaigns should be organised as soon as possible.  Information and promotional actions should be aimed both at potential beneficiaries and at potential UDF participants. The JESSICA added value is the possibility of a very high level of financial leverage. Technical and factual  Potential beneficiaries are very well prepared as far as knowledge of potential technical plans are concerned. This means that in case beneficiaries of fast mechanism implementation, it will be possible to spend the resources fast and achieve first results and effects.  Beneficiaries are unprepared as far as the conceptual/substantive sphere is concerned. There are no Integrated Urban Development Plans, there is little

City Consulting Institute Page 175

knowledge on PPP as there are no PPP Implementation Plans that would enable fair evaluation of transparency and complexity of the procedures applied. A system of trainings should be organised in order to disseminate knowledge on the JESSICA initiative as well as on PPP, IUDP, etc.

4.3. Indicative timeline of the new structure implementation The scheme below presents an indicative timetable of the mechanism implementation.

IV quarter of 2009 - contract with the EIB to establish and manage a HF

I quarter of 2010 - transfer of resources to the HF /EIB

II quarter of 2010 - selection of UDF

III quarter of 2010 - transfer of resources to UDFs, development of project selection and implementation procedures

IV quarter of 2010 - development of projects

I - II quarter of 2011 - selection of projects to be supported

JESSICA implementation

City Consulting Institute Page 176

4.4. Potential risks for the Managing Authority

4.4.1. Managing Authority’s financial obligations resulting from RPO SL

Risk Probability Recommendations

Failure to meet eligibility Little Instructions on project implementation and criteria defined by the disimbursement procedures should be developed ROP SL on the basis of the presently binding eligibility criteria. Cost eligibility criteria have been defined in the Council Regulation (EC) No 1083/2006 of 11 July 2006 laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund and repealing Regulation (EC) No 1260/1999, Regulation (EC) No 1080/2006 of the European Parliament and of the Council of 5 July 2006 on the European Regional Development Fund and repealing Regulation (EC) No 1783/1999, Commission Regulation (EC) No 1828/2006 of 8 December 2006 setting out rules for the implementation of Council Regulation (EC) No 1083/2006 laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund as well as Regulation (EC) No 1080/2006 of the European Parliament and of the Council on the European Regional Development Fund, national eligibility quidelines for structural funds and the Cohesion Fund in the programming period 2007- 2013 issued by the Minister of Regional Developement on 30 July 2007. The scope of eligible expenses has been defined in detail by the MA of ROP SL in the Eligibility

City Consulting Institute Page 177

Guidelines within the Śląskie Regional Operational Programme for the years 2007 – 2013. Lack of control systems Medium Development of guidelines and exemplary contracts with UDFs concerning disbursement of ROP resources, including guidelines on settlement and monitoring procedures. Introduction of a control system of the MA over the UDFs. Maintenance of the n+2 Medium Development of guidelines obliging beneficiaries to rule implement projects in accordance with the n+2 principle. Irregularities in the use of Little Development of guidelines based on the presently resources binding Guidelines on the procedures applied in case of irregularities in the use of resources granted from the structural funds or the Cohesion Fund in the programming period 2007-2013. Failure to apply the public Little Introduction of declarations binding the procurement law beneficiaries to apply the public procurement law. A beneficiary pledges to apply the law of 29 January 2004 Public Procurement Law (Official Gazzette 2007 No 223, item 1655 as amended). In case of beneficiaries operating out of the public finance sector that are not bound to apply the Public Procurement Law, a declaration is required to apply the Guidelines of the Managing Authority of the ROP SL on awarding contracts in case of projects co-financed from ROP SL resources. No disbursement of Very high The risk of delays resulting from the lack of resources until 2015 (in administrative procedures and competence of both case of the option with 1 the institutions that might possibly establish the HF UDF or the HF established and UDFs and the beneficiaries. Due to the fact by an entity other than that the time needed to implement regeneration the EIB) projects is very long, there is a great risk that they will not be completed before the year 2015. The

City Consulting Institute Page 178

risk is especially high in case of establishing only one UDF, not based on the EIB structures. Basing on the German experience one may state, that although our neighbours had begun their actions earlier, they did not manage to spend their resources, as they based their structures on completely unprepared financial institutions. Delays will result from the necessity of developing structures ready to implement the initiative. The German experience proves that choosing the option of 1 UDF paralyses disbursement procedures within JESSICA. Basing on British, Lithuanian as well as Polish experience one may state that initially (in 3 – 5 years perspective) it is absolutely necessary to engage the EIB in the process of establishing the HF and applying for technical assistance in efficient JESSICA implementation. Additional advantage of this solution is minimised responsibility of the regional self-government for timely disbursement of all the resources.

4.4.2. State aid and project sustainability issues Risk area Risk description

State aid The opinion on state aid issues has been issued by the Ministry of Regional Development10

Referring to present legal conditions one should state that the notion of state aid has not been defined in detail in European Union documents. However, on the basis of Article 87 paragraph 1 of the Treaty establishing the European Community one may conclude that state aid is the support granted to a company in case the following conditions are fulfilled at the same time:

 the aid is granted by the state and comes from public resources,

10http://www.mrr.gov.pl/fundusze/pomoc_publiczna/czym_jest_pomoc_publiczna/strony/pomocpubliczna.aspx

City Consulting Institute Page 179

 the aid is granted on more favourable conditions than the market ones,

 the character of the aid is selective (it gives preference to a particular company or companies or production of certain goods),

 it may restrict or restricts competition and has impact on trade exchange between EU Member States.

In order for support not to be considered state aid, the above conditions have to appear simultaneously. In case any of the above conditions does not appear, the support cannot be considered state aid.

The body responsible for issuing opinions on aid projects, notifying them to the European Commission, respresenting the Polish government in disputes with the Commission or European courts as well as monitoring state aid granted to Polish institutions is The President of the Office of Competition and Consumer Protection (OCCP). It is also the President’s competence to answer questions concerning interpretation of the state aid law asked by entities granting the aid and potential beneficiaries.

As JESSICA will function within structural funds (public resources), the issue of state aid should be considered. The key question in this respect is whether on particular stages of JESSICA implementation and operation certain entities will be preferred over the others. Such preference would have impact on EU trade and result in competition restrictions. The issue will primarily concern the relations between the Managing Authority and the HF or UDF(-s) as well as between the HF and the UDF(- s), setting the HF and UDF remuneration, UDF support granted to particular projects or public entities investing in the UDF or the HF, managing private resources. In case the support granted within JESSICA was considered state aid, its beneficiary would be obliged to return it. It should be stressed that not all support granted within JESSICA will be automatically considered state aid. If all the entities engaged operate in accordance with market principles and if JESSICA resources are also transferred according to market principles, there will be no risk of prohibited state aid. Project One of the main areas of regeneration activities in Silesia is development of post- sustainability industrial and degraded areas and revival of their economic functions. In spite of great effectiveness of these actions, their implementation in Silesia may be

City Consulting Institute Page 180

threatened by the fact that interpretation of project sustainability in such cases remains unclear. These areas should be purchased by entrepreneurs willing to start-up their business. However, due to sustainability issues, they may only be leased. This fact has adverse impact on the interest of potential investors.

Minimising this risk is only possible in two cases:

 positive opinion of the European Commission on the possibility of selling the grounds. The key role may be played by the EIB, which may request the European Commission to present a clear interpretation of this legal problem in case of the JESSICA initiative.

 change of law by the governement, introduction of urban development law and procurement of the agreement of the European Commission to treat this instrument on a par with lease.

4.5. Recommendations

In order to plan disimbursement of JESSICA resources properly and use them effectively, it should be necessary for potential Beneficiaries to prepare the following documents: Document Scope

Simple Simplified application form should be a document whose aim is to present application general, concise information on a particular project. The application form should form include results of detailed analyses conducted and presented in the project feasibility study, profitability analysis, etc. Feasibility study Project feasibility study is a document whose main aim is to prove the rationale of

a particular project and to state whether it is technically, strategically, financially and economically feasible. A feasibility study should among others include the following analyses: social and economic analysis, spatial analysys, project background, economic, social, legal and environmental aspects of the project implementation, intervention logic (aims, products, results), technical analysis, environmental analysis, financial, economic, sensitivity and risk analyses. Product effectiveness is primarily measured by indicators such as rate of return, profitability ratios, PI, NPV, IRR, DGC. Integrated Integrated Urban Development Plan is developed, adopted and coordinated by a Urban

City Consulting Institute Page 181

Development local government as a long-term programme of actions in the sphere of public Plan space, utilities, society and economy. The aim of the document should be sustainable development of a particular area or managing it out of crisis and creating conditions for future development.

The plan should comprise: spatial, social and economic analyses of a city/town, identification of problems and barriers of development, assumptions, objectives and timetable of the plan, definition of projects to be undertaken, expected indicators, implementation and monitoring system, environment impact analysis. The plan should also include an analysis of planned spatial, social and economic effects of each project. Local Projects included in the integrated plan have to result from the Local Revitalization Revitalization Programme – a planning document adopted by a Programme City/Town/Commune Council and defining degraded areas to be regenerated. Multi-annual It is recommended for potential JESSICA projects to result directly also from Multi- Financial Plan annual Financial Plans, developed by particular self-government entities.

A Multi-annual Financial Plan is a tool of rational management of public resources, taking into account the following: macroeconomic ratios (GDP, average annual inflation), forecast of interest rates (WIBOR 1M, WIBOR 3M, interest rate s of commercial credits), forecast of income and expenditure, debt level and anticipated income and expenditure in the following years.

A Multi-annual Financial Plan defines in detail:  level of possible budget income,  rational level of current expenditures ensuring implementation of all statutory tasks,  gross available funds (operating surplus) to finance debt service and planned investment,  net available funds that is the so called financial potential of a self- government entity (resources to finance investment projects),  setting the maximum debt level of a self-government entity without losing financial liquidity,  possibility of receiving an EU grant (provision of own contribution),

A Multi-annual Financial Plan facilitates rational implementation of projects included in strategic documents of a particular self-government entity, defining

City Consulting Institute Page 182

the sources of their financing in subsequent years at the same time providing resources to finance the statutory tasks of a beneficiary. A Multi-annual Financial Plan defines the level of resources that may be spent on investment and non- ivestment projects (what distinguishes it from the Multi-annual Investment Plan) without affecting the financial safety of the investor (debt and debt service ratios).

In case of projects implemented within PPP, the following additional documents will be required: Project The aim of a project profitability analysis is to prove whether a particular project profitability implemented within PPP is effective. The analysis takes into account all expenses analysis that have to be borne and all income that may be drawn in result of a project,

taking into account alternative investment variants. This information is very important for potential investors or institutions interested in co-financing the project.

Project profitability analysis should comprise the following: project description, forecast of investment outlays, concise social, economic and spatial analyses of the project background, macroeconomic analysis (economic trends, law, concessions, interest rates, exchange rates), financial analysis, including forecast of potential income, structure of costs, cost volatility, decision making accounting of costs and results, sunk, alternative and calculating costs as well as their impact on project profitability, forecast of working capital, analysis of financial reports, analysis of alternative project variants and potential financing sources, economic analysis- cost benefit analysis, sensitivity analysis, including variance to budget, risk analysis. Product effectiveness is primarily measured by indicators such as rate of return, profitability ratios, PI, NPV, IRR, DGC. These ratios are verified with regard to requirements of different entities and institutions potentially interested in co- financing a particular project. Analysis of Analysis of investment variants is directly connected with project profitability investment analysis. The aim of the analysis is to choose the optimum solution from among variants several possible options. In order to conduct the analysis, a number of financial and economic ratios are examined. PPP In case of self-government entities, one of the key documents, offering the Implementation possibility of analysing the perspectives of PPP development (cooperation

City Consulting Institute Page 183

Plan conditions, areas, participation possibilities) is a PPP Implementation Plan.

Development of such a document may be beneficial both for potential investors and for project success.

Principles defined in the PPP Implementation Plan will considerably shorten the time needed to prepare PPP agreements what will in turn accelerate the process of investment implementation.

City Consulting Institute Page 184