For the Period from 2010 to 2013

07.07.2010

BUSINESS POLICY

OF THE PUBLIC FUND OF THE REPUBLIC OF SLOVENIA FOR REGIONAL DEVELOPMENT AND DEVELOPMENT OF RURAL AREAS

FOR THE PERIOD FROM 2010 TO 2013

July 2010

1 The Promotion of Balanced Regional Development Act (ZSRR-1, Official Gazette of the Republic of Slovenia, No. 93/05) determines the Public Fund of the Republic of Slovenia for Regional Development and Development of Rural Areas (hereinafter: the Fund) as one of the key institutions of regional development policy. The founder of the Fund on behalf of the state is the Government of the Republic of Slovenia. The scope of activity of the Fund is under the jurisdiction of the Government Office for Local Self-Government and Regional Policy.

First of all, we have to emphasise that the Promotion of Balanced Regional Development Act is in a process of amendment. In the proposal of the new act, the Fund maintains its role as one of the key institutions of regional policy.

1 BASIC AIM OF ACTIVITIES

The Fund acts as a public financial fund, which is designed for a more sustainable achievement of public goals in regional development, rural development and the development of protected areas.

2 MISSION OF THE FUND

The Fund is a public/national financial organisation, which is carrying out, as an important institution of regional development policy, development activities and programmes in the field of regional policy – through its financial incentives and a lasting implementation of activities in the field of regional development. The Fund contributes to a harmonious regional development with balanced economic, social and environmental aspects in all the regions of Slovenia, with the aim of a full development of all regions and the achievement of a balanced competitive-development potential of all of Slovenia, which will ensure a high living standard as well as a high quality of health and the living environment of the entire population of Slovenia.

3 VISION OF THE FUND

We are a public/financial organisation connected with its economic and social environment, which produces broader synergies through an intensive investment policy, aimed at the promotion and development of regional potentials. We wish to strengthen and develop our role as an expert institution, which, by performing its duties and allocating financial incentives, comprehensively provides for the implementation and achievement of objectives in the field of regional policy and rural development policy. With our participation in cross-border projects, we wish to contribute to the development in Central Europe and the Western Balkans.

4 BASIC STRATEGY

As an expert institution for the field of regional development and cohesion policy, the Fund, by performing its duties and allocating financial incentives, comprehensively provides for the implementation and achievement of objectives in the field of regional policy as well as the policy of rural development and a balanced development of activities within protected natural areas. For this purpose, it constantly supplements and adjusts its offer within the framework of statutory incentives as well as directs, both independently and in co-operation with other regional-development-oriented organisations, its own, national and European funds into projects, which contribute to the attainment of an ever greater and more balanced development of Slovenian and European regions. It thereby provides for a constant improvement of the quality of its services and the growth of the extent of

2 funds available for the implementation of incentives. It is able to achieve this through a responsible and diligent management, which means a proper use of all available funds and other resources. For this purpose, the Fund invests into constant education and vocational training of its highly educated and motivated employees as well as into the upgrading of information systems and quality business processes. The Fund effectively manages risks and provides for a constant development of its specialist and thereby competitive advantages.

5 PRESENTATION OF THE FUND

5.1 Establishment

The Regional Development Fund of Slovenia was established by the Act Regulating the Use of Funds Arising from the Proceeds Based on the Transformation of Company Ownership Act (ZUKLPP, Official Gazette of the Republic of Slovenia, Nos. 45/95, 34/96, 67/01 and 47/02) as a limited liability company, the only owner of which is the Republic of Slovenia. The Fund was entered into the court register on 19 June 1996 under the number SRG 96/01512.

On the basis of the Public Funds Act (ZJS, Official Gazette of the Republic of Slovenia, No. 22/00), the Government of the Republic of Slovenia adopted the Instrument of Establishment of the Public Fund of the Republic of Slovenia for Regional Development (No. 408-00/98-23, dated 4 September 2000, No. 408-00/2001-11, dated 15 October 2002, No. 408-00/2001-26, dated 29 January 2004, No. 408-00/2001-29, dated 15 July 2004, No. 01401-2/2005/3, dated 17 March 2005, No. 01401- 3/2006/7, dated 22 March 2006, No. 01401/2/2008/3, dated 20 March 2008). The Fund was entered into the court register as a public fund on 10 May 2001 under the number SRG 2001/04925.

On the basis of the new Public Funds Act (ZJS-1, Official Gazette of the Republic of Slovenia, No. 77/2008), the Government of the Republic of Slovenia adopted the new Instrument of Establishment of the Public Fund of the Republic of Slovenia for Regional Development and Development of Rural Areas (No. 01401-4/2009/6, dated 23 July 2009).

5.2 Activity

The Fund is registered to perform the following activities:  84.130 Regulation of and contribution to more efficient operation of businesses;  65.220 Other credit granting;  65.230 Other financial intermediation n.e.c.;  22.110 Publishing of books;  22.130 Publishing of journals and periodicals;  22.150 Other publishing;  74.130 Market research and public opinion polling;  74.140 Business and management consultancy activities;  74.871 Organisation of exhibitions, fairs and congresses;  75.110 General public service activities;  80.422 Other education and training n.e.c..

5.3 Financing

The Fund acquires funds arising from the proceeds, which are the only systemic financial resource, on the basis of Article 7 of the Act Regulating the Use of Funds Arising from the Proceeds Based on the Transformation of Company Ownership Act, namely in the amount of:

3  11.5% of the funds received for regional development and preservation of the settlement of Slovenian rural areas;  2.5% of the funds received for the providing for the economic basis of the autochthonous national communities.

The amount of the paid-in dedicated assets on 31 December 2009 was EUR 83,388,699.78.

6 REGULATIONS IN THE FIELD OF REGIONAL DEVELOPMENT THAT DETERMINE THE ACTIVITIES OF THE FUND

6.1 Promotion of Balanced Regional Development Act (ZSRR-1, Official Gazette of the Republic of Slovenia, No. 93/05)

The Promotion of Balanced Regional Development Act determines the objectives and principles of the promotion of balanced regional development, the shaping and implementation of regional policy, its key institutions as well as the allocation of regional incentives.

In accordance with Article 3 of the Act, the objectives of the promotion of balanced regional development are:  reduction of disparities in economic development and quality of life of the population between individual regions of the country;  prevention of the emergence of new areas with greater development problems;  promotion of a polycentric development of settlement and a polycentric economic development;  development and increase of the competitiveness of the economy in all development regions, taking into consideration their particularities;  reduction of the unemployment rate in development regions, i.e. increase of employment, and elimination of structural imbalances on the labour market;  increase of the well-being of the population in development regions, taking into consideration the principles of sustainable development and the particularities of the development regions;  strengthening of the social capital and innovative capacity in development regions;  preservation and development of cultural identity by creating suitable conditions for cultural creativity and diversity, the sustainable development of cultural heritage as well as the access to cultural goods in development regions;  promotion of lifelong learning to support the increase of the educational level of the population as well as widening of access to education and training for all;  implementation of an integrated approach to rural development;  reduction of disparities with regard to quality of life and the economic and social prosperity, taking into consideration environmental protection and protection against natural and other disasters, as well as reduction of disparities in health;  implementation of integrated regional strategies for the information society, development of the areas of both autochthonous national communities and the Roma community settlements in the Republic of Slovenia;  promotion of economic co-operation with Slovenians around the world.

Among other institutions of regional policy, in its Section 3, Articles 20–22, the Act further defines the role of the Fund and the instruments of the Fund for the promotion of balanced regional development as well as provides for sources of funding of the Fund.

Under the provisions of this Act, the Fund is a public financial fund, which is designed for a more sustainable achievement of public goals in regional development and rural development.

4 Certain negative experiences with the existing Act and new challenges, connected to the economic crisis, impose the preparation of a new Promotion of Balanced Regional Development Act, which would place the Fund among the key institutions of regional policy.

6.2 Monitoring of State Aids Act (ZSDrP, Official Gazette of the Republic of Slovenia, No. 37/04)

The Monitoring of State Aids Act governs the procedure for notification, the obligation of reporting and recording of state aids as well as the assessment of the compliance of state aids, which do not need to be declared to the European Commission.

Both the Ministry of Finance in its opinion No. 442-7/2007/8, dated 20 July 2007, and the Ministry of Agriculture, Forestry and Food in its opinions No. 441-20/2007/5, dated 20 July 2007, and No. 441-137/2007/3, dated 23 July 2007, have approved the General Terms and Conditions of the Public Fund of the Republic of Slovenia for Regional Development and Development of Rural Areas. The General Terms and Conditions were prepared according to the Promotion of Balanced Regional Development Act, in compliance with binding rules, for the programming period 2007– 2013.

6.3 Decree on Methodology for Determination of Municipal Development (Official Gazette of the Republic of Slovenia, No. 61/09)

On the basis of Article 24 of the Financing of Municipalities Act (ZFO-1, Official Gazette of the Republic of Slovenia, No. 123/06, 101/07 – Decision of the Constitutional Court and 57/08), the Government of the Republic of Slovenia adopted the Decree on Methodology for Determination of Municipal Development, which determines the development of municipalities on the basis of a combined calculation consisting of indicators of municipal development, indicators of municipal risk and indicators of municipal development opportunities .

This decree is being used to determine municipal development coefficients for the years 2009 and 2010, which are determined by the Ministry of Finance on the basis of a calculation.

6.4 Decree on the Allocation of Regional State Aids (Official Gazette of the Republic of Slovenia, Nos.72/06, 70/07, 99/08 and 17/09)

On the basis of Article 38 of the Promotion of Balanced Regional Development Act, the Government of the Republic of Slovenia adopted the Decree on the Allocation of Regional State Aids, which determines the area, the criteria and the conditions for the allocation of regional state aids.

The objective of regional state aids is the reduction of entry costs for investors, whose investment will have beneficial effects on the improvement of the relative position of less developed (eligible) areas as compared with neighbouring areas with regard to economic development, employment and quality of life.

In accordance with point 3.2. of the Guidelines on Regional State Aids (Official Gazette C, No. 54/06), the entire territory of the Republic of Slovenia is to be determined as the regional map depicting the eligible area for the allocation of regional state aids.

5 6.5 Decision on the Classification of Development Regions According to their Development Level for the Programming Period 2007–2013 (Official Gazette of the Republic of Slovenia, No. 23/06)

With this decision, the Government of the Republic of Slovenia has specified the indicators and methods for the calculation of the development risk index and has classified development regions for the programming period 2007–2013 according to their development level with regard to the development risk index, namely:

1. Mura (pomurska) (159.5), 2. Inner Carniola-Karst (notranjsko-kraška) (127.0), 3. Drava (podravska) (116.8), 4. Lower Sava (spodnje-posavska) (116.8), 5. Central Sava (zasavska) (113.9), 6. Carinthia (koroška) (103.9), 7. Southeast Slovenia (jugovzhodna Slovenija) (101.7), 8. Gorizia (goriška) (93.8), 9. Savinja (savinjska) (92.3), 10. Upper Carniola (gorenjska) (83.1), 11. Coastal-Karst (obalno-kraška) (82.4), 12. Central Slovenia (osrednjeslovenska) (8.7).

6.6 General Terms and Conditions of the Public Fund of the Republic of Slovenia for Regional Development and Development of Rural Areas, dated 23 July 2009 (General Terms and Conditions of the Fund)

The General Terms and Conditions of the Fund determine the conditions, criteria, method, intention and procedure of the allocation of incentives of the Fund. For each individual form of incentives, they are to be considered as an integral part of a public invitation to tender by the Fund.

The General Terms and Conditions include the following sections:  General provisions;  Scope, intentions and forms of incentives;  Provisions on regional state aids;  Provision on aids according to the “de minimis” rule;  Provisions on state aids in the field of primary production in agriculture;  Provisions on incentives for projects of local and regional public infrastructure;  Allocation criteria and procedure;  Special conditions for the allocation of incentives;  Rights and obligations, procedure and conditions as well as methods and criteria for the extension and write-off or partial write-off of liabilities – “de minimis”;  Final provisions.

7 ORGANISATION OF THE WORK OF THE FUND

The two bodies of the Fund are:  the Supervisory Board, which has the following members since 29 January 2010: - Chairman: Henrik Gjerkeš, Ph.D.,

6 - Deputy Chairman: Igor Strmšnik, M.A., - Members: Metka Farič, M.A., Hermina Oberstar, Špela Banič, David Bratož and Franc Florjančič.

 the single-member Management Board, consisting of the Managing Director of the Fund. On 1 May 2010, the Fund employed 18 persons, namely:  1 member of the Management Board (Managing Director) employed for a fixed term,  15 persons employed for an indefinite period,  2 persons employed for a fixed term, namely in the field of Objective 3 (until 31 December 2015).

The Fund carries out its activities in its own premises, namely in two adjacent buildings in Ribnica.

The Fund has designed its activities in such a way that it carries out its contracting through banks, which are chosen by a public procurement procedure. This enables bank customers to carry out most of their business with the Fund in their region. Some other duties of the Fund are also organised through contractors.

The Fund allocates loans with a more favourable interest rate in comparison with the current market interest rates with equivalent bank loans. The interest rate is determined in accordance with the Business and Financial Plan for the current year. In accordance with the General Terms and Conditions of the Fund, the debt repayment period is up to 20 years, including a moratorium on the repayment of the loan of a duration of up to 5 years.

The Fund deals with applications, submitted in response to invitations to tender, according to an established procedure, which is determined in the General Terms and Conditions of the Fund. On its website, it publishes data with regard to current invitations to tender, including lists of recipients of public funds and application forms.

The Fund monitors the implementation of investments, for which it has granted funds on the basis of the Regulations on the Monitoring of Projects under Construction and on the Monitoring of the Effects of Investment Projects. The investors need to provide the Fund with specific data, which are examined by the Fund through ordinary and extraordinary control.

7 Organisational chart of the Fund

SUPERVISORY BOARD

MANAGING DIRECTOR

SECTORAL SECRETARY – Assistant Director

SECTOR FOR THE IMPLEMENTATION OF GENERAL SECTOR FINANCIAL SECTOR INCENTIVES

HEAD OF SECTOR II – HEAD OF SECTOR II – Head of Sector for the Implementation of HEAD OF SECTOR II – Head of General Sector Incentives Head of Financial Sector

SENIOR ADVISER – DEPARTMENT II – Adviser for Work with Debtors SENIOR ADVISER – DEPARTMENT I (2X) – DEPARTMENT ADVISER I – Project Manager I Head of Accounting and Payments

DEPARTMENT ADVISER I – DEPARTMENT ADVISER I (3X) – Adviser for General Affairs Project Manager II DEPARTMENT ADVISER I – Head of Credit

JUNIOR ADVISER VII/1 – DEPARTMENT ADVISER I – Adviser for General Affairs Financial Adviser

BUSINESS SECRETARY VI – Business Secretary SENIOR DEPARTMENT CONSULTANT I – Accounting Adviser

SENIOR ADVISER – DEPARTMENT I – Computer Scientist

SENIOR ADVISER – DEPARTMENT I – Certification Authority Adviser

DEPARTMENT ADVISER I – Claims Examiner

DEPARTMENT ADVISER I – Claims Payer

8 STRATEGIC DOCUMENTS AND GUIDELINES FOR THE ACTIVITIES OF THE FUND

The aim of the new Promotion of Balanced Regional Development Act, which is currently still in its draft stage, is the strengthening of the development power of the regions on the basis of their own development potentials and global opportunities.

The general objectives of the promotion of balanced regional development are: - increase of the economic, environmental and social capital in development regions as well as increase of the efficiency of this capital with regard to the competitiveness of the economy, the quality of life and the sustainable use of natural resources, - addressing the structural problems of problem areas and the reduction of their development gap,

8 - fulfilment and strengthening of the development potentials of Slovenia’s regions through international territorial co-operation.

Coinciding with regional development is the development of rural areas, the problems of which are among the most important topics of European policy and national policies. Individual rural areas vary considerably with regard to their development, which is why it is one of the objectives of the Fund to reduce such discrepancies and to contribute to a sustainable development of these areas.

In shaping its policies, the Fund will also in the future take into consideration analyses, which examine the field of equitable regional development, regional discrepancies and the development of rural areas, as well as market needs and current and past needs of investors for incentives of the Fund.

This is why, in the period 2010–2013, a lot of importance will be given to investments, which will contribute to the reduction of development discrepancies between regions and between municipalities.

In shaping guidelines for its activities, the Fund needs to take into consideration above all the following documents: - Slovenia’s Development Strategy 2006–2013, - National Development Programme of the Republic of Slovenia for 2007–2013, - Operative Programme for Strengthening Regional Development Potentials for 2007–2013, - National Strategy Plan for Rural Development 2007–2013, - Rural Development Programme 2007–2013.

8.1 Slovenia’s Development Strategy 2006–2013 (hereinafter: SDS)

SDS, which was adopted at the 30th session of the Government of the Republic of Slovenia on 23 June 2005, determines four strategic goals of SDS, which Slovenia should achieve by the year 2013. These goals are the following:  the economic development objective is to overtake within ten years the average level of economic development in the EU (as measured by per capita GDP in purchasing power parity) and to increase employment in line with the goals of the Lisbon Strategy,  the social development objective is to improve the quality of life and prosperity of all individuals as measured by the human development index and indicators of social risk and social cohesion,  the intergenerational and co-natural development objective is to apply the principle of sustainability as the fundamental quality criterion in all fields of development, including the target of the sustainable regeneration of the population; according to the principle of sustainability, the needs of present-day generations must be fulfilled in such a way as not to limit the possibilities of future generations in fulfilling their needs to at least the same extent,  Slovenia’s development objective in the international environment is to employ its development pattern, cultural identity and active engagement in the international community so as to become a recognisable and respected country around the world.

In order to achieve the key development objectives, SDS determines five development priorities of Slovenia for the period from 2006 until 2013:

The first capital development priority “A Competitive Economy and Faster Growth” will contribute to the fulfilment of the economic goals of the Lisbon Strategy. The priority is intended to promote entrepreneurship and investment in human resources in companies, with the aim of

9 increasing the competitive capacities and innovativeness of companies. At the same time, it aims towards promoting both investment from foreign companies in Slovenia and investment by Slovenian companies abroad. The priority is also aimed at establishing an efficient transport, information and communication infrastructure.

The aim of the first capital development priority is to promote entrepreneurship, increase innovativeness, the scope of domestic and foreign investment in the economy and the transport, information and communication infrastructure, including the development of human resources in companies and the promotion of internationalisation of Slovenian companies to increase competitiveness.

Fulfilment of the second capital development priority “Effective Creation, Two-way Flow and Application of Knowledge for Economic Development and Quality Jobs” will contribute to the greater linking of the economy with higher education and research institutions and to promoting the development of tertiary knowledge for greater economic competitiveness, especially through an increased degree of innovativeness and thereby an increased proportion of innovative products and services, through the creation of new demanding jobs with higher value added and increased employee productivity. Infrastructure for knowledge is also ranked within this priority.

The aim of the second capital development priority is to increase support for tertiary education and research and development activities for the needs of the economy and the labour market for the global competitiveness of companies, products, services and persons.

The third capital development priority “An Efficient and Less Costly State” includes an efficient and successful public administration, with which we will improve the quality of state services, including the establishment of public-private partnerships, a reform of labour market institutions, promoting the development of non-governmental organisations and civil dialogue, promoting the development of local development initiatives and linking within the framework of regional development institutions. This priority also ensures a better functioning of the judicial system.

The aim of the third capital development priority is to raise the quality and efficiency of state services and to reduce public spending by excluding from budgets those services that can be provided on the market.

The fourth capital development priority “A Modern Social State and Higher Employment” relates to the development of the education system, improvement of the employability of individuals, preventing social exclusion and strengthening active labour market policies, which would increase the employment prospects of vulnerable social groups (the elderly, women, young persons, disabled persons and others). This priority also relates to overcoming the structural gaps in employment through vocational and geographic mobility, the development of social entrepreneurship, improvement of the population’s state of health, reducing housing problems and reducing the exclusion of vulnerable groups in society.

The aim of the fourth capital development priority is to achieve a society of full employment and to prevent poverty and the consequent social exclusion through education, improvement of labour market flexibility and by ensuring job security.

10 The fifth capital development priority “Integrating Measures to Achieve Sustainable Development” is aimed at promoting balanced regional development, development of the countryside and fisheries, strengthening food security and improving the quality of life in urban and rural areas. Programmes to promote renewable energy sources and efficient energy use are also prioritised. The priority includes improvement of spatial and real estate management and ensuring the conditions for improved operation of the real estate market. It includes better environmental management and establishing an efficient environmental infrastructure. Promoting the development of the national identity, culture and cultural heritage as well as sports programmes and sports infrastructure is also prioritised. Priority areas also include programmes to protect health that are integrated into sectoral policies, reducing regional differences in health and promoting healthy behaviour patterns.

The aim of the fifth capital development priority is to ensure a high quality of life, based on the development of culture and national identity, a more balanced development of the regions, security, spatial management and sustainable mobility, as well as an improved quality of the environment and adequate municipal service infrastructure.

Within the framework of the priorities, determined by SDS, the Fund will pursue above all the first and the fifth priority.

8.2 National Development Programme of the Republic of Slovenia for 2007–2013, dated 20 March 2008 (hereinafter: NDP)

The NDP represents an implementing instrument for the fulfilment of SDS in the field of capital development programmes and projects. The objectives of the NDP are the following:  to increase economic, social and environmental capital,  to increase efficiency in terms of competitiveness of the economy, quality of life and sustainable use of natural resources.

Given the fact that the capital development priorities of the NDP are structured in the same way as the development priorities of SDS, the Fund will, also on the basis of the NDP, pursue and promote above all investments in the fields, which are determined by the first and the fifth priority.

Among others, the NDP determines the following activities within the framework of the first priority:  promotion of investment in the economy,  investment in economic, development and transport infrastructure. Within the framework of the fifth capital development priority, the NDP among others seeks to promote:  development of culture and national identity (the culture industry, for instance the media, cultural tourism, publishing, is a factor for creating new jobs and keeping old jobs, while modern creative activity in culture and the cultural heritage are linked to the range of tourist attractions and to creating the conditions for developing an open, creative and innovative society),  a more balanced development of the regions and functioning of the regions as efficient functional wholes,  development of rural areas (acceleration of the restructuring of agriculture, food production and forestry, preservation of the cultural landscape, protection of the environment and improvement of the quality of life in rural areas),  strengthening of food security of the population,

11  management of renewable sources and rational use of energy,  improvement of the quality of the environment and adequate municipal service infrastructure,  a comprehensive solution for the supply of drinking water, the drainage and treatment of urban wastewater and co-natural water management to reduce the damage it does.

8.3 Operative Programme for Strengthening Regional Development Potentials for 2007–2013 (hereinafter: OP RD)

The OP RD determines Slovenia’s development plan and is aimed at the strengthening of development opportunities, with the objective of promoting the competitiveness of the entire economy and reducing discrepancies between Slovenia’s regions. The key orientation of the OP RD is to achieve the following objective:

Innovative, dynamic and open Slovenia with developed regions and a competitive knowledge- based economy.

The OP RD mainly follows the first, second and fifth priority of SDS, at the same time not excluding a connection or intertwining with other priorities of SDS.

The OP RD consists of four development priorities, which are presented in the table below. With regard to the mission of the Fund, its activity needs to focus on all four priorities.

Priority of the OP RD Activities of the Fund Competitiveness and research excellence Support for investment projects of an entrepreneurial nature (mainly high-tech and innovative projects in small and medium-sized companies) Economic development infrastructure Promotion of investment in economic and educational infrastructure with an emphasis on the development of new technologies

Integration of natural and cultural Support for investments that enable creating potentials new jobs and keeping old jobs in the field of the management of natural and cultural potentials, as this is linked to the range of tourist attractions Development of regions Promotion of investment in:  economic and educational infrastructure;  transport infrastructure;  public infrastructure;  social infrastructure;  environmental infrastructure

8.4 National Strategy Plan for Rural Development 2007–2013 (hereinafter: NSP)

The NSP, which was adopted by the Government of the Republic of Slovenia on its 126th session on 26 June 2007, is consistent with SDS. The NSP should largely contribute also to the achievement of the objectives that are included in SDS. The NSP strives, through the fulfilment of priorities, for the 12 strengthening of the multipurpose role of agriculture in Slovenia. The general aim of the NSP is a balanced and sustainable development of Slovenia’s rural areas. The NSP especially emphasises the needs for the restructuring of agriculture and the food processing industry and contributes to the strengthening of the competitiveness of the entire agro- food chain. The NSP is based on the principles of sustainable management with renewable natural sources and devotes special attention to the maintenance of the cultural landscape, the protection of the environment and the preservation of the settlement of the countryside and the identity of the latter. The NSP also reflects the multipurpose role of forests, which represent the special character of the Slovenian landscape and are an important component of the environment and a source of biodiversity.

The rural development policy for the period 2007–2013 consists of three main axes: 1. increase of the competitiveness of agriculture and forestry 2. environmental improvement in rural areas 3. improvement of the quality of life and promotion of a diversification of economic activities in rural areas.

Among these axes, the Fund intends to become involved in Axis 1 – Competitiveness of Agro- industry and Forestry and Axis 3 – Improvement of the Quality of Life in Rural Areas and Promotion of Diversification.

The orientations of Axis 1 are intended for a successful adaptation of sectors, which is of a key importance for the improvement of competitiveness and environmental sustainability of sectors, and provide jobs in agriculture, forestry and the food processing industry. The increase of competitiveness is linked to restructuring, technological modernisations and a greater competence of agricultural holdings. The contents of this axis are always consistent with the adopted EU and national standards in agriculture, forestry and food processing. The orientations of Axis 1 of the NSP are complementary and contribute to a general fulfilment of basic standard requirements in the fields of environment, animal welfare, hygiene, food safety and other standards that are required in production and processing. In such a way, these orientations have a long-term impact on the improvement of the economic status of agricultural holdings. The orientations of Axis 3 promote entrepreneurship and are aimed at the increase of the quality of life in rural areas. This provides greater employability and has a positive impact on the economic development of rural areas and the preservation of natural and cultural heritage. The exploitation of other resources in rural areas enables the diversification of activities in rural areas.

8.5 Rural Development Programme 2007–2013 (hereinafter: RDP 2007–2013)

The Rural Development Programme 2007–2013 (RDP 2007–2013) is a programme used by Slovenia to implement rural development measures, which are based on a European regulation and the National Strategy Plan of the Republic of Slovenia, which determines the objectives for the development of rural areas in Slovenia until 2013. The measures are distributed in 4 axes.

Axis 1 – improving the competitiveness of the agricultural and forestry sector The measures are aimed at the increase of labour productivity in agriculture and forestry and thereby at the increase of the level of competitiveness in these sectors. This can be achieved by co- financing the qualification for work in agriculture and forestry, promoting the intergenerational

13 transfer of farms, investment grants for the modernisation of agricultural holdings and the food processing industry as well as adapting to climate change.

Axis 2 – improving the environment and the rural areas (implemented by another sector at the Agency of the Republic of Slovenia for Agricultural Markets and Rural Development) These measures will contribute to the preservation of the cultivation of rural areas, a reduction of the negative impact of agriculture on the environment and the promotion of sustainable farming.

Axis 3 – improving the quality of life in rural areas and diversification of the rural economy These measures will promote employment and the creation of new jobs in rural areas as well as an improvement of the quality of life in rural areas. This can be achieved through investment grants for complementary activities on farms, grants for the establishment and development of microenterprises as well as activities for the renovation and development of villages.

Axis 4 – LEADER

8.6 Other documents, which represent guidelines for the activities of the Fund

In its activities, the Fund will indirectly also make use of other documents, the guidelines of which have an indirect impact on the field of regional policy and sustainable development of rural areas and identify development priorities of regions, namely: - regional development programmes for individual regions of Slovenia for 2007–2013, - Development Plan and Policies of Slovenian Tourism 2007–2011, - Resolution on National Development Projects for the period 2007–2023, - Spatial Development Strategy of Slovenia, etc.

9 ACTIVITY OBJECTIVES FOR THE PERIOD 2010–2013 AND INDICATORS

The Fund will strive to fulfil the guidelines indicated in the strategic documents by implementing individual programmes, which are listed below.

Programme Foreseen Indicator Objectives of the Impact of (activity of the instrument investor, i.e. supported supported projects Fund) for the project (result) on the indicators promotion of development of projects

- Promoting the development of local and regional infrastructure as well as public and economic infrastructure

14 projects for the favourable - length of newly - improvement of Direct impacts of development of loans built water supply municipal service projects will reflect local and systems, roads, infrastructure in improved direct regional as well sewage, etc. (length of water economic impacts as public and supply systems, i.e. for end-users, economic - area of metres of newly which will infrastructure equipped urban built water supply permanently land (in hectares) systems, increase the construction of prosperity and wastewater standard of living treatment plants, of the population in etc.); the target area, - improvement of the improved local road network competitiveness (length of roads in and innovativeness metres); of the economy and - construction of will have a regional public and favourable impact economic on regional infrastructure development.

- Promoting capital development projects in the economy investment favourable - number of in companies that will The supported projects of an loans new jobs receive incentives: projects will above entrepreneurial created in - 5% increase of the all enhance the character companies number of development of that will employees two small and medium- receive years after the sized enterprises, incentives; completion of the promote investment - amount of investment; in new technology generated - 3% increase of the equipment and business gross operating services as well as income (gross income and the increase operating value added per investment in income) employee two years research and before the after the completion development. This investment of the investment will enable greater and two years competitiveness of after the both the local and completion of the regional area the as well as an investment; increased - value added entrepreneurial per employee activity. before the investment and two years after the completion of the investment

15 - Promoting capital development projects in areas of the Italian and Hungarian national communities investment favourable - number of in companies that will The supported projects of an loans new jobs receive incentives: projects will above entrepreneurial created in - 5% increase of the all enhance the character in grants companies number of development of areas of the that will employees two small and medium- autochthonous receive years after the sized enterprises, national incentives; completion of the promote investment communities - amount of investment; in new technology generated - 3% increase of the equipment and business gross operating services as well as income (gross income and the increase operating value added per investment in income) employee two years research and before the after the completion development. This investment of the investment will enable greater and two years competitiveness of after the in agricultural both the local and completion of holdings: the regional area the - reduction of as well as an investment; production costs; increased - value added - improvement entrepreneurial per employee and activity. before the reorientation investment of and two years production; after the - quality completion of improvement; the investment - preservation and improvement of the natural environment or improvement of sanitation or standards of animal welfare

- Promoting investments in the field of the promotion of the development of rural areas, i.e. projects that provide for the development of the rural economy or improve employment opportunities in rural areas

16 investment favourable - number of - reduction of The supported projects in loans supported production costs; projects will agricultural agricultural - improvement improve holdings holdings; and competitiveness in - total amount reorientation the field of primary of investment of and processing production; agricultural - quality production as well improvement; as improve the - preservation and quality of life in improvement of the rural areas. natural environment or improvement of sanitation or standards of animal welfare

- Implementing the instrument of financial incentives for the implementation of regional financing schemes, which will facilitate the access of companies to sources of funding of development investments investment - number of in companies that will The supported projects of an new jobs receive incentives: projects will above entrepreneurial created in - 5% increase of the all enhance the character companies number of development of that will employees two small and medium- receive years after the sized enterprises, incentives; completion of the promote investment - amount of investment; in new technology generated - 3% increase of the equipment and business gross operating services as well as income (gross income and the increase operating value added per investment in income) employee two years research and before the after the completion development. This investment of the investment will enable greater and two years competitiveness of after the both the local and completion of the regional area the as well as an investment; increased - value added entrepreneurial per employee activity. before the investment and two years after the completion of the investment

17 The Fund monitors the implementation of the above-stated objectives through elaborated analyses, field visits, evaluations, reports of investors and the monitoring of databases of the Agency of the Republic of Slovenia for Public Legal Records and Related Services (AJPES) before and after the investment.

10 FUNDING OF THE ACTIVITIES OF THE FUND FOR THE PERIOD 2010–2013

The table below shows available inflows and estimated outflows for the period 2010–2013.

Inflows from available funds in 2010 21,554,690.50 Placement in portfolio investments -3,391,488.00 Recapitalisation in 2010 5,475,000.00 Credit drawdown at the EIB 20,000,000.00 Repayments by borrowers 6,259,000.00 Credit drawdown from invitation to tender in 2008 -3,000,000.00 Credit drawdown from invitation to tender in 2009 -8,310,270.98 Credit drawdown from invitation to tender in 2010 -22,563,000.00 Repayment of loans -128,322.58 BALANCE on 31 December 2010 15,895,608.94

Inflows from available funds in 2011 1,850,000.00 Placement in portfolio investments -1,850,000.00 Recapitalisation in 2011 5,350,000.00 Credit drawdown at the EIB 10,000,000.00 Credit drawdown from invitation to tender in 2010 -7,437,000.00 Credit drawdown from invitation to tender in 2011 -25,000,000.00 Repayments by borrowers 8,400,000.00 Repayment of loans -755,145.16 BALANCE on 31 December 2011 6,453,463.78

Inflows from available funds in 2012 1,774,400.00 Placement in portfolio investments -1,774,400.00 Repayments by borrowers 10,190,000.00 Repayment of loans -1,200,478.50 Credit drawdown from invitation to tender in 2012 -15,000,000.00 BALANCE on 31 December 2012 442,985.28

Repayments by borrowers 12,000,000.00 Repayment of loans -800,478.50 Repayment of loan from 2010 -400,000.00 Credit drawdown from invitation to tender in 2013 -11,000,000.00 BALANCE on 31 December 2013 242,506.78

In the year 2010, the Fund will draw an already granted loan by the European Investment Bank (EIB) in the amount of EUR 20 million, and in the year 2011 another loan in the amount of EUR 10 million. This loan provides for the implementation of the planned incentives of the Fund in the amounts of EUR 30 million in the year 2010 and EUR 25 million in the year 2011. According to the currently valid Public Funds Act, in the years 2012 and 2013, the Fund will not be able to obtain an additional loan, which is why the extent of incentives will consequently also decrease, namely to the amount of EUR 15 million in the year 2012 and EUR 11 million in the year 2013.

18 11 OVERVIEW OF TARGET GROUPS OF RECIPIENTS OF INCENTIVES, AMOUNT OF INCENTIVES BY RECIPIENTS AND PURPOSES OF ALLOCATION FOR THE PERIOD 2010–2013

In shaping the policy of the allocation of incentives, the Fund needs to follow the current regional policy, which is aimed at the objective of establishing or promoting an optimal regional development and regional competitive advantages, which will enable the formation of the identity of individual regions. Balanced regional development cannot be pursued merely through an equitable distribution of population and activities.

As stated by Ravbar1 (2004, p. 20), regional disparities are caused by inter-regional labour migration, as particularly the younger and educated workforce is moving from less developed areas. Inter-regional discrepancies in the structure of production, the income per capita, the employment rate, mobility and the age structure of the population represent the main reason for the emergence of problem areas. These include mainly agrarian areas, areas with technologically backward industry (which are also environmentally degraded) and a high unemployment rate as well as less accessible and border regions.

As further stated by Ravbar (2004, p. 22), regional policy has in recent years, among others, changed also with regard to the fact that the traditional approach to spatial and regional policy, which is based on the stimulation of problem areas, is losing its importance, as the competitiveness of regions is coming to the fore. At the same time, we are witnessing tendencies towards the integration of regional development and spatial development, thereby promoting the development of the entire area.

In eradicating regional disparities, great importance is given to institutional “mobility”, which can be overcome by the Fund by allocating incentives to all applicants from the Republic of Slovenia, with priority to projects located in priority areas of regional policy2, rural areas3 or protected natural areas.

In the years 2010–2013, incentives of the Fund will be aimed at priority areas of regional policy, rural areas and protected natural areas according to the following distribution:

Year Total extent of funds Priority areas Rural areas Protected areas available for the of regional implementation of policy incentives 2011 25,000,000 23,000,000 2,000,000 0 2012 15,000,000 13,000,000 1,000,000 1,000,000 2013 11,000,000 9,000,000 1,000,000 1,000,000 Total 51,000,000 45,000,000 4,000,000 2,000,000

1 Ravbar, M. (2004). Regionalni razvoj v pokrajinski členitvi Slovenije. Acta geographica Slovenica, 44(1), 7–24.

2 According to the proposed new Balanced Regional Development Act, priority areas of regional policy are at least the following: border problem areas and problem areas with high unemployment.

3 Rural areas and their problems are among the most important topics of European and national policies. Slovenia ranks among the circle of EU member states with an above-average share of rural areas. For the purposes of the implementation of the RDP 2007–2013, the Republic of Slovenia uses the OECD methodology for the determination of rural areas. According to OECD criteria, 67% of all municipalities (NUTS 5) or 77% of the entire state territory ranks among rural areas, while 41% of the population lives in rural municipalities. At the NUTS 3 level, eleven out of twelve statistical regions are rural ones, while at the NUTS 2 level, Slovenia is one region and is fully classifiable as a rural area (Rural Development Programme 2007–2013, p. 8). 19 Incentives will be allocated by priority areas of regional policy for the implementation of programmes, which are defined below. Incentives will be allocated mainly in the form of favourable loans and to a lesser extent also in the form of grants, capital investments and guarantees.

The leading programmes with target groups of recipients, the amount of funds and purposes of incentives are:

Programme 1 – Promoting the development of local and regional infrastructure as well as public and economic infrastructure Target recipient: municipalities Estimated amount of funds in the programming period: EUR 15,000,000.00 Purposes of allocating incentives: investments in the field of water supply, road network, municipal service infrastructure, education, health, social protection, sports and culture, sustainable energy use

Programme 2 – Promoting capital development projects in the economy Target recipients: large, medium-sized, small and micro enterprises, namely companies, entrepreneurs and craftsmen, whose activity is registered according to the Companies Act, as well as cooperatives and cooperative associations registered according to the Cooperatives Act. For the definition of the size of enterprises, the provisions from Annex I of the Commission Regulation (EC) No. 800/2008 are used. Estimated amount of funds in the programming period: EUR 20,000,000.00 Purposes of allocating incentives: purchase of buildings with appurtenant land, purchase of machinery and equipment, costs of immaterial studies and consultations, intangible investments (technology transfer with the purchase of patent rights, licenses, know-how and unpatented technical knowledge)

Programme 3 – Promoting capital development projects in areas of the Italian and Hungarian national communities Target recipients: large, medium-sized, small and micro enterprises, cooperatives and cooperative associations, agricultural holdings and development institutions, while all recipients have their seat in areas of the Hungarian and Italian national communities Estimated amount of funds in the programming period: EUR 6,900,000.00 Purposes of allocating incentives: investments in the purchase of buildings with appurtenant land, purchase of machinery and equipment, costs of immaterial studies and consultations, intangible investments; investments in construction, purchase and modernisation of agricultural holdings with livestock and crop production, regulation of grazing land, farmland and adjacent access roads; investments in promotional activities and start-up of businesses as well as elaboration of development and investment documents, studies and project documents for the preparation of projects of the economic, tourist and business infrastructure and conceptual or implementing parts of projects of general importance

Programme 4 – Promoting investments in the field of the promotion of the development of rural areas, i.e. projects that provide for the development of the rural economy or improve employment opportunities in rural areas Target recipients: large, medium-sized, small and micro enterprises, cooperatives and cooperative associations and agricultural holdings, which have their seat in the Republic of Slovenia and are entered in the register of agricultural holdings Estimated amount of funds in the programming period: EUR 6,000,000.00

20 Purposes of allocating incentives: investments in the purchase of buildings with appurtenant land, purchase of machinery and equipment, costs of immaterial studies and consultations, intangible investments; investments in construction, purchase and modernisation of agricultural holdings with livestock and crop production, regulation of grazing land, farmland and adjacent access roads, purchase of farms and farmland, purchase of animals, purchase of agricultural machinery and equipment

Programme 5 – Bridging financing of development projects that are co-financed by EU funds Target recipients: large, medium-sized, small and micro enterprises, cooperatives and cooperative associations, municipalities, agricultural holdings, development institutions, which have received a decision granting them EU funding, but need to fully implement and pay for the investment prior to obtaining grants from the EU Estimated amount of funds in the programming period: EUR 1,100,000.00 Purposes of allocating incentives: short-term bridging funds, which enable the investor to conclude the investment successfully and timely, thereby fulfilling the conditions to obtain EU development grants

Programme 6 – Additional temporary measures for problem areas The Fund will pursue temporary measures of regional policy to assist problem areas (areas with a high unemployment rate, border problem areas), which will be determined as target areas of regional policy in the period 2010–2013. Estimated amount of funds in the programming period: EUR 1,000,000.00

Programme 7 – Emergency measures of regional policy The Fund will carry out emergency measures of regional policy, which are related to the write- off of liabilities chargeable as earmarked funds, as permitted by law. Estimated amount of funds in the programming period: EUR 1,000,000.00

12 IMPLEMENTATION OF THE DUTIES OF THE CERTIFYING AUTHORITY IN CROSS-BORDER CO-OPERATION OPERATIONAL PROGRAMMES

In the programming period 2007–2013, the Republic of Slovenia has assumed the role of the managing authority in three cross-border co-operation operational programmes, namely:  Cross-border Co-operation Operational Programme Slovenia-Austria  Cross-border Co-operation Operational Programme Slovenia-Hungary  Cross-border Co-operation Operational Programme IPA Slovenia-Croatia In its decision No. 30300 – 4/2007/4, dated 19 April 2007, the Government of the Republic of Slovenia determined the organisational structure for the implementation of the above-stated operational programmes, within the framework of which the Fund is appointed as the competent institution for the performance of the function of the certifying authority. In the above-mentioned decision, the Government of the Republic of Slovenia charged the Fund to ensure adequate human resources and funds for the effective implementation of the set function. The duties of the certifying authority are determined by 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. In accordance with Article 61 of this Regulation, the certifying authority is responsible for: (a) drawing up and submitting to the Commission certified statements of expenditure and applications for payment; (b) certifying that:

21  the statement of expenditure is accurate, results from reliable accounting systems and is based on verifiable supporting documents;  the expenditure declared complies with applicable Community and national rules and has been incurred in respect of operations selected for funding in accordance with the criteria applicable to the programme and complying with Community and national rules; (c) ensuring for the purposes of certification that it has received adequate information from the managing authority on the procedures and verifications carried out in relation to expenditure included in statements of expenditure; (d) taking account for certification purposes of the results of all audits carried out by or under the responsibility of the audit authority; (e) maintaining accounting records in computerised form of expenditure declared to the Commission; (f) keeping an account of amounts recoverable and of amounts withdrawn following cancellation of all or part of the contribution for an operation. Amounts recovered shall be repaid to the general budget of the European Union prior to the closure of the operational programme by deducting them from the next statement of expenditure.

The Government of the Republic of Slovenia issued the Decree on the Implementation of Procedures for the Use of Funds within the Framework of the European Territorial Cooperation and the Instrument for Pre-Accession Assistance in the Republic of Slovenia for the programming period 2007–2013 (Official Gazette of the Republic of Slovenia No. 45/2010, dated 4 June 2010), Article 4 of which determines that the Fund performs the duties of the certifying authority.

On the basis of the above-stated provisions, the Fund performs, in the programming period 2007– 2013, the duties of the certifying authority for the Operational Programme Slovenia-Austria, the Operational Programme Slovenia-Hungary and the Operational Programme Slovenia-Croatia.