JESSICA EVALUATION STUDY FOR

Ref.: IR812

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.

FINAL REPORT

15/09/10

JESSICA GALICIA

FINAL REPORT

JESSICA EVALUATION STUDY FOR GALICIA Final Report

IR 812

Contents:

1 INTRODUCTION ...... 5

1.1 What does JESSICA represent within the Structural Fund investment and expenditure programmes? ...... 5

1.2 JESSICA and Galicia ...... 5

1.3 Objectives of the evaluation study ...... 6

1.4 Methodology and procedures for conducting the study ...... 6

1.5 How is the JESSICA initiative structured? ...... 7

2 TERRITORIAL AND URBAN FRAMEWORK IN GALICIA ...... 9

2.1 Geographical description ...... 9

2.2 Economic Activity ...... 12

2.3 Population and urban system ...... 14

2.4 Territorial and urban planning in Galicia ...... 19

2.5 Urban Initiative 2000‐ 2013 ...... 22

2.6 Integrated Refurbishment Areas ...... 23

1 JESSICA GALICIA

FINAL REPORT

2.7 JESSICA planning framework ...... 25 3.3.6 Axis 5, Issues 56 and 57: protection and development of natural heritage ‐ Other grants to improve tourism services ...... 33 2.7.1 Territorial planning ...... 26 3.3.7 Issue 61: Integrated urban regeneration projects ...... 34 2.7.2 Sectoral planning ...... 26 4 THE FRAMEWORK FOR THE DEVELOPMENT OF JESSICA PROJECTS IN 2.7.3 Urban Planning ...... 26 GALICIA ...... 35 3 THE 2007‐2013 OPERATIONAL PROGRAMME IN GALICIA ...... 27 4.1 The experience of public‐private funding and initiatives in Galicia .. 35 3.1 Priority Axes ...... 28 4.2 JESSICA and ERDF fund managers ...... 35 3.1.1 Axis 1: Development of the knowledge economy (R&D, Education, 4.2.1 Phase I: Initial context and general explanation of the JESSICA Information Society and ICT) ...... 28 initiative ...... 36 3.1.2 Axis 2: Enterprise innovation and development ...... 28 4.2.2 Phase II: Analysis of possible UDFs in the field of land, building and 3.1.3 Axis 3: Environment, protection of natural resources, energy ...... 37 management, distribution and treatment of water, risk prevention ...... 29 4.3 JESSICA and other institutional and economic agents ...... 39 3.1.4 Axis 4: Transport and Energy ...... 29 3.1.5 Axis 5: Sustainable local and urban development ...... 29 4.4 Role and attitude regarding JESSICA at regional credit institutions . 39

3.1.6 Axis 6: Social infrastructure ...... 29 4.4.1 The financial system in Galicia ...... 39 3.1.7 Axis 7: Technical support and reinforcement of institutional 4.4.2 Attitude of financial intermediaries to JESSICA ...... 39 capacity ...... 30 5 ELIGIBLE PROJECTS ...... 41 3.2 Availability of Funds ...... 30 5.1 Eligibility criteria ...... 41 3.3 JESSICA and its alignment with the ERDF OP ...... 32 5.1.1 Eligibility alignment of ERDF OP projects ...... 41 3.3.1 Possibilities for the JESSICA initiative under the 2007‐2013 Operational Programme ...... 32 5.1.2 Sustainable planning framework ...... 41 3.3.2 Axis 2, Issue 8: Other investments in companies ...... 33 5.1.3 Respect for competition laws ...... 42 3.3.3 Axis 4, Issue 41: renewable energy. Biomass ...... 33 5.1.4 Accumulation of grants ...... 42 3.3.4 Axis 4, Issue 43: Energy efficiency, co‐generation and energy 5.1.5 Other specific JESSICA initiative eligibility criteria ...... 42 management ...... 33 5.2 Project included in Axis 4: Energy and Transport ...... 42 3.3.5 Axis 4, Issue 52: Development of clean urban transport ...... 33

2 JESSICA GALICIA

FINAL REPORT

5.2.1 Renewable energy projects. Priority Issues 40, Solar, and 41, 6.3.1 Description of the project ...... 65 Biomass...... 42 6.3.2 Initial hypotheses: Project development without JESSICA funding. . 5.2.2 Energy efficiency in buildings line. Priority Issue 43...... 43 ...... 67 5.2.3 Energy efficiency in services and urban amenities. Issue 43: Energy 6.3.3 Development with JESSICA funding...... 71 efficiency, co‐generation and energy management ...... 44 6.4 Renewal of efficient urban bus fleets (financial leasing) ...... 75 5.2.4 Energy transformation. Priority Issue 43 ...... 44 6.4.1 Description of the Project ...... 75 5.2.5 Line of finance for public transport (in partnership with the Directorate‐General for Mobility). Priority Issue 52: Development of clean 6.4.2 Initial hypotheses: Project development without JESSICA funding. . urban transport ...... 45 ...... 76 5.2.6 Selected projects ...... 45 6.4.3 Development with JESSICA funding...... 81 5.3 Axis 2, Enterprise Development and Innovation. Issue 8: Other 6.5 Sensitivity Analysis ...... 85 investments in companies ...... 45 6.6 Summary ...... 89 5.3.1 Selected projects ...... 45 6.6.1 Project eligibility criteria ...... 89 5.4 Axis 5. Accommodation for students and other service amenities ... 46 6.6.2 Profitability ...... 90 5.4.1 Selected projects ...... 46 6.7 Other projects analysed ...... 93 5.5 Axis 5, Issues 56 and 57: protection and development of natural heritage ‐ Other grants to improve tourism services ...... 46 7 JESSICA STRUCTURE FOR GALICIA ...... 95

5.5.1 Selected projects ...... 46 7.1 The three JESSICA funding tools: Holding Fund, Urban Development Fund and Projects ...... 95 6 DESCRIPTION OF THE PROJECT AND FINANCIAL MODELLING ...... 47 7.1.1 Holding Fund (HF) ...... 95 6.1 Development with JESSICA funding ...... 49 7.1.2 Urban Development Funds (UDFs) ...... 95 6.2 High environmental quality public buildings ...... 52 7.1.3 Eligible projects ...... 96 6.2.1 Description of the project ...... 52 7.2 JESSICA structure for Galicia ...... 96

6.2.2 Initial hypotheses: Project development without JESSICA funding. . 7.3 Alternatives for the design of a UDF in Galicia ...... 97 ...... 54 6.2.3 Development with JESSICA funding...... 61 7.3.1 Basic architecture ...... 97 6.3 Installation of biomass plants ...... 65 7.3.2 Distinctive aspects of JESSICA in Galicia ...... 98

3 JESSICA GALICIA

FINAL REPORT

7.3.3 Other possible structures for the Galician UDF ...... 98 2.1.4 Execution Deadlines ...... 121 7.4 Outcomes for the UDF and the HF ...... 99 2.1.5 Estimate of costs and revenues ...... 121 3 MONFORTE DE LEMOS DRY PORT ...... 123 8 CONCLUSIONS: JESSICA SOLUTION FOR GALICIA ...... 109 3.1 Description of the project ...... 123 1 STUDENT ACCOMMODATION ON THE ELVIÑA UNIVERSITY CAMPUS, IN A CORUÑA...... 113 3.1.1 Urban development planning context ...... 124 1.1 Description of the Project ...... 113 3.1.2 Desired objectives ...... 125 3.1.3 Development and administration agents ...... 125 1.1.1 Urban development planning context ...... 114 3.1.4 Deadlines ...... 126 1.1.2 Desired objectives ...... 114 3.1.5 Estimate of costs and revenues ...... 126 1.1.3 Development and administration agents ...... 115 3.2 "Fishing Port/Marina Project for Improved Port/Town Integration in 1.1.4 Action periods ...... 115 " ...... 127 1.1.5 Estimate of costs and revenues ...... 115 3.2.1 Description of the Project ...... 127 1.2 A‐7‐38 Arieiro area, in ...... 116 3.2.2 Urban development planning context ...... 127 1.2.1 Description of the project ...... 116 3.2.3 Desired objectives ...... 127 1.2.2 Urban development planning context ...... 116 3.2.4 Development and administration agents ...... 127 1.2.3 Desired objectives ...... 117 3.2.5 Deadlines ...... 127 1.2.4 Development and administration agents ...... 117 3.2.6 Estimate of costs and revenues ...... 128 1.2.5 Execution Deadlines ...... 118 1.3 Estimate of costs and revenues ...... 118

2 PACIOS‐BAAMONDE ENTERPRISE PARK ...... 119

2.1 Description of the Project ...... 119

2.1.1 Urban development planning context ...... 120 2.1.2 Desired objectives ...... 120 2.1.3 Development and administration agents ...... 121

4 JESSICA GALICIA

FINAL REPORT

1 INTRODUCTION JESSICA represents a change in the culture of fund managers, accustomed to using their budgets to finance projects on a non‐reimbursable basis. JESSICA 1.1 What does JESSICA represent within the Structural allows the funds to be recovered by means of funding mechanisms which may Fund investment and expenditure programmes? involve an equity stake, loans or guarantees given to the project developers.

JESSICA is the acronym for "Joint European Support for Sustainable The importance of this tool is even greater given the possibility that the Investment in City Areas", a European Commission initiative developed forthcoming Operational Programme for Galicia could require that a jointly by the European Investment Bank (EIB) and the Council of Europe proportion of the funds allocated be applied by means of tools allowing for Development Bank (CEDB). repayment. It has therefore been deemed desirable to publicise this tool among the managing authorities of the Galician regional government, the The initiative allows Managing Authorities in the Member States to use a , and to draw up an evaluation study identifying the problems part of the provisions from the Structural Funds to make repayable and opportunities in the future implementation of the JESSICA tool as part of investments in projects registered as part of an integrated urban sustainable the 2007‐2013 Operational Programme. development plan. 1.2 JESSICA and Galicia This thus represents a new way of employing structural funds by means of financial tools allowing for the development of projects which: In 2008 the Xunta agreed implementation of an evaluation study for the introduction of the JESSICA initiative within its Autonomous Region. The study • Have a profitability threshold. is in its characteristics and methodologies similar to many other evaluation studies conducted by the EIB in numerous regions of Europe. • Can be implemented by means of public‐private partnerships. The EIB has so far analysed the viability of implementing JESSICA in 36 • Provide a return on the Structural Funds (mainly ERDF) for European regions/countries, establishing the basic management structures subsequent investment in the region to which they were allocated. for the initiative in 9 regions/countries. JESSICA has currently been dedicated 931 million Euros from Structural Funds under the 2007‐2013 Operational • Projects registered as part of an Integrated Plan for Sustainable Programme intended for the implementation of Projects and Urban Urban Development (Regulation EC 1083/2006) Development Funds (UDFs) as pilot schemes.

JESSICA applies to urban sustainability projects, in other words projects with a The JESSICA Evaluation Study for Galicia was contracted from the company clear impact on the activity, economy and efficiency of the city. Projects Equipo de Técnicos en Transporte y Territorio (ETT, S.A.) in September 2009. typically funded by JESSICA include, among others, operations to regenerate During autumn of that year and in the first half of 2010 the technical support inner city areas, to recover obsolete or polluted industrial land, to support team performed their work with the inestimable assistance of the Xunta's sustainable urban mobility, to create amenities and service centres, along Directorate‐General for Planning and Funding (the DXPF) and those with energy efficiency projects in cities. responsible for JESSICA at the EIB, identifying projects, analysing opportunities, getting to know the various public and private agents with an interest in JESSICA and the structuring of a possible application of JESSICA in Galicia.

5 JESSICA GALICIA

FINAL REPORT

1.3 Objectives of the evaluation study 8. Suggest a plan of action for JESSICA in Galicia.

The EIB's mandate for the preparation of this study covers the following 1.4 Methodology and procedures for conducting the study objectives: The evaluation study, for which the protocol was signed in 2008, includes a 1. Analyse the 2007‐2013 Operational Programmes affecting Galicia and far‐reaching initial phase intended to convince fund managers of the having components within the scope of urban policy in order to importance which JESSICA could have in future Operational Programmes. The establish the margin available in the use of JESSICA. working methodology employed was as follows:

2. Diagnose the urban planning situation in Galicia in order to ascertain • Phase I: Focused on developing an understanding of the reality of the practical level of application of integrated planning methods and Galicia in terms of its regional and urban context, the state of urban indicate formulae for the swift development thereof. and sectoral planning, the situation of urban regeneration activities in large and medium‐sized cities, along with the planning tools which 3. Establish the interest in employing financial engineering mechanisms could embrace the JESSICA initiative. in Galicia in order to implement schemes in urban settings, and specifically within the context of Structural Fund intervention. • Phase II: Review of the ERDF Operational Programme (this review Demonstrate in particular the potential effect of the UDFs in terms of was performed jointly with the technical staff of the DXPF in order to leverage and acceleration of investment. Ascertain whether there is establish the Priority Issues and Axes which could be covered by in fact unsatisfied demand for financial engineering instruments for "Jessicable" projects. urban regeneration and renewal operations which would be open to the JESSICA initiative. • Phase III: It was deemed essential to contact the Xunta's ERDF fund managers to explain the appeal of the JESSICA initiative. Joint and 4. Analyse the legal and operational viability of UDFs in Galicia and their individual meetings were held over the course of more than three potential municipal, metropolitan, provincial or regional status. months, a survey was drawn up and documents and explanatory presentations prepared. This phase of contact with public and 5. Identify the main protagonists (public and private) in the field of private agents was supplemented by means of meetings with credit urban renewal, along with the existing investment structures, with institutions (mainly the two Galician Savings Banks), municipal heads the aim of clearly specifying their current role and establishing their of urban planning and university managers. potential contribution to success in the employment of JESSICA in the region. • Phase IV: Moving on from the previous phase, work was performed on identifying eligible projects, establishing the eligibility criteria and 6. Propose a UDF structures in line with the implementation of JESSICA selecting a spectrum of projects open to analysis from the JESSICA in Galicia, taking into consideration the legal obligations, rules perspective. regarding State Aid and the need to minimise additional procedural and administrative costs. • Phase V: The area and type of projects which could be implemented by means of an Urban Development Fund (UDF) were selected. The 7. Analyse the possible application of the JESSICA mechanism to Galicia.

6 JESSICA GALICIA

FINAL REPORT

financial structure for the project and the UDF was modelled, in which mandates a manager to make use of these funds. In the order to ascertain its viability. experience of and the manager selected has been the EIB, contributing all its specialised knowledge in structuring • Phase VI: Lastly, on the basis of the previous results, conclusions the next financial level, the Urban Development Fund (UDF). were drawn up for the entire evaluation process, along with proposed recommendations for implementation of the JESSICA tool 2. The Urban Development Fund (UDF) is a fund dedicated to by the Xunta. investment in a particular type of eligible project. This fund may be established by means simply of finance drawn from the ERDF • The evaluation study proposes the development at an initial stage of (via the Holding Fund) or may also involve a proportion of private one Urban Development Fund (UDF) of 12 M EUR, focusing on the finance (via credit institutions forming part of the UDF). In the funding of urban energy efficiency and sustainable energy projects. latter case participating entities gain access by means of a public This UDF would be supported by funds allocated under Axis 4 of the competitive tender, in accordance with EU regulations. OP, Transport and Energy, and would serve to reinforce the lines of subsidies currently provided by the INEGA (Galician Energy Institute) UDFs may be employed to fund very different types of project. All for projects with similar characteristics. must fulfil the twofold eligibility of the ERDF (compliance with the eligibility conditions imposed by the OP) and JESSICA. 1.5 How is the JESSICA initiative structured? Nonetheless, with a view to the evaluation and selection of projects in accordance with standardised criteria, UDFs focus on The European funds drawn from the ERDF Operational Programme are thematic areas which could, for example, include: applied in Galicia by means of non‐reimbursable grants for projects selected in accordance with the eligibility criteria of the Operational Programme itself. a. A spatial and/or a geographical basis (regional areas, size This approach means that the available resources can be employed only once, of city, economic specialisation, etc.) and cannot be recovered for subsequent projects. The ERDF fund managers have developed procedures and a working culture focused on spending these b. A sectoral approach (type of project: urban regeneration, funds as effectively as possible, but they generally have no experience of the industrial land, amenities, energy, etc.) development of business lines allowing for recovery or revolving credit. c. Or the source of the private funding (for example a UDF The JESSICA initiative is intended to establish a financial architecture developed jointly with a particular credit institution) facilitating the recovery of the funds invested. At the same time, it aims to promote new procedures and working methodologies among managers, facilitating the use of resources as loans, equity or guarantees, the idea in all cases being to recover the investment.

The JESSICA initiative is supported at three levels, in descending order:

1. The creation of a Holding Fund (HF), to be seen as a "fund of funds" receiving structural funds from the Managing Authority,

7 JESSICA GALICIA

FINAL REPORT

The UDF has a specific manager responsible for coordination of Figure 1 Generic structure of the JESSICA initiative the eligible projects, dialogue with possible partners and the development of the procedures, implementation and monitoring of the award tenders, development of the project and recovery of the investment. This manager must be selected by means of competitive tender.

3. Lastly, the third level constitutes the eligible project. These projects may be developed by public or private entities, and must comply with the eligibility criteria in order to be funded by the JESSICA initiative, by means of a specific UDF.

The enclosed figure provides examples of the different levels of the JESSICA structure:

Comisión UE EU Commission Autoridad de Gestión Managing Authority Gestor del Fondo: BEI Fund Manager: EIB Nivel UDF UDF Level Gestor del UDF UDF Manager Socios Privados Private Stakeholders Nivel Proyecto Project Level Proyectos Projects Ayuntamientos/EMV, S.A. Local Councils/EMV, S.A. Bancos/Cajas Banks/Savings Banks

8 JESSICA GALICIA

FINAL REPORT

2 TERRITORIAL AND URBAN FRAMEWORK IN GALICIA

The first chapter of this evaluation study includes a description of the regional context along with economic and urban development, infrastructure and distinctive aspects in Galicia. Familiarity with the reality of Galicia will allow for an analysis of the region's specific needs, thereby defining a perimeter of intervention for projects open to JESSICA funding, such as an appropriate strategy for establishing JESSICA in Galicia in order to optimise procedural and administrative tasks.

Galicia is located in the Northwest of the Iberian Peninsula, to the north of Portugal, with which it is not only physically contiguous but also shares common historical characteristics.

It is a highly fragmented territory given its rugged terrain and the characteristics of its coastline, giving rise to a large number of superimposed onto the traditional division into parishes, in comparison with its surface area and population. This is also a region which was traditionally, up until the 1960s, a source of emigration, initially to the Americas and latterly to Europe and the rest of Spain, prior to a subsequent mass exodus towards the Galician coast, which has led to a remarkable concentration of land occupancy across an urban continuum from Vigo to , generating a number of incipient Metropolitan Areas in Vigo and A Coruña, while emptying out the inland areas of the region, leading to a significant problem of population ageing and a loss of productive activity, with the consequent need to take action in order to help restore the territorial balance which has been lost.

2.1 Geographical description

Galicia covers an area of 29,875 km2, is bounded to the North by the Sea, to the East by the Spanish Autonomous Regions of and Castile‐Leon, to the South by Portugal and to the West by the Atlantic Ocean. Its geography is defined by the length of its coastline, highly fragmented by its long, narrow river estuaries (known as "rías"), and its inland mountainous massifs.

9 JESSICA GALICIA

FINAL REPORT

From the contour perspective one finds the greatest heights in the mountains km, featuring beaches and sand dunes along with substantial cliffs, such as of province and the Southeast of , with the highest point being the . Peña Trevinca, at 2127 m. There are smaller mountainous massifs of moderate altitude in the North, separating the Atlantic and inland provinces. The areas around the rías are home to greater human habitation given the shelter they offer, and are more natural in aspect than other areas. They all represent great value in terms of landscape and the economy, representing one of Galicia's attractions as a tourist destination, along with an active fishery. These spaces feature landscapes of remarkable significance in terms of heritage, environment and the economy, with their geography, climate and human adaptation making them particularly important in terms of tourism, overtaking more traditional activities and altering population systems, leading to very low occupation densities with detached houses dominating, along with a large number of second homes, hence the need to restore a balance between the floating and resident population and to mitigate the impact of urban development pressure on environmental factors. The fragility of these areas and a lack of planning in line with their characteristics led to the introduction of Urgent Measures for the Galician Coastline and Land Regulation Act 6/2007, of 11 May 2007, the most visible consequence of which has been the suspension of development planning and equal distribution processes, in other words essentially land open to urban development and non‐consolidated urban land within a 500 metre wide band

measured horizontally inland from the inner limit of the shoreline, along with subsequent work to draw up the Coastline Plan, with the clear aim of In terms of inclines the situation is repeated, with the greatest inclines being guaranteeing environmental sustainability, enduring cultural heritage and the found in the arc running from North to South along the eastern zone and economic viability of the coastline. along the courses of the Rivers Miño, Eume and Sil. The flattest zones are to be found between the borders of the mountainous regions, in particular the As for the system of rivers, there are six basins which make a substantial valleys of Terra Chá, Limia, Verín and Monforte de Lemos, along with the contribution to shaping the morphology of the territory of Galicia, namely the inland plateaus in the province of A Coruña. following: the Cantabrian, the Atlantic, the Miño‐Sil, Limia and Tamega and Mende, entering as far as Portugal. They water the entire territory with their The coastal system is defined by the 'rías', long, fjord‐like estuaries found at proliferation of tributary streams, forming valleys such as the Limia, or more the mouths of the largest rivers. This system is divided into the northern Rías enclosed formations such as the Cabe, being responsible to a great extent for Altas, running eastwards along the Cantabrian Coast from O Burgo in A the abrupt and fragmented relief which characterises the landscape of Galicia. Coruña and including , Ares, Ferrol, , , Barqueiro, Viveiro, Foz and Ribadeo. The more southerly are to be found along the Atlantic coast: Vigo, , Aldán, Arousa, Muros and , with the remaining coastline of the autonomous region, covering some 1500

10 JESSICA GALICIA

FINAL REPORT

the port areas, along with the recent introduction of a high‐speed train line connecting the major cities with Madrid, and which will in the more distant future be extended to Portugal.

The roadway infrastructure is in hierarchical terms based on the A‐9 toll motorway connecting the entire coastline from Tui to A Coruña, and which will ultimately be linked up with the Cantabrian coast once the Cantabrian Motorway has been completed, followed by the A‐6 and A‐52, the highways connecting the region to the peninsula, with the Ourense‐ AP‐53 having been recently completed.

This network is supplemented by regional rapid transit routes including the Salnés and Morrazo highways, which connect the A‐9 with the more dynamic parts of the coastline. We then find a large number of regional roads, the responsibility of the regional or municipal authorities, covering the entire Source: A. Precedo, in Atlas de Galicia. 1998 territory with a very fine mesh, as one would expect given the population In terms of climate it should be pointed out that Galicia in general has a wet, density and dispersion to be found here. One remaining weakness is the temperate climate, with a high level of rainfall. Temperatures drop as one North‐South inland connection, along with the connection between the moves away from the coastline, as the moderating influence of the sea Cantabrian zone and Portugal, an aspect which would undoubtedly give this disappears and the altitude increases. Three climate systems can be area greater dynamism. distinguished, applying to the coastal seaboard, inland and mountainous areas. These climatic differences are reflected both in the flora and fauna and in the different types of building and construction, with a consequent impact on the landscape.

One significant factor which should be highlighted is the considerable quality of the natural spaces of Galicia, apart from the rías referred to above, hence the fact that they have been protected by means of the Natura Network, Zepas and Ramsar schemes, with a decree recently having been passed covering the demarcation and protection of Galicia's wetlands. These are all areas which must be included within a general consideration as protected spaces.

Infrastructure

Galicia has over recent years seen considerable modernisation of its infrastructure, with an improvement in communications by road, airports and

11 JESSICA GALICIA

FINAL REPORT

There has over recent years been a considerable increase in cruise ship traffic and a growing number of visitors, representing a major element in the commercial activity of the cities. However, the most significant aspect to be taken into consideration is the increase in the loading and offloading of freight, leading to the creation of the two external ports of A Coruña and Ferrol and demanding specialisation at Vigo with spaces dedicated to Ro‐Ro ferries, the introduction of logistics spaces to support activities, such as PLISAN in Salvaterra de Miño and the need to diversify and improve those in Marin and Vilagarcía de Arousa. They are in any event ports which offer unrivalled shelter and which are undergoing a process of modernisation, giving them greater potential. These ports are themselves backed up by a network of smaller fishing ports and leisure marinas which are gradually expanding in accordance with the importance of the coastal areas within this sector, an increase in the level of income of the population and tourist numbers.

2.2 Economic Activity Source: Turgalicia The figures contained in the document Territorial Structural Guidelines for 2007 present the following situation: "The economy of Galicia represents, in terms of Gross Domestic Product (GDP) slightly above 5% of the total for Spain. Over the last six years GDP per capita has closed the gap on the Spanish There are three airports: A Coruña, Vigo and , in order average by nearly five percentage points, with the level currently standing at of importance, all currently experiencing growth in terms of passenger around 83% of the mean, on the path to convergence with the wealthier numbers, along with the very gradual introduction of international flights regions". In other words, there has over recent years been an increased from A Coruña and Vigo. All present challenging geographical conditions, far convergence with the region's immediate context, a situation which could worse in A Coruña and Vigo, this being their greatest weakness in terms of change given the current economic climate, although the figures are not any expansion of facilities and flights. Steering Plans are in the process of uniform in terms of the per capita distribution by province, with very being drawn up, and it is possible that these plans could give rise to a pronounced differences being seen in terms of a phenomenon of rationalisation process offering a more balanced relationship with Porto concentration in the provinces of A Coruña and Pontevedra. airport and improvements to the effectiveness of the three airports.

The port system is based on two major zones covered by the Port Authorities of A Coruña and Vigo. This represents one of Galicia's greatest assets in terms of infrastructure, hence the need to make use of the competitive advantages it enjoys, with greater specialisation and improved connections, in particular by rail to the hinterland.

12 JESSICA GALICIA

FINAL REPORT

Services 68.06 63.02 100% 100% Source: INE 2009. Produced in‐house

As may be seen, Galicia as a whole follows similar lines to Spain in general, with a very high percentage in the primary sector, in particular as a result of the length of its coastline, although this proportion is falling. Particular mention should be made of the excessive share occupied by construction in both cases, figures which will undoubtedly fall given the current economic cycle, with a downturn in the property sector. Mention should also be made of the smaller service sector, although this is undergoing clear growth, accounting for a proportion of more than 60% in all four provinces.

As mentioned earlier, activity is concentrated in the provinces of A Coruña and Pontevedra, which are home to some 80% of companies and account for almost 90% of revenue, with the remainder being distributed fairly evenly in terms of both figures across Lugo and Ourense.

A similar pattern may be found at the level of districts, with six districts, A Coruña, Vigo, Santiago, Pontevedra, Ourense and Ferrol accounting for 76% of Galicia's Gross Value Added, 60% of the region's companies and 50% of the Source: Territorial Structural Guidelines. Xunta de Galicia. 2008 population. If one adds in Lugo, O Salnés, , Barbanza, , Bergantiños, Deza, Ordenes and Betanzos, once again according to the figures The growth in the active population reveals a more dynamic pattern than in set out in the aforementioned Guidelines, they account for 90% of Galicia's the overall population according to the most recent figures published (2009), GVA. These districts are home to 81% of Galician companies, 70% of the with 85.2% of the population active and 12.6% unemployed. As for the population live there and they account for almost 88% of all employment distribution of the employed population by sector of activity, the following generated in Galicia. It may be seen that all these districts are located in the percentage figures are given by the INE (National Statistical Institute) for provinces of A Coruña and Pontevedra and are to be found in the coastal belt, 2009: except for Lugo and Valdeorras, the defining features of which are the considerable importance of quarrying operations and a highly dynamic Table 1 Distribution of employed population by sector of activity market. Spain Galicia This situation at the economic level is reproduced in terms of demographics, Agriculture and 4.04 7.82 hence the need to make efforts to restore the balance between the coastal fishing and inland provinces. Industry 15.79 17.99 Construction 12.11 11.17

13 JESSICA GALICIA

FINAL REPORT

2.3 Population and urban system municipalities located within their areas of immediate influence are currently home to 57% of the Galician population". The Autonomous Region of Galicia had, according to the 2009 Register of Residents, a population of 2,796,089. It is divided into four provinces: A The urban system, although heavily polarised towards the coast and the Coruña, Lugo, Ourense and Pontevedra, with the capital in Santiago de gravitational pull of the five cities located there, would seem to be based on a Compostela. The population and density figures are set out in the following system of small villages which have historically been the backbone of the table. region, as centres for commercial exchange, supplemented by regular fairs in smaller towns, such as the centres of judicial districts, offering a wide range of Table 2 Population and density by province services which have made them key centres within the urban and rural context. These conditions and the physical characteristics of the territory have Population Density (inhab./km2 served to consolidate certain districts, mainly in accordance with natural and (inhabitants) subsequently functional factors, forging an important space for shared Galicia 2,796,089 93.59 services and relationships. A Coruña 1,145,488 144.09 Lugo 355,195 36.04 This situation gave rise to District Development Act 7/1996, the most visible Ourense 335,642 46.15 consequence of which was the approval on 20 February 1997 of the District Pontevedra 959,764 213.56 Map of Galicia, made up of 53 districts. However, no great further progress Source: INE 2009. Produced in‐house has been made in the centralisation of services and administrative rationalisation beyond the creation of a number of supra‐municipal bodies. These figures illustrate the considerable representation of the two Atlantic provinces in terms of population and regional employment, in both cases in The enclosed plan presents this division and reveals that each of the districts comparison with the inland provinces, with the population density of has its own capital, these being small and medium‐sized towns, some of the Pontevedra being four times that of Lugo and Ourense, and that of A Coruña municipal capitals having more than 30,000 inhabitants, such as: and more than double. The numbers simply underline the point made earlier in Vilagarcía de Arousa, while a larger number have a population of more than terms of the concentration of population which has been occurring in the 20,000, including Ribeira, Cangas, A Estrada, Lalín and , only the coastal areas. An estimate for the same date would suggest that around 70% first of which is in A Coruña. These are all very well connected towns which of the population lives in towns with more than 5000 inhabitants. There has, should be taken into consideration in terms of the metropolitan areas: Vigo‐ in other words, been a shift in recent years from a pattern of rural settlement Pontevedra and A Coruña‐Ferrol, the functional and economic zones of which to a predominantly urban setting, the population becoming concentrated in include the other towns of more than 20,000 inhabitants, even if these are the main urban areas, with an increasing decline in the population of most not district capitals: Narón, Oleiros, Ames, , , and rural settlements, going as far as complete abandonment. Marin. All these municipalities help shape the system of towns along the Atlantic coastline now supported by the Atlantic Motorway, and historically According to the Territorial Structural Guidelines which are currently being having developed along the C‐550 ‐Tui highway, creating an urban drawn up: "Galicia's urban system has seven areas which in terms of their size continuum in the form of a conurbation, and, as mentioned earlier, and functionality clearly stand out from the remaining towns: Vigo, A Coruña, accounting for a very considerable percentage of the urban population, with a Ourense, Santiago, Ferrol, Lugo and Pontevedra constitute the central focuses very high population density. of dynamism and territorial structure. Taken together these cities and the

14 JESSICA GALICIA

FINAL REPORT

Source: Territorial Model Hypothesis

In the inland provinces all towns with a population of more than 10,000 are Source: Territorial Model Hypothesis district capitals: Monforte de Lemos, Sarría, Villalba, Viveiro, O Barco de Valdeorras, O Carballiño, Xinzo de Limia and Verin. Although to a limited extent, they help rebalance the territory of Galicia.

A territorial, social and economic analysis subsequent to Territory of Galicia Regulation Act 10/1995, of 23 November 1995, gave rise to a document published in the late 1990s, the Territorial Model Hypotheses, serving as the forerunner to the Guidelines. This document defines 12 functional areas created by grouping together a number of districts, in an attempt to define an appropriate territorial model for Galicia. This model would, without the administrative modifications it requires, seem to have made no progress in terms of its configuration.

15 JESSICA GALICIA

FINAL REPORT

Galicia is divided in administrative terms into 315 municipalities, each with a A CORUÑA municipal capital, the most distinctive feature being the division of the territory into parishes which although they do not have legal status do serve Inhabitants Municipalities Entities to structure the territory at a lower level, and which therefore enjoy 1,000 – 2,000 Remainder 11 45 significant tangible and intangible assets and have clear value as an identifying element, and even today when our urban habits are more 2,000 – 5,000 24 45 universal, each local resident will identify him or herself as belonging to parish, not a borough. Galicia, then, has a total of 3778 parishes. 5,000 – 10,000 37 8 10,000 – 20,000 11 5 However, despite the importance of the figures for parish divisions, the numbers which ultimately define the territory of Galicia involve the 20,000 – 30,000 5 2 fragmentation of population settlements as a result of the region's 30,000 – 50,000 3 0 characteristics in terms of both physical and climatic geography, combining with historical patterns of highly fragmented land ownership to give rise to a + 50,000 3 3 disperse settlement model, based on very small‐sized settlements, small TOTAL 94 ‐‐‐ concentrated hamlets in the harshest regions, and more extended centres of population in those with a more manageable terrain, occupying considerable Source: Municipal Register of Residents. INE. 2009. Produced in‐house land, although in all cases with a similar distribution: buildings are grouped around cultivated land, tilled land is to be found outside the built‐up area, LUGO 30.8% of the territory may be defined as usable agricultural land with all Inhabitants Municipalities Entities countryside areas being held in common, these being assets at all times attached to the parish as a whole, meaning that 61% of the surface area of 1,000 – 2,000 Remainder 21 11 Galicia is classified as forestry land. All this has served to shape a landscape with considerable and distinctive human influence, with its own identity in 2,000 – 5,000 35 7 terms of the broad network of pathways, creating a fine mesh connecting the 5,000 – 10,000 6 5 entire territory and linking up with a particularly extensive river network which has played a key role in human settlement, hence the fact that Galicia 10,000 – 20,000 4 1 is home to 31,894 centres of population, more than 50% of all those to be 20,000 – 30,000 0 0 found throughout Spain. 30,000 – 50,000 0 0 The tables below set out the population data based on the 2009 Register of + 50,000 1 1 Residents. They reveal the considerable differences to be found between the different provinces, essentially between A Coruña and Pontevedra on the one TOTAL 67 ‐‐‐ hand, and Lugo and Ourense on the other. Source: Municipal Register of Residents. INE. 2009. Produced in‐house

16 JESSICA GALICIA

FINAL REPORT

OURENSE GALICIA

Inhabitants Municipalities Entities Inhabitants Municipalities % Entities %

1,000 – 2,000 Remainder 58 3 1,000 – 2,000 94 29.84 97 2,000 – 5,000 24 4 2,000 – 5,000 102 32.38 76 5,000 – 10,000 5 2 5,000 – 10,000 62 19.68 23 10,000 – 20,000 4 3 20,000 – 30,000 0 0 10,000 – 20,000 35 11.11 11 30,000 – 50,000 0 0 20,000 – 30,000 10 3.18 2

+ 50,000 1 1 30,000 – 50,000 5 1.59 0 TOTAL 92 ‐‐‐ + 50,000 7 2.22 7 Source: Municipal Register of Residents. INE. 2009. Produced in‐house TOTAL 315 100.00 * PONTEVEDRA Source: Municipal Register of Residents. INE. 2009. Produced in‐house Inhabitants Municipalities Entities What they indicate is the existence of a poly‐centric system with two 1,000 – 2,000 Remainder 4 38 Metropolitan Areas based on Vigo and A Coruña, Vigo being larger in size, 2,000 – 5,000 19 20 along with five major cities, accompanied by the aforementioned network of small and medium‐sized towns and villages. A look at the following maps 5,000 – 10,000 14 8 reveals that this is a stable and already consolidated system. The more schematic 1998 map reveals a clear polarisation towards the major cities, 10,000 – 20,000 16 3 indicating the emergence of secondary connections which are more explicitly 20,000 – 30,000 5 0 presented in the second figure, and which may be seen as representing an advance in the of Galicia's territorial balance, one of the region's 30,000 – 50,000 2 0 greatest weaknesses. + 50,000 2 2

TOTAL 62 ‐‐‐ Source: Municipal Register of Residents. INE. 2009. Produced in‐house

17 JESSICA GALICIA

FINAL REPORT

Source: A. Precedo, in Atlas de Galicia. 1998 Source: Territorial Structural Guidelines. 2008 Source: Territorial Structural Guidelines for Galicia. 2008 Source: Territorial Structural Guidelines. 2008 In terms of the system of settlements, the map presented in the Guidelines document may be held to remain valid. The map also offers considerable It should for these purposes be pointed out that in 1985 there were 124 clarification in providing a physical basis allowing one to indicate, apart from population centres with between 1,000 and 5,000 inhabitants, compared with other considerations of a 173 in 2009, 16 with between 5,000 and 10,000 inhabitants compared with sociodemographic nature, that the 23, and just 10 more with over 10,000 inhabitants, as opposed to 20 in the depopulation of the interior is also most recent Register of Residents. In other words, we are seeing a process of to a great extent connected with urban concentration, at least in terms of population, although this urban the harsh topographical conditions characteristic is becoming increasingly widespread across the region, despite of the Eastern and Southern Zones, the concentration seen in the coastal zone, and more specifically along the where Galicia's most significant margins of the Atlantic Motorway, the major structural axis of the western mountain ranges are to be found. part of the region, with no equivalent counterpart being found in inland.

This situation is underpinned by an observation of the two maps from the previous Territorial Structural Guidelines document, illustrating the Source: Territorial Structural Guidelines. 2008 percentage increases in the population which, in contrast with depopulation, are to be found inland over the period 1950‐2007 and over the period 2000‐ 2007, with an apparent change in the trend, albeit a very slow one, suggesting that in the future the inland area could find its position strengthened, a positive element with a view to the future.

18 JESSICA GALICIA

FINAL REPORT

At present 216 population centres have more than 1,000 inhabitants, as reclassification of urban population centres and the development of opposed to 150 in 1985, figures which in no case represent more than 0.68% environmental and heritage resources. On the basis that territorially cohesive of those in existence. and environmental sustainable development must serve to guarantee the rights of all citizens wherever they live, along with a high‐quality, healthy There is in any event a very high level of ageing inland, although this figure environment. This will require the existence of agreement and coordination applies to the region as a whole given the increase in life expectancy. One among public authority departments tied to the creation of a culture of other concerning figure should in any case be taken into consideration, public‐private partnership. namely the low gross birth rate of 7.8% which, together with the mortality figures, gave rise in 2008, the most recent data available, to a negative It meanwhile involves a population distribution model which could still be migratory balance of ‐6226. The migratory numbers are in themselves very seen as valid in the information age, in which although location does not low (17,810), as a result of the limited potential of the labour market to matter, a system of relationships does, with the territorial dimension of attract workers. Galicia and a substantial improvement in communications leading one to suppose that its population distribution will remain valid, even if not all The population distribution in terms of educational level is very similar to that settlements survive. However, we also find another circumstance, namely seen in Spain, with a practically identical percentage of illiterate and that demands throughout the territory and from the entire population are uneducated people. Galicia's figures are slightly higher for primary education, urban in terms of infrastructure, along with services ranging from education while those in Spain are marginally greater (around 2%) when turning to to healthcare, culture and leisure, and that these are to a considerable extent secondary and higher education. met.

What may in any event be stated is that we are faced here with a model of As a consequence, although this could be seen as a weak urban system, it human settlement which it would be fair to categorise as a traditional diffuse should in truth be understood that the example of Galicia presents a complex city, which has over the course of its history demonstrated considerable urban system, with the same requirements as the traditional compact city, capacity to maintain land occupancy, with the major migrations of the 20th with all actions helping to reclassify the territory becoming urban century gradually reducing its content, having attempted to act in accordance regeneration initiatives. with environmentally friendly and sustainable guidelines, since the land was itself the main basis for subsistence, social cohesion in the broad network of 2.4 Territorial and urban planning in Galicia community relationships in place, and economic development, within lifestyles tied to the primary sectors of fishing on the coast and agriculture An analysis of the state of sectoral urban development planning and the and livestock inland, a model which was disrupted by industrialisation firstly capacity of regional and local authorities to implement sustainable urban abroad, in the Americas and Europe, and later in Spain and Galicia's urban development plans will serve to comply with the European regulatory areas. requirement for the application of an integrated planning concept as part of the regional strategy in the field of urban development for JESSICA. It is, meanwhile, a model undergoing transformation with the unplanned introduction of economic activities or the imposition of inappropriate From the perspective of territorial planning Galicia is faced with numerous regulations leading to the dispersal and de‐structuring of past settlement challenges. In recent years, it has been overwhelmed by the implementation patterns, calling for the need to regenerate large areas of territory through of different laws and decrees that have affected the land‐use planning of the their reactivation and diversification of uses, thereby requiring the

19 JESSICA GALICIA

FINAL REPORT territory on different scales and that, along with the modification of national considerable surface area and is of particular significance in the future legislation, have made it necessary to completely overhaul the urban planning development of the zone, a moratorium has been imposed on construction practices and urgently consider the approval of land‐use documents. permits within a 500 metre‐wide band, thereby halting all property development operations and this, combined with the real estate crisis, has led Since the approval of Urban Planning and Protection of the Rural Environment to a period of reflection and the emergence of the first Coastline Plan which, in Galicia Act 9/2002, of 30 December 2002 (the 'LOUGA'), there has been one although it has not yet been passed, was broadly publicised at the outset of a modification of this by Act 15/2004, of 29 December 2004, followed by Act consultation period involving the municipalities affected, this period having 6/2007, of 11 May 2007, introducing urgent measures regarding planning of recently come to an end. the territory and coastline of Galicia, followed by Act 6/2008, of 19 June 2008, on urgent measures in the area of housing and land, modifying Act 9/2002, of In terms of general planning, the situation reveals a widespread lack of 19 December 2002, on urban planning and protection of the rural adaptation to all legislation, even in the large cities. Vigo has had final environment in Galicia. approval issued, Pontevedra and A Coruña are beginning to draw up their plans, Ourense has had its cancelled while Lugo is in the final approval phase, These Acts have been followed by the more recent Galician Housing Act (Act with some sixty much smaller municipalities already having in place a 18/2008, of 29 December 2008), and lastly Act 2/2010, of 25 March 2010, definitive General Municipal Regulation Plan in line with the LOUGA, thanks to introducing urgent measures to modify Act 9/2002, of 30 December 2002, on the efforts seen in recent months, thereby putting in place a planning system urban planning and protection of the rural environment in Galicia. It is also which incorporates sustainability criteria and environmental evaluation, and necessary to consider all of the environmental legislation that has been hence marking the start of an improvement in the situation. implemented, with special emphasis on the need for Strategic Environmental Evaluation of the different plans and programs and Land Act 8/2007, of 28 It would meanwhile be very useful to define which municipalities, due to their May 2008, and the revised text of this legislation. scale, dynamic, and position in the territory, would not require a general plan, but rather simply a series of Subsidiary and Complementary Planning In addition to all the above urban development legislation, dealing with more Standards, included in the LOUGA, that would replace the obsolete Subsidiary physical aspects, one should make mention of Act 10/1995, of 23 November and Complementary Planning Standards of the provinces of A Coruña, Lugo, 1995, on the structuring of land use in Galicia, with an impact on territorial Ourense, and Pontevedra, which date back to 1991, providing for more agile aspects, following on from which a number of sectoral plans have been drawn urban development regulations. up. Recently, initial approval was given to the Territorial Regulation Directives, a key element in the definition of the objectives for the establishment of a In recent years, work has been performed on different aspects affecting future model in the territory, from infrastructure to the positioning of cities territorial factors with a significant effect on urban planning and therefore on and centres of activity, rationalizing a territory that is currently unbalanced the evolution of the territory at the municipal level; in other words, in their due to the urban weighting of the coast versus the shrinking population and physical definition and details, for example, the definition of the Natura abandonment observed inland. Network, sectoral plans for enterprise parks, and the recent presentation of the Housing Sector Plan. Recent major‐impact initiatives along the coastline have raised the need for a Coastline Regulation Plan to be drawn up. Given the considerable length of At the level of major infrastructure, work has been performed on highway Galicia's coastline, along with the aforementioned concentration of connections, with recent projects such as the AP‐53 between Santiago and population and activity within this area, which therefore affects a Ourense. The transformation of the A Coruña and Ferrol ports has

20 JESSICA GALICIA

FINAL REPORT commenced, with the construction of their outer ports. In terms of the mind the need for increased efficiency throughout the energy system, with railway, the AVE high‐speed link is already underway with the construction of renewable energy, in particular wind power, having come onto the scene to some sections in Ourense and Pontevedra, and is in an advanced stage of change the future landscape. development. The airport network is complete and steering plans such as that for Vigo are being drawn up. Further down the scale consideration must be given to the importance of the network of small towns and historical villages which, together with the major There are major initiatives for the production system tied to the Enterprise cities of A Coruña, Ferrol, Santiago de Compostela, Pontevedra, Vigo, Lugo Park Sectoral Plan, led by Xestur, public land management enterprises tied to and Ourense, have historical old towns which in many cases have been the IGVS, notwithstanding the emergence of other agents, such as, for declared Assets of Cultural Interest, and which have in place specific plans not example, in the Vigo area the Salvaterra‐ Dry Port, tied to the only offering protection but in many cases also covering major urban widespread development of the industrial fabric of Vigo, which is in the regeneration initiatives in response to previous proposals for renewal, since process of being refocused as a result of initiatives such as the Valladares their abandonment over many years has led to a process of degradation Technology Park and the recent contract signed for the Matamá Enterprise which in many cases is at an advanced stage. The existence of such plans and Part in Vigo which, together with A Gándara in Porriño, involve Free Zone the integration of many within the 'Urban' programme positions them as Consortium initiatives. These are in all cases projects which give considerable sustainable intervention projects, since they incorporate social measures, thought to sustainability, a principle which applies to all proposals from with direct benefits for the local population, economic measures through the design itself to the choice of materials. reactivation of economic activities, and environmental measures, from both the perspective of improved infrastructure and the recovery of assets for Mention should also be made of one of the issues pending consideration and building development. The conditions are in place to generate an of vital importance, namely the creation of the Vigo‐Pontevedra and A improvement in quality of life with a long‐term impact on health, security, Coruña‐Ferrol Metropolitan Areas, which have so far failed and which will social stability, productivity and urban image, a process which is already prove decisive in rationalising territories which reveal a considerable lack of beginning to bear fruit in the flagship city of Santiago de Compostela. structure, with top‐heavy capital cities, most visibly in the case of Vigo, in comparison with their constituent municipalities, hence the need for a Summary definition of the roles to be played by each . Nor should we overlook the integration and cohesion of a poly‐centric system of cities which The urban system is characterised by its considerable polarisation towards the has been in place for some considerable time, burdened by the disperse coastline and depopulation of the interior (harsh topographical conditions, patterns of human settlement which characterise the region. most significant mountain areas in Galicia), and by a poly‐centric system (with two Metropolitan Areas based on Vigo and A Coruña, Vigo being larger in All the above calls for a rationalisation of infrastructure, including size), along with five major cities, accompanied by a network of small and communications, with a particular emphasis on the need to plan inter‐urban medium‐sized towns and villages. transport, which is at present far too fragmented, collection of solid waste and the need for rationalisation of the entire water cycle, covering supply, the This situation of urban and demographic imbalance is reproduced at the level sewerage and water treatment system, the lack or low quality of water of infrastructure (transport, water, waste...) and in economic terms treatment facilities representing one of the most significant factors in the (employment). environmental pollution of the Rías, which represent one of the highest‐ potential economic and landscape resources of Galicia, while also bearing in

21 JESSICA GALICIA

FINAL REPORT

The unplanned introduction of economic activities and the imposition of in Galicia; the regulations in place at the time required a population threshold inappropriate regulations have led to the dispersal and de‐structuring of the of at least 20,000 inhabitants. original patterns of population. The funding round for the period 2007‐2013 focused on municipalities with an official population of more than 50,000 inhabitants and provincial capitals Objectives with lower population figures. The Spanish government decided to continue developing this type of grant, integrating the system within the "Local and ► reinforce the interior as a positive element in restoring balance Urban Development" Axis of the 2007‐2013 Regional Operational between the coastal and inland provinces through an inland axis as Programmes co‐funded by the European Regional Development Fund. powerful as the coastal axis The characteristics required of the projects included an integrated focus in ► regenerate large areas of territory through their reactivation and accordance with the development of a multi‐disciplinary raft of actions diversification of uses, requiring a reclassification of urban (environmental, social, urban planning, economic, tourism, cultural, heritage, settlements and the development of environmental and heritage new technologies, information society, etc.) in order to face up to the resources. Need for greater efficiency in the energy system problems of the urban area selected within the municipality, subject to clear social and economic disadvantages with regard to the zone as a whole. ► promote projects included within territorially cohesive and environmentally sustainable development plans. This will demand To this end Galicia's Regional Department of the Economy and Public Finance the existence of agreement and coordination between public drew up its Galicia 2007‐2013 ERDF Operational Programme as a strategic authority departments, along with the creation of a culture of public‐ document, as an instrument for medium‐ and long‐term community planning, private partnership setting out objectives, strategies and initiatives to achieve improved economic and social development through the application of structural funds.

The operational programme worked within the various Fund Axes, including Axis 5: Local, Sustainable Urban Development, with the Urban initiative itself 2.5 Urban Initiative 2000- 2013 falling within this category.

This is an initiative intended to promote sustainable urban development As mentioned earlier, prior experience existed of this type of initiative in projects through grants from the European Regional Development Funds of drawing up the operational programme on the basis of an evaluation of the the European Union, co‐funded by various local authorities. The purpose is to fulfilment of objectives in previous initiatives, these essentially being: bring about the economic, environmental and social regeneration of urban areas, with a view to fostering sustainable local development. 1. Foster the creation and implementation of particularly innovative strategies to encourage the economic and social regeneration of Prior to the 2007‐2013 programme there was an Urban I initiative covering a small and medium‐sized cities and neighbourhoods in crisis within scheduling period from 1994 to 1999, with grants being awarded to large conurbations. programmes in 31 Spanish cities, while Urban II covered the period 2000‐ 2006, with 11 Spanish cities benefiting under this initiative, including Ourense

22 JESSICA GALICIA

FINAL REPORT

2. Extend and exchange knowledge and experiences regarding The four municipalities with a General Municipal Regulation Plan in place are regeneration and sustainable urban development within the Union. A Coruña (since 1998), Ferrol (since 2000), Santiago de Compostela (since 2007, the only one with a plan which has been adapted to the current urban Within this regard, the Operational Programme stated: "In terms of urban development legislation), and Lugo, since 1990, although this is in the process development, given the importance given to the role of cities in this new of final approval of its adaptation, while the city also, as in the case of period and the specific issues they face, the initiatives will have as their main Santiago, has a Special Plan for its Historical Centre. objective a response to the needs of cities in terms of the social and economic regeneration of their environment. The projects selected are:

The area covered by the URBAN initiative will be exploited in this regard in • A Coruña: Agricultural areas in Orzán. order to continue developing integrated urban regeneration actions in those Galician cities with a distinctly industrial nature, such as Ferrol and Vigo. • Lugo: Historical Centre (Zone inside the city wall‐District 1) and the old prison building. Through the deployment of integrated urban and rural regeneration projects focusing essentially on small and medium‐sized Galician municipalities, the • El Ferrol: Historical Centre (Ferrol Vello, Canido and A Magdalena). aim is to achieve territorial cohesion. Efforts will also be made to strengthen citizen participation in the administration of public affairs and the • Santiago de Compostela: Santiago Norte, Barrios de Vista Alegre, improvement of local services". Romaño, Vite, Guadalupe, Salgueiriños, San Caietano, Basquiños, Ultreia, Espiritu Santo, A Estila, A Almáciga, San Pedro, Concheiros, Within this context, in order to give continuity to the URBAN community Belvis and Palacios. initiative a proportion of the provision was ring‐fenced for cities with a population of more than 50,000, along with the provincial capitals of Galicia, Previously Vigo and Ourense have benefited from the Urban programme. Vigo where projects were selected by means of a national competitive tender run is now continuing with the task of regenerating and refurbishing its historical by the Department of the Economy and Public Finance. old town by means of the Old Town Consortium, which has been assigned an Integrated Refurbishment Area. In the case of Ourense the office has been The Operational Programme was submitted for Environmental Evaluation, in maintained for the purpose of urban regeneration tasks, retaining the Urban accordance with the terms of Act 9/2006. Office name.

In order to evaluate the project a mixed evaluation committee was set up, chaired by the Department of the Economy and Public Finance, while also 2.6 Integrated Refurbishment Areas featuring representatives from the Department of Public Administration, the Department of the Environment and Rural and Marine Affairs and the Declaration of Integrated Refurbishment Areas is included in the provisions of Department of Housing. The list of cities selected in Galicia for the various Housing Plans approved by the Department of Housing every four implementation of a Sustainable Urban Development project were: A Coruña, years. The State Housing and Refurbishment Plan currently in force is that for Ferrol, Lugo and Santiago de Compostela, which were allocated 45.7 million 2009‐2012, approved by means of Royal Decree 2066/2008, of 12 December euros (32 million from ERDF funding). 2008. The subsidies granted and established by means of the Agreement between the central and regional government authorities are administered by

23 JESSICA GALICIA

FINAL REPORT the Autonomous Region, with Galicia having received approval in this regard Once the declaration has been issued this is maintained and included under under Decree 402/2009, of 22 October 2009, establishing public grants in the the various housing plans for as long as the objectives set out at the outset of field of housing covered by the Autonomous Region of Galicia and governing each agreement are met. the administration of those laid down in Royal Decree 2066/2008, of 12 December 2008, for the period 2009‐2012. In the case of historical districts, they must meet the following requirements:

The programme defines as Integrated Refurbishment Areas historical districts, a) They must have been declared as such, or at least have this procedure urban centres, rundown neighbourhoods and rural municipalities, with the under way, in accordance with national or regional legislation. programme setting out the basic conditions for funding to be received under b) They must have a special conservation, protection and refurbishment the Plan on projects to improve the residential fabric of urban and rural areas, plan in place, with at least initial approval at the time of the application. achieve the functional recovery of historic districts, urban centres, rundown neighbourhoods and rural municipalities requiring refurbishment of Earlier housing plans will require definitive approval of planning. The special buildings and housing, projects to address situations of inadequate housing plans governing historical districts generally cover both protection and and urban development and redevelopment projects for public spaces. internal refurbishment measures, with a particular impact on urban regeneration, in accordance with social, economic and environmental The initiatives receiving funding are: conditions.

a) For private‐use areas of buildings (residential properties), works to The restoration of such aspects of the urban fabric has a particularly improve habitability, security, accessibility and energy efficiency. important social component, given that these areas have been abandoned for many years, leading them to be occupied by an ageing population without the b) For communal areas of buildings, works to improve security, ability to move to other areas of the city, along with the arrival of a low‐ waterproofing, accessibility and energy efficiency, and the use of income and often marginalised population, a situation which has led buildings renewable energy sources. to become degraded both as constructions and in terms of their habitability and accessibility. c) For public spaces, urban development and redevelopment and universal accessibility works, and the establishment of centralised Refurbishment of buildings involves improvements to quality of life and HVAC and hot water systems powered by renewable energy sources. makes such areas more attractive, thereby contributing to social stability and security as a result of livelier streets. Declaration of Refurbishment Areas must be ordered by the Autonomous Region, with certain minimum conditions being established for their This approach covers improvements in economic conditions through the demarcation: they must include at least two hundred residential properties, incorporation of measures to restart economic activity. It also impacts on which must be at least ten years old. Residential properties having received environmental conditions in terms both of improving the urban landscape and grants must be used as the regular and permanent abode of the owner or reducing light, noise and CO2 pollution by replacing inappropriate fuels and leased out for at least five years after the refurbishment work is completed. boilers, improving accessibility through traffic regulation, energy efficiency, etc.

24 JESSICA GALICIA

FINAL REPORT

Conditions also arise for the urban redevelopment and installation of new ‐ Pontevedra amenities in the urban areas affected, fulfilling requirements of sustainability, ‐ Cangas de Morrazo with approval given by means of a strategic environmental evaluation in the ‐ case of the most recent plans. This type of plan, meanwhile, given its ‐ Pontevedra (Estribela) conceptual basis itself and the measures defined, enjoys considerable ‐ Vigo (two areas) capacity to go beyond the aspect of simply urban planning, in order to This, then, gives us twenty‐nine areas where JESSICA could be applied and implement what may be considered an integrated plan. where there is a technical support team in place with years of experience and proven efficacy in the refurbishment of intervention zones, as for example in Housing plans have been successfully in operation for many years, the case of Santiago de Compostela and Allariz, the initiative perhaps best administered by municipal offices often referred to as refurbishment offices, known internationally as an example of good practice in the restoration of a with appropriate technical personnel working on consultancy, technical medium‐sized historical town centre in Galicia tied to a rural environment. support for developments and the dissemination of measures. They also enjoy added value in the form of cooperation by public authorities at three 2.7 JESSICA planning framework tiers, national, regional and municipal, working in unison. As has been indicated above, Galicia is now moving forward in accordance The following Areas have so far been declared, covering practically all the with principles of sustainability at every level of its structural regulations, little declared Historical and Cultural Heritage Districts, and certain other zones of by little correcting any shortcomings in the planning process, although what are referred to as the large cities: considerable progress does still need to be made. The territorial plans which are to serve as the reference framework have not yet been approved, ‐ A Coruña although a large number of sectoral plans are in place and these, albeit on a ‐ Betanzos fragmentary basis, make up for this shortfall, while the progress made on the ‐ Concubión Coastline Plan offers considerable cause for optimism in the regulation of one ‐ A Coruña (three areas) of Galicia's most fragile and most important areas. Meanwhile, the process of ‐ Ferrol (three areas) urban development planning would seem now, after a slowdown period, to ‐ Muros have been refocused. ‐ Noya ‐ Santiago de Compostela (three areas) This all allows us to take a positive view, although it must be acknowledged ‐ Lugo that while there are numerous territorial, urban development and, above all, ‐ Lugo (two areas) sectoral plans which could give support to the eligibility of projects, there are ‐ Mondoñedo no clear reference frameworks with programmes and projects scheduled for ‐ Ribadeo (two areas) inclusion "en masse" within an Integrated Urban Plan. In this regard, each ‐ Viveiro project area will require an analysis of its sustainability, and justification of its ‐ Ourense inclusion within an IUP. ‐ Allariz ‐ Castro Caldelas The Xunta has sponsored 118 plans. The list below is not fully comprehensive, ‐ Ourense (two areas) but does include a substantial proportion of the reference framework for ‐ Ribadavia (two areas) Galicia's planning.

25 JESSICA GALICIA

FINAL REPORT

2.7.1 Territorial planning o Galician Urban Waste Management Plan 2007‐2017

• The Territorial Regulation Directives were recently published and o Galician Industrial Waste and Contaminated Land Plan 2008‐ did not include specific action programmes. They cannot, therefore, 2018. be viewed as a reference framework supporting projects which could potentially be funded by JESSICA. o Galicia‐Coastal Water System Plan 2007‐2015

• Coastline Regulation Plan, recently presented to the local councils, o The Galician Supply Plan is at the draft stage. with the consultation period now having ended. o Galician Sewerage Plan 2000‐2015 • Galician Territorial Rebalancing Plan 2007‐2010. o A.G.U.A. Programme (Central Government) • Plan Galicia. Currently under review o Galician Industrial Waste and Contaminated Land Plan 2008‐ 2.7.2 Sectoral planning 2018

• Housing and land: o Galician Energy Plan 2007‐2012

o Sectoral housing plan o Solar Sectoral Plan

o Sectoral enterprise park plans. o Biomass Sectoral Plan

• Mobility • Galician Marinas Steering Plan

o Framework Development Plans: Strategic Infrastructure and This issue will be returned to in discussing the eligibility criteria. Transport Plan (PEIT) (Central Government) 2.7.3 Urban Planning o Mobility and Strategic Roadway Regulation Plan (Plan MOVE ‐Highways) (2010‐2015) For these purposes an Annex includes a list of the existing plans, with reference to population size. As may be seen, we are faced with a situation in o Sustainable Mobility Plan (under execution) the process of change as a result of the large volume of legislation introduced over previous years which has not provided continuity in the processing of o Municipal sustainable urban mobility plans (Lugo, Ferrol, A urban development planning, a situation which is at present undergoing Coruña, Vilagarcía de Arousa) changes, and which will provide a situation much better aligned with programmes such as JESSICA. • Sectoral service and energy plans

26 JESSICA GALICIA

FINAL REPORT

This wide‐ranging planning framework could facilitate the inclusion of JESSICA projects within the context of an Integrated Urban Plan (IUP), as set out in the eligibility criteria. One factor which is, however, lacking is a plan offering a 3 THE 2007-2013 OPERATIONAL PROGRAMME IN precise fit with this "homologous" denomination of the eligible projects. One GALICIA of the elements to be justified in the project selection process will therefore be their inclusion within a plan which may be considered an "Integrated An analysis of the 2007‐2013 Operational Programmes affecting Galicia and Urban Plan" for the purposes of the JESSICA eligibility criteria. having components within the scope of urban policy is essential in order to establish the margin available in the use of JESSICA. On the one hand, the One could, meanwhile, suppose that the implementation of JESSICA and the types of project covered by the OP will help specify the eligibility criteria for desire of project managers to benefit from UDF funding support will projects funded by JESSICA. Meanwhile, familiarity with the funds available encourage the creation of new IUP‐type plans or the adaptation of existing will serve to formalise a realistic financial proposal for involvement in JESSICA planning tools which could be matched up with the JESSICA initiative and on the part of the ERDF Managing Authority. constitute an acceptable framework for integrated urban development, at least in the initial phase of JESSICA. The Commission of the European Communities approved the ERDF Operational Programme (OP) within the context of the Convergence Objective for the Autonomous Region of Galicia in Spain under the terms of Decision C (2007) 6079, of 30 November 2007, CCI 2007ES161PO005.

The sum total of the Programme amounts to 3.1722 billion euros, including public resources from the region, the State (980.47 M euros) and Community grants amounting to 2,191.5 M euros.

Although the aforementioned ERDF GALICIA 2007‐2013 Operational Programme was drawn up in accordance with "the Community strategic directives" of COM(2005) 0299 it was particularly important for Galicia to place the emphasis on the need to “Converge in terms of growth and employment", with a commitment in this regard to a knowledge‐based economy and sustainable and environmentally friendly growth. This new focus led to a substantial change in tack in terms of the economic policy devised by the Xunta, as seen in the Strategic Economic Convergence Framework for Galicia 2007‐2013 (MECEGA).

Within this scheduling process for the European Regional Development Fund (ERDF), the regional government viewed as strategic the involvement of the other Public Authorities with responsibilities for the region (Community, State, Regional and Local), along with other economic and social agents and

27 JESSICA GALICIA

FINAL REPORT institutions in Galicia, thereby working towards the definition of a ERDF Axes participatory and integrated regional development strategy in line with the needs and potential existing in Galicia. 1. Development of the knowledge economy (R&D+i, Education, Information This framework also guarantees complementarity with other forms of Society and ICT) Community intervention in the Autonomous Region and by means of sectoral 2. Enterprise innovation and development policy funds for the rural environment (EARFD) and the marine environment 3. Environment, natural world, water resources and risk prevention (EFF), these being of particular importance to the region. 4. Transport and Energy 5. Sustainable local and urban development In order to achieve this Overall Objective, four Final Objectives have been 6. Social infrastructure established: 7. Technical Support and reinforcement of institutional capacity • "Promote and catalyse the regional economy, making Galicia a more attractive place to invest and work";

• "Increase the competitiveness of the productive fabric of Galicia These axes are closely tied to the major challenges faced by Galician society through knowledge and innovation"; within the context of the Lisbon Agenda.

• "Increase the social and territorial cohesion of Galicia by improving 3.1.1 Axis 1: Development of the knowledge economy (R&D, levels of skills, quality of employment and social inclusion", and Education, Information Society and ICT)

• "Reinforce the synergy between growth and sustainable Galicia's commitment to a knowledge society illustrates its desire to create development" new scientific and technological infrastructure and to increase the competitiveness of its productive fabric by promoting technological research 3.1 Priority Axes and development (R&D), enterprise innovation and the dissemination of telecommunications. The Operational Programme is developed by means of seven axes: The ERDF OP therefore places a particular emphasis on technology transfer and an improvement in the cooperation networks connecting small and medium‐sized enterprises (SMEs), linking such organisations up to other businesses, universities, post‐secondary educational institutions, regional authorities, research centres and science and technology nodes.

3.1.2 Axis 2: Enterprise innovation and development

This axis is closely tied to the above, with the aim of encouraging the growth of Small and Medium‐sized Enterprises (SMEs), developing their innovation

28 JESSICA GALICIA

FINAL REPORT potential in order to give them access to new markets within a global In the realm of energy, the interventions are intended to activate and economic context. Interventions under this priority will therefore focus on promote the use of renewable energy sources: solar, biomass, geothermal, increasing the international competitiveness of Galician companies and taking advantage of the considerable resources available within the territory facilitating the transfer of knowledge from universities and research centres of Galicia. Promote the development of cleaner urban transportation to enterprise. systems. Along with more efficient use of the energy consumed, these represent the major objectives in the field of energy for this period. 3.1.3 Axis 3: Environment, protection of natural resources, management, distribution and treatment of water, risk 3.1.5 Axis 5: Sustainable local and urban development prevention The disperse habitat which characterises the territory of Galicia gives its The objective of this Access is to protect and at the same time improve the system of cities particular importance in any integrated sustainable environment, employing natural resources in a clean and rational manner and development focus. Cities which operate as true centres of gravity, attracting establishing alert and environmental risk prevention mechanisms. The aim is residential and business activity to the detriment of the rural environment. In to increase Galicia's environmental potential with a view to achieving order to achieve this objective Galicia must over the coming years face up to a sustainable economic development. Particular emphasis will to this end be twofold challenge: placed on issues connected with the administration and distribution of drinking water and the treatment of wastewater, given its impact on the • In rural zones the priority will be to encourage a spirit of enterprise ecosystem of the Rías, which enjoy particular ecological and economic value. among the population in order to diversify the basis of the economy, The aim is also to expand the areas covered by the Natura Network and to use with the aim of reducing the level of the population and increasing Agenda 21 to bring on board the commitment of local authorities to the ability of these areas to adapt to the challenges raised by a global safeguard natural heritage. economy.

3.1.4 Axis 4: Transport and Energy • In the larger cities, meanwhile, the essential aim is to deal with the needs of cities, in particular in terms of the social and economic The objectives raised by Galicia in the field of transport within the context of regeneration of their context and those neighbourhoods which have transport policy are to correct the historical shortcoming in certain areas of suffered the greatest degradation and negative impacts through transport infrastructure, such as railways, and to structure the relationship unemployment and the risk of social exclusion. between the various modes of transport in order to bring about more sustainable mobility. Meanwhile, in the field of energy the aims which Galicia 3.1.6 Axis 6: Social infrastructure intends to meet over this period are to continue promoting the production of sustainable energy and to improve energy efficiency. Lastly, the creation of social infrastructure is conceived of in the ERDF OP as a fundamental element in order better to rebalance the region, making it more The main interventions included within the OP as "large‐scale projects" focus attractive as a location for permanent settlement, capturing new residents on improvements to infrastructure in the field of road, rail, port and airport and attracting new investments. links. In accordance with the regulatory provisions, most of these actions will also receive funding under the Cohesion Funds.

29 JESSICA GALICIA

FINAL REPORT

3.1.7 Axis 7: Technical support and reinforcement of institutional Table 2 illustrates the level of execution of the ERDF OP for each of the seven capacity axes, and hence the availability of resources on the date when this Evaluation Study was drawn up. Technical support allows for the co‐funding of management, monitoring, evaluation, supervision, encouragement, information and communication Table 2: Grants available by axis for 2010‐2013 activities under the programme and operations implemented. Managed by COMMITTED SCHEDULED 3.2 Availability of Funds Axes GALICIA ERDF OP XUNTA AGE / EXECUTED / AVAILABLE 1 213,839,142 213,839,142 0 100,410,254 113,428,888 Although the Monitoring Committee is responsible for rescheduling funds 2 361,696,333 361,696,333 0 257,271,110 104,425,223 under the ERDF OP, the regional government has declared that for the 3 486,270,296 486,270,296 0 387,326,546 98,943,750 moment it has no intention of requesting such a modification, meaning that 4 857,426,391 430,133,956 427,292,435 273,242,519 156,891,437 the level of execution of interventions funded under the ERDF Operational Programme constitutes vital information in guaranteeing the financial viability 5 231,503,939 102,852,318 128,651,621 56,143,938 46,708,380 of those projects and initiatives which would be eligible for the JESSICA 6 35,707,210 35,707,210 0 19,038,343 16,668,867 initiative. As indicated above, the sum total of GALICIA's ERDF OP Community 7 5,101,030 5,101,030 0 2,077,356 3,023,674 funding amounts to €2,191.5 M, with the national contribution made by the Total 2,191,544,341 1,635,600,285 555,944,056 1,095,510,066 540,090,219 Xunta and the Central Government Authorities (the 'AGE') adding up to Source: ERDF OP and Xunta de Galicia €980.5 M, giving a total of €3,172 M. The meetings held with the ERDF OP managing authority for Galicia served to Given that the eligibility period began on 1 January 2007, a large proportion take a further step forward in terms of the level of detail and so establish of the OP resources are already at the commitment or execution stage. those priority issues which could provide an aegis for projects or actions Overall, according to the information provided by the Galician Regional compatible with the JESSICA eligibility criteria. The outcome of this Department of the Economy, at the end of May 2010 almost 70% of the consultation is set out in Table 3. allocation administered by the Xunta had been executed or committed on various interventions (€1,095.5 M), leaving a balanced pending of €540.09 M, the detail by Axis being as set out in Table 2.

It is important to point out that the sums do not include Community grants tied to projects which are the responsibility of central government. These in specific terms include priority axes 17 (TEN‐T rail services), 21 (TEN‐T motorways) under Axis 4, Transport and Energy, and Issue 61 (integrated projects for urban and rural regeneration), under Axis 5, Sustainable Local and Urban Development.

30 JESSICA GALICIA

FINAL REPORT

Table 3 Grants available by axis and priority issue selected 2010‐2013 One conclusion which may be drawn from this table is the scale of the differences in the level of availability across the different Priority Issues. This is illustrated by the following figure which sets out the percentage of Community grants still available for the period 2010‐2013. PRIORITY Available/Sc AXES ISSUE Name heduled Figure 2 Grants available by priority issue selected for 2010‐2013

58.-Protección y conservación del patrimonio cultural R&D infrastructure (installations, 57.-Otras ayudas para mejorar los servicios turísticos instruments and high‐speed information technology networks to 56.-Protección y desarrollo del patrimonio natural 1 2 connect research centres) 5,644,188 52.-Fomento del transporte urbano limpio 2 8 Other investments in companies 56,895,370 43.-Eficiencia energética, cogeneración y gestión energética Management of domestic and industrial 41.-Energía renovable: biomasa 44 waste 14,681,753 40.-Energía renovable: solar Water distribution and management 25.-Transporte urbano 45 (drinking water) 7,857,300 50.-Rehabilitación de zonas industriales y terrenos contaminados 46 Water treatment (wastewater) 43,473,468 46.-Tratamiento del agua (agua residual) Refurbishment of industrial areas and 45.-Gestión y distribución de agua (agua potable) 3 50 polluted land 1,136,505 44.-Gestión de residuos domésticos e industriales 25 Urban transport 4,086,717 8.-Otros inversiones en empresas 2.-Infraestructura de I+D (instalaciones, instrumentos y redes informáticas de alta velocidad para 40 Renewable energy: solar 4,902,610 la conexión de centros de investigación 0,0% 10,0% 20,0% 30,0% 40,0% 50,0% 60,0% 70,0% 80,0% 90,0% 100,0% 41 Renewable energy: biomass 5,970,265 Energy efficiency, co‐generation and 43 energy management 4,358,408 Protección y conservación del Protection and preservation of 52 Development of clean urban transport 13,476,856 patrimonio cultural cultural heritage Preservation and development of Otras ayudas para mejorar los Other grants to improve tourism 4 56 natural heritage 13,459,624 servicios turísticos services Other grants to improve tourism Protección y desarrollo del Preservation and development of 57 services 12,132,517 patrimonio natural natural heritage Fomento del transporte urbano Development of clean urban Protection and preservation of cultural limpio transport 5 58 heritage 14,540,705 Eficiencia energética, cogeneración y Energy efficiency, co‐generation and SUBTOTAL, JESSICABLE PRIORITY ISSUES 202,616,286 gestión energética energy management ERDF OP TOTAL 540,090,219 Energía renovable: blomasa Renewable energy: biomass Source: Galicia ERDF OP and in‐house production. Energía renovable: solar Renewable energy: solar Transporte urbano Urban transport

31 JESSICA GALICIA

FINAL REPORT

Rehabilitación de zonas industriales y Refurbishment of industrial areas and "Lastly, with regard to the new JESSICA financial cooperation terrenos contaminados polluted land instrument, and with the aim of better using Community funds and Tratamiento del agua (agua residual) Water treatment (wastewater) providing alternative sources of funding for urban development Gestión y distribución de agua (agua Water distribution and management projects, the Monitoring Committee for this Programme will analyse potable) (drinking water) and rule as to the possibility of dedicating its funds to the Gestión de residuos domésticos e Management of domestic and implementation of this new initiative". industriales industrial waste Otros inversiones en empresas Other investments in companies 3.3.1 Possibilities for the JESSICA initiative under the 2007-2013 Infraestructura de I+D (Instalaciones, R&D infrastructure (installations, Operational Programme Instrumentos y redes informáticas de instruments and high‐speed alta velocidad para la conexión de information technology networks to The eligible project areas were selected jointly with the Directorate‐General centros de investigación) connect research centres) for Planning and Funds (the 'DXPF') on the basis of the OP 2007‐2013 Priority Issues. One major factor in selecting the projects was that established by the

level of progress on projects committed to in 2010. Unfortunately, as we are 3.3 JESSICA and its alignment with the ERDF OP practically half way through the period covered by the OP, the funds already committed represent a substantial proportion of the Operational Programme. The Operational Programme reflected the new financial engineering From an initial list of 14 Priority Issues which could cover projects compatible instruments which the Commission had proposed in collaboration with the with JESSICA, six different types have been selected, in accordance with the EIB (including JESSICA), as set out in Article 44 of Regulation 1083/26. These following criteria: instruments opened up ERDF funds to the involvement of private initiative. • The Operational Programme includes, with reference to Axis 5, the following Confirmation of a demand for viable projects and, in some cases, a text: portfolio of projects.

"Within the field of urban development, services may be implemented • Interest from the Xunta fund manager in developing these projects to support companies, induction centres, centres and agencies for under a public‐private partnership system. local development, the promotion of enterprise development on the basis of the main assets in cities, such as ports, technology centres or • Availability of resources in the corresponding Axis. strategic sectors, actions which may be supplemented by means of the use of additional resources within the context of the JESSICA • Alignment with a funding structure based on UDFs with a degree of initiative". homogeneity.

The Programme itself also went so far as to establish the procedure for The groups selected were: making use of this initiative:

32 JESSICA GALICIA

FINAL REPORT

3.3.2 Axis 2, Issue 8: Other investments in companies 3.3.4 Axis 4, Issue 43: Energy efficiency, co-generation and energy management The research conducted served to advance public interest in the development of land for economic activity. These developments are based on promotional This issue is tied to the interest aroused in Galicia by projects to optimise the mechanisms with a considerable store of experience held at public bodies, energy efficiency of buildings, thermal solar roofs, geothermal heating, etc. such as the Instituto Galego de Vivenda y Solo (the Galician Housing and Land These are small‐volume projects which could be applied to public or private Institute, or 'IGVS'), the provincial Xestur bodies and municipal urban facilities of a certain size. development offices. In this regard, these are conventional public‐private partnership projects which constitute no risk from the perspective of their 3.3.5 Axis 4, Issue 52: Development of clean urban transport implementation. The funding of clean Public Authority and public service concession‐holder The problem they present is twofold: fleets is a constant feature of the sustainable mobility plans being undertaken throughout Spain. Energy agencies (the IDAE at the national level and the • On the one hand, eligibility from the perspective of an Integrated INEGA in Galicia) have in place grant systems to subsidise the acquisition of Urban Plan, since most of these projects are located in newly created clean vehicles. Galicia in particular wishes to activate a line of grants for the land and, although their impact on the urban continuum may be acquisition of cleaner buses for urban transportation, and this could in part considerable (relocation of industries, job creation, etc.) they cannot become JESSICA funding on the basis of co‐funding systems for financial be considered as urban regeneration projects per se. leasing or similar operations.

• Secondly, the limited potential for development at this time of land This programme goes a step further and must allow public authorities to use projects involving private initiative. The economic crisis in adopt an overall strategy in terms of the acquisition of their fleet or the fleet general and the freeze on urban development operations would of their service concession‐holders. make it very difficult today to develop new land for economic activities in accordance with JESSICA eligibility criteria. 3.3.6 Axis 5, Issues 56 and 57: protection and development of natural heritage - Other grants to improve tourism services 3.3.3 Axis 4, Issue 41: renewable energy. Biomass The Secretariat‐General for Tourism has registered considerable interest in The recent funding round organised by INEGA (the Galician Energy Institute) applying JESSICA to some of its programmes to promote tourism activities. It offering grants for biomass generation facilities was successfully concluded has in particular been proposed that the viability of JESSICA be analysed in (over 40 projects). This demonstrates the interest, mainly in the field of two areas: a) construction and management of marinas and promotion of smaller‐sized towns within a rural environment ("agri‐towns") to develop this nautical tourism and, b) refurbishment of fortresses, introducing hospitality, type of energy. cultural and tourism operations.

In accordance with the interest revealed at the INEGA, a broad range of In parallel, the Directorate‐General for Ports, which is responsible for projects within an urban setting which would be open to JESSICA funding has developing Galicia's marinas, has registered its interest in applying JESSICA been included. mechanisms on the project covered by its Galician Ports Plan. Marinas have therefore been analysed as being JESSICA eligible given their integration

33 JESSICA GALICIA

FINAL REPORT within the urban context of Galicia's small and medium‐sized towns, along with the interest registered by the two Xunta managers.

3.3.7 Issue 61: Integrated urban regeneration projects

URBAN‐type projects are being managed by the Central Government Authorities (the AGE), without the involvement of the Xunta. Relationships are maintained directly between the Concellos (Local Councils) and the AGE. This makes it difficult to establish a JESSICA proposal for such projects, and they have been excluded from this analysis of pilot projects.

From the project perspective, Annex D) amply illustrates the potential and options which this type of project could have on a JESSICA funding scenario.

34 JESSICA GALICIA

FINAL REPORT

the systems introduced in other Spanish Autonomous Regions, such as Madrid. 4 THE FRAMEWORK FOR THE DEVELOPMENT OF JESSICA PROJECTS IN GALICIA • Marinas, also developed as Regional Authority concessions under the terms of the Galician Marinas Steering Plan. 4.1 The experience of public-private funding and initiatives in Galicia • Bus stations, under the aegis of the national Transport Act (the 'LOTT'), with municipal ownership. Spain has over recent years seen an increase in forms of public‐private partnership, mainly tied to the development of public amenities and Galicia also has experience in the creation of Mutual Guarantee Societies (or infrastructure. One recent reference framework may be found in the form of 'SGRs'), the purpose of which is to allow small‐scale companies which find it Public Sector Procurement Act 30/2007, of 30 October 2007 (the 'LCSP'), difficult to access credit and associated services to set up joint societies, with which introduces the concept of the "Public Sector and Private Sector the stakeholders bearing no personal liability for the society's debts. The Partnership Contract". There also exist numerous corporate structures which object of these societies is to grant personal guarantees, by means of bonds would allow for partnership between the public and private sectors. or any other legally accepted system other than surety insurance, allowing their stakeholders to perform transactions within the context of the trade or Galicia has limited experience of such partnerships. The fears aroused by a business of the companies they own. possible "privatisation" of public services and infrastructure, along with the difficulties inherent in the quest for an appropriate corporate structure and Two such SGRs exist in Galicia: funding, have restricted Galicia's business culture with regard to public‐ private ventures. Examples of partnership can, however, be found, mainly in • AFIGAL SGR , which operates in the provinces of A Coruña and Lugo the field of amenities and infrastructure. Some of the most significant cases and has 9,637 SME stakeholders and 46 protector stakeholders. would include the following: • SOGARPO, SGR which operates mainly in the provinces of Pontevedra • Highways infrastructure, undertaken by means of concession and Ourense, with 6,281 SME stakeholders and 27 protector systems under a shadow toll system (traffic risk and payment by the stakeholders. Public Authority). These involve conventional concession‐based systems with the Public Authority taking up no equity stake in the These societies have a long‐standing tradition, both of them having been in company but paying a tariff and, in some cases, providing a operation for more than 25 years, and are well established in the SME finance proportion of the funding by means of participatory loans. market in Galicia.

• Hospitals. No experiences to date. However, the new Vigo hospital is being developed by means of public‐private partnership. This is a conventional concession‐based structure (construction and 4.2 JESSICA and ERDF fund managers operation), with payment by availability, in general terms similar to The Evaluation Study focused in its initial stages on exploring the attitude of Xunta ERDF fund managers, their interest in applying the JESSICA tool and the

35 JESSICA GALICIA

FINAL REPORT resolution of doubts and concerns which may arise out of the shift from o Directorate‐General for Mobility, grant‐based management to a different system involving repayable funds and public‐private partnership systems. o Directorate‐General for Ports,

This work was all times performed jointly with the Directorate‐General for o Directorate‐General for Urban Development, Planning and Funds, which provided access to the managing bodies and supported the initiative. o Galician Housing and Land Institute ‐ IGVS

4.2.1 Phase I: Initial context and general explanation of the o Provincial land managers ‐ XESTUR JESSICA initiative • Regional Department of Culture and Tourism Following on from an initial meeting staged in October 2009, attended by the 1 main departments managing ERDF funds at the Xunta de Galicia , the Xunta's o Secretariat‐General for Tourism various managing bodies _were presented with the characteristics and possibilities for establishing JESSICA funding. As there is no detailed guideline • Regional Department of Economy and Industry for the allocation of a part of the ERDF funds to the JESSICA initiative, work at this initial stage focused on explaining the benefits of such funding and jointly o Galician Energy Institute – INEGA examining the possibilities which it could have for application on the projects currently being funded in their respective areas. The assessment given during this initial contact stage may be summarised under the following points: Following on from this initial meeting, further contact took place in the form of personal meetings and surveys completed by the managers, which mainly 1. The fund managers are generally concerned with the complexity of fall under the aegis of three Regional Government Departments: their task and the procedures demanded by the EU (justification and certification of the funds spent), and also reluctant to use new tools • Regional Department of the Environment, Territory and which could make their work even more difficult. Infrastructure An attempt was made in this regard to explain that the use of o Secretariat‐General of the Department, JESSICA funds does not make the manager's task more complex, but on the contrary consultative support from the EIB throughout the process and the fact that the funds can be certified from the outset make the manager's task easier.

2. There already exists a culture of management based on the use of 1 See Annex D) and E) Operational Programme funds by way of grants, in other words there is a philosophy of expenditure but not of forming business initiatives to provide a return on the investment. Some managers registered a degree of reluctance to apply funds to projects generating economic

36 JESSICA GALICIA

FINAL REPORT

returns and with private involvement, on the basis that such funds During this phase the managers, in particular the Secretariat‐General for should preferably be allocated to social return projects. Other Tourism, the Directorate‐General for Mobility, the Directorate‐General for managing authorities, as in the case of the INEGA representatives, Ports, the INEGA, the IGVS and some of the XESTUR bodies, registered were convinced that repayable finance using ERDF funds as opposed considerable interest in JESSICA and contributed ideas and projects for to the grants system could offer greater transparency and efficacy in inclusion in the Evaluation Study. the development of the eligible projects. 4.2.2 Phase II: Analysis of possible UDFs in the field of land, 3. With the exception of certain managers (INEGA, DG Ports, DG building and energy Mobility) there was no experience in the creation of public‐private partnership projects. The inclusion of the private sector is seen as an The initial phase of contact with managers and the regional analysis served to element of complexity within procedures based on non‐refundable identify three lines of projects which could be subject to JESSICA funding: subsidy and grant mechanisms. • Land development and urban amenities, through the Galician In this regard the consultants attempted to explain that the JESSICA Housing and Land Institute (the IGVS). initiative and similar tools could become standard and even mandatory practice in the administration of future operational • Energy efficiency, in partnership with the INEGA. programme funds. The need was to understand them and receive training in their use, even if only through a very small allocation of • Development of projects tied to tourism and nautical activities, in current funds. partnership with the Directorate‐General for Ports and the Secretariat‐General for Tourism. 4. The managers were in general found to be unwilling to redirect funds towards the JESSICA initiative, either so as not to employ the 4.2.2.1 IGVS: Land committed funds allocated to non‐refundable grants or because of the difficulty in selecting eligible projects within each area. The IGVS from the outset registered its interest in incorporating the JESSICA initiative within its line of funding for land development projects. During the This last point will be analysed in detail in the next chapter, initial meetings held, the proposed projects focused on: presenting a justification of the existence of a broad range of projects which could be funded by means of JESSICA. • Projects for the development of newly created land for economic activity. JESSICA eligibility lies in the territorial context involved: a 5. Lastly, the managers were very aware of the advantage represented diffuse urban territory, with some such developments serving to by certification of JESSICA funds from the point at which they are relocate industries and centres of activity located in urban zones or assigned to this initiative. The restrictions imposed by Rule N+2 and those outside urban planning regulation areas. the fact that the OP has a downstream financial pathway, with considerable commitment entered into during the initial period of • Unlike in other Autonomous Regions, the IGVS administers such land, the OP and possible certification difficulties, mean that JESSICA is which it acquires under an expropriation system, performing urban seen as a solution to the threat of OP non‐compliance. development directly. This aspect makes it difficult to establish

37 JESSICA GALICIA

FINAL REPORT

public‐private partnership through the compensation boards and the 4.2.2.3 INEGA: Energy efficiency and renewable energy sources inclusion of private owners. The line of work with the INEGA remains open, with considerable interest on • Lastly, mention was made of the possibility that JESSICA could be the part of the organisation's managers. The INEGA is currently working on a used to fund some of the utilities connections not yet implemented, number of project lines which could be covered by the grant system. Many of supplementing through infrastructure those provisions of recently these could be shifted to JESSICA funding, making the involvement of public developed land for economic activities not yet brought on‐stream. funds more logical.

• Land of this type would include that covered by the Pacios‐ The types of project defined together with the INEGA as potentially eligible Baamonde activity centre and the Monforte de Lemos Dry Port, as for JESSICA are as follows: explained in detail in a later chapter. Axis 4 Following a number of meetings, the IGVS reached the conclusion that at Priority Issue Action present it is not feasible to put forward a line of JESSICA funding based on land development for economic activities. The current market and the 41 Sustainable energy Installation of biomass plants paralysis of development projects led the IGVS to perceive a considerable risk Investment in renewable energy of loss in the JESSICA UDF dedicated to this activity. As a result, this approach facility projects has been abandoned pending an improvement in the general economic 43 Energy efficiency climate. Improvements to integrated Investment in public buildings building enclosures 4.2.2.2 IGVS: relocation and amenities Improvements to heat facilities in buildings One further line of work covered by the IGVS and which it is currently funding includes relocation projects, and above all the creation of student residences, Investment in services Outdoor public lighting installations third‐age residences and other amenities. Once the funding of residential Energy transformation Energy transformation buildings had been discarded, work continued with the IGVS on the funding of 52 Development of clean urban amenities, with the Elviña university student campus residence being one transport Renewal of Public Authority fleets example detailed in a later chapter. Renewal of public urban transport fleets Unfortunately, this particularly promising line of work has been suspended pending referral by the IGVS to the Directorate‐General for Planning and Funds of its query seeking confirmation of the JESSICA eligibility of these These projects have been analysed from the perspective of JESSICA eligibility projects. and their financial viability, and constitute the core of the UDF proposal presented for Galicia.

38 JESSICA GALICIA

FINAL REPORT

4.2.2.4 Nautical Tourism The structure of JESSICA allows credit institutions to become involved at two different levels: The line of work focusing on marinas, their facilities and commercial amenities and their integration within towns has received limited analysis as • UDF level: joint involvement in forming a UDF on the part of a credit priority was given to other lines of work. However, the evaluation study does institution (a bank or savings bank). The Galician savings banks have in a later chapter include a simulation of the creation of new mooring berths considerable experience in managing OP funds. Some of them have at the port of Muros, an example proposed by the Directorate‐General for lines of finance for ERDF projects which discount the subsidy and Ports. advance the funding to the public development entity.

This line of work remains open given the interest registered by its managers • Project level. It is already typical at this level for banks and savings and the potential of applying JESSICA within a context that already has in banks to be involved in the financing of urban projects, with or place public‐private partnerships systems. The structure of a UDF based on without ERDF funding. this type of project has not, however, been included in this study, with priority being given to the line of projects connected with energy efficiency 4.4.1 The financial system in Galicia and renewable energy sources. The financial landscape in Galicia is dominated by the two savings banks, 4.3 JESSICA and other institutional and economic agents which are in the process of merging, and one regional bank (the Banco Pastor). In addition, the two largest Spanish banks (Banco Santander and The working team also held meetings with Local Authority bodies, urban BBVA) and the two largest savings banks (La Caixa and Caja Madrid) also have development management authorities (the Vigo Free Zone Consortium and a significant market share, sufficient for them to maintain regional head Urban Offices), universities, private developers and credit institutions (the offices. The Xunta enjoys a fluid relationship with all these, and they are savings banks Caixa Galicia and Caixa Nova). The interest registered by all of regularly involved in the issuing of debt by the Xunta de Galicia. these was, in general, considerable. The two savings banks in particular gave a positive response to the JESSICA proposal, as they regularly manage lines of Within the context of the reforms to the savings bank system being instigated finance for Local Corporations for the administration of ERDF funds. by the monetary authorities, the merger agreement approved by the Boards of Directors of Caixa Galicia and Caixa Nova will represent a far‐reaching 4.4 Role and attitude regarding JESSICA at regional credit transformation of this financial landscape. The Bank of Spain itself, along with institutions a due diligence process conducted by KPMG and commissioned by the Xunta, have demonstrated that the merger is viable and generates value. However, The role of financial institutions within the architecture of the JESSICA in order for this entity to operate as one single savings bank, with a market initiative is fundamental, as set out in Article 43 of Regulation 1083/2006. share of more than 50% of deposits in Galicia, it will be required successfully Meanwhile, as these are repayable investments, they are potentially to complete the agreed three‐year transitional period. attractive to private investors and financial institutions in a way which does not apply to other conventional types of intervention involving non‐ 4.4.2 Attitude of financial intermediaries to JESSICA refundable grants. With the aim of informing and attracting those financial institutions which have the greatest relationship with local authorities in Galicia, meetings were

39 JESSICA GALICIA

FINAL REPORT held with managers at the two savings banks which are most strongly established within the region.

The aim of these two meetings was to inform them of the JESSICA initiative, its possible implementation in Galicia and the evaluation study being conducted, while also sounding out their attitude with regard to this financial engineering instrument and their potential involvement in any UDFs which may be set up.

Both institutions registered interest in this form of fund management and declared their desire to learn further details about the procedure in order to be in a position to take part in a future funding round. They also have experience in the funding of ERDF projects, since they finance the equity funds which many Galician local authorities use for joint finance of their European projects: URBAN, ERDF, etc.

Annex D) sets out the result of the interviews and initiatives conducted with the Xunta fund managers, local authorities, public and private developers and the two leading savings banks in Galicia.

40 JESSICA GALICIA

FINAL REPORT

The criteria set out for the Galicia OP by the ERDF OP Monitoring Committee for the selection of 2007‐2013 ERDF operations must also be met, as laid 5 ELIGIBLE PROJECTS down in Article 56.3 of Regulation 1083/2006.

Analysis of the Priority Issues and Axes, performed jointly with the 5.1.2 Sustainable planning framework Directorate‐General for Planning and Funds, and the meetings held with the OP managers. These essentially served to define four types of project open to Regulation (EC) 1083/2006, laying down general provisions for EU structural eligibility analysis. They are as follows: funds for the programming period 2007‐2013, focuses on the importance of sustainable urban development and the role of cities in achieving the goals of • Axis 2, Priority Issue 8: development of land for economic activities, economic and social cohesion. Indeed, current European policies focus on the based on regeneration and relocation. application of innovative strategies for urban regeneration, including by means of the use of integrated focuses dealing jointly with social, economic • Axis 4, Priority Issues 41 and 43: renewable energy and energy and environmental aspects of urban renewal and development. efficiency. In this regard, in order for JESSICA projects to be deemed eligible they must • Axis 5, Priority Issues 56 and 57, nautical tourism and marinas. form part of an integrated plan for sustainable urban development (an IUP), in other words a system of interrelated actions intended to achieve a lasting • Axis 5, Priority Issues 59 and 61, public amenities (student improvement in the economic, physical, social and environmental conditions residences, third‐age residences, etc.) of a city or an area within the city.

As was set out in the previous chapter, at the time this report was drawn up The key concept here is "integration", in the sense that both the policies and only the INEGA and the projects involved in Axis 4, Energy and Transport, had the projects are taken into consideration on the basis of all relationships made progress on establishing a UDF. These projects are, therefore, those among them. Within this context, synergies between different elements of described, leaving the remaining types involving land development, tourism the plan must be such that the overall impact of the plan is greater than the and urban amenities for a second phase. sum of the impacts of its individual components.

5.1 Eligibility criteria The integrated focus of operations eligible for funding under JESSICA thus requires the existence of sustainable contextual planning in order to facilitate The eligibility criteria employed in selecting projects are as follows: implementation within the urban environment. This planning does exist at various levels in Galicia, ranging from the URBAN projects for initiatives in 5.1.1 Eligibility alignment of ERDF OP projects large cities to the Regional Rebalancing Plan intended to structure interventions in small and medium‐sized towns, to the specific inventory for Once a decision has been taken as to the UDFs which are to be used to urban development planning in order to make actions within a specific area develop the JESSICA initiative, the criteria and eligibility rules established for viable. the ERDF OP under Community regulations must be met, essentially the principles intended to govern the subsidisability of expenditure as set out in Regulation 1083/2006, Regulation 1080/2006 and Regulation 1828/2006.

41 JESSICA GALICIA

FINAL REPORT

The chapter dedicated to a review of territorial and urban planning provisions Annex G to the Report sets out the limitations imposed in terms of State Aid. reflects the complexity and number of plans in place in this Autonomous Region; all that is absent are specific plans for integrated projects. 5.1.5 Other specific JESSICA initiative eligibility criteria

However, for each "Jessicable" project case it will be ascertained whether Lastly, the eligible projects must comply with other JESSICA eligibility criteria, these territorial or thematic plans already in existence could justify such as: integration within urban sustainability action programmes. • Repayment of all parts of the investment generated by the project As such a planning concept does not exist in municipal or regional regulations, business lines. the Integrated Urban Plan (IUP) will need to be drawn up on the basis of the eligible projects, which will need to justify: • Backed by public‐private initiative and funding.

1. The general framework of territorial, sectoral and municipal planning • Viable from the legal perspective. covering the project. • Technically viable and not completed at the time of their selection. 2. The sustainability criteria contained within this reference framework. • Investment drawn from OP funds over the period established in the 3. The existence of other complementary actions which could serve to 2007‐2013 OP period (31 December 2015). establish an IUP. 5.2 Project included in Axis 4: Energy and Transport 4. Compliance on the part of the project with all or some of these sustainability criteria. In identifying these types consideration was given to the current project lines backed or funded by the INEGA and the line of subsidies for public 5.1.3 Respect for competition laws transportation fleets developed jointly with the Directorate‐General for Mobility. The principle of transparency and competition must prevail in the selection both of the financial institutions with an interest in taking part in the UDFs 5.2.1 Renewable energy projects. Priority Issues 40, Solar, and and also the actual projects competing in the public funding rounds which the 41, Biomass. managing authority will stage at the time in question. Action Installation of BIOMASS boilers: 5.1.4 Accumulation of grants o Domestic, industrial and public service Although Article 53 of Regulation 1083/2006 provides the possibility of the accumulation of Community grants, they must clearly respect the thresholds thermal biomass boilers. established in order not to violate the regulations governing State Aid in convergence target regions. o Installations for the storage, handling, prior treatment and anaerobic or gasification

42 JESSICA GALICIA

FINAL REPORT

digestive systems, energy reuse (heat/cold), 5.2.2 Energy efficiency in buildings line. Priority Issue 43. and/or electrical use of any type of organic Action Investments involved in improving building enclosures matter open to such treatment. in order to reduce the energy spent on HVAC. o Biomass field treatment implementation projects. JESSICA Elegibility o Energy efficiency

JESSICA Elegibility o Energy efficiency o Investments in public buildings, amenities, centres of economic and commercial activity. o Urban projects for industries, amenities, integrated services in neighbourhoods and centres of population Action Investment in improvements to the thermal installations in existing buildings in order to reduce energy consumption by 20% Action Investment in renewable energy facility projects:

JESSICA Elegibility o Energy efficiency o Projects for the installation of low‐ temperature thermal solar energy. o Investments in public buildings, amenities, centres of economic and commercial activity. o Projects for the installation of isolated photovoltaic solar energy for services at locations not connected to the general Action Investments in improvements in outdoor lighting: grid. JESSICA Elegibility o Energy efficiency o Lamps, lights and ancillary equipment, achieving reductions of 30% o Urban projects or those in urbanised environments o Lighting level regulation and switching systems achieving reductions of 20%

o Change in the position of lights installed using previous technologies, achieving reductions

43 JESSICA GALICIA

FINAL REPORT

of 30% Action • Investments in public outdoor lighting installations in order to achieve an A or B JESSICA Elegibility o Energy efficiency in buildings rating

• LED traffic lights

Action Installation of geo‐thermal heat pumps, air‐air and air‐ JESSICA Elegibility o Energy efficiency water heat pumps. o Actions at municipal level

JESSICA alignment o Energy efficiency in buildings

5.2.4 Energy transformation. Priority Issue 43

Action New buildings with A‐B rating and additional costs in Action Construction of high‐efficiency co‐generation materials, equipment and systems required in order to installations with a power rating of more than 150 kW improve the installations in buildings in order to move in the tertiary and agri‐fisheries sector from a D to an A‐B rating

JESSICA alignment Energy efficiency JESSICA Elegibility o Energy efficiency in buildings o

5.2.3 Energy efficiency in services and urban amenities. Issue 43: Action Construction of high‐efficiency co‐generation Energy efficiency, co-generation and energy management installations with a power rating of more than 150 kW in the industrial sector Action Investment in drinking water processing, supply and

wastewater treatment installations, replacing these JESSICA Elegibility o Energy efficiency with others offering greater energy efficiency

JESSICA Elegibility o Energy efficiency

o Actions at municipal level

44 JESSICA GALICIA

FINAL REPORT

5.2.5 Line of finance for public transport (in partnership with the 5.2.6 Selected projects Directorate-General for Mobility). Priority Issue 52: Development of clean urban transport The INEGA was unable to provide any individual projects for modelling. The project which have been modelled in this evaluation study are thus Projects derived from Sustainable Urban Mobility (PMUS) and Travel to Work theoretical, and reflect a standard type of project which could be open to (PTT) Plans and viability studies which, by means of the associated JESSICA funding. investments, promote modal changeover and energy efficiency in the transport sector. The project models, as described in the following chapter, are:

Action Network of electric or hybrid buses within urban • Biomass boilers for residential services in neighbourhoods and small centres to improve permeability: combination of population centres. funding for fleets and new service concessions. • Improvements to a public building in order to achieve greater energy efficiency (thermal solar roof, installation, low‐powered lighting, JESSICA Elegibility o Sustainable Mobility etc.). Energy Efficiency o • Funding of bus fleets for urban transport, via lease or rental systems.

5.3 Axis 2, Enterprise Development and Innovation. Issue Action Promote the acquisition by public authorities of less 8: Other investments in companies polluting vehicles: for passengers, freight, industrial The research performed served to advance public interest in the development transportation and municipal fleets. of land for economic activities, in particular in small‐scale urban areas within the region. With a focus on territorial balance, such developments are based Particular focus on the line which could be activated on mechanisms for which there is considerable experience at public bodies such as Xestur and municipal urban development departments. In this regard, with DG Mobility for the subsidisation (funding) of these are conventional public‐private partnership projects which constitute urban transportation bus fleets. no risk from the perspective of their implementation. They are also included in the Plan Galicia for the planning and structuring of business land initiatives. JESSICA Elegibility o Sustainable Mobility 5.3.1 Selected projects o Energy efficiency In the contacts held with the various public land development agents, an attempt was made to seek out projects which could be eligible. In particular, the selection made for initial analysis included economic developments at:

• Monforte de Lemos Dry Port

45 JESSICA GALICIA

FINAL REPORT

• Development of economic activities in Pacios‐Baamonde These projects are not included under the UDF proposal.

These two industrial and warehouse land developments are not fully aligned 5.5 Axis 5, Issues 56 and 57: protection and development with the eligibility criteria, in particular the criterion for inclusion within an of natural heritage - Other grants to improve tourism IUP, as they involve new land developments (greenfield sites) with only a part services of the economic activity being installed involving relocations from urban locations. The Secretariat‐General for Tourism has registered considerable interest in applying JESSICA to some of its programmes to promote tourism activities. It In any event, the main public development agent for this type of activities, the has in particular been proposed that the viability of JESSICA be analysed in IGVS, informed the team drafting this report that there would be problems in two areas: a) construction and management of marinas and promotion of channelling JESSICA funding within one area, land development for economic nautical tourism and, b) refurbishment of fortresses, introducing hospitality, activity, which was undergoing a profound crisis, hence the decision not to cultural and tourism operations. design a UDF based on this type of project. In parallel, the Directorate‐General for Ports, which is responsible for 5.4 Axis 5. Accommodation for students and other service developing Galicia's marinas, has registered its interest in applying JESSICA amenities mechanisms on the projects covered by its Galician Ports Steering Plan. The area of marinas has therefore been analysed as potentially being JESSICA In conversations held with the University of A Coruña, a proposal was eligible given their fit within the urban context of Galicia's small and medium‐ presented for a pilot project based on the construction of student rental sized towns, along with the interest registered by the two Xunta managers. housing on the Elviña campus. The IGVS in turn proposed an analysis of a funding line for public services and amenities such as student residences, 5.5.1 Selected projects third‐age residences, etc., currently covered by subsidies for private initiatives. The example chosen was the development of nautical facilities at the port of Muros. The project was proposed by the Directorate‐General for Ports, which Unfortunately, this promising line of work was ultimately dependent on a provided all the documentation required for its modelling. However, because consultation regarding the JESSICA eligibility of such projects, a consultation of the limited JESSICA fund allocations (the ERDF OP resources which the which the IGVS decided to present to the Directorate‐General for Planning Xunta is prepared to employ on the JESSICA initiative: between 10 and 12 and Funds, this issue not yet having been resolved. million euros at the initial stage), this type of project has not been modelled nor included in a specific UDF. 5.4.1 Selected projects

Two projects were studied:

• Student residence on the Elviña campus, as a pilot project.

• Ariero area. Rental accommodation and complementary services for the Meixueiro Hospital, in Vigo

46 JESSICA GALICIA

FINAL REPORT

6 DESCRIPTION OF THE PROJECT AND FINANCIAL In the following sections we present an analysis of the financial viability of MODELLING three of the projects initially selected. The working hypotheses involved definition of two scenarios: As a result of the research performed and the interest registered by the Fund Managing Authorities, by certain local entities and other institutional agents, 1. Project development without JESSICA funding. This initial step a selection was made of projects which could be subject to JESSICA funding at establishes whether the projects selected are capable of generating this initial stage. These projects were analysed from the perspective of resources, thereby fulfilling one of the requirements for JESSICA JESSICA eligibility criteria, with a matrix of projects and criteria being included funding at the end of the chapter. Financial modelling was also performed, along with structural modelling of three projects by means of a UDF. 2. Development with JESSICA funding proposed as the baseline case.

In this regard, only the projects under Axis 4 were modelled for structuring on Design of the financial structure of the project: baseline hypothesis the basis of a UDF (Energy). The remaining projects were either not considered eligible (the Monforte Dry Port or land development for economic In this last case, with the aim of making the most of the opportunities offered activity in Pacios‐Baamonde), or have otherwise been switched to a second by this financial instrument, the JESSICA funds are used as a loan for phase of JESSICA. When the time comes, and once approval has been given by development of the operation (11.783 million euros) and also as a stake in the the Managing Authority, new UDFs would be structured on the basis of new corresponding equity (1.3 million euros), the latter proportion nonetheless resources allocated to this initiative. being considerably lower.

Table 3 Selected Pilot Projects • At this initial phase the main aim will be investment in sustainable development projects based on the use of renewable energy sources PROJECT DESCRIPTION ADMINISTRATOR/DEVELOPER and improved energy efficiency. 1. Energy efficiency Improvements in Municipal and Xunta de in public buildings public buildings and Galicia • The flows to be obtained by the financial institutions funding the amenities to achieve project are confined solely to the rate of interest on the finance. greater energy efficiency In addition to these hypotheses, others have been applied equally to both 2. Biomass boilers Services for public Municipal and Xunta de scenarios, referring to the following parameters and variables: centres, Galicia neighbourhoods and a) Volume of investment and project duration: The cost of the small towns investment in the three projects selected amounts to 58.114 million euros. This figure has been established on the basis of the 3. Funding of clean Fleet renewal Municipal and service urban transport concession‐holder information provided by the INEGA itself, or other agents such as the fleets Chamber of Madrid, regarding similar initiatives.

47 JESSICA GALICIA

FINAL REPORT

b) Funding of the project and the breakdown of liabilities. The following the baseline case one third of these resources would come from aspects were taken into consideration in designing the financial JESSICA funds, this time in the form of loans. structure: 6. The use of subsidies in the project budget has been maintained. 1. The Xunta currently has in place a budget of some €15 million of This opportunity applies because of the type of actions studied ERDF funds which could be available for use under the JESSICA as pilot cases, and should not be seen as representing the initiative. general situation. The advantage is to reduce the resources used for equity or loans and thereby improve the project returns. 2. The nature and characteristics of each of the projects, a detailed description of which is included in the following sections: 6.1, 6.2 Lastly, although the existing aid measures (Resolution of 21 July 2010, and 6.3. establishing the rules for the granting by competitive tender of subsidies for energy efficiency and saving projects for the financial year 2010 co‐funded by 3. The contribution of equity as a proportion of total liabilities, the ERDF, published in Official Journal of Galicia 143, on 28/07/2010), allow whether public or private, has been calculated at 35%, although for the possibility that the three projects could receive subsidies, this it varies from one project to another between a minimum of possibility has been taken into consideration only for the biomass power 30% and a maximum of 50%. This minimum threshold coincides plant, the sum involved being 4 million euros. There are essentially two with the joint funding which would need to be contributed by reasons behind this decision: the compatibility which Article 46.2 of the beneficiary of an ERDF grant in the event that the chosen Regulation 1828/2006 provides for between the two systems, provided that funding mode was by means of a non‐reimbursable subsidy. the limits established by the ERDF Operational Programme are not exceeded, and the aim of making this project more attractive to private agents in a 4. The agents and operators funding the projects contribute a sector which has considerable potential and track record in Galicia. volume of 20.841 million euros, of which private initiative contributes 12.441 million euros (59.7%), while the remaining 7.1 million euros (40.3%) come from public institutions. With the c) Inflation and evolution of operating costs and revenue aim of exploring the greatest possible number of possibilities in the case design, in order thereby to reveal the full potential d) Interest rates on commercial credits offered by the JESSICA initiative for the Managing Authority, this 40.3% includes a contribution of 1.3 million euros of JESSICA e) Interest rates on the JESSICA loan funds, but in the form of equities. The project selected for application of this approach was the biomass power plant, given that its viability is based on an experience which has been in successful operation for some years in the municipality of Allariz (Ourense province).

5. The commercial loans amount to 33.273 million euros (57.25%), which would be contributed by the financial institutions involved in funding the operation at the market interest rate. However, in

48 JESSICA GALICIA

FINAL REPORT

Table 4 Power Plant 6.1 Development with JESSICA funding

POWER BUSINESS • On this scenario it would be the UDF which funds the projects to the tune PLANT of 13.083 million euros. The involvement of JESSICA funds would, as indicated, take the form of two of the three systems covered by Article UNITS 1 44 of Regulation 1083/2006: 11.783 million euros of loans and the PROJECT DURATION 10 remaining 1.4 million as equities. Recourse to the grant system has been INVESTMENT PERIOD 1 discarded, given the complexity and the conditioning factors involved in INVESTMENT START YEAR 1 the process with the instruments specifically created for this purpose in OPERATIONAL START YEAR 2 Galicia: the SOGARPO and AFIGAL mutual guarantee societies. INVESTMENT 14,400 EQUITY % LIABILITIES 27% DEBT, CREDITS %LIABILITIES 18% • Having first ascertained the positive response which this initiative could DEBT , JESSICA CREDIT (FIXED) 18% receive from the financial intermediaries operating in Galicia, see section SUBSIDIES 28% 4.4. The model assumes that the UDF managers will be the financial CONTRIBUTION % JESSICA NET WORTH 9% institutions providing the funding, calculated at 21.49 million euros. EQUITY 5,200 PUBLIC ENTITIES 1,300 • Having first ascertained the positive response which this initiative could PRIVATE ENTITIES 2,600 receive from the financial intermediaries operating in Galicia, see section OTHER (OWNERS, BANKS…) 0 4.4. The model assumes that the UDF managers will be the financial JESSICA (EQUITY) 1,300 institutions providing the funding, calculated at 21.49 million euros. The DEBTS 5,200 details for each of the projects may be seen in the table: COMMERCIAL CREDITS 2,600 JESSICA CREDITS 2,600 INVESTMENT GRANTS 4,000

49 JESSICA GALICIA

FINAL REPORT

Table 5 Intelligent building Table 6 Bus fleet renewal

BUSINESS THERMAL COGENERATION POWER BUSINESS BUSES SOLAR PLANT REGULATORS ENERGY, BUILDING UNITS 3 UNITS 2 2 2 PROJECT DURATION 6 PROJECT DURATION 16 16 16 INVESTMENT PERIOD 1 INVESTMENT PERIOD 1 1 1 INVESTMENT START 1 1 1 INVESTMENT START YEAR 1 YEAR OPERATIONAL START YEAR 2 OPERATIONAL START 2 2 2 INVESTMENT 12,000 YEAR EQUITY % LIABILITIES 50% INVESTMENT 1,270 27,316 2,677 DEBT, CREDITS %LIABILITIES 30% EQUITY % LIABILITIES 40% 30% 30% DEBT , JESSICA CREDIT (FIXED) 20% DEBT, CREDITS 30% 50% 40% %LIABILITIES SUBSIDIES 0% DEBT , JESSICA 30% 20% 30% CONTRIBUTION % JESSICA NET WORTH 0% CREDIT (FIXED) EQUITY 6,000 SUBSIDIES 0% 0% 0% PUBLIC ENTITIES 1,500 CONTRIBUTION % 0% 0% 0% PRIVATE ENTITIES 4,500 JESSICA NET WORTH OTHER (OWNERS, BANKS…) 0

JESSICA (EQUITY) 0 DEBTS 6,000 EQUITY 508 8,195 803 COMMERCIAL CREDITS 3,600 PUBLIC ENTITIES 508 8,195 803 JESSICA CREDITS 2,400 PRIVATE ENTITIES 0 0 0 INVESTMENT GRANTS 0 OTHER (OWNERS, 0 0 0 BANKS…) JESSICA (EQUITY) 0 0 0 DEBTS 762 19,121 1,874 COMMERCIAL 381 13,658 1,071 CREDITS JESSICA CREDITS 381 5,463 803 INVESTMENT GRANTS 0 0 0

50 JESSICA GALICIA

FINAL REPORT

Table 7 Total structure o It receives a commission of 3% on the funds managed during the first three years, 2% during the following two BUSINESS TOTAL years and 0.30% for the remaining financial years up until the date when all JESSICA funds are repaid. • The flows to be obtained by the financial institution will be the interest UNITS rate for the finance, plus the fund management fee. The fund flow chart PROJECT DURATION for this design may be seen in the following figure: INVESTMENT PERIOD INVESTMENT START YEAR OPERATIONAL START YEAR INVESTMENT 58,114 Diagrama de flujos en la arquitectura de JESSICA propuesta EQUITY % LIABILITIES DEBT, CREDITS %LIABILITIES DEBT , JESSICA CREDIT (FIXED) Holding Fund 16.0 M€ SUBSIDIES

CONTRIBUTION % JESSICA NET WORTH Management fees: 1,4M€ EQUITY 20,841 Entidades Créditos UDF Eficiencia Financieras JESSICA: 11,8 M€ energética (EEFF) PUBLIC ENTITIES 12,441 Equities: 1,3 M PRIVATE ENTITIES 7,100 Coste Only invest Créditos financiero: in projets Comerciales: 25,2 M€ OTHER (OWNERS, BANKS…) 0 5,2 M€ through JESSICA (EQUITY) 1,300 loans and Coste equities financiero: Proyecto Proyecto Proyecto DEBTS 33,273 3,3 M€ CALDERA BIOMASA REHABILIT. EDIFICIOS FLOTAS VEHICULOS COMMERCIAL CREDITS 21,490 1,0 M€ 3,7 M€ 0,3 M€ 15,2 M€ 3,6 M€ JESSICA CREDITS 11,783 6,4 M€

2,6 M€ INVESTMENT GRANTS 4,000 6,7 M€ 3,0 M€ 0,5 M€ 2,5 M€ 0,4 M€

• Management of the project will be performed by the financial institutions selected to fund the project. Diagrama de flujos en la arquitectura Flowchart for proposed JESSICA de JESSICA propuesta architecture Créditos JESSICA: JESSICA credits: o The annual administrative costs incurred over the first five UDF Eficiencia energética Energy Efficiency UDF years would be 155 thousand euros, coinciding with the Entidades Financieras Financial Entities start‐up period, which will require greater supervision and Coste financiero: Financial cost: initial project operations, the figure being 0.5% of the Créditos Comerciales: Commercial credits: JESSICA funds managed during the following two years, and Proyecto CALDERA BIOMASA BIOMASS BOILER Project 0.10% for the remaining years. Proyecto REHABILIT. EDIFICIOS REFURB. Project BUILDINGS

51 JESSICA GALICIA

FINAL REPORT

Proyecto FLOTAS VEHÍCULOS VEHICLE FLEET Project 6.2 High environmental quality public buildings

• Given the assumption of immediate application of the funds to the 6.2.1 Description of the project projects, no consideration is given to a return on the available JESSICA funds, since this return will be practically nil, and the average half‐yearly The proposed pilot project involves the potential refurbishment of public repayment to the HF from the return and the flows would be the same. buildings in order to give them a high environmental quality level by means of Should any arise this would be transferred to the HF. a range of work performed on the building enclosure and the heating and lighting facilities.

The most significant initiatives to be applied to buildings as a whole would be:

• Installation of a co‐generation plant (to meet heating needs and generating some of the electricity consumed by the building).

• Adaptation of lighting systems to the relevant energy needs (reduced electrical energy consumption while adequately meeting lighting requirements).

• Installation of power regulators on lighting screens in order to regulate flows depending on lighting needs.

• Installation of solar panels and hot water accumulators.

Given the nature of this project, which must be applied to publicly owned buildings, the proposed financial structure design is as follows:

A contribution of 30% equity for the investment, with the remaining 70% being funded by means of commercial credits (21% JESSICA funds and 49% commercial credit from credit institutions).

6.2.1.1 Reference framework

The INEGA (Galician Energy Institute) has been promoting initiatives intended to employ a range of renewable energy sources to meet energy needs in the urban buildings sector. These applications essentially focus on buildings in

52 JESSICA GALICIA

FINAL REPORT urban developments with high energy demands, such as for example public 6.2.1.5 Estimate of costs and revenues buildings for collective use and administrative buildings. The tables below set out the presumed revenue/expenditure in the case of an 6.2.1.2 Desired objectives intervention involving 10 standard buildings. The estimated costs are a theoretical average and are based on average unit costs for energy efficiency The main objective of such projects is to achieve energy savings in those projects. public buildings with a higher energy demand, and also to promote the use of alternative energy sources for other purposes. Table 8 Estimated cost and efficiency of thermal solar roofs on buildings for hot water and/or swimming pool heating Eligibility under ERDF OP Axis 4 The economic viability of this type of installation will depend on the This project is perfectly aligned with the eligibility criteria established for Axis magnitude of the consumption substituted and the type of fuel employed. 4 by the managing authority for the ERDF Operational Programme in Galicia. In fact, the Xunta itself each year organises funding rounds for local Standard installation example (solar surface area >=100 m2) authorities in Galicia to present projects to improve the energy efficiency of the installations and buildings they own. The last funding round was approved Installed thermal solar surface area (m2) 100 by means of the Resolution of 21 July 2010, establishing the rules for the Mean investment ratio (€/m2) 600 granting by competitive tender of subsidies for energy efficiency and saving Total investment (€) 60,000 projects for the financial year 2010 co‐funded by the ERDF within the context Estimated non‐refundable subsidy 20,000 of the Galicia 2007‐2030 ERDF programme (published in Official Journal of Solar coverage for heating demands (%) 70 Galicia 143 of 28/07/2010) Primary solar energy ratio (kWh/m2) 700‐1,000 6.2.1.3 Possible agents involved Annual solar output (kwh) 70,000 – 100,000 Conventional energy cost with natural gas (€/kwh) 0,042 The initiative would be the responsibility of local councils, in the case of Conventional energy cost, other fuels (€/kwh) 0.07 municipal buildings, and the Xunta itself for those buildings owned by it. Annual saving vs. natural gas (€) 2,940‐ 4,200 Annual saving vs. other fuels (€) 4,900‐ 7,000 6.2.1.4 Execution Deadlines Simple Payback Period vs. natural gas (years) 9.5 ‐13 Simple Payback Period vs. other fuels (years) 6‐8 The standard programme of action could be as follows: (*) Simple Payback Period = (Investment minus Subsidy)/Annual Saving

• Investment start date: first year of the project Source. INEGA • Investment Period: one year. • Project execution: first year of project Table 9 Installation of electronic power regulation ballasts • Operational start date: second year of the project • Duration of the project (reversion): 16 years Units 235

53 JESSICA GALICIA

FINAL REPORT

Mean investment ratio (€/u) 76.72 Units 500 Total investment (€) 18,030 Mean investment ratio (€/u) 9.01 Energy saving 113,877 kwh Total investment (€) 4,507 Economic saving (€) 7,145 € Energy saving 23,450 kwh Payback Period (months) 30 Economic saving (€) 1,475 Source. Energy Audit Manual. Chamber of Madrid Period of Return (months) 37 Source. Energy Audit Manual. Chamber of Madrid Table 10 Co‐generation plant

INSTALLATION OF A CO‐GENERATION WITH CO‐ WITHOUT CO‐ POWER PLANT GENERATION GENERATION 6.2.2 Initial hypotheses: Project development without JESSICA Annual cost of electricity (€/year) 155,463 funding. Thermal cost (€/year) 62,629 The numerical values employed in the baseline hypothesis scenario, in other Gas supply cost (€/year) 78,531 words without recourse to JESSICA funding, are as reflected in the enclosed Cost of maintenance, installation and table. ancillaries (€/year) 13,173 Loss of profits and machinery insurance (€/year) 4,286 Contracted power required (€/year) 11,510 Imported electrical bill (€/year) 23,101 Non‐absorbed electrical bill (€/year) 16,402 Non‐absorbed thermal bill (€/year) 13,683 Estimated annual saving (€) 57,406 Investment (€) 273,160 The simple payback period for the investment 4.76 years. Source. Energy Audit Manual. Chamber of Madrid

Table 11 Replacement of lights

54 JESSICA GALICIA

FINAL REPORT

Table 12 Hypothesis based on study projects. Project payback outcomes

PROJECT BUILDING REFURBISHMENT THERMAL SOLAR COGENERATION POWER REPLACEMENT OF BUSINESS ENERGY, BUILDING PLANT REGULATORS LIGHTING PROJECT DURATION 16 16 16 16 INVESTMENT PERIOD 1 1 1 1 INVESTMENT START YEAR 1 1 1 1 OPERATIONAL START YEAR 2 2 2 2 CORPORATION TAX RATE 0% 0% 0% 0% OPERATING GRANTS (Thousands of Euros) 0 0 0 0 INVESTMENT (thousands of Euros) 1,270 27,316 2,677 451 OPERATIONAL FUNDING NEEDS (OFN) (Th. Euros) 0 0 0 0 CAPEX (Thousands of Euros) 1,270 27,316 2,677 451 EQUITY % LIABILITIES 45% 30% 30% 30% DEBT, CREDITS %LIABILITIES 55% 70% 70% 70% DEBT , JESSICA CREDIT (FIXED) 0.00% 0.00% 0.00% 0.00% PUBLIC CONTRIBUTION % NET WORTH 0.00% 0.00% 0.00% 0.00% PRIVATE ENTITY CONTRIBUTIONS % NET WORTH 100.00% 100.00% 100.00% 100.00% OTHER CONTRIBUTIONS % NET WORTH 0.00% 0.00% 0.00% 0.00% CONTRIBUTION % JESSICA NET WORTH 0.00% 0.00% 0.00% 0.00% CPI 1.01 1.01 1.01 1.01 OPERATING COSTS (% INVESTMENT) 0.00% 10.61% 0.00% 0.00% AMORTISATION PROVISION (% INVESTMENT) 6.67% 6.67% 6.67% 6.67% OPERATING REVENUE (% INVESTMENT) 9.86% 19.01% 23.01% 18.00% RATE OF COST INCREASE 1.00 1.00 1.00 1.00 RATE OF REVENUE INCREASE 1.00 1.00 1.00 1.00 CONSTRUCTION MARGIN 0.00% 0.00% 0.00% 0.00% OPERATING MARGIN 0.00% 0.00% 0.00% 0.00% COMMERCIAL CREDIT INTEREST RATE 6.00% 6.00% 6.00% 6.00% JESSICA CREDIT INTEREST RATE ‐‐‐ ‐ IRR 5.31% PAYBACK 12 JESSICA FUNDS (thousands of Euros) 0

55 JESSICA GALICIA

FINAL REPORT

6.2.2.1 Profits and losses

In addition to complying with the eligibility criteria and rules established by the regulations governing administration of ERDF projects, JESSICA can be applied to those actions " which make repayable investments or provide guarantees for reimbursable investments", as laid down in Article 43.1 of Regulation 1828/2006.

Table 1, setting out the results drawn from the financial model, illustrates that this requirement is met: EBITDA and aggregate Free Cash Flow, including the details for each of the actions included within this project in the annex. (details in annex)).

56 JESSICA GALICIA

FINAL REPORT

Profits and Losses of the Building Refurbishment business group and its Cash Flows. In thousands of Euros.

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 CONSOLIDATION TOTAL‐IRR UDF PROJECT ECONOMIC SITUATION/YEAR GROUP PAYBACK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

OPERATING REVENUE 90,234 0 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 NET TURNOVER 90,234 0 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 6,016 OTHER OPERATING REVENUE 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 OPERATING GRANTS 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 TOTAL OPERATING EXPENSES 75,167 0 5,011 5,011 5,011 5,011 5,011 5,011 5,011 5,011 5,011 5,011 5,011 5,011 5,011 5,011 5,011 PERSONNEL EXPENSES 30,482 0 2,032 2,032 2,032 2,032 2,032 2,032 2,032 2,032 2,032 2,032 2,032 2,032 2,032 2,032 2,032 MAINTENANCE COSTS 12,971 0 865 865 865 865 865 865 865 865 865 865 865 865 865 865 865 OPERATING CONSUMPTION 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 OTHER COSTS 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 AMORTISATION PROVISIONS 31,714 0 2,114 2,114 2,114 2,114 2,114 2,114 2,114 2,114 2,114 2,114 2,114 2,114 2,114 2,114 2,114 INVESTMENT AMORTISATIONS 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 TOTAL EXTRAORDINARY REVENUE 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 EXTRAORDINARY REVENUE 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 SUBSIDIES 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 EXTRAORDINARY EXPENSES AND LOSSES 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 EBITDA 46,780 0 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 OPERATING PROFIT 15,067 0 1,004 1,004 1,004 1,004 1,004 1,004 1,004 1,004 1,004 1,004 1,004 1,004 1,004 1,004 1,004 FINANCIAL REVENUE 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 FINANCIAL COSTS 7,430 0 1,311 1,204 1,090 970 842 707 563 412 251 80 0 0 0 0 0 FIN. COST COMMERCIAL CREDITS 7,430 0 1,311 1,204 1,090 970 842 707 563 412 251 80 0 0 0 0 0 FIN. COST JESSICA 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 TAXES 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

CORPORATION TAX 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 OTHER TAXES 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 RESULT FOR YEAR 7,637 0 ‐307 ‐199 ‐86 35 163 298 441 593 754 924 1,004 1,004 1,004 1,004 1,004

FCF (1) 5.31% ‐31,714 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 REFURBISHMENT

INEGA

‐ AGGREGATE FCF ( 2) 12 ‐31,714 ‐28,595 ‐25,476 ‐22,358 ‐19,239 ‐16,120 ‐13,001 ‐9,883 ‐6,764 ‐3,645 ‐527 2,592 5,711 8,829 11,948 15,067 CF( (3) 2.56% ‐31,714 1,807 1,915 2,029 2,149 2,277 2,412 2,555 2,707 2,868 3,038 3,119 3,119 3,119 3,119 3,119

BUILDING ENERGY 2 AGGREGATE CF (4) 14 ‐31,714 ‐29,906 ‐27,991 ‐25,963 ‐23,814 ‐21,537 ‐19,125 ‐16,570 ‐13,863 ‐10,995 ‐7,956 ‐4,838 ‐1,719 1,400 4,518 7,637

(1) Free Cash Flow (2) Cumulative Free Cash Flow (3 )Accountable Cash Flow (4) Cumulative accountable Cash Flow

57 JESSICA GALICIA

FINAL REPORT

6.2.2.2 Aggregate Free Cash Flow for the project. 6.2.2.3 Investment funding.

The graphical representation of this Free Cash Flow may be seen in the Article 44 of Regulation 1083/2006 provides that " When the Structural Funds enclosed figure. It should be reiterated that the Building Refurbishment are used to finance urban development funds, these funds shall be invested in project involves a project based on the aggregation of 4 separate actions public‐private partnerships or other projects included within an integrated the returns on which have been analysed separately, although the sustainable urban development plan". While the recently approved graphical representation of the Free Cash Flow is presented in figure 1 on Regulation 539/2010 extends the scope of possible applications to "repayable an aggregate basis. investments in the field of energy efficiency", the effect of leverage, in other words the capture of private equity, remains one of the main attractions of This representation reveals the short payback period, making it more this type of investment. The tables illustrate the hypotheses for the attractive to private investors and fulfilling the requirements that composition of equity on each of the six projects. revenue be generated in order for an instrument such as JESSICA to be employed. Table 13 Funding of investment in the Building Refurbishment group. In Thousands of Euros

Figure 3 Aggregate Free Cash Flow from the Building Refurbishment ECONOMIC SITUATION/YEAR TOTAL business group INVESTMENT 31,714 20.000 FUNDING SOURCES 31,714 OPERATIONAL FUNDING NEEDS (OFN) 0 10.000 CAPEX 31,714 EQUITY 9,641 0 PUBLIC ENTITIES 9,641 PRIVATE ENTITIES -10.000 OTHER (OWNERS, BANKS…) 0 Miles de Euros Miles de -20.000 JESSICA (EQUITY) 0 DEBTS 22,073 -30.000 COMMERCIAL CREDITS 22,073 JESSICA CREDITS 0 -40.000 INVESTMENT GRANTS 0 1 2 3 4 5 6 7 8 9 10111213141516 NEG. RESULT FOR YEAR (WITHOUT AMORT.) 0

Miles de Euros Thousands of Euros Table 7 presents the leverage planned for this project, with public entities being required to allocate 9.641 million euros, while 22.073 million euros

58 JESSICA GALICIA

FINAL REPORT would have to be attracted in the form of private credit from those financial institutions registering an interest in taking part on the basis of its attractive returns and short repayment period.

6.2.2.4 Returns

This section gives the returns which each of the agents or operators would obtain in accordance with the suppositions employed in this baseline scenario: without employing the JESSICA instrument

59 JESSICA GALICIA

FINAL REPORT

Table 14 Return of the various funding parties in the building refurbishment business group. In thousands of Euros

CONSOLI TOTAL‐ 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 FLOW UDF PROJECT DATED BANK FLOWS (ENTITY PERSPECTIVE) IRR SIGN GROUP PAYBACK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

COMMERCIAL CREDITS ‐ 22,073 22,073 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

P.D. COMMERCIAL(1) + 22,073 0 1,807 1,915 2,029 2,149 2,277 2,412 2,555 2,707 2,868 1,354 0 0 0 0 0

FIN. COST COMMERCIAL CREDITS + 7,430 0 1,311 1,204 1,090 970 842 707 563 412 251 80 0 0 0 0 0

BANKS OTHER (OWNERS, BANKS…) ‐ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

DIVIDENDS + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

CASH FLOW +/‐ 5.94% ‐22,073 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 3,119 1,434 0 0 0 0 0

CUMULATIVE CASH FLOW +/‐ 9 ‐22,073 ‐18,954 ‐15,835 ‐12,716 ‐9,598 ‐6,479 ‐3,360 ‐242 2,877 5,996 7,430 7,430 7,430 7,430 7,430 7,430

PRIVATE ENTITIES ‐ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

DIVIDENDS + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

PRIVATE CONSTRUCTION MARGIN + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 ENTITIES OPERATING MARGIN + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

CASH FLOW +/‐ ‐ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

CUMULATIVE CASH FLOW +/‐ 17 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

PUBLIC ENTITIES ‐ 9,641 9,641 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

PUBLIC DIVIDENDS + 17,278 0 0 0 0 0 0 0 0 0 0 1,685 3,119 3,119 3,119 3,119 3,119 ENTITIES CASH FLOW +/‐ 4.72% ‐9,641 0 0 0 0 0 0 0 0 0 1,685 3,119 3,119 3,119 3,119 3,119

CUMULATIVE CASH FLOW +/‐ 14 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐7,956 ‐4,838 ‐1,719 1,400 4,518 7,637

JESSICA CREDITS ‐ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

JESSICA (EQUITY) ‐ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 BUILDINGS FIN. COST JESSICA + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 OF

JESSICA P.D.JESSICA(2) + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 INEGA

‐ DIVIDENDS

CASH FLOW +/‐ ‐ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

ENERGY REFURBISHMENT 2 CUMULATIVE CASH FLOW +/‐ ‐ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

60 JESSICA GALICIA

FINAL REPORT

6.2.3 Development with JESSICA funding. In this case, the JESSICA funds (6.782 million euros) serve as a loan to develop the operation, not as an equity stake or guarantee.

Table 15 Hypothesis regarding the study projects. Project return outcomes

PROJECT BUILDING REFURBISHMENT CONSOLIDATION GROUP 2 BUSINESS THERMAL SOLAR COGENERATION POWER REPLACEMENT OF ENERGY, BUILDING PLANT REGULATORS LIGHTING PROJECT DURATION 16 16 16 16 INVESTMENT PERIOD 1 1 1 1 INVESTMENT START YEAR 1 1 1 1 OPERATIONAL START YEAR 2 2 2 2 CORPORATION TAX RATE 0% 0% 0% 0% OPERATING GRANTS (Thousands of Euros) 0 0 0 0 INVESTMENT (thousands of Euros) 1,270 27,316 2,677 451 OPERATIONAL FUNDING NEEDS (OFN) (Th. Euros) 0 0 0 0 CAPEX (Thousands of Euros) 1,270 27,316 2,677 451 EQUITY % LIABILITIES 40% 30% 30% 30% DEBT, CREDITS %LIABILITIES 60% 70% 70% 70% DEBT , JESSICA CREDIT (FIXED) 50% 29% 43% 43% PUBLIC CONTRIBUTION % NET WORTH 100.00% 100.00% 100.00% 100.00% PRIVATE ENTITY CONTRIBUTIONS % NET WORTH 0.00% 0.00% 0.00% 0.00% OTHER CONTRIBUTIONS % NET WORTH 0.00% 0.00% 0.00% 0.00% CONTRIBUTION % JESSICA NET WORTH 0.00% 0.00% 0.00% 0.00% CPI 1.01 1.01 1.01 1.01 OPERATING COSTS (% INVESTMENT) 0.00% 10.61% 0.00% 0.00% AMORTISATION PROVISION (% INVESTMENT) 6.67% 6.67% 6.67% 6.67% OPERATING REVENUE (% INVESTMENT) 9.86% 19.01% 23.01% 18.00% RATE OF COST INCREASE 1.00 1.00 1.00 1.00 RATE OF REVENUE INCREASE 1.00 1.00 1.00 1.00 CONSTRUCTION MARGIN 0.00% 0.00% 0.00% 0.00% OPERATING MARGIN 0.00% 0.00% 0.00% 0.00% COMMERCIAL CREDIT INTEREST RATE 6.00% 6.00% 6.00% 6.00% JESSICA CREDIT INTEREST RATE 4.50% 4.50% 4.50% 4.50% IRR 5.31%

61 JESSICA GALICIA

FINAL REPORT

PAYBACK 12 JESSICA FUNDS(thousands of Euros) 6,782 As might be expected, the return is positive (5.31% IRR) while the payback time is 12 years.

62 JESSICA GALICIA

FINAL REPORT

6.2.3.1 Aggregate Free Cash Flow for the project 6.2.3.2 Investment funding

The graphical representation of this Free Cash Flow may be seen in the The following tables, as in the case of the hypothesis without JESSICA, enclosed figure. It should be reiterated that the Building Refurbishment present the structure of the sources of finance for the building project involves a project based on the aggregation of 4 separate actions refurbishment project as a whole. the returns on which have been analysed separately, although the graphical representation of the Free Cash Flow is presented in figure 2 on an aggregate basis. Table 16 Funding of investment in the Building Refurbishment group. In Thousands of Euros This representation reveals the short payback period, making it more attractive to private investors and allowing an instrument such as JESSICA ECONOMIC SITUATION/YEAR TOTAL to be employed. INVESTMENT 31,714 FUNDING SOURCES 31,714 Figure 4 Aggregate Free Cash Flow from the Building Refurbishment OPERATIONAL FUNDING NEEDS (OFN) 0 business group CAPEX 31,714 EQUITY 9,641 20.000 PUBLIC ENTITIES 9,641

10.000 PRIVATE ENTITIES 0 OTHER (OWNERS, BANKS…) 0 0 JESSICA (EQUITY) 0

-10.000 DEBTS 22,073 COMMERCIAL CREDITS 15,290 Miles de Euros Miles de -20.000 JESSICA CREDITS 6,782 INVESTMENT GRANTS 0 -30.000 NEG. RESULT FOR YEAR (WITHOUT AMORT.) 0 -40.000 12345678910111213141516

Miles de Euros Thousands of Euros

63 JESSICA GALICIA

FINAL REPORT

6.2.3.3 Returns

This section gives the returns which each of the agents or operators would obtain in accordance with the suppositions employed on this scenario with recourse to use of the JESSICA instrument. As a result, in addition to public and private agents, commercial banks and the JESSICA fund itself are included on this scenario as operators with expectations of obtaining a sufficiently attractive return to encourage them to invest in such projects Table 17 Return of the various funding parties in the building refurbishment business group. In thousands of Euros

CONSOLI TOTAL‐ 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 FLOW UDF PROJECT DATED BANK FLOWS (ENTITY PERSPECTIVE) IRR SIGN GROUP PAYBACK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

COMMERCIAL CREDITS ‐ 15,290 15,290 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

P.D. COMMERCIAL(1) + 15,290 0 1,908 2,022 2,142 2,269 2,404 2,546 2,000 0 0 0 0 0 0 0 0

FIN. COST COMMERCIAL CREDITS + 3,728 0 908 795 675 548 413 270 119 0 0 0 0 0 0 0 0

BANKS OTHER (OWNERS, BANKS…) ‐ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

DIVIDENDS + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

CASH FLOW +/‐ 5.94% ‐15,290 2,816 2,816 2,816 2,816 2,816 2,816 2,119 0 0 0 0 0 0 0 0

CUMULATIVE CASH FLOW +/‐ 7 ‐15,290 ‐12,474 ‐9,657 ‐6,841 ‐4,024 ‐1,208 1,609 3,728 3,728 3,728 3,728 3,728 3,728 3,728 3,728 3,728

PRIVATE ENTITIES ‐ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

DIVIDENDS + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

PRIVATE CONSTRUCTION MARGIN + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 ENTITIES OPERATING MARGIN + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

CASH FLOW +/‐ ‐ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

CUMULATIVE CASH FLOW +/‐ 17 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

PUBLIC ENTITIES ‐ 9,641 9,641 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

PUBLIC DIVIDENDS + 18,438 0 0 0 0 0 0 0 0 0 0 2,844 3,119 3,119 3,119 3,119 3,119 ENTITIES CASH FLOW +/‐ 5.34% ‐9,641 0 0 0 0 0 0 0 0 0 2,844 3,119 3,119 3,119 3,119 3,119

CUMULATIVE CASH FLOW +/‐ 14 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐9,641 ‐6,797 ‐3,678 ‐559 2,559 5,678 8,797

JESSICA CREDITS ‐ 6,782 6,782 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

JESSICA (EQUITY) ‐ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 BUILDINGS FIN. COST JESSICA + 2,542 0 302 302 302 302 302 302 302 271 144 12 0 0 0 0 0 OF

JESSICA P.D.JESSICA(2) + 6,782 0 0 0 0 0 0 0 698 2,848 2,974 263 0 0 0 0 0 + INEGA

‐ DIVIDENDS 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

CASH FLOW +/‐ 4.46% ‐6,782 302 302 302 302 302 302 1,000 3,119 3,119 274 0 0 0 0 0

REFURBISHMENT 2 ENERGY CUMULATIVE CASH FLOW +/‐ 10 ‐6,782 ‐6,480 ‐6,178 ‐5,876 ‐5,574 ‐5,272 ‐4,969 ‐3,969 ‐851 2,268 2,542 2,542 2,542 2,542 2,542 2,542 (1) Amortisation of commercial credit (2) Amortisation of JESSICA credit

64 JESSICA GALICIA

FINAL REPORT

It is worth highlighting the return on the JESSICA funds employed (4.46% IRR) and their application to the funding of this project maintains the return for private financial institutions (5.94% IRR), meaning that this project remains attractive.

6.3 Installation of biomass plants

6.3.1 Description of the project

The growth in household energy consumption has raised the need to introduce other sources of energy in urban areas which do not pollute the environment and can adequately meet rising demand.

Current technology allows for the development of small biomass boilers which generate energy at a neighbourhood community level at a low cost.

The pilot project presented involves equipping neighbourhoods for small population centres with biomass plants in order to replace boilers using conventional fuels with a system using biodegradable, sustainable fuels.

The standard installation proposed involves a power plant which could cover a maximum of approximately 800 residential properties per power plant (approximately 80,000 m²). Maintenance costs are low and supervision of Energía por biomasa en un área urbana Energy from biomass in an urban area combustion processes can be automated. There are two fundamental elements here: the power plant and the distribution network. Cultivos energéticos Energy crops Residuos agrícolas Agricultural waste The power plant operation is based on a self‐feeding system which outputs hot Residuos ganaderos Livestock waste water at 95° and receives it at 75°, reducing the fuel requirements involved in Residuos industriales Industrial waste heating water. The plan is for the power plants also to have biomass stores Residuos forestales Forestry waste allowing them to operate for a certain number of days. Barrio/área urbana District/urban area BIOMASA BIOMASS Another option which could be financed under JESSICA would involve installing Central térmica Power Plant biomass boilers in public buildings, such as schools, sports centres, heated Red de distribución interna Internal distribution network swimming pools, etc. Viviendas Properties Excedentes a red general Surplus to general grid

65 JESSICA GALICIA

FINAL REPORT

6.3.1.1 Reference framework 6.3.1.4 Action periods

Biomass energy use represents a considerable socio‐economic opportunity for The standard programme of action could be as follows: Galicia, since the region has a considerable store of biomass given its large forested area and the mainly agricultural use of its land. It also has agri‐food • Investment start date: first year of the project industries which generate potential biomass by products. • Investment Period: one year. Regions with similar energy resources have seen successful initiatives intended to implement biomass energy projects with the aim of achieving a high level of • Project execution: first year of project energy self‐sufficiency in local neighbourhoods and small towns. • Operational start date: second year of the project Galicia's energy policies are intended to bring about a new model based on energy diversification with considerable use of endogenous and renewable • Duration of the project: 10 years resources. As for demand management, this model encourages savings measures, energy efficiency and self‐sufficiency of centres of consumption. 6.3.1.5 Estimated costs and efficiency

6.3.1.2 Desired objectives Table 18 Estimated costs and efficiency of the biomass boiler a) Ability to employ a renewable energy source to meet energy demand in the Standard example installation: 200 kW biomass boiler urban buildings sector. Boiler power (kw) 200 b) A technologically innovative project, given the use of efficient installations, Investment ratio (€/kW) 450 the use of efficient materials such as wood, and one which is in turn Total investment (€) 90,000 environmentally integrated, being developed in accordance with the Additional investment ratio (€/kW) (*) 200 contextual idiom. Additional investment versus other fuels (€) 40,000 c) Energy and financial savings compared with the use of other fuels for the % maximum biomass subsidy 30 % same purposes. Grant 25,000 Estelas energy cost (€/kwh) 0.0125 ERDF OP eligibility Pellet energy cost (€/kwh) 0,036 Gas energy cost (€/kwh) 0,042 6.3.1.3 Possible agents involved Other fuel energy cost (€/kwh) 0.07 Annual building heating demand (kWh) 200,000 Local councils and Xunta as development agents. Energy operators, which would PELLETS ESTELAS be responsible for construction and operation of the power plants. Annual saving vs. natural gas 1,200 5,900 Annual saving vs. other fuels 6,800 11,500

66 JESSICA GALICIA

FINAL REPORT

Simple Payback Period vs. natural gas (years 12.5 2.2 OPERATING MARGIN 0.00% Simple Payback Period vs. other fuels 3.7 1.3 COMMERCIAL CREDIT INTEREST RATE 6.00% Source: INEGA JESSICA CREDIT INTEREST RATE ‐ IRR 5.38% 6.3.2 Initial hypotheses: Project development without JESSICA PAYBACK 8 funding. JESSICA FUNDS(thousands of Euros) 0 6.3.2.1 Profits and losses. The numerical values employed in the baseline hypothesis scenario, in other words without recourse to JESSICA funding, are as reflected in the enclosed table. In addition to complying with the eligibility criteria and rules established by the regulations governing administration of ERDF projects, JESSICA can be Table 19 Hypothesis based on study projects. Project return outcomes applied to those actions " which make repayable investments or provide PROJECT BIOMASS guarantees for reimbursable investments", as laid down in Article 43.1 of CONSOLIDATION GROUP 1 Regulation 1828/2006. BIOMASS POWER BUSINESS PLANT The following table has been drawn up in order to ascertain fulfilment of this PROJECT DURATION 10 requirement, giving the EBITDA and the aggregate Free Cash Flow. INVESTMENT PERIOD 1 INVESTMENT START YEAR 1 Figure 5 Aggregate Free Cash Flow from the Power Plant business group OPERATIONAL START YEAR 2 CORPORATION TAX RATE 30% OPERATING GRANTS (Thousands of Euros) 0 6.000 INVESTMENT (thousands of Euros) 14,400 4.000

OPERATIONAL FUNDING NEEDS (OFN) (Th. Euros) 0 2.000 CAPEX (Thousands of Euros) 14,400 0 EQUITY % LIABILITIES 36% DEBT, CREDITS %LIABILITIES 36% -2.000 DEBT , JESSICA CREDIT (FIXED) 0.00% -4.000

PUBLIC CONTRIBUTION % NET WORTH 50.00% -6.000 PRIVATE ENTITY CONTRIBUTIONS % NET WORTH 50.00% Euros Miles de -8.000 OTHER CONTRIBUTIONS % NET WORTH 0.00% CONTRIBUTION % JESSICA NET WORTH 0.00% -10.000 CPI 1.01 -12.000 OPERATING COSTS (% INVESTMENT) 18.30% -14.000 AMORTISATION PROVISION (% INVESTMENT) 11.11% 12345678910 OPERATING REVENUE (% INVESTMENT) 30.00% RATE OF COST INCREASE 1.00 Miles de Euros Thousands of Euros RATE OF REVENUE INCREASE 1.00

CONSTRUCTION MARGIN 0.00%

67 JESSICA GALICIA

FINAL REPORT

Table 20 Profits and Losses of the Biomass Power Plant business group and its Cash Flow. In Thousands of Euros.

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 TOTAL‐IRR ECONOMIC SITUATION/YEAR PAYBACK 1 2 3 4 5 6 7 8 9 10

OPERATING REVENUE 38,880 0 4,320 4,320 4,320 4,320 4,320 4,320 4,320 4,320 4,320 NET TURNOVER 38,880 0 4,320 4,320 4,320 4,320 4,320 4,320 4,320 4,320 4,320 OTHER OPERATING REVENUE 0 0 0 0 0 0 0 0 0 0 0 OPERATING GRANTS 0 0 0 0 0 0 0 0 0 0 0 TOTAL OPERATING EXPENSES 38,113 0 4,235 4,235 4,235 4,235 4,235 4,235 4,235 4,235 4,235 PERSONNEL EXPENSES 16,634 0 1,848 1,848 1,848 1,848 1,848 1,848 1,848 1,848 1,848 MAINTENANCE COSTS 7,078 0 786 786 786 786 786 786 786 786 786 OPERATING CONSUMPTION 0 0 0 0 0 0 0 0 0 0 0 OTHER COSTS 0 0 0 0 0 0 0 0 0 0 0 AMORTISATION PROVISIONS 14,400 0 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600 INVESTMENT AMORTISATIONS 0 0 0 0 0 0 0 0 0 0 0 TOTAL EXTRAORDINARY REVENUE 4,000 4,000 0 0 0 0 0 0 0 0 0 EXTRAORDINARY REVENUE 0 0 0 0 0 0 0 0 0 0 0 SUBSIDIES 4,000 4,000 0 0 0 0 0 0 0 0 0 EXTRAORDINARY EXPENSES AND LOSSES 0 0 0 0 0 0 0 0 0 0 0 EBITDA 19,167 4,000 1,685 1,685 1,685 1,685 1,685 1,685 1,685 1,685 1,685 OPERATING PROFIT 767 0 85 85 85 85 85 85 85 85 85 FINANCIAL REVENUE 0 0 0 0 0 0 0 0 0 0 0 FINANCIAL COSTS 988 0 309 298 216 129 36 0 0 0 0 FIN. COST COMMERCIAL CREDITS 988 0 309 298 216 129 36 0 0 0 0 FIN. COST JESSICA 0 0 0 0 0 0 0 0 0 0 0 TAXES 1,200 1,200 0 0 0 0 0 0 0 0 0 CORPORATION TAX 1,200 1,200 0 0 0 0 0 0 0 0 0 OTHER TAXES 0 0 0 0 0 0 0 0 0 0 0 RESULT FOR YEAR 2,579 2,800 ‐224 ‐213 ‐131 ‐44 49 85 85 85 85

FCF (1) 5.38% ‐11,600 1,660 1,660 1,660 1,660 1,660 1,660 1,660 1,660 1,660 AGGREGATE FCF ( 2) 8 ‐11,600 ‐9,940 ‐8,281 ‐6,621 ‐4,961 ‐3,302 ‐1,642 18 1,677 3,337 CF( (3) 4.05% ‐11,600 1,376 1,387 1,469 1,556 1,649 1,685 1,685 1,685 1,685 AGGREGATE CF (4) 9 ‐11,600 ‐10,224 ‐8,837 ‐7,368 ‐5,811 ‐4,162 ‐2,477 ‐792 893 2,579 (1) Free Cash Flow (2) Cumulative Free Cash Flow (3 )Accountable Cash Flow (4) Cumulative accountable Cash Flow

68 JESSICA GALICIA

FINAL REPORT

6.3.2.2 Investment funding. from those financial institutions registering an interest in taking part on the basis of the attractive returns and short recovery period available. Taking advantage of the opportunities offered by the Xunta's policy of providing assistance for projects to improve energy efficiency and the use of renewable energy sources, it should be pointed out that in the case of the Biomass Power 6.3.2.3 Returns. Plant project plans have been made for a subsidy of 4 million euros, in accordance with the provisions and grant schemes in place for this type of Such interest is well illustrated by the returns which each of the agents or renewable energy. operators would obtain on the basis of the supposition is employed in this hypothetical baseline scenario without employing the JESSICA instrument. Table 21 Funding of investment in the Biomass Power Plant business group. In Thousands of Euros

2010 2011(1) ECONOMIC SITUATION/YEAR TOTAL 1 2 INVESTMENT 14,400 14,400 0 FUNDING SOURCES 15,600 14,400 1,200 OPERATIONAL FUNDING NEEDS (OFN) 0 0 0 CAPEX 14,400 14,400 0 EQUITY 5,200 5,200 0 PUBLIC ENTITIES 2,600 2,600 0 PRIVATE ENTITIES 2,600 2,600 0 OTHER (OWNERS, BANKS…) 0 0 0 JESSICA (EQUITY) 0 0 0 DEBTS 6,400 5,200 1,200 COMMERCIAL CREDITS 6,400 5,200 1,200 JESSICA CREDITS 0 0 0 INVESTMENT GRANTS 4,000 4,000 0 NEG. RESULT FOR YEAR (WITHOUT AMORT.) ‐1,200 0 ‐1,200 (1) In 2011 a credit is requested for payment of the taxes derived from the grant

Table 15 also present the planned leverage for this project, for which public entities would be required to allocate 2.6 million euros, while attracting a similar sum from private initiative which would take an equity stake in the company developing the project. The funding structure for the project would be completed by means of a further 6.4 million euros in the form of private commercial credit

69 JESSICA GALICIA

FINAL REPORT

Table 22 Return of the various funding parties in the power plant business group. In thousands of Euros

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 CONSOLIDAT FLOW TOTAL‐IRR UDF PROJECT BANK FLOWS (ENTITY PERSPECTIVE) ED GROUP SIGN PAYBACK 1 2 3 4 5 6 7 8 9 10

COMMERCIAL CREDITS ‐ 6,400 5,200 1,200 0 0 0 0 0 0 0 0

P.D. COMMERCIAL(1) + 6,400 0 1,376 1,387 1,469 1,556 611 0 0 0 0

FIN. COST COMMERCIAL CREDITS + 988 0 309 298 216 129 36 0 0 0 0

BANKS OTHER (OWNERS, BANKS…) ‐ 0 0 0 0 0 0 0 0 0 0 0

DIVIDENDS + 0 0 0 0 0 0 0 0 0 0 0

CASH FLOW +/‐ 5.94% ‐5,200 485 1,685 1,685 1,685 648 0 0 0 0

CUMULATIVE CASH FLOW +/‐ 5 ‐5,200 ‐4,715 ‐3,030 ‐1,344 341 988 988 988 988 988

PRIVATE ENTITIES ‐ 2,600 2,600 0 0 0 0 0 0 0 0 0

DIVIDENDS + 3,889 0 0 0 0 0 519 843 843 843 843

CONSTRUCTION MARGIN + 0 0 0 0 0 0 0 0 0 0 0 PRIVATE ENTITIES OPERATING MARGIN + 0 0 0 0 0 0 0 0 0 0 0

CASH FLOW +/‐ 5.82% ‐2,600 0 0 0 0 519 843 843 843 843

CUMULATIVE CASH FLOW +/‐ 9 ‐2,600 ‐2,600 ‐2,600 ‐2,600 ‐2,600 ‐2,081 ‐1,239 ‐396 447 1,289

PUBLIC ENTITIES ‐ 2,600 2,600 0 0 0 0 0 0 0 0 0

DIVIDENDS + 3,889 0 0 0 0 0 519 843 843 843 843 PUBLIC ENTITIES CASH FLOW +/‐ 5.82% ‐2,600 0 0 0 0 519 843 843 843 843

CUMULATIVE CASH FLOW +/‐ 9 ‐2,600 ‐2,600 ‐2,600 ‐2,600 ‐2,600 ‐2,081 ‐1,239 ‐396 447 1,289

JESSICA CREDITS ‐ 0 0 0 0 0 0 0 0 0 0 0

JESSICA (EQUITY) ‐ 0 0 0 0 0 0 0 0 0 0 0

FIN. COST JESSICA + 0 0 0 0 0 0 0 0 0 0 0

JESSICA P.D.JESSICA(2) + 0 0 0 0 0 0 0 0 0 0 0

DIVIDENDS + 0 0 0 0 0 0 0 0 0 0 0 INEGA PLANTS ‐

CASH FLOW +/‐ ‐ 0 0 0 0 0 0 0 0 0 0

ENERGY POWER 1 CUMULATIVE CASH FLOW +/‐ ‐ 0 0 0 0 0 0 0 0 0 0 (1) Amortisation of commercial credit (1) Amortisation of commercial credit (2) Amortisation of JESSICA credit

As may be seen in Table 16, the resulting IRRs are highly attractive both for the banks (5.94%) and for public and private entities (5.82% in both the latter cases). The same could be said of the short recovery period for the investment.

70 JESSICA GALICIA

FINAL REPORT

COMMERCIAL CREDIT INTEREST RATE 6.00% JESSICA CREDIT INTEREST RATE 4.50% 6.3.3 Development with JESSICA funding. IRR 5.38% PAYBACK 8 Maintaining the same hypotheses as those employed in designing the baseline JESSICA FUNDS(thousands of Euros) 3,900 case, we must now ascertain the effect which would be seen if resources from Profits and losses the JESSICA initiative were to be employed. In this case the JESSICA funds are used not only as a loan for development of the operation but also as an equity In addition to complying with the eligibility criteria and rules established by stake (25%). the regulations governing administration of ERDF projects, JESSICA can be applied to those actions "which make repayable investments or provide PROJECT BIOMASS guarantees for reimbursable investments", as laid down in Article 43.1 of CONSOLIDATION GROUP 1 BIOMASS POWER Regulation 1828/2006. BUSINESS PLANT PROJECT DURATION 10 Table 17 illustrate compliance with this requirement, setting out the EBITDA INVESTMENT PERIOD 1 (1.685 million euros/year from the first financial year onwards) along with INVESTMENT START YEAR 1 the aggregate Free Cash Flow, allowing the investment to be recovered from OPERATIONAL START YEAR 2 year 9 onwards. CORPORATION TAX RATE 30% OPERATING GRANTS (Thousands of Euros) 0 Figure 6 Aggregate Free Cash Flow from the Power Plant business group INVESTMENT (thousands of Euros) 14,400 OPERATIONAL FUNDING NEEDS (OFN) (Th. Euros) 0 6.000 CAPEX (Thousands of Euros) 14,400 EQUITY % LIABILITIES 36% 4.000 DEBT, CREDITS %LIABILITIES 36% 2.000 DEBT , JESSICA CREDIT (FIXED) 50% 0

PUBLIC CONTRIBUTION % NET WORTH 25.00% -2.000 PRIVATE ENTITY CONTRIBUTIONS % NET WORTH 50.00% -4.000 OTHER CONTRIBUTIONS % NET WORTH 0.00% -6.000 CONTRIBUTION % JESSICA NET WORTH 25.00% Euros de Miles CPI 1.01 -8.000 OPERATING COSTS (% INVESTMENT) 18.30% -10.000

AMORTISATION PROVISION (% INVESTMENT) 11.11% -12.000 OPERATING REVENUE (% INVESTMENT) 30.00% -14.000 RATE OF COST INCREASE 1.00 12345678910 RATE OF REVENUE INCREASE 1.00 CONSTRUCTION MARGIN 0.00% OPERATING MARGIN 0.00% Miles de Euros Thousands of Euros

71 JESSICA GALICIA

FINAL REPORT

Table 23 Profits and Losses of the Biomass Power Plant business group and its Cash Flow. In thousands of Euros.

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 TOTAL‐IRR UDF PROJECT ECONOMIC SITUATION/YEAR PAYBACK 1 2 3 4 5 6 7 8 9 10

OPERATING REVENUE 38,880 0 4,320 4,320 4,320 4,320 4,320 4,320 4,320 4,320 4,320 NET TURNOVER 38,880 0 4,320 4,320 4,320 4,320 4,320 4,320 4,320 4,320 4,320 OTHER OPERATING REVENUE 0 0 0 0 0 0 0 0 0 0 0 OPERATING GRANTS 0 0 0 0 0 0 0 0 0 0 0 TOTAL OPERATING EXPENSES 38,113 0 4,235 4,235 4,235 4,235 4,235 4,235 4,235 4,235 4,235 PERSONNEL EXPENSES 16,634 0 1,848 1,848 1,848 1,848 1,848 1,848 1,848 1,848 1,848 MAINTENANCE COSTS 7,078 0 786 786 786 786 786 786 786 786 786 OPERATING CONSUMPTION 0 0 0 0 0 0 0 0 0 0 0 OTHER COSTS 0 0 0 0 0 0 0 0 0 0 0 AMORTISATION PROVISIONS 14,400 0 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600 1,600 INVESTMENT AMORTISATIONS 0 0 0 0 0 0 0 0 0 0 0 TOTAL EXTRAORDINARY REVENUE 4,000 4,000 0 0 0 0 0 0 0 0 0 EXTRAORDINARY REVENUE 0 0 0 0 0 0 0 0 0 0 0 SUBSIDIES 4,000 4,000 0 0 0 0 0 0 0 0 0 EXTRAORDINARY EXPENSES AND LOSSES 0 0 0 0 0 0 0 0 0 0 0 EBITDA 19,167 4,000 1,685 1,685 1,685 1,685 1,685 1,685 1,685 1,685 1,685 OPERATING PROFIT 767 0 85 85 85 85 85 85 85 85 85 FINANCIAL REVENUE 0 0 0 0 0 0 0 0 0 0 0 FINANCIAL COSTS 812 0 270 258 173 91 20 0 0 0 0 FIN. COST COMMERCIAL CREDITS 353 0 154 142 57 0 0 0 0 0 0 FIN. COST JESSICA 459 0 116 116 116 91 20 0 0 0 0 TAXES 1,200 1,200 0 0 0 0 0 0 0 0 0 Corporation Tax 1,200 1,200 0 0 0 0 0 0 0 0 0 OTHER TAXES 0 0 0 0 0 0 0 0 0 0 0 RESULT FOR YEAR 2,755 2,800 ‐185 ‐172 ‐87 ‐6 65 85 85 85 85

FCF (1) 5.38% ‐11,600 1,660 1,660 1,660 1,660 1,660 1,660 1,660 1,660 1,660

INEGA 8 ‐11,600 ‐9,940 ‐8,281 ‐6,621 ‐4,961 ‐3,302 ‐1,642 18 1,677 3,337 PLANTS ‐ AGGREGATE FCF ( 2)

CF( (3) 4.34% ‐11,600 1,415 1,428 1,513 1,594 1,665 1,685 1,685 1,685 1,685

ENERGY POWER AGGREGATE CF (4) 9 ‐11,600 ‐10,185 ‐8,757 ‐7,245 ‐5,651 ‐3,986 ‐2,300 ‐615 1,070 2,755 (1) Free Cash Flow (2) Cumulative Free Cash Flow (3 )Accountable Cash Flow (4) Cumulative accountable Cash Flow

72 JESSICA GALICIA

FINAL REPORT

6.3.3.1 Investment funding 6.3.3.2 Returns

It should be pointed out that the Biomass Power Plant project has also been This section gives the returns which each of the agents or operators would allocated a grant of 4 million euros in accordance with the provisions and grant obtain in accordance with the suppositions employed on this scenario with schemes in place for this type of renewable energy. As laid down in Article 46.2 of recourse to use of the JESSICA instrument. As a result, in addition to public Regulation 1828/2006, "urban projects receiving grant assistance from an and private agents, commercial banks and the JESSICA in itself are included operational programme may also be supported by urban development funds". on this scenario as operators with expectations of obtaining sufficiently On this JESSICA scenario there is, then, no incompatibility between the two forms attractive returns to encourage them to invest in the project. of administering ERDF funds, provided that the maximum aid limits established in the ERDF OP itself are not exceeded.

Table 24 Funding of investment in the Biomass Power Plant business group. In Thousands of Euros

2010 2011(1) ECONOMIC SITUATION/YEAR TOTAL 1 2 INVESTMENT 14,400 14,400 0 FUNDING SOURCES 15,600 14,400 1,200 OPERATIONAL FUNDING NEEDS (OFN) 0 0 0 CAPEX 14,400 14,400 0 EQUITY 5,200 5,200 0 PUBLIC ENTITIES 1,300 1,300 0 PRIVATE ENTITIES 2,600 2,600 0 OTHER (OWNERS, BANKS…) 0 0 0 JESSICA (EQUITY) 1,300 1,300 0 DEBTS 6,400 5,200 1,200 COMMERCIAL CREDITS 3,800 2,600 1,200 JESSICA CREDITS 2,600 2,600 0 INVESTMENT GRANTS 4,000 4,000 0 NEG. RESULT FOR YEAR (WITHOUT AMORT.) ‐1,200 0 ‐1,200

(1) In 2011 a credit is requested for payment of the taxes derived from the grant

73 JESSICA GALICIA

FINAL REPORT

Table 25 Return of the various funding parties in the power plant business group. In thousands of Euros

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 CONSOLIDAT FLOW TOTAL‐IRR UDF PROJECT BANK FLOWS (ENTITY PERSPECTIVE) ED GROUP SIGN PAYBACK 1 2 3 4 5 6 7 8 9 10

COMMERCIAL CREDITS ‐ 3,800 2,600 1,200 0 0 0 0 0 0 0 0

P.D. COMMERCIAL(1) + 3,800 0 1,415 1,428 957 0 0 0 0 0 0

FIN. COST COMMERCIAL CREDITS + 353 0 154 142 57 0 0 0 0 0 0

BANKS OTHER (OWNERS, BANKS…) ‐ 0 0 0 0 0 0 0 0 0 0 0

DIVIDENDS + 0 0 0 0 0 0 0 0 0 0 0

CASH FLOW +/‐ 5.94% ‐2,600 369 1,569 1,014 0 0 0 0 0 0

CUMULATIVE CASH FLOW +/‐ 4 ‐2,600 ‐2,231 ‐661 353 353 353 353 353 353 353

PRIVATE ENTITIES ‐ 2,600 2,600 0 0 0 0 0 0 0 0 0

DIVIDENDS + 3,978 0 0 0 0 0 607 843 843 843 843

CONSTRUCTION MARGIN + 0 0 0 0 0 0 0 0 0 0 0 PRIVATE ENTITIES OPERATING MARGIN + 0 0 0 0 0 0 0 0 0 0 0

CASH FLOW +/‐ 6.21% ‐2,600 0 0 0 0 607 843 843 843 843

CUMULATIVE CASH FLOW +/‐ 9 ‐2,600 ‐2,600 ‐2,600 ‐2,600 ‐2,600 ‐1,993 ‐1,150 ‐308 535 1,378

PUBLIC ENTITIES ‐ 1,300 1,300 0 0 0 0 0 0 0 0 0

DIVIDENDS + 1,989 0 0 0 0 0 304 421 421 421 421 PUBLIC ENTITIES CASH FLOW +/‐ 6.21% ‐1,300 0 0 0 0 304 421 421 421 421

CUMULATIVE CASH FLOW +/‐ 9 ‐1,300 ‐1,300 ‐1,300 ‐1,300 ‐1,300 ‐996 ‐575 ‐154 268 689

JESSICA CREDITS ‐ 2,600 2,600 0 0 0 0 0 0 0 0 0

JESSICA (EQUITY) ‐ 1,300 1,300 0 0 0 0 0 0 0 0 0

FIN. COST JESSICA + 459 0 116 116 116 91 20 0 0 0 0

JESSICA P.D.JESSICA(2) + 2,600 0 0 0 555 1,594 451 0 0 0 0 + INEGA PLANTS ‐ DIVIDENDS 1,989 0 0 0 0 0 304 421 421 421 421

CASH FLOW +/‐ 5.32% ‐3,900 116 116 671 1,685 774 421 421 421 421

ENERGY POWER 1 CUMULATIVE CASH FLOW +/‐ 8 ‐3,900 ‐3,784 ‐3,668 ‐2,997 ‐1,312 ‐538 ‐116 305 726 1,148 (1) Amortisation of commercial credit (2) Amortisation of JESSICA credit

74 JESSICA GALICIA

FINAL REPORT

6.4.1.2 Desired objectives 6.4 Renewal of efficient urban bus fleets (financial leasing) The project presented for the JESSICA initiative involves the renewal/introduction 6.4.1 Description of the Project of four urban bus fleets of approximately 10 vehicles, using electric low‐floor vehicles acquired under a leasing system. The aims pursued are as follows: The proposed pilot project involves the possible renewal/introduction of four urban bus fleets using energy‐efficient vehicles (electric vehicles, for example), • Create a new, more sustainable mobility model. under a leasing system. The estimated average fleet size would be 10 vehicles, which would be equipped for persons with reduced mobility. The plans for • Promote public transport, offering a more efficient and environmentally implementation of this project involve recourse to an operational subsidy from friendly alternative to private vehicle travel. public bodies, as currently occurs. There would in addition be a public stake held in the operating company, in the form of equity. The proposal is for the • Offer the possibility of connecting areas which currently have deficient concession‐holding company to contribute 50% of the investment funding, with public transport. Offer a quality service to the population. the other 50% being funded in the form of commercial credits. The planned distribution of stakes between public and private entities would be 25%/75%, • Improve the urban environment and tourism potential in the case of strengthening the presence of private initiative in urban public transport, as has replacing or introducing an urban fleet. Reduced pressure from car use recently been the predominant model in Galicia's cities. facilitates the policy of pedestrianisation and renewal of city centres.

6.4.1.1 Reference framework 6.4.1.3 Possible agents involved

A number of municipalities in Galicia have undertaken sustainable mobility Local councils would be the owners of the urban service, along with concession‐ studies, private companies have drawn up work transportation plans, etc., all holders. with a focus on promoting a change in the structure of mobility, shifting towards more energy‐efficient modes. Meanwhile, the development of this type of 6.4.1.4 Execution Deadlines initiative represents one of the priorities of the policy to improve energy efficiency and achieve more sustainable mobility funded by the INEGA by means The standard programme of action could be as follows: of the ERDF funding round for the period 2007‐2013. One example would be the recent Resolution of 21 July 2010, establishing the rules for the granting by • Investment start date: first year of the project competitive tender of subsidies for energy efficiency and saving projects for the financial year 2010 co‐funded by the ERDF (published in Official Journal of Galicia • Investment Period: one year. 143 of 28/07/2010) • Project execution: first year of project

• Operational start date: second year of the project Within this context, the introduction of electric bus fleets represents a further step towards achieving the goals set out in the various plans. • Duration of the project: 6 years

75 JESSICA GALICIA

FINAL REPORT

6.4.2 Initial hypotheses: Project development without JESSICA funding. PROJECT BUS FLEET The numerical values employed in the baseline hypothesis scenario in this initial CONSOLIDATION GROUP 3 estimate, in other words without recourse to JESSICA funding, are as reflected in BUSINESS BUSES the enclosed table. PROJECT DURATION 6 INVESTMENT PERIOD 1 INVESTMENT START YEAR 1 OPERATIONAL START YEAR 2 CORPORATION TAX RATE 30% OPERATING GRANTS (Thousands of Euros) 900 INVESTMENT (thousands of Euros) 12,000 OPERATIONAL FUNDING NEEDS (OFN) (Th. Euros) 0 CAPEX (Thousands of Euros) 12,000 EQUITY % LIABILITIES 50% DEBT, CREDITS %LIABILITIES 50% DEBT , JESSICA CREDIT (FIXED) 0.00% PUBLIC CONTRIBUTION % NET WORTH 25.00% PRIVATE ENTITY CONTRIBUTIONS % NET WORTH 75.00% OTHER CONTRIBUTIONS % NET WORTH 0.00% CONTRIBUTION % JESSICA NET WORTH 0.00% CPI 1.01 OPERATING COSTS (% INVESTMENT) 67.00% AMORTISATION PROVISION (% INVESTMENT) 10.00% OPERATING REVENUE (% INVESTMENT) 81.00% RATE OF COST INCREASE 1.00 RATE OF REVENUE INCREASE 1.00 CONSTRUCTION MARGIN 0.00% OPERATING MARGIN 0.00% COMMERCIAL CREDIT INTEREST RATE 6.00% JESSICA CREDIT INTEREST RATE ‐ IRR 3.24% PAYBACK 6 JESSICA FUNDS(thousands of Euros) 0

76 JESSICA GALICIA

FINAL REPORT

6.4.2.1 Profits and losses.

Compliance with this requirement is demonstrated by Table 20, illustrating the EBITDA and the aggregate Free Cash Flow The results obtained (2.58 million euros) from the first year of operations onwards give a short investment recovery period which, together with the positive IRR, underpins the attractiveness of the project, while also guaranteeing its eligibility as a revenue generator.

Figure 7 Aggregate Free Cash Flow from the Bus Fleet business group

4.000

2.000

0

-2.000

-4.000

-6.000 Miles de Euros de Miles -8.000

-10.000

-12.000

-14.000 123456

Miles de Euros Thousands of Euros

77 JESSICA GALICIA

FINAL REPORT

Table 26 Profits and Losses of the Bus Fleet business group and its Cash Flows. In thousands of Euros.

2010 2011 2012 2013 2014 2015 TOTAL‐IRR ECONOMIC SITUATION/YEAR PAYBACK 1 2 3 4 5 6

OPERATING REVENUE 53,100 0 10,620 10,620 10,620 10,620 10,620 NET TURNOVER 48,600 0 9,720 9,720 9,720 9,720 9,720 OTHER OPERATING REVENUE 0 0 0 0 0 0 0 OPERATING GRANTS 4,500 0 900 900 900 900 900 TOTAL OPERATING EXPENSES 46,200 0 9,240 9,240 9,240 9,240 9,240 PERSONNEL EXPENSES 28,200 0 5,640 5,640 5,640 5,640 5,640 MAINTENANCE COSTS 12,000 0 2,400 2,400 2,400 2,400 2,400 OPERATING CONSUMPTION 0 0 0 0 0 0 0 OTHER COSTS 0 0 0 0 0 0 0 AMORTISATION PROVISIONS 6,000 0 1,200 1,200 1,200 1,200 1,200 INVESTMENT AMORTISATIONS 0 0 0 0 0 0 0 TOTAL EXTRAORDINARY REVENUE 3,600 0 0 0 0 0 3,600 EXTRAORDINARY REVENUE 3,600 0 0 0 0 0 3,600 SUBSIDIES 0 0 0 0 0 0 0 EXTRAORDINARY EXPENSES AND LOSSES 0 0 0 0 0 0 0 EBITDA 16,500 0 2,580 2,580 2,580 2,580 6,180 OPERATING PROFIT 6,900 0 1,380 1,380 1,380 1,380 1,380 FINANCIAL REVENUE 0 0 0 0 0 0 0 FINANCIAL COSTS 724 0 356 243 124 0 0 FIN. COST COMMERCIAL CREDITS 724 0 356 243 124 0 0 FIN. COST JESSICA 0 0 0 0 0 0 0 TAXES 2,933 0 307 341 377 414 1,494 CORPORATION TAX 2,933 0 307 341 377 414 1,494 OTHER TAXES 0 0 0 0 0 0 0 RESULT FOR YEAR 6,844 0 716 796 879 966 3,486

FCF (1) 3.24% ‐12,000 2,166 2,166 2,166 2,166 4,686 AGGREGATE FCF ( 2) 6 ‐12,000 ‐9,834 ‐7,668 ‐5,502 ‐3,336 1,350 CF( (3) 2.00% ‐12,000 1,916 1,996 2,079 2,166 4,686 AGGREGATE CF (4) 6 ‐12,000 ‐10,084 ‐8,087 ‐6,008 ‐3,842 844 (1) Free Cash Flow (2) Cumulative Free Cash Flow (3 )Accountable Cash Flow (4) Cumulative accountable Cash Flow

78 JESSICA GALICIA

FINAL REPORT

6.4.2.2 Investment funding. 6.4.2.3 Return.

The tables illustrate the hypotheses for the composition of equity for the The returns which each of the agents or operators would obtain in project as set out in section 6.3.1. As may be seen, the total investment accordance with the suppositions employed on this hypothetical baseline calculated at 12 million euros is financed by means of equity (6 M euros) and scenario without use of the JESSICA instrument are as set out in Table 22. commercial credit amounting to the same sum. Meanwhile, the stake to be taken up by private initiative also involves a contribution of 4.5 million euros of equity in the transport operating company.

Table 27 Funding of investment in the Bus Fleet group. In Thousands of Euros.

2010 ECONOMIC SITUATION/YEAR TOTAL 1 INVESTMENT 12,000 12,000 FUNDING SOURCES 12,000 12,000 OPERATIONAL FUNDING NEEDS (OFN) 0 0 CAPEX 12,000 12,000 EQUITY 6,000 6,000 PUBLIC ENTITIES 1,500 1,500 PRIVATE ENTITIES 4,500 4,500 OTHER (OWNERS, BANKS…) 0 0 JESSICA (EQUITY) 0 0 DEBTS 6,000 6,000 COMMERCIAL CREDITS 6,000 6,000 JESSICA CREDITS 0 0 INVESTMENT GRANTS 0 0 NEG. RESULT FOR YEAR (WITHOUT AMORT.) 0 0

79 JESSICA GALICIA

FINAL REPORT

Table 28 Return of the various funding parties in the bus fleet group. In thousands of Euros

2010 2011 2012 2013 2014 2015 FLOW TOTAL‐IRR UDF BANK FLOWS (ENTITY PERSPECTIVE) SIGN PAYBACK 1 2 3 4 5 6

COMMERCIAL CREDITS ‐ 6,000 6,000 0 0 0 0 0

P.D. COMMERCIAL(1) + 6,000 0 1,916 1,996 2,079 8 0

FIN. COST COMMERCIAL CREDITS + 724 0 356 243 124 0 0

BANKS OTHER (OWNERS, BANKS…) ‐ 0 0 0 0 0 0 0

DIVIDENDS + 0 0 0 0 0 0 0

CASH FLOW +/‐ 5.94% ‐6,000 2,273 2,239 2,203 9 0

CUMULATIVE CASH FLOW +/‐ 4 ‐6,000 ‐3,727 ‐1,488 715 724 724

PRIVATE ENTITIES ‐ 4,500 4,500 0 0 0 0 0

DIVIDENDS + 5,133 0 0 0 0 1,618 3,515

CONSTRUCTION MARGIN + 0 0 0 0 0 0 0 PRIVATE ENTITIES OPERATING MARGIN + 0 0 0 0 0 0 0

CASH FLOW +/‐ 2.85% ‐4,500 0 0 0 1,618 3,515

CUMULATIVE CASH FLOW +/‐ 6 ‐4,500 ‐4,500 ‐4,500 ‐4,500 ‐2,882 633

PUBLIC ENTITIES ‐ 1,500 1,500 0 0 0 0 0

DIVIDENDS + 1,711 0 0 0 0 539 1,172 PUBLIC ENTITIES CASH FLOW +/‐ 2.85% ‐1,500 0 0 0 539 1,172

CUMULATIVE CASH FLOW +/‐ 6 ‐1,500 ‐1,500 ‐1,500 ‐1,500 ‐961 211

JESSICA CREDITS ‐ 0 0 0 0 0 0 0

JESSICA (EQUITY) ‐ 0 0 0 0 0 0 0

FIN. COST, JESSICA + 0 0 0 0 0 0 0

JESSICA P.D.JESSICA(2) + 0 0 0 0 0 0 0

DIVIDENDS + 0 0 0 0 0 0 0 INEGA ‐ CASH FLOW +/‐ ‐ 0 0 0 0 0 0

ENERGY CUMULATIVE CASH FLOW +/‐ ‐ 0 0 0 0 0 0 (1) Amortisation of commercial credit (2) Amortisation of JESSICA credit

As may be seen, although the IRR achieved (2.85%) is lower than that for the other projects selected, it remains positive on the baseline scenario, and may therefore also be held to satisfy the requirement imposed by Community Regulation 1083/2006 for EU funds.

80 JESSICA GALICIA

FINAL REPORT

COMMERCIAL CREDIT INTEREST RATE 6.00% 6.4.3 Development with JESSICA funding. JESSICA CREDIT INTEREST RATE 4.50%

In the following sections, maintaining the structure and parameters defined IRR 3.24% as the baseline case, we present the results which would be obtained with PAYBACK 6 recourse to the JESSICA initiative. The JESSICA funds (2.4 million euros) serve JESSICA FUNDS(thousands of Euros) 2,400 as a loan for development of the operation, rather than an equity stake or guarantee. 6.4.3.1 Profits and losses PROJECT BUS FLEET CONSOLIDATION GROUP 3 Table 23 illustrates compliance with this requirement BUSINESS BUSES as the financial model gives the EBITDA and the aggregate Free Cash Flow PROJECT DURATION 6 for the project. INVESTMENT PERIOD 1 The positive EBITDA (2.58 million euros) from the first year of operations INVESTMENT START YEAR 1 onwards reduces the payback period to 6 years, thereby making this OPERATIONAL START YEAR 2 project more attractive for inclusion within the JESSICA UDF. CORPORATION TAX RATE 30% OPERATING GRANTS (Thousands of Euros) 900 Figure 8 Aggregate Free Cash Flow from the Bus Fleet business group INVESTMENT (thousands of Euros) 12,000

4.000 OPERATIONAL FUNDING NEEDS (OFN) (Th. Euros) 0 CAPEX (Thousands of Euros) 12,000 2.000 EQUITY % LIABILITIES 50% 0

DEBT, CREDITS %LIABILITIES 50% -2.000 DEBT , JESSICA CREDIT (FIXED) 40% PUBLIC CONTRIBUTION % NET WORTH 25.00% -4.000 PRIVATE ENTITY CONTRIBUTIONS % NET WORTH 75.00% -6.000 Miles de Euros de Miles OTHER CONTRIBUTIONS % NET WORTH 0.00% -8.000 CONTRIBUTION % JESSICA NET WORTH 0.00% -10.000

CPI 1.01 -12.000 OPERATING COSTS (% INVESTMENT) 67.00% -14.000 123456 AMORTISATION PROVISION (% INVESTMENT) 10.00% OPERATING REVENUE (% INVESTMENT) 81.00% RATE OF COST INCREASE 1.00 Miles de Euros Thousands of Euros RATE OF REVENUE INCREASE 1.00

CONSTRUCTION MARGIN 0.00% OPERATING MARGIN 0.00%

81 JESSICA GALICIA

FINAL REPORT

Table 29 Profits and Losses of the Bus Fleet business group and its Cash Flows. In thousands of Euros.

2010 2011 2012 2013 2014 2015 TOTAL‐IRR UDF ECONOMIC SITUATION/YEAR PAYBACK 1 2 3 4 5 6

OPERATING REVENUE 53,100 0 10,620 10,620 10,620 10,620 10,620 NET TURNOVER 48,600 0 9,720 9,720 9,720 9,720 9,720 OTHER OPERATING REVENUE 0 0 0 0 0 0 0 OPERATING GRANTS 4,500 0 900 900 900 900 900 TOTAL OPERATING EXPENSES 46,200 0 9,240 9,240 9,240 9,240 9,240 PERSONNEL EXPENSES 28,200 0 5,640 5,640 5,640 5,640 5,640 MAINTENANCE COSTS 12,000 0 2,400 2,400 2,400 2,400 2,400 OPERATING CONSUMPTION 0 0 0 0 0 0 0 OTHER COSTS 0 0 0 0 0 0 0 AMORTISATION PROVISIONS 6,000 0 1,200 1,200 1,200 1,200 1,200 INVESTMENT AMORTISATIONS 0 0 0 0 0 0 0 TOTAL EXTRAORDINARY REVENUE 3,600 0 0 0 0 0 3,600 EXTRAORDINARY REVENUE 3,600 0 0 0 0 0 3,600 SUBSIDIES 0 0 0 0 0 0 0 EXTRAORDINARY EXPENSES AND LOSSES 0 0 0 0 0 0 0 EBITDA 16,500 0 2,580 2,580 2,580 2,580 6,180 OPERATING PROFIT 6,900 0 1,380 1,380 1,380 1,380 1,380 FINANCIAL REVENUE 0 0 0 0 0 0 0 FINANCIAL COSTS 617 0 321 205 91 0 0 FIN. COST COMMERCIAL CREDITS 312 0 214 99 0 0 0 FIN. COST JESSICA 305 0 107 107 91 0 0 TAXES 2,965 0 318 352 387 414 1,494 CORPORATION TAX 2,965 0 318 352 387 414 1,494 OTHER TAXES 0 0 0 0 0 0 0 RESULT FOR YEAR 6,918 0 741 822 902 966 3,486

FCF (1) 3.24% ‐12,000 2,166 2,166 2,166 2,166 4,686 INEGA

‐ AGGREGATE FCF ( 2) 6 ‐12,000 ‐9,834 ‐7,668 ‐5,502 ‐3,336 1,350 CF( (3) 2.18% ‐12,000 1,941 2,022 2,102 2,166 4,686

ENERGY AGGREGATE CF (4) 6 ‐12,000 ‐10,059 ‐8,036 ‐5,934 ‐3,768 918 (1) Free Cash Flow (2) Cumulative Free Cash Flow (3 )Accountable Cash Flow (4) Cumulative accountable Cash Flow

82 JESSICA GALICIA

FINAL REPORT

6.4.3.2 Investment funding that seen in the previous projects. However, given the current market circumstances this is sufficiently attractive to encourage investment in such The hypotheses for the breakdown of funds set out in section 6.3.1 as the projects. This attractiveness is reinforced by the short investment payback baseline case are as illustrated in Table 24. The contribution of funds period. from JESSICA is estimated at 2.4 million euros, solely as credits.

Table 30 Funding of investment in the Bus Fleet group. In thousands of Euros.

2010 ECONOMIC SITUATION/YEAR TOTAL 1 INVESTMENT 12,000 12,000 FUNDING SOURCES 12,000 12,000 OPERATIONAL FUNDING NEEDS (OFN) 0 0 CAPEX 12,000 12,000 EQUITY 6,000 6,000 PUBLIC ENTITIES 1,500 1,500 PRIVATE ENTITIES 4,500 4,500 OTHER (OWNERS, BANKS…) 0 0 JESSICA (EQUITY) 0 0 DEBTS 6,000 6,000 COMMERCIAL CREDITS 3,600 3,600 JESSICA CREDITS 2,400 2,400 INVESTMENT GRANTS 0 0 NEG. RESULT FOR YEAR (WITHOUT PAYBACK) 0 0

6.4.3.3 Return

This section gives the returns which each of the agents or operators would obtain in accordance with the suppositions employed on this scenario with recourse to use of the JESSICA instrument. As a result, in addition to public and private agents (3.10%), the commercial banks (5.94%) and the JESSICA fund itself (4.46%) would obtain positive returns, at a slightly lower rate than

83 JESSICA GALICIA

FINAL REPORT

Table 31 Return of the various funding parties in the bus fleet group. In thousands of Euros

2010 2011 2012 2013 2014 2015 TOTAL‐IRR BANK FLOWS (ENTITY PERSPECTIVE) FLOW SIGN PAYBACK 1 2 3 4 5 6

COMMERCIAL CREDITS ‐ 3,600 3,600 0 0 0 0 0

P.D. COMMERCIAL(1) + 3,600 0 1,941 1,659 0 0 0

FIN. COST COMMERCIAL CREDITS + 312 0 214 99 0 0 0

BANKS OTHER (OWNERS, BANKS…) ‐ 0 0 0 0 0 0 0

DIVIDENDS + 0 0 0 0 0 0 0

CASH FLOW +/‐ 5.94% ‐3,600 2,155 1,757 0 0 0

CUMULATIVE CASH FLOW +/‐ 3 ‐3,600 ‐1,445 312 312 312 312

PRIVATE ENTITIES ‐ 4,500 4,500 0 0 0 0 0

DIVIDENDS + 5,189 0 0 0 50 1,625 3,515

CONSTRUCTION MARGIN + 0 0 0 0 0 0 0 PRIVATE ENTITIES OPERATING MARGIN + 0 0 0 0 0 0 0

CASH FLOW +/‐ 3.10% ‐4,500 0 0 50 1,625 3,515

CUMULATIVE CASH FLOW +/‐ 6 ‐4,500 ‐4,500 ‐4,500 ‐4,450 ‐2,826 689

PUBLIC ENTITIES ‐ 1,500 1,500 0 0 0 0 0

DIVIDENDS + 1,730 0 0 0 17 542 1,172 PUBLIC ENTITIES CASH FLOW +/‐ 3.10% ‐1,500 0 0 17 542 1,172

CUMULATIVE CASH FLOW +/‐ 6 ‐1,500 ‐1,500 ‐1,500 ‐1,483 ‐942 230

JESSICA CREDITS ‐ 2,400 2,400 0 0 0 0 0

JESSICA (EQUITY) ‐ 0 0 0 0 0 0 0

FIN. COST JESSICA + 305 0 107 107 91 0 0

JESSICA P.D.JESSICA(2) + 2,400 0 0 364 2,036 0 0

DIVIDENDS + 0 0 0 0 0 0 0

CASH FLOW +/‐ 4.46% ‐2,400 107 471 2,127 0 0

CUMULATIVE CASH FLOW +/‐ 4 ‐2,400 ‐2,293 ‐1,823 305 305 305 (1) Amortisation of commercial credit (2) Amortisation of JESSICA credit

84 JESSICA GALICIA

FINAL REPORT

6.5 Sensitivity Analysis

One of the tools provided in the financial model is that it allows for a sensitivity analysis of the project returns (IRR) in the event of variations in some of the underlying suppositions. As with other parts of the model, this allows the tool to be applied to the different agents and operators involved in developing and funding the project, along with an analysis of the impact on IRR of variations in the different variables involved in the model: revenue, costs, investment costs, tax rate, etc.

In the case which here concerns us this analysis has been applied to the private entities, since they are the only agents involved in funding all three projects, thereby facilitating a comparison of the results. With regard to the variables selected for analysis of the impact of variations on the IRR for each project, consideration has been given to the most significant investment costs, the expenditure and revenue generated by each of the projects.

The results are as set out in the following figures and tables:

85 JESSICA GALICIA

FINAL REPORT

Figure 9Analysis of the return of the business groups for variations in the investment for that part funded by private entities

Evolucion TIR 15,00%

10,00%

5,00% TIR

0,00%

‐5,00%

‐10,00% 0,80 0,85 0,90 0,95 1,00 1,05 1,10 1,15 1,20 Variaciones de la variable

1 ENTIDADES PRIV ADAS 2 ENTIDADES PRIVADAS 3 ENTIDADES PRIVADAS

Evolución TIR Evolution of IRR Variaciones de la variable Variations in variable ENTIDADES PRIVADAS PRIVATE ENTITIES Table 32 Return of the business groups for variations in the investment for that part funded by private entities

GROUP ENTITIES/VARIABLES 0.85 0.88 0.91 0.94 0.97 1.00 1.03 1.06 1.09 1.12 1.15 1‐POWER PLANTS PRIVATE ENTITIES 12.75% 11.57% 10.35% 9.14% 7.56% 5.77% 3.83% 1.71% ‐0.75% ‐3.72% ‐7.51% 2‐Building Refurbishment PRIVATE ENTITIES 8.89% 8.10% 7.29% 6.47% 5.62% 4.73% 3.79% 2.76% 1.64% 0.35% ‐1.16% 3‐Bus Fleet PRIVATE ENTITIES 8.75% 7.57% 6.40% 5.22% 4.04% 2.85% 1.63% 0.38% ‐0.90% ‐2.23% ‐3.58% Table 1 reveals that the biomass power plant project is the most sensitive to variations in the investment cost. With a reduction of 15% in the investment, for example, the IRR on this project rises to 12.75%; whereas with an unexpected increase of 15% in the investment, this would give a negative IRR of 7.51%, completely destroying its attractiveness on the basis of the suppositions made in the baseline scenario. In accordance with these results, Figure 1 presents the sharper return slope (IRR) on this project compared with the other two.

86 JESSICA GALICIA

FINAL REPORT

Figure 10 Analysis of the return of the business groups for variations in the revenue for that part funded by private entities

Evolucion TIR 25,00% 20,00%

15,00% 10,00% 5,00%

0,00%

TIR ‐5,00%

‐10,00%

‐15,00% ‐20,00%

‐25,00% ‐30,00% 0,80 0,85 0,90 0,95 1,00 1,05 1,10 1,15 1,20 Variaciones de la variable

1 ENTIDA DES PRIV A DAS 2 ENTIDADES PRIVADAS 3 ENTIDA DES PRIV ADA S

Evolución TIR Evolution of IRR Variaciones de la variable Variations in variable ENTIDADES PRIVADAS PRIVATE ENTITIES

Table 33 Return of the business groups for variations in the revenue for that part funded by private entities

GROUP ENTITIES/VARIABLES 0.85 0.88 0.91 0.94 0.97 1.00 1.03 1.06 1.09 1.12 1.15 1‐POWER PLANTS PRIVATE ENTITIES ‐ ‐ ‐15.04% ‐4.15% 1.55% 5.77% 9.12% 11.38% 13.42% 15.39% 17.25% 2‐Building Refurbishment PRIVATE ENTITIES ‐ ‐7.27% ‐2.26% 0.69% 2.89% 4.73% 6.34% 7.80% 9.15% 10.42% 11.63% 3‐Bus Fleet PRIVATE ENTITIES ‐25.93% ‐16.15% ‐9.68% ‐4.86% ‐0.81% 2.85% 6.24% 9.47% 12.56% 15.52% 18.36% Table 2 and the corresponding figure set out the sensitivity of each project to variations in the revenue generated. As would be expected, any downturn in the revenue figure leads to a drop in the returns, and hence makes the project less attractive to private entities. According to the suppositions employed in the baseline scenario, we now find that the bus fleet is the most sensitive, and consequently has the sharpest slope in the curve representing the path of IRR for the different levels of revenue considered. Lastly, Figure 3 and the corresponding table represent the sensitivity of the return for private entities on each of the three projects, although in this case with regard to any possible shocks which could occur in operating costs. In this case once again the bus fleet project is the most sensitive in terms of its returns (IRR) in response to variations in the costs figure.

87 JESSICA GALICIA

FINAL REPORT

Figure 11 Analysis of the return of the business groups for variations in the costs for that part funded by private entities

Evolucion TIR 20,00%

15,00%

10,00%

5,00%

0,00% TIR

‐5,00%

‐10,00%

‐15,00%

‐20,00% 0,80 0,85 0,90 0,95 1,00 1,05 1,10 1,15 1,20 Variaciones de la variable

1 ENTIDADES PRIVADAS 2 ENTIDADES PRIVA DA S 3 ENTIDADES PRIVA DA S

Evolución TIR Evolution of IRR Variaciones de la variable Variations in variable ENTIDADES PRIVADAS PRIVATE ENTITIES

Table 34 Return of the business groups for variations in the costs for that part funded by private entities

GROUP ENTITIES/VARIABLES 0.85 0.88 0.91 0.94 0.97 1.00 1.03 1.06 1.09 1.12 1.15 1‐POWER PLANTS PRIVATE ENTITIES 13.52% 12.29% 11.02% 9.65% 7.97% 5.77% 3.31% 0.49% ‐2.99% ‐7.62% ‐16.05% 2‐Building Refurbishment PRIVATE ENTITIES 8.36% 7.69% 7.00% 6.28% 5.53% 4.73% 3.88% 2.97% 1.97% 0.87% ‐0.40% 3‐Bus Fleet PRIVATE ENTITIES 15.91% 13.49% 10.97% 8.37% 5.66% 2.85% ‐0.15% ‐3.41% ‐6.97% ‐11.47% ‐17.23% The conclusions to be drawn from this analysis indicate that from the perspective of the return for private entities the three projects behave differently. In the event of changes in investment costs the project which sees its returns most heavily affected is the biomass power plant venture, whereas the bus fleet project will be more sensitive to possible variations in both revenue and operating costs. Naturally, the corollary derived from this sensitivity analysis is that the private operators or agents involved in funding each project must take particular care and monitor those variables which could have the greatest impact on their returns.

88 JESSICA GALICIA

FINAL REPORT

6.6 Summary

6.6.1 Project eligibility criteria

The table enclosed presents in grid format compliance with the eligibility criteria on the part of the selected projects. An initial section refers to projects eligible under the Galicia ERDF OP and the Axis to which they belong. The following rows set out the specific JESSICA criteria for project eligibility.

Table 35 Compliance with eligibility criteria of the projects selected

PROJECT ERDF Accumulation of Public/private Return on Sustainable planning framework Legal Technical Eligibility / grants partnership investment (IUP) Viability viability / Axis termination 1. Energy efficiency in YES NO YES YES Within the context of the IUP YES YES public buildings Axis 4 Co‐funding Fees covering energy efficiency 2015 ESCO lease 2. Biomass boilers YES NO / YES YES YES Within the context of the IUP YES YES Axis 4 (Supplementary Operating concession Rate covering energy efficiency 2015 subsidy) 3. Funding of clean urban YES NO YES YES In context of UIP. Sustainable YES YES transport fleets. Axis 4 Co‐funding Leasing Leasing payment mobility measures. 2015

89 JESSICA GALICIA

FINAL REPORT

6.6.2 Profitability attractive in the case of the bus fleet (4 years), compared with 9 years for buildings refurbishment and 5 years for the biomass power plants. 6.6.2.1 Without JESSICA On this first scenario we find that all projects are capable of repaying the As may be seen in the enclosed table, summarising the main parameters investments made by the operators within very reasonable periods, while employed in measuring the returns on the project, the results obtained offering attractive rates of return. The sensitivity analysis performed in the illustrate a positive IRR both for the banks (5.94%) and for the investment following paragraph, as represented by the figures, illustrates some of the agents, whether these are public (5.82% for buildings refurbishment and weaknesses of these projects which will require careful monitoring by the 2.85% for the bus fleet) and also private entities (5.80% for public managers involved in order to avoid any losses as a result of any deviations refurbishment and 2.85% for the bus fleet). which may occur in operating costs or revenue.

Another of the attractions of these projects is the short timeframe for payback of the funds invested. The payback for the banks is particularly

Table 36 Summary

FUNDING BUSINESS BUSINESS INVESTMENT GROUP ENTITIES/VARIABLES IRR PAYBACK DURATION (THOUSANDS OF GROUP IRR GROUP (THOUSANDS OF EUROS) PAYBACK EUROS) BANKS 5.94% 5 5,200 1‐POWER PRIVATE ENTITIES 5.82% 9 10 2,600 5.38% 8 14,400 PLANTS(1) PUBLIC ENTITIES 5.82% 9 2,600 JESSICA ‐ ‐ ‐ BANKS 5.94% 9 22,073 2‐BUILDING PRIVATE ENTITIES ‐ ‐ 16 ‐ 5.31% 12 31,714 REFURBISHMENT PUBLIC ENTITIES 4.72% 14 9,641 JESSICA ‐ ‐ ‐ BANKS 5.94% 4 6,000 PRIVATE ENTITIES 2.85% 6 6 4,500 3‐BUS FLEET 3.24% 6 12,000 PUBLIC ENTITIES 2.85% 6 1,500 JESSICA ‐ ‐ ‐

(1) This business group is provided with an investment grant of €4,000,000 (4,000 in thousands of Euros)

90 JESSICA GALICIA

FINAL REPORT

6.6.2.2 With JESSICA The stake of the financial entities in the UDF is justified by the following factors: As may be seen in Table 31, summarising the main parameters employed in measuring the returns on the projects, the results obtained improve or 1. These are projects to be co‐funded with the public sector offering a maintain the positive results for banks (5.94%) and for investment agents, positive rate of return. whether public or private, on the three projects considered. The same occurs for JESSICA, with an IRR (4.46%) which is likewise positive, and is highly 2. This allows them to obtain returns in addition to the interest on the attractive in accordance with the suppositions employed in defining this bank finance granted. UDF management fee. scenario. It should be pointed out that the biomass power plant gives JESSICA a return of 5.32% as a result of the dual revenue streams obtained in this 3. Optimisation of management costs. case: by dividends and by fees. 4. More direct involvement in managing the project by being a Another of the attractions of these projects is the short timeframe for stakeholder (UDF). payback of the funds invested. The payback for the banks is particularly attractive in the case of the bus fleet (3 years), as opposed to 7 years for Management of funds by means of an HF allows for: buildings refurbishment and 4 years for biomass power plants. • Reinvestment of funds over time. In the case which here concerns us The same applies to JESSICA, which receives its payback in 8, 10 and 4 years, the funds would, meanwhile, be recovered in a relatively brief period respectively. to an extent which would at this point allow new projects on a substantial scale to be funded. Within the context of the baseline scenario defined for the projects analysed, the main conclusions are as follows: • Attraction of private investment on certain public‐private projects which would not be funded under current conditions. The The funding of projects mainly with JESSICA loans reduces the needs for contribution of funds opens up the possibility that private outside funding and increases funding flexibility (longer repayment periods shareholders could take a stake and develop projects which it would and amortisation subordinate to payment of the commercial debt). The otherwise be difficult to finance. hypothesis involving an equity stake in the company developing the biomass power plants is also an attractive one.

91 JESSICA GALICIA

FINAL REPORT

Table 37 Summary

FUNDING BUSINESS BUSINESS INVESTMENT UDF GROUP ENTITIES/VARIABLES IRR PAYBACK DURATION (THOUSANDS OF GROUP IRR GROUP (THOUSANDS OF EUROS) PAYBACK EUROS) BANKS 5.94% 4 2,600 1‐POWER PRIVATE ENTITIES 6.21% 9 10 2,600 5.38% 8 14,400 PLANTS(1) PUBLIC ENTITIES 6.21% 9 1,300 JESSICA(2) 5.32% 8 3,900 BANKS 5.94% 7 15,290 2‐BUILDING PRIVATE ENTITIES 0.00% ‐ 16 9,641 ENERGY‐INEGA 5.31% 12 31,714 REFURBISHMENT PUBLIC ENTITIES 5.34% 14 0 JESSICA(2) 4.46% 10 6,783 BANKS 5.94% 3 3,600 PRIVATE ENTITIES 3.10% 6 6 4,500 3‐ BUS FLEET 3.24% 6 12,000 PUBLIC ENTITIES 3.10% 6 1,500 JESSICA(2) 4.46% 4 2,400 (1) This business group is provided with an investment grant of €4,000,000 (4,000 in thousands of Euros)

92 JESSICA GALICIA

FINAL REPORT

6.7 Other projects analysed Table 39 Compliance with eligibility criteria of the projects selected

Table 38 Selected Pilot Projects PROJECT ERDF Accumulation Public/privat Return on investment Eligibility / of grants e partnership Axis PROJECT DESCRIPTION ADMINISTRATOR/DEVELOPER 4. Elviña YES NO YES YES 4. Elviña Campus Rental accommodation University of A Coruña University Axis 1 Only JESSICA Accommodati JESSICA Loan to students. on concession Return through Campus. A accommodation rent 5. Arieiro area. Vigo Rental accommodation IGVS/ Vigo City Council Coruña. and supplementary 5. Arieiro YES NO YES YES services for users of area. Vigo Axis 5 Only JESSICA Hotel, car JESSICA Loan Meixueiro Hospital. park and Return through hotel and car 6. Pacios Enterprise Creation of productive Xestur Lugo transport park charges station Park, Baamonde fabric in small towns in (possible) rural Galicia. 6. Pacios YES YES YES YES 7. Monforte de Lemos Logistics area located DG Mobility / IGVS Enterprise Axis 2 Non‐ Mixed urban Returned through sale of Dry Port in inland Galicia reimbursable development developed urban plots Park, expropriation and land connected by rail with Baamonde part developer the . 7. Monforte YES YES YES YES 8. Nautical Tourism in Muros Marina SG Tourism / DG Ports de Lemos Dry Axis 2 Non‐ Private or Returned through sale of Muros reimbursable mixed urban developed urban plots Port expropriation development part and land developer 8. Nautical YES NO YES YES Tourism in Axis 5 Only JESSICA Mooring Revenue through usage and berth rental fees The analysis of these projects (see Annex X) allowed the following grid to be Muros concession drawn up. The remaining project were either not considered eligible (the and Monforte Dry Port or land development for economic activity in Pacios‐ supplementar Baamonde), or have otherwise been switched to a second phase of JESSICA. Once y uses approval has been given by the Managing Authority, new UDFs would be structured on the basis of new resources allocated to this initiative.

93 JESSICA GALICIA

FINAL REPORT

PROJECT Sustainable planning framework (IUP) Legal Technical viability / Viability termination 4. Elviña YES YES YES University General Municipal October 2012 Plan/Modification/Partial Plan Campus. A Coruña. 5. Arieiro YES YES YES area. Vigo Vigo General Plan 2014 6. Pacios DOUBTFUL YES YES Enterprise Sectoral Territorial Regulation Plan for 2012 Enterprise Areas/Begonte Enterprise Park, Reserve Park Baamonde 7. Monforte DOUBTFUL YES YES de Lemos Dry Galician Logistics Areas Plan Port 8. Nautical YES YES YES Tourism in Galician Marinas Steering Plan July 2011 Muros

94 JESSICA GALICIA

FINAL REPORT

The HF structure is not autonomous. Whatever the corporate formula adopted, the HF is at all times controlled by the Managing Authority for the 7 JESSICA STRUCTURE FOR GALICIA ERDF Operational Programme which, when the circumstances arise, can rule as to the withdrawal or modification of the resources employed. 7.1 The three JESSICA funding tools: Holding Fund, Urban Development Fund and Projects Advantages of setting up an HF

7.1.1 Holding Fund (HF) • It allows for allocation of all funds dedicated to JESSICA at once, thereby facilitating the task of EU certification. The creation of a Holding Fund as a "fund of funds" allows the funds allocated to JESSICA to be received immediately, certified, and allocated to the UDFs • It facilitates and organises the application of the funds to each of the which have been set up. As a result, the creation of an HF must go hand in UDFs, as they are managed by one single administrator (the EIB) hand with the establishment of at least one UDF which can be used to which conducts the relevant analyses and studies in order to make channel JESSICA funds to the selected projects. Article 44 of Regulation efficient use of them. 1083/2006 gives the managing authority two options in selecting an HF manager, either by public contract tender in accordance with the • It allows for an improved design for the UDFs and the competitive corresponding legislation, or by awarding a subsidy directly to the EIB, this tenders to select projects, since an experienced manager can solution having been preferred in other cases because of the advantages it structure and coordinate the entire support architecture for the offers. JESSICA tool.

This solution serves to reduce the time required for implementation of the • It can allow for rapid reinvestment of the returns from a UDF in other initiative, and offers the Xunta all the financial experience of this EU investment areas within JESSICA. institution. Nonetheless, the establishment of such an arrangement must take into consideration the additional provisions applicable to certain holding Disadvantages: funds as set out in Article 44 of Regulation 1828/2006, with these provisions being set out in a "funding agreement" to define the mechanisms and The main drawback occurs when the volume of resources allocated and the objectives of the finance. type of projects do not involve an obligation to establish several UDFs. In this case, the creation of an HF as a superstructure for just one UDF may lead to The tasks to be performed by the HF are, among others, that of establishing overlaps unless proper planning of tasks and allocation of the corresponding the selection criteria for UDF investments, the evaluation of UDFs in order to responsibilities is performed. establish which are most suited for the purpose of investment, negotiation of contracts and supervision of the functioning of the UDFs. 7.1.2 Urban Development Funds (UDFs)

Once the urban projects are generating sufficient revenue in order to repay The UDF is the financial platform allowing JESSICA funds to be allocated to the the funds loaned, they will be reimbursed via the UDFs (and, as applicable, eligible projects. The UDF can involve public and private credit entities the HF) to the Managing Authority, which will decide whether once again to contributing a part of the financial resources. JESSICA resources are drawn implement the JESSICA initiative or to use the recovered funds conventionally.

95 JESSICA GALICIA

FINAL REPORT directly from the Holding Fund, which acts as one additional investment entity entity is, in this case, the corresponding UDF, while the development agent within the UDF. may benefit from other public and private loans and, by complying with certain requirements, may also receive non‐refundable public subsidies. The structuring of several UDFs within one JESSICA programme has followed classification criteria in accordance with a) the spatial context (mainly the size of the cities where the UDFs are to be implemented); b) sectoral (based on the project type); and c) in accordance with the investor which may 7.2 JESSICA structure for Galicia accompany the JESSICA funds. In the case of Galicia, given the sum of resources which the Managing Authority is planning to allocate to this The availability of funds, halfway through the period covered by the 2007‐ initiative, the most appropriate procedure would be to create one single UDF. 2013 Operational Programme, along with the need to put forward a simple structure facilitating rapid implementation of JESSICA with no negative This UDF will have a manager responsible for: impact, make it desirable to establish just one Urban Development Fund (UDF) at this initial stage. • Developing the eligible project and establishing the criteria and competitive tender rules for selection. An analysis of the projects proposed and the facilities offered by their managers reveals that the projects proposed lie within the area of sustainable • Promoting, if necessary, cooperation among public and private development through improvements in energy efficiency and the use of agents in each project area. renewable energies. These are the projects which have been selected to perform a financial simulation of the UDF and analyse their viability, as will be • Monitoring the JESSICA investment and guaranteeing repayments to seen in the chapter. As these are sustainable urban development projects, the the HF in accordance with the established agreements and forecasts. view is that the UDF should obtain funds under Axis 4 of the ERDF OP.

7.1.3 Eligible projects The structure proposed JESSICA in Galicia is based on three levels:

The characteristics of each project type demand that different agents be • Level 1: Establishment of a Holding Fund with the ERDF resources involved. The eligible projects will therefore have in place: allocated to JESSICA. This Fund would all times be overseen by the Xunta and, in accordance with the agreement established, by the EIB. • a development company, which may be public, private or mixed. The public body may be at the municipal or autonomous regional level. The Xunta, as the Managing Authority for the funds, would at an Meanwhile, the private stakeholder may be a technical or financial initial stage allocate ERDF resources from Axis 4 which, in terms of agent. the Monitoring Committee, would involve no changes in the transfer of resources across different ERDF Axes. • A loan or loans for investment and operation, or subordinated loans throughout the construction period. • Level 2: Establishment of an Urban Development Fund (UDF) which could be entitled "Sustainable development through greater JESSICA funding can be applied either by means of equity investments or as a efficiency in the use of energy sources". This UDF could be stake in the loan or loans to be implemented for the project. The lending

96 JESSICA GALICIA

FINAL REPORT

administered by the same manager as the HF, with the involvement of one or more credit entities which could take up a stake. Arquitectura básica de JESSICA en Galicia • Level 3: competitive tender for projects open to UDF finance, compliance with eligibility conditions and design of the funding and arrangements for the repayment of the funds allocated. This study Xunta de Galicia has taken into consideration three eligible projects: a) High Autoridad de Gestión environmental quality public buildings b) Installation of biomass Recursos de plants and c)Renewal of efficient urban bus fleets. JESSICA

7.3 Alternatives for the design of a UDF in Galicia Holding Fund (BEI)

Recursos de Manifestación de 7.3.1 Basic architecture JESSICA interés

Entidades Financieras gestoras UDF As mentioned earlier, the functioning of JESSICA is based on the creation of Recursos de Recursos de one or more Urban Development Funds which, with the resources JESSICA Entidades Financieras contributed by the Managing Authority (Xunta de Galicia) and other entities registering an interest in taking part, invest in those sustainable urban Proyectos development projects which fulfil the criteria imposed for JESSICA investments. Arquitectura básica de JESSICA en Basic JESSICA architecture in Galicia Galicia Xunta de Galicia Xunta de Galicia Autoridad de Gestión Managing Authority Recursos de JESSICA JESSICA Resources Manifestación de interés Declaration of Interest Entidades financieras gestoras UDF UDF managing financial entities Recursos de Entidades Financieras Financial Entity Resources Proyectos Projects

This Urban Development Fund, as it is managed by financial entities, allows the Managing Authority to entrust the task to professionals within the financial sector with considerable experience in the implementation of financial products.

97 JESSICA GALICIA

FINAL REPORT

7.3.2 Distinctive aspects of JESSICA in Galicia Gestión mixta con participación del INEGA y de las Entidades Locales The architecture proposed for Galicia is dictated by three distinctive factors which shape the final structure of the JESSICA Initiative, namely:

Xunta de Galicia a) The sum allocated: In the case of Galicia, the JESSICA Initiative will be Autoridad de Gestión allocated 16 million euros (11.7 exclusively for credits), drawn from Recursos de ERDF funds and serving to finance one part of an investment JESSICA

Apoyo Técnico: calculated at 58 million Euros. Holding Fund (BEI) INEGA

b) The role within the JESSICA Initiative which the Xunta wishes to give Manifestación de Recursos de interés to the INEGA. Its inherent nature, since it is not a financial entity and JESSICA its area of operations focuses heavily on energy efficiency projects, Entidades Financieras gestoras UDF+ Entidades locales Recursos de Recursos de will dictate the structure to be set up. JESSICA Entidades Financieras c) The unquestionable lead role played by local authorities in the initiative and the implementation of the pre‐selected projects. Proyectos

7.3.3 Other possible structures for the Galician UDF Gestión mixta con participación del Mixed administration and involving Taking into consideration the distinctive factors which apply in the case of INEGA y de las Entidades Locales the INEGA and Local Entities Galicia, other alternatives do exist for the JESSICA architecture design. Of Xunta de Galicia Xunta de Galicia these, perhaps the most attractive would be to base the system on a mixed Autoridad de Gestión Managing Authority model by adding into the basic structure described above the involvement of Recursos de JESSICA JESSICA Resources a public management entity (INEGA), and, given the particular nature of the Manifestación de interés Declaration of Interest project, the involvement of those local entities which served as its Entidades financieras gestoras UDF + UDF managing financial entities + development agents. Entidades locales Local entities Recursos de Entidades Financieras Financial Entity Resources Mixed Model: Private management, but with involvement of public entities Proyectos Projects in administration and with technical support from the INEGA.

The procedure to be followed if this model were to be chosen would be as follows:

1) The Xunta, as the Managing Authority, proposes the Funding Agreement for the creation of a Holding Fund and entrusts administration to the EIB, which would be supported by the

98 JESSICA GALICIA

FINAL REPORT

INEGA (public entity) in decision‐making and as a technical 7.4 Outcomes for the UDF and the HF advisor to the Fund. 2) The EIB is, together with this public entity, responsible for the In order to model the UDF level we have adopted the baseline structure task of supporting the Xunta in definition and implementation of defined for JESSICA in Galicia at this initial stage, as further explained in the UDF created. Chapter 7.2. The Holding Fund (HF) is thus developed by means of one single 3) Following its definition, the Holding Fund manager (the EIB) UDF, bringing together the three projects the viability of which has been would launch a declaration of interest in order, by means of analysed in previous sections. competitive tender, to select those entities to be included as being most suitable for involvement in the JESSICA Initiative. Hypothesis: 4) The financial entity or entities ultimately selected would, together with the Local Entities involved as development HF : ERDF = € 16M partners, manage and administer the resources assigned by the Holding Fund, along with any additional resources which they or UDF : TOTAL = €34.8M third partners may contribute to the Initiative. HF Investment JESSICA credits = € 12M

JESSICA Equities = € 1.3M Non‐commercial credits = € 21.5M

Projects : TOTAL = €58.2M UDF Credits (JESSICA credits + Non‐commercial credits) = € 33.3 M UDF Equities = €1.3 M Public Entities (Equity) = € 12.5 M Private Entities (Equity) = € 7.1 M Subsidies = €4M

The HF provides ERDF funds allocated to the JESSICA initiative to the UDF in order for the latter in turn to make them available to each of the projects. Although the UDF channels and receives the flows and returns from the JESSICA funds managed, these flows correspond to the HF. Each year the HF pays the EIB a fee of 1.5% of the JESSICA funds managed over the first 10 financial years, falling to 0.20% over the following 10, as set out in Table 34.

99 JESSICA GALICIA

FINAL REPORT

Management of the UDF will be performed by the financial entities selected to fund the project. The flows to be obtained by the financial entities will be at the interest rate for the finance, plus the agreed management fees. • Incurring annual management costs, considered as minimal, of 155 thousand euros over the first five years. This period coincides with the greatest effort involved in the work associated with initial start‐ up, thereby requiring greater supervision, and initial project operations. From year 5 onwards the fees drop to 0.5% of the JESSICA funds managed for the following two years, and lastly 0.10% for the remaining financial years. The total volume of management costs amounts to 860 thousand euros.

• It receives a commission of 3% on the funds managed during the first three years, 2% during the following two years and 0.30% for the remaining financial years up until the date when all JESSICA funds are repaid. In total, 1.614 million euros, as detailed in Table 35, providing a breakdown of the evolution of these magnitudes over the period, applying the hypotheses included in the enclosed table for their calculation.

• In short, a gross margin obtained as the difference between the two flows of 754 thousand euros.

100 JESSICA GALICIA

FINAL REPORT

Table 40 Bank fee hypothesis.

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 HF/UDF COMMISSION ITEM 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 MINIMUM 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 HF MANAGEMENT FEES RATE (%) 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% MINIMUM 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 MANAGEMENT FEES RATE II (1) 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ENERGY‐INEGA RATE (%) 3.00% 3.00% 3.00% 2.00% 2.00% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% MINIMUM(2) 155 155 155 155 155 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 MANAGEMENT COST RATE (%) 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% (1)A 0 refers to fees paid directly from the Holding Fund contribution, while a 1 reveals that they would be drawn from returns on the project. (2) In thousands of Euros

Table 41 Flows for the UDF. In thousands of Euros

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 FLOW TOTAL‐IRR FLOWS (ENTITY PERSPECTIVE) SIGN PAYBACK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

COMMERCIAL CREDITS ‐ 22,690 21,490 1,200 0 0 0 0 0 0 0 0 0 0 0 0 0 0 P.D. COMMERCIAL(1) + 22,690 0 5,265 5,108 3,099 2,269 2,404 2,546 2,000 0 0 0 0 0 0 0 0 FIN. COST COMMERCIAL CREDITS + 4,393 0 1,277 1,035 732 548 413 270 119 0 0 0 0 0 0 0 0 OTHER (OWNERS, BANKS…) ‐ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 DIVIDENDS + 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 COSTS ‐ 860 155 155 155 155 155 39 37 6 3 0 0 0 0 0 0 0 FEES + 1,614 392 392 382 203 171 23 22 19 10 1 0 0 0 0 0 0 THREE‐COSTS + 754 237 237 227 48 16 ‐16 ‐15 12 6 1 0 0 0 0 0 0 CASH FLOW +/‐ 7.08% ‐21,253 5,579 6,370 3,878 2,832 2,801 2,802 2,131 6 1 0 0 0 0 0 0 CUMULATIVE CASH FLOW +/‐ 6 ‐21,253 ‐15,674 ‐9,304 ‐5,426 ‐2,594 207 3,009 5,140 5,146 5,147 5,147 5,147 5,147 5,147 5,147 5,147 (1) Amortisation of commercial credit

101 JESSICA GALICIA

FINAL REPORT

Figure 12 UDF aggregate cash flow. In thousands of Euros

Aggregate Cashflow UDF BANCOS 1

10 . 0 0 0

5.000

0

-5.000

-10.000

-15.000

-20.000

-25.000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

102 JESSICA GALICIA

FINAL REPORT

Table 42 Breakdown of fees and costs. In thousands of Euros

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 FEES OBJECT Fees TOTAL 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 OUTSTANDING DEBT 1,440 353 353 343 177 145 20 20 18 10 1 0 0 0 0 0 0 MANAGEMENT FEES DIVIDENDS 174 39 39 39 26 26 3 2 0 0 0 0 0 0 0 0 0 TOTAL MANAGEMENT FEES 1,614 392 392 382 203 171 23 22 19 10 1 0 0 0 0 0 0 OUTSTANDING DEBT 333 59 59 57 44 36 34 34 6 3 0 0 0 0 0 0 0 MANAGEMENT COST DIVIDENDS 41 7 7 7 7 7 5 3 0 0 0 0 0 0 0 0 0 TOTAL MANAGEMENT COST 860 155 155 155 155 155 39 37 6 3 0 0 0 0 0 0 0

NET FEES 754 237 237 227 48 16 ‐16 ‐15 12 6 1 0 0 0 0 0 0

Table 43 Breakdown of Management Fees. In thousands of Euros

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 MF FEES MF BREAKDOWN TOTAL 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 OUTSTANDING DEBT 1,371 353 353 343 177 145 0 0 0 0 0 0 0 0 0 0 0 MANAGEMENT FEES 0 DIVIDENDS 169 39 39 39 26 26 0 0 0 0 0 0 0 0 0 0 0 TOTAL MANAGEMENT FEES 0 (1) 1,540 392 392 382 203 171 0 0 0 0 0 0 0 0 0 0 0 OUTSTANDING DEBT 69 0 0 0 0 0 20 20 18 10 1 0 0 0 0 0 0 MANAGEMENT FEES 1 DIVIDENDS 5 0 0 0 0 0 3 2 0 0 0 0 0 0 0 0 0 TOTAL MANAGEMENT FEES 1 (2) 75 0 0 0 0 0 23 22 19 10 1 0 0 0 0 0 0

TOTAL MANAGEMENT FEES 1,614 392 392 382 203 171 23 22 19 10 1 0 0 0 0 0 0

(1) Fees paid directly by the Holding Fund. (2) Fees paid from project returns.

103 JESSICA GALICIA

FINAL REPORT

Table 44 JESSICA Fund Flow on investments. In thousands of Euros

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 FLOW TOTAL‐IRR FLOWS (ENTITY PERSPECTIVE) SIGN PAYBACK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

JESSICA CREDITS ‐ 11,782 11,782 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 JESSICA (EQUITY) ‐ 1,300 1,300 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 FIN. COST JESSICA + 3,306 0 525 525 509 393 322 302 302 271 144 12 0 0 0 0 0 P.D.JESSICA(1) + 11,782 0 0 364 2,592 1,594 451 0 698 2,848 2,974 263 0 0 0 0 0 DIVIDENDS + 1,989 0 0 0 0 0 304 421 421 421 421 0 0 0 0 0 0 FEES ‐ 5 0 0 0 0 0 1 1 1 1 0 0 0 0 0 0 0 CASH FLOW +/‐ 4.68% ‐13,082 525 889 3,100 1,987 1,075 722 1,420 3,539 3,540 274 0 0 0 0 0 CUMULATIVE CASH FLOW +/‐ 9 ‐13,082 ‐12,558 ‐11,669 ‐8,569 ‐6,581 ‐5,506 ‐4,784 ‐3,364 176 3,716 3,990 3,990 3,990 3,990 3,990 3,990

(1) Amortisation of JESSICA credit

104 JESSICA GALICIA

FINAL REPORT

Table 45 JESSICA Fund Flow. In thousands of Euros

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 FLOW TOTAL/IRR/ CHAPTER FLOWS (ENTITY PERSPECTIVE) SIGN PAYBACK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

1 JESSICA CREDITS ‐ 11,782 11,782 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 JESSICA (EQUITY) ‐ 1,300 1,300 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3 FIN. COST JESSICA + 3,306 0 525 525 509 393 322 302 302 271 144 12 0 0 0 0 0 4 P.D.JESSICA + 11,782 0 0 364 2,592 1,594 451 0 698 2,848 2,974 263 0 0 0 0 0 5 DIVIDENDS + 1,989 0 0 0 0 0 304 421 421 421 421 0 0 0 0 0 0 6 MANAGEMENT FEES HF + 1,157 202 200 193 149 122 105 94 73 19 0 0 0 0 0 0 0 7 MANAGEMENT FEES 0 UDF + 1,540 392 392 382 203 171 0 0 0 0 0 0 0 0 0 0 0 8 MANAGEMENT FEES 1 UDF + 75 0 0 0 0 0 23 22 19 10 1 0 0 0 0 0 0 9 CASH FLOW(1) +/‐ 2.83% ‐13,475 132 507 2,898 1,817 1,100 746 1,440 3,550 3,541 274 0 0 0 0 0 10 CUMULATIVE CASH FLOW +/‐ 10 ‐13,475 ‐13,342 ‐12,835 ‐9,938 ‐8,121 ‐7,021 ‐6,275 ‐4,835 ‐1,286 2,255 2,529 2,529 2,529 2,529 2,529 2,529 11 % MANAGING AUTHORITY RETURN (2) 108.23% 0.00% 3.33% 5.63% 19.65% 12.60% 6.82% 4.59% 9.01% 22.43% 22.43% 1.74% 0.00% 0.00% 0.00% 0.00% 0.00% (1) 9=‐1‐2+3+4+5‐7+8 (2) 11= (3+4+5)/TOTAL211(1+2+6+7)

Table 46 Basic Variables. Monetary variables in thousands of Euros

VARIABLE VALUE EXPLANATION IRR 2.83% CHAPTER 9 OF TABLE 6 PAYBACK 10 CHAPTER 10 OF TABLE 6 FUNDS INVESTED 14,622 FROM TABLE 6 CHAPTERS 1+2+7 HOLDING FUND FEES 1,157 FROM TABLE 6 CHAPTER 6 FUNDS MANAGED 15,779 FROM TABLE 6 CHAPTERS 1+2+6+7 NOMINAL HF 16,000 TOTAL JESSICA FUNDS MF UDF 0 1,540 FROM TABLE 6 CHAPTER 7 MF UDF 1 75 FROM TABLE 6 CHAPTER 8 DIFFERENCE BETWEEN NOMINAL HF AND MANAGED FUNDS NOT USED 221 FUNDS INVESTMENT RETURNS 17,152 FROM TABLE 6 CHAPTERS 3+4+5+8 (INVESTMENT RETURN + FUNDS NOT OVERALL RATIO 108.58% USED)/NOMINAL HF

105 JESSICA GALICIA

FINAL REPORT

Figure 13 Aggregate JESSICA Flow Figure

Aggregate Cashflow Jessica

4.000

2.000

0

-2.000

-4.000

-6.000

-8.000

-10.000

-12.000

-14.000

-16.000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

106 JESSICA GALICIA

FINAL REPORT

Lastly, the two following figures illustrate the funding of the architecture Total investment: € 58.1 M2 proposed for JESSICA in Galicia at this initial stage, along with the returns and payback for each of the agents involved in the funding: ERDF Leverage: € 16 M2

: € 1 M2 >€ 3.7M2 Financiación de la arquitectura de JESSICA propuesta

IRR: 2,83% Holding Fund Pay Back: 10 y 16.0 M€ Duration: 16 y

UDF Eficiencia energética

Proyecto 1 Proyecto 2 Proyecto 3 CALDERA BIOMASA REHABILIT. EDIFICIOS FLOTAS VEHICULOS

Inversion: 14,4 M€ Inversion: 31,7 M€ Inversion: 12,0 M€ Fondos Propios: 5,2 M€ Fondos Propios: 9,7 M€ Fondos Propios: 6,0 M€ Equities JESSICA: 1,3 M€ Créditos Com.: 15,3 M€ Créditos Com.: 3,6 M€ Créditos Com.: 2,6 M€ Créditos JESSICA: 6,8 M€ Créditos JESSICA: 2,4 M€ Créditos JESSICA: 2,6 M€ Subvención: 4,0 M€

Financiación de la arquitectura de Funding of proposed JESSICA Rentabilidad de la arquitectura de Returns on proposed JESSICA JESSICA propuesta architecture JESSICA propuesta architecture UDF Eficiencia energética Energy Efficiency UDF UDF Eficiencia energética Energy Efficiency UDF Proyecto 1 CALDERA BIOMASA Project 1 BIOMASS BOILER Proyecto 1 CALDERA BIOMASA BIOMASS BOILER Project 1 Proyecto 2 REHABILIT. EDIFICIOS Project 2 REFURB. BUILDINGS Proyecto 2 REHABILIT. EDIFICIOS BUILDINGS REFURB. Project 2 Proyecto 3 FLOTAS VEHÍCULOS Project 3 VEHICLE FLEETS Proyecto 3 FLOTAS VEHÍCULOS VEHICLE FLEET Project 3 Inversión: Investment: BANCOS BANKS Fondos propios: Equity: ENTIDADES PRIVADAS PRIVATE ENTITIES Créditos com.: Commercial credits: ENTIDADES PÚBLICAS PUBLIC ENTITIES Créditos JESSICA: JESSICA credits: Subvención Grant

107 JESSICA GALICIA

FINAL REPORT

Diagrama de flujos en la arquitectura Flowchart for proposed JESSICA de JESSICA propuesta architecture Créditos JESSICA credits: UDF Eficiencia energética Energy Efficiency UDF Entidades Financieras Financial Entities Coste financiero Financial cost Creditos Comerciales Commercial credits Proyecto CALDERA BIOMASA Project BIOMASS BOILER Proyecto REHABILIT. EDIFICIOS Project REFURB. BUILDINGS Proyecto FLOTAS VEHÍCULOS Project VEHICLE FLEETS

108 JESSICA GALICIA

FINAL REPORT

5. The list of credit entities in Galicia is clearly headed by the two savings banks (Caja Galicia and Caixa Nova). Together they could account for 8 CONCLUSIONS: JESSICA SOLUTION FOR GALICIA more than 50% of financial operations in the region. The savings banks are currently in the process of merger. The most significant regional The evaluation study performed for implementation of the JESSICA Initiative in bank is the Banco Pastor, a medium‐sized entity. Galicia is also home to Galicia leads to the following conclusions: the leading Spanish credit entities (Banco Santander, BBVA, Caja Madrid and La Caixa). 1. Galicia, a Convergence Objective and with a 2007‐2013 ERDF Operational Programme of some 2.191 million euros, would be a very The Galician savings banks have considerable experience in offering favourable territory for use of the JESSICA tool. The system of cities financial support to public authorities for the use of ERDF funds, and so comprises seven main centres of population with between 80,000 and properly understand the objectives and procedures of the JESSICA 300,000 inhabitants, along with a tier of medium and small‐sized towns initiative. spread throughout the territory. As opposed to the major industrial centres of Vigo and Ferrol, the smaller‐sized towns fulfil the function of 6. There are enough types of project in Galicia which are open to funding district service centres, strongly interconnected with their rural context. under the JESSICA initiative. We have identified projects which, supported by the corresponding fund managers, could be financed by 2. Urban municipalities have a long tradition of urban development means of this system and could provide an initial structure for the planning and the implementation of land, housing and urban JESSICA initiative. refurbishment development operations. The URBAN projects developed in the leading cities have, along with other regional lines of funding, 7. We have in this regard selected from the ERDF OP 14 Priority Issues, facilitated the revitalisation of numerous old town centres in Galicia. belonging to 5 Axes. All of these could be covered by JESSICA funding and be eligible. 3. There exists a broad spectrum of urban and sectoral plans which, although they are not unified on the basis of one single sustainable 8. The criteria for a project to be eligible for JESSICA funding has been planning concept (an Integrated Urban Plan, or IUP), could offer divided into two groups: sufficient support for those projects to be covered by the JESSICA initiative, and allow IUPs justifying the eligibility of the projects to be a. Compliance with ERDF eligibility criteria drawn up. b. Compliance with JESSICA eligibility criteria 4. Galicia has no widespread experience in the development of business lines by means of public‐private partnership. The main operations focus i. Project with an urban impactful context on shadow toll motorway concessions, bus station concessions, marinas and, very recently, a hospital concession in Vigo. Meanwhile, there are ii. Supported by a sustainable planning framework two Mutual Guarantee Societies (or SGRs) which have been in operation (inclusion in an IUP) for some considerable time in Galicia, providing personal guarantees by means of bonds or other systems for small and medium‐sized iii. Developed by public‐private partnership. enterprises (SMEs).

109 JESSICA GALICIA

FINAL REPORT

iv. Return provided on the investment. transport fleets). This line of projects is that which gave rise to the UDF proposed in this evaluation study. v. Although they may be cumulative with other types of aid, the conditions must be met in order to avoid c. Axis 5: Nautical Tourism. Managed by the Secretariat‐General classification as State Aid. for Tourism and the Directorate‐General for Ports. Considered at a second stage of JESSICA implementation. vi. Viable from a legal perspective. d. Axis 5: residential facilities for students, third‐age residences, vii. Viable from the technical perspective. hospital support amenities, etc. Various managers, mainly local councils and the IGVS. In the case of the IGVS, we are awaiting viii. The investment must be concluded in accordance with confirmation of acceptance of this line of projects. ERDF criteria (2015). 11. The detailed analysis of the availability of OP funds for JESSICA concludes 9. Some of the Operational Programme fund managers, although they that those funds not yet committed amount to 25% of the total (540 appreciate this form of funding, are reluctant to dedicate some of their million EUR). The availability of funds also varies considerably depending funds to projects which allow for a return on the public investment. on the Axis. All this limits the application of funds for JESSICA finance Perceived administrative difficulties, a lack of experience on public‐ under certain axes, although the process is facilitated on the others. private operations or the idea that ERDF funds should be dedicated exclusively to projects offering social returns are among the arguments 12. The channels for JESSICA funding could be extremely useful for presented. compliance with the N+2 rule, within a context where the committed funds are limited and expenditure capacity may not reach the total limit. In summary, with certain exceptions there is no culture of management This problem could arise in the certification process for the current year, of public‐private partnership projects allowing managers to understand 2010, and subsequent years. the need or desirability of dedicating a proportion of resources to JESSICA funding. 13. JESSICA has, at the initial stage, been structured on the basis of creating:

10. For the purpose of this analysis of implementation of the JESSICA a. A Holding Fund (HF), the proposal being that this should be initiative, four working areas were initially selected: administered by the EIB, with the Xunta allocating around 16 million euros of ERDF funds drawn from Axis 3 "Transport and a. Axis 2: Land development for economic activities. Managed by Energy". IGVS and provincial Xestur bodies. This line of work was abandoned when it was confirmed by the IGVS that the b. Development of an Urban Development Fund with a JESSICA economic activity land market is practically at a standstill. investments similar to that of the HF, around 14 M euros. This UDF could involve public or private credit entities, the b. Axis 3: Funding of renewable energy and energy efficiency estimated figure being 21.8 M euros. projects. Managed by INEGA and DG Mobility (funding of public

110 JESSICA GALICIA

FINAL REPORT

c. The UDF would allow for the implementation of projects focusing on renewable energies and energy efficiency. Three types of project have been modelled:

i. Biomass boilers

ii. Conditioning of public buildings to achieve greater energy efficiency.

iii. Funding of public urban transport fleets.

14. Phase 2: Ongoing conversations with managers and the Managing Authority should serve to clarify the current doubts regarding the remaining projects included in the Annex. In the event that any of these were to prove viable, the solution would then involve aggregating a new UDF which would cover those projects involving the creation of spaces for economic activities, with the corresponding IUPs being drawn up in order to define with greater detail and precision the financial structure for these new initiatives.

111 JESSICA GALICIA

FINAL REPORT

JESSICA. JESSICA EVALUATION STUDY FOR GALICIA

Document: Final Report. Draft

Version: Version 3.2, 30 May 2010

Author: ETT

Identification:

09032‐DE‐3.2 JESSICA Galicia Info Final

Text:

ERDF Framework/ JESSICA Design: AGG‐LL

Project Selection: MLE

Financial model: JAV‐APP

Supervision: PPP

112 JESSICA GALICIA

FINAL REPORT

population centres with the open public spaces, shopping area and services Annexes which they currently lack.

1 STUDENT ACCOMMODATION ON THE ELVIÑA UNIVERSITY CAMPUS, IN A CORUÑA.

1.1 Description of the Project

The Elviña University Campus in A Coruña, although in a peripheral location, is close to the city, with solutions gradually being provided for its inclusion within the neighbouring urban context, where a wide variety of uses are seen. Its facilities are in the process of completion with ambitious projects such as a Technology Park, a Campus Centre as a service area and Enterprise Incubator, Such an initiative to create new land for urban development would gradually with the introduction of a local railway or tram system in accordance with the incorporate the existing fabric, requiring far‐reaching intervention in order to existing nearby infrastructure and a modal interchange providing a considerable generate a high‐quality urban space in line at all times with principles of number of potential users, not simply university students but also workers and sustainability. This would be performed while incorporating social, economic and consumers of the surrounding commercial and leisure areas. The bicycle is the environmental aspects, in particular the inclusion of buildings which constitute focal point connecting up all the facilities. heritage of ethnographic and historical interest, as part of the evolution of a broad territory. Its main and most problem currently is the provision of rental accommodation on the Campus, with the IGVS (the Galician Housing and Land The planned provision of residential accommodation is viewed as supplementing Institute) having organised a competitive tender for the construction of the University of A Coruña, an essential aspect of the Educational Facilities accommodation with a distinct bio‐climatic approach. System for higher education in the Galician public sector. In principle the estimated needs would involve accommodation for 70% of students who The Elviña area, where the Campus is located, lies alongside the Castro de Elviña currently turn to the private rental market. The construction of accommodation hill fort, an important archaeological site where there are plans for a Visitor will serve to improve the quality of public service in university education. Centre. The surrounding context also includes two traditional population centres for which it would be desirable to draw up a Special Plan and develop this by integrating both within the Campus, since they have so far been popular places for both faculty and students to live, although there have not been improvements to infrastructure and services in line with population levels, suggesting in the short term the implementation of an integrated regeneration project, a process beginning with the Residential Area by providing these

113 JESSICA GALICIA

FINAL REPORT

1.1.1 Urban development planning context

The Elviña University Campus is being developed on the basis of a Partial Plan covered by a Planning Area, incorporated within the General Municipal Regulation Plan for A Coruña, currently under review. The Residential Area will be constructed in accordance with an Individual Modification to the General Plan which has already received definitive approval. The surface area covered is 35,000 m², with 28,697 m² allocated for construction.

URBAN DEVELOPMENT: ‐ Plaza _____ 11,706.81 m2

‐ Green ____ 5,722.17 m2

BUILDINGS: 311 homes ______26,511.99 m2

5 common services premises ______2,185.01 m2

118 underground parking spaces __ 3,214.27 m2

1.1.2 Desired objectives

The project presented for the JESSICA initiative involves the construction of rental accommodation for 622 students. The aims pursued are as follows:

d) Housing for some of the students at the University of A Coruña, with the corresponding reduction in the use of both public and private transport to reach the campus.

e) Integration within the urban service project to serve both students and This is, meanwhile, a proposal which covers environmental aspects, such as the residents of the adjacent population centres (San Vicenzo and Castro de treatment and recovery of rainwater and grey water and energy initiatives, such Elviña). as for example the use of geothermal energy or the installation of biomass district heating derived from an agreement with rural communities. f) Reinforcement of the population centres of San Vicenzo and Castro de Elviña through the introduction of a residential fabric (Urban Renewal Area), serving as a corridor connecting the two areas.

114 JESSICA GALICIA

FINAL REPORT g) Private housing market open to students. This constitutes the most • Operational start date: 2012‐2013 academic year (October 2012) significant initiative implemented for the student rental system. With regard to operations, the plans are for the accommodation to be leased, h) A technologically innovative project, given the use of efficient installations, with the price being the regional public sector protected rental price. the use of efficient materials such as wood, and one which is in turn environmentally integrated, being developed in accordance with the 1.1.5 Estimate of costs and revenues contextual idiom. The enclosed table sets out the basic details of the costs and revenue expected i) It involves the creation of a broader complex and the diversification of a from the project. university area focusing solely on the education sector by introducing residential uses. Municipality A Coruña Province and Autonomous Region Galicia GALICIA 1.1.3 Development and administration agents USE Land Characteristics Leased residential Type of Action Expropriation‐Purchase For the purposes of project execution, it will be the IGVS which will be Corporation Tax Rate (%) responsible for obtaining the land and for constructing the accommodation. As for maintenance, preservation and management, the University of A Coruña will Residential Construction Limit 26,511 m2s be responsible, with plans for the inclusion of private operators under a Premises Construction Limit 2,185 m2 concession system to run both the accommodation and the various associated Parking. 3,214 m2 services.

1.1.4 Action periods COSTING BUDGET

The update to the most recent action programme is as follows: Acquisition of land and compensation Property Transfer Tax and Stamp Duty • Planning: Definitive Approval Municipal Land Gains Tax Notaries and • Building permit: Granted Documentation costs Register Additional costs at Local Bodies • Expropriation: Concluded Topographical profile and others Segregations, groupings, etc. • Works adjudication: June 2010

• Project execution: June 2010‐June 2012

• Initial occupancy permit: September 2010

115 JESSICA GALICIA

FINAL REPORT

1.2 A-7-38 Arieiro area, in Vigo

Total Land Budget 5,000,000 1.2.1 Description of the project

Construction: Civil Engineering and Installations This is an area intended for a Tertiary Centre, public car park and transport Properties Garages interchange at the O Meixoeiro Hospital Complex. Premises Storage rooms The Hospital Centre was, as with many facilities in the city, originally Internal urban development constructured in an outlying location on land bordering commonweal countryside Connections Price review and works sundries areas now classified as Protected Rural Land. It was set up to serve not only Vigo Installation Certificates Quality Control but also other municipalities, many of them located beyond what would be Health and Safety viewed as the city's Metropolitan Area. Access is extremely difficult and entirely Total Works Budget 18,169,231 dependent on private transport, since in order to reach the site one must first travel to the city bus station and take a return trip by bus or taxi to the hospital. Economic Result. Lease euros Lease without Common Services: 5.23€/m2 This situation meanwhile requires that land be set aside Lease with Common Services: 6.65€/m3 for off‐street parking, since Annual Lease Revenue(100% occupancy) 1,835,400 parking is currently very difficult Investment Payback Period (Total Cost/Annual Revenue) given the existing lack of 12.62 years capacity. Meanwhile, the Lease revenue introduction of a transport Expenses: Maintenance, administration, financial, taxes interchange will serve to improve access to the city, underpin public transportation (currently shared in part with the university service) and improve the fleet through the inclusion of low‐ emission buses.

Its outlying position means that there is a complete lack of commercial, catering and hotel services, the latter being a requirement for long‐term stays.

1.2.2 Urban development planning context

116 JESSICA GALICIA

FINAL REPORT

The Vigo PGOM (General ‐ CONSTRUCTION LIMITS Municipal Regulation ‐ HOTEL ______5,778.00 m2 Plan) classifies the land ‐Tertiary/hotel ___ 3,612.00 m2 as Non‐Consolidated Urban Land, and a ‐ Modal transport interchange with parking provision (underground) Special Interior Reform Plan will be drawn up. ‐ 745 spaces (26,200 m2 built area) The land is currently covered by reforestation ‐ Land reserved for amenities: 800.00 m2 areas, along with two residential and catering ‐ Land reserved for green zone: 4,000.00 m2 buildings. Consideration has been given for 1.2.3 Desired objectives connections with the required service networks. It should be pointed out that PGOM classifies the O Meixoeiro service complex as a key factor in the territorial The project allows for the development of operations providing a return, focusing structure of the south of the . on the following uses:

According to the PGOM data file, this initiative is viewed as an essential aspect of • Hotel or long‐term residential area for patients' companions. Hotel or the set of services for the O Meixoeiro Hospital. According to the planning file, rental accommodation system. construction will cover 7,223 m² which, in accordance with the General Plan Strategy, will be 80% general tertiary use, essentially commercial and office • Off‐street parking. space, 20% hotel, and 650 car parking spaces. • Public transport interchange with the possibility of applying a usage fee for this.

1.2.4 Development and administration agents

In terms of administration the proposal is for a public project using the expropriation system, although as this is commonweal countryside execution is planned within the first four‐year period.

Planning, expropriation and urban development will be performed by Vigo City Council, using its own funds from the municipal budget, and with funding being incorporated. Consideration must be given to the revenue through external permits (3.15% of the budget).

117 JESSICA GALICIA

FINAL REPORT

Private initiative will be involved by means of a concession system to build and • Car park construction € 11,747,873.40 operate the car park, the hotel centre and tertiary centre. • Tertiary use construction € 3,884,345.62 1.2.5 Execution Deadlines • Total investment € 19,179,271.20 The duration of the project will be:

• Municipal administration, 1 year • Concession procedure, 6 months • Drafting of construction projects and issuing of permits, 8 months • Construction and issuing of permits for initial occupancy and hotel and tertiary operations, 24 months • Car park construction, 12 months Car park operations could begin within three years and two months and tertiary and hotel operations within four years and two months from establishment of the UDF.

The timeframe is calculated based on the Vigo City Council's schedule. It is expected to be completed by 2015.

1.3 Estimate of costs and revenues

Costs:

• Special Plan ('PERI') € 42,753.44

• Land expropriation € 1,026,360.00

• Inland urban development € 1,444,500.00 (€ 50/m2 x s)

• Network connections € 771,690.00 € 145/m2s

• Network allocations € 261,748.73

118 JESSICA GALICIA

FINAL REPORT

Motorway, the A‐8 Cantabrian Motorway and the N‐634 National Highway, a strategic location for logistical roads distribution operations. 2 PACIOS-BAAMONDE ENTERPRISE PARK The plans cover an area of 1,062,151 m², distributed as follows: 2.1 Description of the Project ZONING AND USES This is a project being worked on by Xestión Urbanística de Lugo S.A. (Xestur OWNERSHIP Surface area m2 Lugo) the public enterprise functionally operating under the IGVS (Galician INDUSTRIAL USE Housing and Land Institute). This enterprise has considerable experience in the Plots for industrial use Private 652,415 creation of urban development land for sale for industrial operations, although it PRIVATE AMENITIES SYSTEM is now beginning to work with other ownership systems. Commercial Amenities Private 29,456 Social Amenities Private 12,109 The aim is to establish a project the area of influence of which should extend not only to the Autonomous Region of Galicia and Northwestern Spain but also PUBLIC AMENITIES SYSTEM Northern Portugal, as a project of these characteristics should serve a hinterland Sporting amenities Public 31,324 of at least 300 km. OPEN PUBLIC USE AND OWNERSHIP AREA SYSTEMS Green zones Public 147,890 Infrastructure and services Public 55,561 Main roads network, access routes, reserves and associated car parks Public 133,396 TOTAL 1,062,151

The minimum surface areas established for industrial plots are 1500 m² for contiguous buildings and 4500 m² for stand‐alone buildings, with the predominant size being around 7000 m². The largest plot has a capacity of 100,000 m².

The plans are compatible with Transport Centres, the corresponding Service Areas and logistical support.

The Commercial Facilities allow for Catering, Hotels, Automobile Service and Fuel Supply, along with inherent commercial uses.

The Park is located in the Borough of Begonte (Lugo province) in the parishes of The following construction volumes have been established, in terms of the area Pacios‐Baamonde, being planned at the meeting point of A‐6 Northwestern occupied on each plot and the overall buildable area.

119 JESSICA GALICIA

FINAL REPORT

The plans are for 1330 public parking spaces and 5302 private spaces.

The location of the green zones fulfils the mission of landscape integration and visual screening. A green zone of 62,294 m² is positioned at the point of contact with the N‐634, acting as a visual screen and integrating the Santiago Pilgrims' Way.

2.1.1 Urban development planning context

A Sectoral Project was drawn up for the Park, entitled the Sectoral Project for the Begonte Enterprise Reserve Park, receiving definitive approval in 2007 as a development of the Sectoral Plan for Territorial Regulation of Enterprise Areas within the area of the Autonomous Region of Galicia, with the project being CONSTRUCTION VOLUMES classified under the aegis of that Plan as a Major Sub‐Regional Specialist Central Maximum occupied area Maximum buildable area Park. m2 m2 INDUSTRIAL USE 2.1.2 Desired objectives Plots for industrial use 468,812 490,382 PRIVATE AMENITIES SYSTEM • As it is located away from any Galician provincial capital or major city, its Commercial Amenities 17,050 27,280 capacity to impact on its immediate environment is considerable, along Social Amenities 7,156 11,450 with its potential to regenerate a rural area with considerable PUBLIC AMENITIES SYSTEM environmental qualities which has gradually seen the disappearance of its Sporting amenities 1,160 1,160 traditional activities as a result of the population moving away towards TOTAL 494,178 530,272 urban areas, along with the ageing of the population still in residence.

USE No. of PLOTS Surface area (m2 • This therefore presents an opportunity to create employment along with SPORTS 1 31,324 the dissemination of urban development across a broader territory, as a SOCIAL 1 12,109 catalysing element providing infrastructure, with sustainability principles INFRAESTRUCTURE 1 26,016 being included in aspects including the water cycle, waste treatment and COMMERCIAL 1 29,456 the inclusion of renewable energy sources. INDUSTRIAL 18 FROM 5,000 TO 12,000 20 FROM 12,000 TO 30,000 1 66,263 1 90,990 TOTAL 44 751,320

120 JESSICA GALICIA

FINAL REPORT

2.1.3 Development and administration agents 2.1.5 Estimate of costs and revenues

Xestur Lugo is the body responsible for administering the project. The enclosed table sets out the basic cost and revenue parameters estimated for the Pacios‐Baamonde project. Land is to be obtained by expropriation, although in some cases it may be acquired by mutual consent, where possible. Under the terms of Rural Municipality Lugo Environment Regulation Act 9/2002, of 30 December 2002, with the Province and Autonomous Region Galicia GALICIA modifications derived from Act 15/2004, of 29 December 2004, there is no USE Land Characteristics Industrial‐Commercial reason why the land owners could not be involved in the administrative process, Type of Action Expropriation‐Purchase and in fact an analysis is currently being performed of the possibility of including Corporation Tax Rate (%) 25.00 business owners in administration operations on the part of the Xestur bodies in the various provinces. In this case, a development model would be agreed, with Gross Sector Area 1,062,151 m2s land management taking part on the basis of public‐private partnership. TOTAL ASSIGNMENTS 336,847 m2s TOTAL NET PLOT 725,304 m2s The deeds for the sale of the plots of land include a series of obligations in order to avoid any speculation or land being withheld on the basis of strong economies preventing access on the part of new or emerging economies in acquiring such COSTING BUDGET land. Land acquisition 2.1.4 Execution Deadlines Property Transfer Tax and Stamp Duty Municipal Land Gains Tax The planned deadline for execution of the works, once the urban development Notaries and and electrical connection works for the park have already been awarded and the Documentation costs Register contract signed, is 19 months, with the work therefore expected to be completed Additional costs at Local Bodies by early 2012, the investment being recovered by means of sales over a period of Topographical survey and others five years. Segregations, groupings, etc. Once 40% of the urban development and electrical connection works have been Cost of Acquisition of Private Land 5,089,551 completed, a public competitive tender process will be launched for Purchase Options over the developed plots, and once the park has been completed, the Development Planning plots reserved in the options process will be sold, along with sale on the open Modification to Urban Planning market of those plots remaining pending. The average sale price is € 40‐50/m2. Ordinance Detailed Study Partial plan Compensation Project Urban Development Works Urban Development Project Works Management (% of Project) Other Urban Development Drafting of Compensation Board Administration Fees bylaws

121 JESSICA GALICIA

FINAL REPORT

Environmental Impact Study Notary office Works Execution Director Land Register Works Management Health and Safety Plan Legal development charges 458,486 Health and Safety Coordination Works Settlement and Supervision Health and Safety Plan Quality Control Plan Official architectural approval for all Projects Administration: Professional Fees 134,600 Management: Economic Activities Tax (IAE) URBAN DEVELOPMENT PROJECT Real Estate Tax Water supply Earthmoving General Costs 826,443 Electrical energy Road surfacing Lighting Drains Economic Result from sales Euros ANCILLARY WORKS IN THE SECTOR AND OUTSIDE CONNECTIONS Total Sales and Revenue 31,500,000 Price Adjustment Total Operating Costs 27,548,123 Quality and Health and Safety Control (regarding Gross Operating Margin 3,951,877 B1+B2+B3) Commercial sale costs 945,000 Urban Development Project (PEC) 21,039,043

Urban Development Works Permit (ICIO) Urban Development Works Bond Interest (PEM) Executed Project rates Modification to Urban Planning Ordinance Urban Development Project Drafting of Compensation Board Partial plan bylaws Detailed Study Environmental Impact Study Compensation Project Other projects Registration of Compensation Board bylaws Notary office (not required) Registration of Urban Development Entities Deed and Registration of Compensation Stamp Duty (exempt)

122 JESSICA GALICIA

FINAL REPORT

Plan 1 Location and access routes.

3 MONFORTE DE LEMOS DRY PORT

3.1 Description of the project

The Monforte de Lemos Dry Port involves a logistics and warehousing area located close to the town of Monforte, specialising in dry rail port functions, in other words a logistical activities centre directly connected to its ports by rail, essentially the port of Vigo.

It is located alongside the Palencia‐A Coruña railway line, on the right‐hand side, as indicated in the enclosed plan. Current access is from the regional highway LU‐ 546 Nadela (N‐VI) ‐ Monforte (LU‐664). The Dry Port is located 1.8 km from the centre of Monforte. The plans are for a future access route connecting the northern end of the dry port first with the regional highway LU‐933 Monforte ‐ provincial border ‐ A Rúa, and connecting the southern end with the CN‐120 highway.

The construction plans are currently being drawn up. The planned structure for the dry port includes industrial and tertiary economic uses, along with an intermodal rail platform. The uses and corresponding intensities are as follows:

Use Surface area (m2) Description Facilities 19,380 Railway Museum. Industrial and/or Tertiary 173,086 Car parks 4,643 172 spaces. Road network 41,082 2‐lane roadways, 4 m per lane. Green zones 58,313 Intermodal platform 10,549 650 m long and 30 m wide band directly alongside the current platform. TOTAL 307,053

The enclosed table indicates the profitable surface area covered by economic activities.

123 JESSICA GALICIA

FINAL REPORT

Plan 2 Regulation plan.

Block Surface Description area (m2) A: plot for 7,675 No division of plots or construction other than the offloading of road/rail freight interchange is permitted. freight B: Block for 4,546 No plot division is proposed, although guidelines small plots are set out: Minimum plot area: 500 m2. Minimum plot frontage: 15.5 m2. Building conditions: Contiguous; maximum height 7 m, GF+1; maximum plot occupancy, 100%; maximum building permitted 1.25 m2/m2.

E: Block for 36,391 No plot division is proposed, although guidelines medium plots are set out: Minimum plot area: 1,000 m2. Minimum plot frontage: 20 m2. C, D and F: 124,474 No plot division is proposed, although guidelines Block for large are set out: Minimum plot area: 5,000 m2. plots Minimum plot frontage: 75 m2. Building conditions: Stand‐alone, maximum frontage 60 m; maximum height 15 m, GF+3; maximum plot occupancy, 75%; maximum building permitted 0.95 m2/m2 or 11 m3/m2.

3.1.1 Urban development planning context

The Monforte Dry Port has followed the municipal planning and development planning guidelines. A Special Regulation Plan is in place, serving as the basis for development of the urban development project. These regulations have in turn been taken into consideration in the General Urban Regulation Plan for the Local Council of Monforte and are covered by the Xunta's logistics areas programme.

124 JESSICA GALICIA

FINAL REPORT

Plan 3 Zoning plan. No private developer at present wishes to take on the project. Two scenarios would be possible:

1. A property developer has an interest in acquiring the land and developing this activity centre. The steps to be taken are:

a. Extend the partnership agreement signed by the CPTOPT and the IGVS on 20 May 2008, under the terms of which the CPTOPT agreed to present a proposal for a flagship enterprise project, while the IGVS would transfer the land to the corresponding company. This agreement lapsed on 31 January 2010.

b. The IGVS may issue a ruling in which:

i. The SEMAT guarantee is executed.

ii. The flagship business project presented by SEMAT is cancelled. 3.1.2 Desired objectives c. The new company would be required to present the CMATI with a The creation of this logistics area at a strategic point in inland Galicia, from the new flagship enterprise project. point of view of communications, is intended to serve as an engine for activity throughout the district of Monforte. The area has traditionally specialised in rail d. The IGVS MUST APPROVE THE FLAGSHIP ENTERPRISE PROJECT transport and supplementary activities, although the district has gradually lost PRESENTED BY THE CMATI. importance as rail transport has become less widely used and a less important factor in regional transportation as a whole. The consolidation of road access e. The company will have to compensate the IGVS for the cost of routes to the north (Lugo‐A Coruña) and to the south (Verón‐Ourense‐Vigo) has expropriation (approximately 4 million euros) and execute the also led the traditional central access route via the River Sil to lose its strategic urban development works in accordance with the approved urban importance. The initiative is thus planned as a district revitalisation strategy tied development plans (8.6 million euros), accepting the control and to the urban recovery of Monforte. supervision of the Directorate‐General for Mobility during execution 3.1.3 Development and administration agents of the works.

The IGVS has initially acquired the land, which is available for the property 2. In the event that no development company wishes to take on the project: developer. a. The IGVS may issue a ruling in which:

i. The SEMAT guarantee is executed.

125 JESSICA GALICIA

FINAL REPORT

ii. The flagship business project presented by SEMAT is cancelled. Municipality Monforte b. The IGVS would have to perform the urban development works for Province and Autonomous Region Galicia GALICIA the dry port. USE Land Characteristics Industrial‐Commercial Type of Action Expropriation‐Purchase c. Once urban development of the area has been completed, in order Corporation Tax Rate (%) 25.00 for a company to begin operations the IGVS would have to: STRUCTURE OFFLOADING 7,675 PLOTS>500M2 4,546 i. Complete the urban development plot division procedure PLOTS>1000M2 36,391 with Monforte Local Council. PLOTS>5000M2 124,474 ii. Run a competitive tender for acquisition of the plot. COSTING BUDGET Expropriation 4,000,000 The JESSICA tool could be used on the first scenario, in other words, provided URBAN DEVELOPMENT WORKS that there is a public‐private or purely a private developer. In the event that this Water supply Earthmoving developer were to take on 100% of the cost of expropriation and execution of Electrical energy Road surfacing urban development, it is possible that the Public Authorities could cover a part of Lighting Drains the expropriation. JESSICA would be employed as a low‐interest loan meaning ANCILLARY WORKS IN THE SECTOR AND OUTSIDE CONNECTIONS that the proportion of the expropriation covered by the public authorities on a Price adjustment non‐refundable basis would be as low as possible. Quality and Health and Safety Control (regarding B1+B2+B3) 3.1.4 Deadlines Urban Development Project (PEC) 12,573,060 The execution period for the works is 18 months. Economic Result from sales euros 3.1.5 Estimate of costs and revenues Total Sales and Revenue 13,327,622 Total Operating Costs 12,573,060 The enclosed table summarises the cost parameters and estimates of the Gross Operating Margin 754,562 revenue from the Monforte Dry Port.

126 JESSICA GALICIA

FINAL REPORT

promote fishing and leisure/tourism activities at port facilities, which are often underused in terms of their actual capacity. 3.2 "Fishing Port/Marina Project for Improved Port/Town Integration in Muros" It should in this regard be pointed out that the introduction of tourism activities to Galicia's ports could over the coming months be covered by a joint initiative 3.2.1 Description of the Project run by the Secretariat‐General for Tourism and the Directorate‐General for Ports. Against this background, the Muros project could be used by both public agencies The project involves the internal regulation of Marina and fishing port mooring as a pilot experiment in the development of a Nautical Tourism Promotion berths along with urban development (car park, urban amenities and plantation) Programme. in the port of Muros. 3.2.4 Development and administration agents The project comprises: The project was initially conceived of as a traditional concession‐based • The creation of 229 pontoon mooring berths, 212 of which will be for development, in other words with the public authorities organising a competitive recreational vessels of between 6 and 16 m in length, the remaining 17 tender with the chosen bidder setting the rates for the mooring berths and other being for mussel‐picking vessels with a length of between 16 and 20 m. activities connected with the concession (car park, etc.).

• Improvement and provision of new structural elements to facilitate the The aim of introducing JESSICA funding will be to reduce the financial costs, and main economic activity of the municipality: fisheries. consequently the rates imposed for the concession activities.

• Urban development of the inner wharf of the port of Muros and the 3.2.5 Deadlines southern dock of the central harbour, creating a perimeter promenade, generating a central wharf area with 102 parking spaces, to serve the • The works are at the tender phase. proposed new marina, the aim being to improve integration of the port within the town. • Estimated start of works: 01 October 2010

3.2.2 Urban development planning context • Estimated end of works: 31 July 2011

The Galician Marinas Steering Plan serves as the planning framework. The urban • Once the works have been completed, the mooring berths for development operations have also been included in the urban development recreational marina use will be assigned under an operation concession plans of Muros Local Council. system, while use of the mooring berths intended for mussel picking vessels will be agreed. 3.2.3 Desired objectives • Investment Period: 10 months (October 2010 – July 2011) This initiative is covered by the development of medium and small‐sized ports alongside towns and population centres on the Galician coastline. The aim is to • Operational start year: 2012

127 JESSICA GALICIA

FINAL REPORT

3.2.6 Estimate of costs and revenues

The total investment is €3,996,562.01, although the actual investment will be less as the process is being run by public competitive tender.

As operation of the mooring berths for the fishing facilities is assigned to the port, the standard operating expenses borne by the concession‐holder (staff, maintenance and operational consumption) are very low. As for the remaining infrastructure works, the ongoing maintenance costs are those typical for this type of project.

128