Preparatory Study

on the application of JESSICA in the Region

Foggia Final Report Summary - --

March 2010

Brindisi

This document has been produced with financial assistance from the European Union. Taranto The opinions expressed herein should not be considered as the official positions of the European Union under any circumstances.

CERTET - Centro di Economia regionale, dei trasporti e del turismo

March 2010

This study is the result of joint work by the Centro di Economia Regionale, dei Trasporti e del Turismo (CERTeT), the Bocconi University of Milan and Gruppo Finanziaria Internazionale (Finint) and has been finalised in a single document by the European Investment Bank (EIB).

The study was commissioned by the EIB from CERTeT and Finint following a request submitted by the Apulia Region, on 19 February 2009, to benefit from the programme of preparatory studies for the JESSICA programme currently taking place in and in other Member States of the Union, thanks to co-funding from the European Commission and the EIB.

The purpose of the study was to examine the potential methods for applying the JESSICA (Joint European Support for Sustainable Investment in City Areas) initiative to the Apulia Region's ERDF Operational Programme for 2007-2013, in the belief that this tool could play an important role in implementing the Operational Programme itself, in particular by making the implementation of the sustainable urban development strategy it contains more effective.

Specific interest was expressed by the Region in determining the potential to use financial engineering instruments like JESSICA to support the "San Raffaele del Mediterraneo Hospital" project in Taranto and, consequently, this project was examined as a pilot project.

The document presents a series of elements that require further examination because the potential scenarios are based on assumptions that need to be confirmed by the Regional authorities. The decision to proceed with implementation of the Initiative cannot in fact be taken before the Administration has made a number of decisions. A discussion with the regional authorities is therefore essential at this point in order to allow work to be done together to establish the subsequent steps and finalise the work that has been done so far.

List of main acronyms

MA Management Authority R. C. Regional Council AMAT Azienda per la Mobilità nell’Area di Taranto (Taranto public HSRM San Raffaele del Mediterraneo Hospital transport company) IRCSS Istituto di Ricovero e Cura a Carattere Scientifico (research AO Azienda Ospedaliera (hospital trust) hospital) APQ Accordo di Programma Quadro (framework programme VAT Value Added Tax agreement) JESSICA Joint European Support for Sustainable Investment in ARPA Agenzia Regionale Protezione Ambiente (regional City Areas environmental protection agency) R. L. Regional Law ASI Area di Sviluppo Industriale (industrial development area) CSG Community Strategic Guidelines ASL Azienda Sanitaria Locale (local health authority) PA Public Administration BAT Barletta Andria Trani PAR Piano di Attuazione Regionale (regional implementation EIB European Investment Bank plan) BURP Bollettino Ufficiale Regione Puglia (official journal of Apulia) CIP Community Initiative Programme EC European Commission GDP Gross Domestic Product CIPE Comitato Interministeriale di Programmazione Economica PIRP Programmi Integrati di Riqualificazione delle Periferie (interministerial committee for economic planning) (integrated suburb upgrading programmes) COCOF Coordination Committee of the Funds PIS Programmi Integrati Settoriali (integrated sectoral CNR Consiglio Nazionale delle Ricerche (national research council) programmes) D.G.R. Delibera Giunta Regionale (regional council resolution) PIT Programmi Integrati Territoriali (integrated local programmes) DRAG Documento Regionale di Assetto Generale (regional general structure document) SMEs Small and Medium Sized Companies DSR Documento Strategico Regionale (regional strategic POI Programma Operativo Interregionale (interregional document) operation programme) ECU European Currency Unit PON Programma Operativo Nazionale (national operation programme) ERP Edilizia Residenziale Pubblica (public residential building) POR Programma Operativo Regionale (regional operation EAFRD European Agricultural Fund for Rural Development programme) ERDF European Regional Development Fund PPP Public-Private Partnership HF Holding Fund PROTECT Project for the Organic Recovery of Coastal Areas SF Structural Funds with Transnational Cooperation ESF European Social Fund PRU Programmi di Recupero Urbano (urban recovery programmes) UDF Urban Development Fund CG Central Government

PRUSST Programmi di Riqualificazione Urbana di Sviluppo SPV Special Purpose Vehicle Sostenibile del Territorio (urban upgrading and sustainable SSR Sistema Sanitario Regionale (regional healthcare system) local development programmes) CIT Communication and Information Technology RSA Residenze Sanitarie Assistenziali (residential healthcare IRR Internal Rate of Return establishments) EU European Union QSN Quadro Strategico Nazionale (national strategic UTAP Unità Territoriali per l’Assistenza Primaria framework) (local primary assistance units) SLL Sistema Locale del Lavoro (local labour system)

Contents

4. URBAN PROGRAMMES (page 37) 1. BACKGROUND (page 2) What are the problems and opportunities in the Apulian What has been financed by Urban Programmes in the past? - Urban CIPs and the Urban Italia Programme in Apulia…………………… 33 - Bari, Foggia and Lecce (Urban I)……………………………………………………….. 38 - Past visions...... …………………………………………………………………… 3 - and Taranto (Urban II)…………………………………………………… 39 - Difficulties of the Apulian production system………………………………… 3 - Taranto URBAN II CIP ………………………………………………………………………… 40 - Population and demographic changes...... ………………………………… 4 - Brindisi and (Urban Italia)……………………………………………………… 41 - Distribution of the population across the region...………………………… 6 - Bitonto Urban Italia Programme…………………………………………………………. 42 - Infrastructure and environmental conditions...... ……………………….. 8

5. JESSICA AND ITS APPLICATION IN APULIA 2. ANALYSIS OF THE 2007-2013 ERDF OP (page 10) What could be the first JESSICA-type UDF? (page 43)

What is the urban dimension of the ERDF OP in the Region? - Key elements of the JESSICA Initiative.....……………………………………. 44 - The framework...... ……………………………………………………………… 11 - Potential application models…...... ………………………………………………… 49 - The 2007-2013 ERDF OP……………………………………………………………… 12 - UDF scenarios in Apulia…...... …………………………………………… 51 - The JESSICA Community Initiative……………………………………………… 14 - A UDF dedicated to rationalising healthcare service………………………. 52 - Urban dimension of the ERDF OP in the Apulia Region...…………… 17 - The typical benefits of JESSICA tools………………………………………………. 55 - More easily "JESSICAble" OP actions...... ………………………………. 19 -The benefits of a UDF dedicated to rationalising healthcare services 56 - Cross-subsidies and ineligible costs.....…………………………………….. 25 - Architecture of the JESSICA Initiative in Apulia…………….………………. 57

3. LOCAL PLANNING (page 27) 6. THE PILOT PROJECT (page 59) What “JESSICAble” opportunities does it contain? How could the new Taranto HSRM be financed?

- General framework...... …………………………………………………………… 28 - The “San Raffaele del Mediterraneo Hospital” (HSRM) project………… 60 - ERDF OP Integrated Plans..……………………………………………………...... 29 - Implementation tools and sources of funding…………………………………… 61 - Integrated Urban Regeneration Programmes..……………….....……… 30 - Option 1: a contract with JESSICA……………………………………………………. 62 - Area Social Plans...... ……………………………………………………...... 30 - Alternative structures: leasing vs project financing…………………………. 66 - Integrated suburb upgrading programmes (PIRP)…...... 31 - Option 2: leasing………………………………………………………………………………… 67 - Large Area Strategic Plans..……………………………………………………...... 32 - Comparison between a works contract and leasing….……………………… 69 - Overall vision…………………………………………………………………...... 35 - Option 3: JESSICA's action in the leasing structure…..……………………. 71 - Comparative analysis of construction instruments…..……………………… 73

Key results of the Study and Conclusions…...... 77

Appendix 1: The Regional Budget and the ERDF OP….…………. 79

1 Introduction

Sustainable urban development is one of the priorities of the European Union's current Structural Funds Programme Period (2007- 2013), which aims to pursue cohesion policies and promote competitiveness in the widened European Union. Structural Funds Programme Periods The focus on cities, and the desire to resolve the serious economic, environmental and social problems that are concentrated in them, began in the early 1990s when, building on the encouraging results achieved by a 1994-1999 number of pilot projects, the European Commission launched the URBAN I

(1994-1999) and URBAN II (2000-2006) Community Initiative Urban I Programmes, focused on the economic and social regeneration of cities and of neighbourhoods in crisis.

The recognised importance of urban development policies has grown during 2000-2006 the current programming cycle (2007-2013) because they are seen as one of the key instruments for implementing the Göteborg and Lisbon Urban II strategies: making Europe a strongly competitive area, increasing employment and innovation rates, requires investments to be made in cities, Lille Action Programme (2000) which are the driving forces of innovation and growth. Lisbon Strategy (2000) For this reason, the new EC Regulations relating to the Structural Funds have Göteborg Strategy (2001) incorporated the urban dimension directly into the mainstream of Urban Acquis (2004) Leipzig Charter (2007) Community policies and have introduced innovative financial engineering Bristol Agreement (2005) JESSICA Marseilles Declaration tools known as Urban Development Funds (Regulation 1083/2006, (2008) article 44), specifically dedicated to promoting sustainable urban 2007-2013 development. In order to implement these new tools, the European Commission and the The ultimate aim is not only to finance quality projects but also to provide EIB - with the support of the Council of Europe Development Bank – have the cities of the Union with a tool that can help them review the launched the JESSICA Initiative (Joint European Support for Sustainable development of their areas strategically and in the long term, using Investment in City Areas). urban transformation as a lever for economic and social Using the financial resources made available by the Operational development. Programmes, the intention is to launch financial instruments that can bring The way in which these tools operate in practice depends on the context to together the skills and resources of the public and private sectors, which they are applied. The aim of this study is to investigate the combining (i) the need to invest in "repayable" projects – i.e. projects that potential applications in the Apulia Region, which UDFs could serve the can provide some kind of return for investors – with (ii) the need to promote Administration and how the rationalisation of the hospital and healthcare urban development that can be sustainable and integrated - the financed system could contribute to promoting strategic urban development in the projects must be part of an “Integrated sustainable development plan”. Region.

2 1. Background

What are the problems and opportunities in the Apulian context?

- Past visions - Difficulties of the Apulian production system - Population and demographic changes - Distribution of the population across the region - Infrastructure and environmental conditions

Chapter 1: Background

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1.1 Visions of the past 1.2 Difficulties of the Apulian production system

Before the 1980s, development in Apulia was guided by three Apulia is one of the Italian regions included in the successive fundamental visions: Convergence Objective1. Despite the fact that its per capital GDP is less than 75% of . Creation of a bridge between West and East in the the Community average, it has undergone a positive increase Mediterranean; in recent years, recording better performance than the other . Representation of the material culture of European regions of , albeit far from the absolute values civilisations; of the central and northern regions of the country. . Development of the Region as a "European California". Data processed and published by the Region show that the main difficulties encountered by the Apulian economy, which are also the These visions assigned Apulia a decidedly primary role and were particularly most important reasons for the difference compared to the national and justified, according to planners at the time, by the geographical location of Community averages, are associated with: the region, its historical and cultural heritage, the beauties of its landscape and its climate. From the 1960s onwards, a heavy industrialisation programme developed . A crisis in its production specialisation model; alongside these visions, primarily launched with the encouragement of . Limited development of medium to high technology central government and focused on initiatives in the iron and steel, chemical production sectors; and energy industries. These actions had a profound effect on the appearance and quality of the Apulian landscape, changing the appearance . Insufficient accumulation of capital; of what were to become the region's main industrial centres: Taranto and . Low productivity of production factors. Brindisi above all.

As of the 1980s, however, the Apulian system became involved in a major economic and social transformation process which had considerable One indicator appears to be particularly critical: the high unemployment repercussions on its cities. This process was associated on the one hand with rate (11.2%, approximately twice the national figure - 2007 data), the crisis taking place in its biggest industrial companies and, on the particularly among young people and women. other hand, with the ineffectiveness of the development models used as The decline recorded in traditional manufacturing activities and in reference. the industrial districts has led to an increase in the number of workers in The vision of Apulia as a "European California", for example, had arisen from the construction, property and entrepreneurial sectors, while the a desire to combine the resources available in the farming sector with the development of companies connected with the aerospace and Chapter 1: Background opportunities offered by the food industry, and from an intention to promote renewable energies sector appears to open the way to a structural the research and innovation sector. transformation of the regional economy in favour of more innovative and technological industries. However, compared to the original model, which was primarily identified with Silicon Valley, the Region was unable to attract financial, human and technological capital from outside, and even the newly created research centres and universities were unable on their own to alter the nature of Apulian development. Today, there is therefore a particularly urgent need for Apulia to implement forward-looking and focused development and attraction strategies that can improve the region's competitive position, making the most of its resources 1 The other Italian regions admitted to the Convergence Objective are Sicily, Campania and of the opportunities offered by its economic and social environment. and Calabria, while Basilicata has been placed in the "phasing-out" category. 4

1.3 Population and demographic changes

With over four million inhabitants, Apulia is the seventh most populous region in Italy and the third in southern Italy (after Campania and Sicily). It has been affected less by the serious ageing and shrinking of the population than many regions - particularly in central and northern Italy - since the 1970s, and continues to maintain a positive population balance.

Graphs 1.1 and 2.1 Total demographic performance in Apulia in the long and short term

Δ (1951‐2008) =+26.58%

Source: ISTAT (2008) data processed by CERTeT The region's demographic and productive fabric is however threatened by a steadily falling birth rate (see graph 3.1) and a negative balance of migration, both because of a transfer of human capital, particularly skilled workers, to other production areas - generally

northern Italy - and because of low rates of return migration. Both of these elements risk creating difficulties for the Apulian Chapter 1: Background production system. The loss of human capital, attracted by other areas of the country where occupational opportunities may be better, is not in fact counterbalanced by an inflow of graduates or students from other regions: the attractiveness of Apulian universities remains strongly negative (for every 100 students registered in Apulia, 33 Apulian students emigrate to other regions). Incoming migration is limited and consists for the most part of elderly people returning to the region, most of whom are in receipt of a pension.

There are therefore two strategic opportunities for Apulia: (i) to invest in higher education and research systems in order to maintain and attract young people and (ii) to boost services - particularly assistance and care – which favour the return of Apulians to their home region at the end of their working life. 5

…continued – population and demographic changes Even though it is less accentuated than in other Italian regions, Apulia is also experiencing a fall in the number of young people in the youngest age bracket (0-10 years old) and an increase in the number of people over sixty. According to ISTAT forecasts, this trend is expected to worsen, with resulting impacts on the tax and pension system: Graph 3.1 Resident population pyramids by age band – source: ISTAT interactive graphs

1982 1992 2002

Table 1.1 Apulian population grouped by age band - forecasts for 2051 Regione Puglia Apulia Region Age band 2001* 2011 2021 2031 2041 2051 Age band 2011 2021 2031 2041 2051 0‐24 1,228,020 1,071,426 928,837 818,606 731,207 669,330 Maschi Male 0‐24 % of the total for the Region 30.54% 26.30% 23.33% 21.44% 20.22% 19.85% 25‐44 1,208,685 1,164,267 961,124 798,890 707,550 640,305 Femmine Female 25‐44 % of the total for the Region 30.06% 28.58% 24.15% 20.92% 19.56% 18.99% 45‐59 732,131 823,542 908,932 809,671 652,912 567,475 45‐59 % of the total for the Region 18.21% 20.21% 22.83% 21.20% 18.05% 16.83% Chapter 1: Background 60‐74 577,950 641,409 730,194 830,095 836,791 697,674 60‐74 % of the total for the Region 14.37% 15.74% 18.34% 21.74% 23.14% 20.69% 75‐89 253,379 344,427 394,107 481,361 578,114 657,367 75‐89 % of the total for the Region 6.30% 8.45% 9.90% 12.61% 15.98% 19.49% 90 and over 20,542 28,992 57,400 80,062 110,289 140,045 90 and over % of the total for the Region 0.51% 0.71% 1.44% 2.10% 3.05% 4.15% Total for Apulia Region 4,020,707 4,074,063 3,980,594 3,818,685 3,616,863 3,372,196 Total for Region % compared to previous decade 1.33% ‐2.29% ‐4.07% ‐5.29% ‐6.76% * the 2001 data relate to the latest census, those relating to subsequent decades are ISTAT forecasts based on the central scenario assumptions Source: ISTAT data processed by CERTeT

6 1.4 Distribution of the population across the region

62% of the Apulian population live in urban centres with over 20,000 inhabitants and 26% are concentrated in one of the seven largest cities or "conurbations".

Table 2.1 Apulian population grouped by size of municipality Municipalities by size 1971 1981 1991 2001 2008 As the table opposite shows, the size of the seven conurbations has Bari 357.274 371.022 342.309 316.532 322.511 gradually shrunk over the past thirty years, to the benefit of medium- % of the total for the Region 9,97% 9,58% 8,49% 7,87% 7,91% sized cities and municipalities with over 10,000 inhabitants which have Taranto 227.342 244.101 232.334 202.033 195.130 instead gained ground. % of the total for the Region 6,35% 6,30% 5,76% 5,02% 4,79% Foggia 141.711 156.467 156.268 155.203 153.469 This reflects a trend, which has also been recorded nationally, towards a % of the total for the Region 3,96% 4,04% 3,88% 3,86% 3,76% gradual move away from the largest conurbations to the benefit of more Andria 77.065 84.661 90.063 95.653 98.841 competitive urban areas in terms of cost and quality of life. % of the total for the Region 2,15% 2,19% 2,23% 2,38% 2,42% In the case of Apulia, among the seven largest cities, only Andria and Lecce 83.050 91.289 100.884 83.303 94.178 Barletta have experienced uninterrupted growth, while there has been an % of the total for the Region 2,32% 2,36% 2,50% 2,07% 2,31% Barletta 75.728 83.453 89.527 92.094 93.595 evident decline in the municipalities of Taranto (-49,000 inhabitants % of the total for the Region 2,11% 2,16% 2,22% 2,29% 2,30% between 1981 and 2008) and Bari (-48,511 in the same period), followed by Brindisi 81.893 89.786 95.383 89.081 89.979 Lecce, Foggia and Brindisi, caused in particular by the crisis in the larger % of the total for the Region 2,29% 2,32% 2,37% 2,22% 2,21% industrial companies. 7 conurbations (over 89,900 inh.) 1.044.063 1.120.779 1.106.768 1.033.899 1.047.703 However, it is interesting to note that despite the demographic crisis that has % of the total for the Region 29,14% 28,95% 27,45% 25,71% 25,70% been affecting Italy since the 1970s, the population of all Apulia's 12 average cities (over 44,000 inh.) 531.540 580.452 618.925 642.019 653.966 average sized cities continued to grow even after 1991. The most % of the total for the Region 14,84% 14,99% 15,35% 15,97% 16,04% prominent of these is , the chief town of one of the Region's 30 large municipalities (over 20,000) 681.603 751.922 808.520 821.849 833.594 industrial districts and employment systems (upholstered furniture and % of the total for the Region 19,02% 19,42% 20,05% 20,44% 20,45% homeware industry) which has doubled it's population over a period of just 60 average municipalities (over 10,000 over thirty years, reaching 68,000 people in 2008. inh.) 693.991 762.090 825.769 860.318 877.164 % of the total for the Region 19,37% 19,68% 20,48% 21,40% 21,52% A steadily falling trend is instead being recorded in small and very small 117 small municipalities (over 2,000 inh.) 572.964 601.773 622.590 616.647 620.261 municipalities, which are destined to lose further ground in the coming % of the total for the Region 15,99% 15,54% 15,44% 15,34% 15,22% years. 31 very small municip. (under 2,000 inh.) 58.626 54.601 49.313 45.975 43.858

% of the total for the Region 1,64% 1,41% 1,22% 1,14% 1,08% Chapter 1: Background Total for Apulia Region 3.582.787 3.871.617 4.031.885 4.020.707 4.076.546

Source: ISTAT data processed by CERTeT An aerial view of Apulia (see figure 1.1) shows that the areas of Bari and Barletta-Andria-Trani, where the region's main production activities are concentrated, are the most attractive, while municipalities in the Daunian Subappenine area in the north and the southern in the south, which are already sparsely populated, are the areas most likely to be abandoned, penalised by a declining economy and poor accessibility.

7 …continued – distribution of the population across the region

Figure 1.1 Population changes between 1991 and 2001 Figure 2.1 Local employment systems in Apulia

Agricoltura, caccia e silvicoltura 1- Vieste Turistici 2- Cagnano Varano 3- Monte Sant’Angelo 2 1 5 Commercio e agricoltura 4- San Giovanni Rotondo 3 5- Apricena 6 4 Pelli, cuoio e calzature 6- San Severo 10 Tessile e abbigliamento 7- Lucera 7 11 8- Bovino Metallurgia 12 9- Ascoli Satriano 8 9 13 2 Mobili e prodotti in ceramica 10- Manfredonia 1 11- Foggia 3 6 8 12- Cerignola 7 54 9 13- Barletta 12 13 10 11 14 16 15 15 12 14 1- 11 13 2- 10 9 8 3- Bari 7 5 6 4- Altamura 3 4 5- 1- 2 1 2- 6- 7- Putigliano 3- 8- 4- 5- Gallipoli 9- Fasano 10- Taranto 6- Chapter 1: Background 11- Ginosa 7- Source: Projections contained in the Apulia DSR (regional strategic 12- Ostuni 8- document), CLAS and TPS Group (2006) 13- Ceglie Messapica 9- 14- Francavilla Fontana 10- Nardò 15- Manduria 11- 12- 13- Agricoltura, caccia e silvicoltura Farming, hunting and forestry Turistici Tourism 14- Lecce Commercio e agricoltura Trade and farming 15- San Pietro Vernotico Pelli, cuoio e calzature Animal skins, leather and footwear 16- Brindisi Tessile e abbigliamento Textile and clothing Metallurgia Metalworking Mobili e prodotti in ceramica Furniture and ceramic products

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1.5 Infrastructure and environmental conditions

Apulia's infrastructure endowment is below the average for Italy (taking the national figure as 100, Apulia's general infrastructure endowment corresponds to 91.54). The region's situation with regard to the social infrastructure for education and healthcare is better.

As regards the economic infrastructure, the main problems experienced by Apulia are its shortage of roads, the marginality of banking networks and the lack of energy plants and services. The ports and railway network are well developed, although there are considerable differences between the various provinces considered. The generation situation in the provinces at either end of the region (Foggia in the north and Lecce in the south) is most worrying. As regards the social infrastructure, however, if the national figure is taken to be 100, the Apulian rate is 83.1, held down by its poor endowment in terms of cultural and recreational facilities: According to data produced by Legambiente, all of Apulia's provincial capitals have lower ecosystem indexes than the national average, between 66th and 82nd place out of the 103 Italian provinces examined. Water leakage from the water distribution system, low levels of sorted waste collection, poor use of public transport and low levels of energy generation from renewable sources are particularly serious.

Table 3.1 and 4.1 Apulian infrastructure endowment indexes

Indicatori delle infrastrutture economiche Economic infrastructure indicators (2007) (2007) Puglia Apulia Mezzogiorno Southern Italy Italia Italy Rete stradale Road network Figures 3.1 and 3.2 Apulian infrastructure indicators Rete ferroviaria Railway network Source: Istituto G. Tagliacarne Porti (e bacini d’utenza) Ports (and catchment areas)

Aeroporti (e bacini d’utenza) Airports (and catchment areas) Chapter 1: Background Impianti e reti energetico-ambientali Energy and environmental networks and Strutture e reti per la telefonia e la installations telematica Voice and data communication structures and Reti bancarie e servizi vari networks Indicatori delle infrastrutture sociali Banking networks and other services (2007) Social infrastructure indicators (2007) Puglia Apulia Mezzogiorno Southern Italy Italia Italy Strutture sociali e ricreative Social and recreational facilities Strutture per l’istruzione Educational facilities Strutture sanitarie Healthcare facilities

9

… continued – infrastructure and environmental conditions

Infrastructure endowment Foggia Bari Brindisi Taranto Lecce Apulia Southern Italy Italy Road network 106.88 66.71 46.01 66.11 57.54 73.88 87.10 100 Railway network 124.02 138.27 227.32 93.55 60.74 123.87 87.81 100 Ports 102.98 103.95 113.63 284.59 50.89 119.67 105.68 100 Airports 25.59 70.84 254.98 43.02 16.54 63.5 61.20 100 Energy and environment 42.42 89.71 139.76 127.03 83.55 85.75 64.54 100 Voice and data communications 70.04 143.15 121.18 127.33 132.04 117.35 94.86 100 Banks and other services 35.49 89.04 62.07 69.29 81.19 68.05 63.75 100 Econ. infrastructure index 72.49 100.24 137.85 115.85 68.93 93.15 80.71 100

Infrastructure endowment Foggia Bari Brindisi Taranto Lecce Puglia Southern Italy Italy Cultural & recr. establishm. 23.86 78.01 34.62 29.32 53.07 48.53 57.06 100 Educational establishments 63.88 140.82 76.31 94.26 109.20 102.35 99.11 100 Healthcare establishments 71.70 126.66 95.31 90.10 94.57 98.54 83.51 100 Social infrastructure index 53.15 115.16 68.75 71.23 85.61 83.14 79.89 100

Source: Data published by Istituto G. Tagliacarne and processed by CERTeT Chapter 2: Analysis of the 2007-2013 OP ERDF Chapter 2: Analysis 10

2. Analysis of the 2007-2013 ERDF OP

What is the urban dimension of the ERDF OP in the Region?

- The framework - The 2007-2013 ERDF Operational Programme - The JESSICA Community Initiative - Urban dimension of the ERDF OP in the Apulia Region - More easily "JESSICAble" OP actions - Cross-subsidies and ineligible costs

Chapter 2: Analysis of the 2007-2013 OP ERDF Chapter 2: Analysis 11

2.1 The framework

The Apulia Region Operational Programme funded by the European Regional Development Fund (ERDF) is consistent with the (i) Community Strategic Guidelines regarding economic, social and territorial cohesion - (ii) the National Strategic Framework and (iii) The Regional Strategic Document.

Community Strategic Guidelines

In accordance with the renewed Lisbon Agenda, programmes supported by the cohesion policy are required to direct their

resources at: In light of the SCOs and the unitary strategy for regional policy established by central

government and the regions, the structure of the Italian QSN appears to be the 3 Basic Priorities following: 1. Making Europe and its Regions more attractive Macro‐objectives Priorities 1. Making the most of human resources to investment and employment Develop knowledge circuits

2. Promoting knowledge and innovation for growth 2. Disseminating research and innovation 3. Energy and environment: sustainable use 3. Creating more and better jobs Improve quality of life, security and social inclusion 4. Social inclusion and local attractiveness

5. Natural and cultural resources focusing attention on the importance of the local dimension. Strengthen production chains, services and 6. Mobility networks and links

competition 7. Production systems and employment

8. Cities and urban systems Regional Strategic Document (DSR) 9. Attracting investments Internationalise and modernise 10. Governance and efficient markets

Structure of the DSR 1. To strengthen the factors that make the area Strategic priority no. 8 states that the different “sectoral planning tools will be brought together in integrated urban development plans that will constitute the attractive strategic and analytical basis for actions”. General objectives 2. To promote innovation […] 3. To improve employability, cohesion and social One of the horizontal principles for implementing the QSN is explicitly aimed at cities inclusion and requires Convergence Objective Regions - like Apulia – to “have one or more

1. Environment urban/local priorities in their OPs”.

2. Equal Opportunities

Crossover objectives 3. Local dimension of development

4. Cross‐border cooperation

5. Development of participation A. Context policies of the 2007-2013 OP ERDF Chapter 2: Analysis

‐ Transport and communication networks According to the DSR, the Region “lacks the planning tools required for

‐ Sustainable urban development large areas and its town planning tools are old and for the most part Policy priorities ‐ Environment and natural resources lacking in strategic content”. “The rapid implementation of B. Research and innovation policies strategic redefinition and planning processes must include an National StrategicC. Social inclusion, Framework employment, (QSN) training and integrated and multisectoral effort to a) upgrade the most run- welfare policies down areas, thus promoting social cohesion; b) rapidly improve the quality of public services; c) improve cultural facilities; d) strengthen and improve the social infrastructure […]”.

12

2.2 The 2007-2013 ERDF Operational Programme

Approved by the European Commission on 20 November 2007, the 2007-2013 ERDF Operational Programme for the Apulia Region provides total resources of over 5 billion euros2.

The Community and national contributions financing the Programme are equal (2.619 billion each) and the total resources available have been allocated as follows to the eight Priority Axes identified: Table 1.2 Financial Plan of the 2007-2013 Apulia OP Co‐ Community National Indicative distribution of the national Total financing For information Contribution Contribution contribution financing Priority Axes rate National publ. National priv. EIB Other (a) (b)=(c)+(d) finan. (c) finan. (c) (e) = (a)+(b) (f)=(a)/(e) contrib. financing AXIS I Promotion, enhancement and dissemination of research 290,500,000 290,500,000 290,500,000 0 581,000,000 50 0 0 and innovation for competitiveness

AXIS II Sustainable and efficient use of environmental and 454,000,000 454,000,000 454,000,000 0 908,000,000 50 0 0 energy resources for development

AXIS III Social inclusion and services for quality of life and 285,000,000 285,000,000 285,000,000 0 570,000,000 50 0 0 attractiveness of the local area

AXIS IV Making the most of natural and cultural resources for 196,000,000 196,000,000 196,000,000 0 392,000,000 50 0 0 attractiveness and development

AXIS V Mobility networks and links 525,000,000 525,000,000 525,000,000 0 1,050,000,000 50 0 0

AXIS VI Competitiveness of production systems and 551,000,000 551,000,000 551,000,000 0 1,102,000,000 50 0 0 employment

AXIS VII Competitiveness and attractiveness of cities and 260,000,000 260,000,000 260,000,000 0 520,000,000 50 0 0 urban systems

AXIS VIII Governance, institutional skills and effective 57,521,978 57,521,978 57,521,978 0 115,043,956 50 0 0 competitive markets TOTAL 2,619,021,978 2,619,021,978 2,619,021,978 0 5,238,043,956 50 0 0

In addition to these resources, during the same programming period, the region may benefit from additional financing from the Fondo Aree Sottoutilizzate (FAS) (fund for underused areas) and other ministerial sources currently awaiting approval.

of the 2007-2013 OP ERDF Chapter 2: Analysis

2 The considerable size of this endowment means that Apulia is now in third place in Italy in terms of the size of its financial plan, preceded only by Campania and Sicily, which receive around 6.8 and 6.4 billion euros respectively. These southern regions - in addition to Calabria and Basilicata – are included in the Convergence Objective Regions of the European Union and therefore receive a far greater amount of resources than regions in central and northern Italy, which have a per capita GDP that exceeds 75% of the Community average, and are therefore included in the Regional Competitiveness and Employment Objective. 13 ... continued - the 2007-2013 ERDF Operational Programme

An analysis of the ERDF OP reveals that, as provided for in the QSN, one of the priority Axes has been expressly dedicated to "Competitiveness and Attractiveness of cities and urban systems" (Axis VII), with a total endowment of over 500 million euros.

Table 2.2 Distribution of resources by Axis and source of financing

Axes Total Endowment Relative Endowment* Axis 50% EU Co‐fin. 35% National Co‐fin. 15% Regional Co‐fin. Axis I 581,000,000 11.09% Axis I 290,500,000 203,350,000 87,150,000 Axis II 908,000,000 17.33% Axis II 454,000,000 317,800,000 136,200,000 Axis III 570,000,000 10.88% Of which: Axis III 285,000,000 199,500,000 85,500,000 Axis IV 392,000,000 7.48% Axis IV 196,000,000 137,200,000 58,800,000

Axis V 1,050,000,000 20.05% Axis V 525,000,000 367,500,000 157,500,000

Axis VI 1,102,000,000 21.04% Axis VI 551,000,000 385,700,000 165,300,000 Axis VII 520,000,000 9.93% Axis VII 260,000,000 182,000,000 78,000,000 Axis VIII 115,043,956 2.20% Axis VIII 57,521,978 40,265,348.60 17,256,593.40 TOTAL 5,238,043,956 100% TOTAL* 2,619,021,987 1,833,315,348.60 785,706,593.40 * Axis Endowment compared to Total Source: 2007-2013 ERDF Apulia OP data processed by CERTeT

Axis VII – “Competitiveness and attractiveness of cities and urban systems” – is definitely distinguished by being the most relevant to Community guidelines regarding urban development and clearly sets out a strategy based on sustainable urban development “it involves the adoption of an integrated approach aimed at making the most of the environmental, economic and cultural resources found in urban areas, as well as at combating the concentration of physical, social and economic problems that characterise them”. The general objective of the Axis is “to promote the regeneration of cities and urban systems by making the most of their historical, cultural and environmental resources and combating abandonment”, which requires the needs and idiosyncrasies of the various areas to be interpreted as well as the various sectoral policies and differing interests of social and economic stakeholders to be identified, revealing the problems that exist as well as the resources that can be used to the greatest effect. There are two instruments designed to achieve the Axis objectives, which differ according to the size of the urban area considered:

Integrated urban development plans “strongly characterised by actions aimed at achieving environmental sustainability and, in particular, at upgrading the existing city and limiting urban expansion, intended for average sized cities or areas of big cities”;

Integrated territorial development plans “aimed at strengthening, upgrading, rationalising and, where necessary, designing operational networks and relationships that connect the systems of small urban centres, particularly those that have a strong connection (or a high connection potential) in environmental, historical and cultural terms”. For this purpose, the financial engineering instruments included in Axis VII state that “the intention is to use the JESSICA of the 2007-2013 OP ERDF Chapter 2: Analysis initiative”. 14

2.3 The JESSICA Community Initiative

The JESSICA - Joint European Support for Sustainable Investment in City Areas - Community Initiative is a complete innovation for regions and Member States of the European Union involved in spending their Structural Funds during the 2007-2013 programming period.

Launched by the European Commission in 2006 - together with the European Investment Bank (EIB) and in association with the Council of Europe Development Bank - this initiative aims to promote sustainable growth and investments in urban areas, making the financial engineering instruments provided for in European Regulations on the new Structural Funds applicable in practice. Article 44 of Regulation 1083/2006 in fact provides that “as part of an operational programme, the Structural Funds may finance expenditure in respect of an operation comprising contributions to support financial engineering instruments”, which include Urban Development Funds.

By means of the JESSICA Initiative, therefore the European Commission and the EIB propose to assist Management Authorities that intend to use these new instruments in order to guide the urban transformation of their areas, using them as a lever for economic and social development and making faster and more effective use of the financial resources contained in their Operational Programmes.

Chapter 2: Analysis of the 2007-2013 OP ERDF Chapter 2: Analysis 15

The Member States - and, in the case of Italy, the regions as well, which act as Management Authorities - are entitled to:

Figure 1.2 Diagram of the JESSICA Initiative

- allocate part of their Structural Funds to setting up Urban Development Funds - possibly preceded by a Holding Fund - - which make repayable investments - in favour of public-private partnerships - or of other projects - included in an Integrated Plan for sustainable urban development. (Regulation 1828/2006, article 43)

This is particularly interesting and advantageous for the reasons that will be illustrated better in paragraphs 5.5 and 5.6 of this report. For the moment we will identify the fundamental criteria that an intervention funded by the OP must fulfil in order to be considered "JESSICAble” and, in light of these

requirements, we shall examine the 2007-2013 ERDF Apulia Region OP. of the 2007-2013 OP ERDF Chapter 2: Analysis See chapters 5 and 6 for a description of the financial architecture that can be adopted by the Initiative and an initial practical scenario applicable to Apulia.

16 ...continued - the JESSICA Community Initiative The JESSICA Initiative is not a source of additional Community funding for Management Authorities because the OP Financial Plan approved by the European Commission remains unchanged. It is however an alternative way of using part of the Structural Funds contained in the Operational Programmes and assigned to the Management Authorities.

The eligibility requirements that must be fulfilled for an action that is It is clear, therefore, that not all the Structural Funds contained in consistent with the OP to be funded by JESSICA-type instruments the OP can be used to launch the JESSICA initiative. are two: Within the various Priority Axes - in the area destined for the financial . The investments must be repayable – which means that they engineering instruments - regions must have included a statement relating must provided some kind of return for investors. to their potential intention to use the JESSICA instrument to implement actions covered by the Axis itself. Periodic cash flows can be guaranteed, for example, by:

- selling goods/services on the market;

- charging users fees and tolls; These will generally be Axes that are consistent with urban - charging public organisations concession/usage fees payable development. This is known to be the case in Apulia, which has explicitly to the private investor for the construction/management of stated its intention to use the JESSICA Initiative in its Axis VII, dedicated to the “Competitiveness and Attractiveness of cities and urban systems”. infrastructure.

These do not however rule out different payment mechanisms. It is therefore reasonable to expect that part of the total financial

allocation earmarked for this Axis – discretionally identified by Apulia – will be destined to set up a JESSICA-type UDF/HF. . Projects must be included in a sustainable integrated urban development plan - i.e. in a system of interconnected actions A direct reference to the JESSICA Initiative in a specific Axis of the aimed at improving the economic, physical, social and/or OP is not however an essential requirement for the Management environmental conditions of a city and/or a district. Authority to decide to launch these financial engineering instruments. For example: Generally speaking, in fact, projects included in the OP that ‐ City development plans; ‐ District programmes; are repayable and included in an Integrated Plan for

‐ Programmes aimed at renovating and restoring run-down sustainable urban development can be considered to be areas; entitled to funding by JESSICA-type instruments even if the ‐ Sectoral plans with a significant local urban component. Priority Axis does not explicitly mention the intention to use

An appropriate foundation can be provided not only by plans them. devised and adopted according to existing planning protocols, but If it were necessary, however, it would be possible for the Management also by unofficial plans and other programme documents Authority to reformulate the OP in order to include the use of JESSICA and approved through public consultation and following appropriate take any procedural steps required with the Commission's departments. community impact assessments. of the 2007-2013 OP ERDF Chapter 2: Analysis

17

2.4 Urban dimension of the ERDF OP in the Apulia Region

It is particularly useful, therefore, to perform an analysis of the "urban component", looking transversally at all the Priority Axes and estimating the amount of financial resources that might be relevant for the purposes of urban development. The MA could draw from these resources to set up a JESSICA-type UDF/HF:

Table 3.2 Estimate of the financial resources considered relevant for the purposes of urban development

Axes and Action Lines Amounts for Urb. Dev. Axis Total % urb. dev. 1.1 Support for research activities carried out by companies

1.2 Strengthening of the scientific and technological potential of the region to support the demands of companies

I 1.3 Interventions to improve digital infrastructure 130,000,000 290,500,000 44.75% AXIS 1.4 Interventions to disseminate CIT in SMEs 1.5 Interventions to develop digital public services 2.1 Interventions to protect, use sustainably and save water resources

2.2 Interventions to improve the water supply, adduction and distribution system

II 2.4 Interventions for the use of renewable energy resources and the adoption of energy saving techniques in the various 200,000,000 454,000,000 44.05% AXIS sectors of use 2.5 Interventions to improve the management of the integrated waste cycle and to reclaim polluted sites 3.1 Programme of actions to create local healthcare infrastructure in health and social care districts

3.2 Programme of actions to create local health and social care infrastructure

III 3.3 Programme of actions for the accessibility of services, the inclusion of people at risk of social marginality and 250,000,000 285,000,000 87.72% AXIS balancing life and work. 3.4 Interventions to improve legality and safety for the benefit of the local area, citizens and companies 4.1 Tourism industry infrastructure, promotion and enhancement

4.2 Protection, enhancement and management of cultural heritage

IV 126,000,000 196,000,000 64.29%

AXIS 4.3 Development of cultural activities and entertainment 4.4 Interventions for the environmental network 5.1 Consolidation and improvement of sea port nodes 5.2 Adaptation and improvement of urban transport systems

V 250,000,000 525,000,000 47.62%

AXIS 5.3 Development of the logistical system 5.4 Adaptation and improvement of local railways 6.1 Interventions to improve the competitiveness of companies

6.2 Initiatives for production centre support infrastructure VI 350,000,000 551,000,000 63.52% AXIS 6.3 Interventions for local marketing and the internationalisation of production systems and companies Chapter 2: Analysis of the 2007-2013 OP ERDF Chapter 2: Analysis 7.1 Integrated urban development plans

VII 260,000,000 260,000,000 100%

AXIS 7.2 Integrated local development plans

TOTAL 1,566,000,000 2,561,500,000* 61.14%

Source: 2007-2013 ERDF Apulia OP data processed by CERTeT 18

... continued - urban dimension of the ERDF OP in the Apulia Region

This shows that: At this point, in an entirely indicative and preliminary way, we

can look at the relevant action lines for urban development For each of the Priority Axes (see table 4.2) and investigate how they could contain considered, the percentage of The ERDF OP has a very resources associated with urban strong urban dimension potentially "JESSICAble" actions. development is greater than 40% of the total resources for the Axis (EU For Structural Funds to be used to set up a JESSICA-type UDF: share)

- there has to be consistency between the objectives/action lines of the Axis and sustainable urban development;

The highest percentages - the actions funded with the resources allocated to the Axis have to be part of an Integrated Plan for sustainable urban development; are found not only in Axis VII but also in Axis III (Social inclusion and - the actions have to be able to provide some kind of return for Multiple Axes and Action Lines services for quality of life and investors. attractiveness of the local area), in could be used to launch Axis IV (Making the most of natural JESSICA-type UDFs

and cultural resources for "JESSICAble" Projects attractiveness and development) and in Axis VI (Competitiveness of production systems and

employment) Projects consistent with and Action line of an OP Axis consistent with urban dev.? eligible for OP spending?

This appears to be perfectly YES YES

Urban development is recognised as consistent with the integrated dimension of urban having a crossover and multisectoral Projects included in an Integr. € development promoted by the dimension Plan for Sust. Urb. Dev.? JESSICA instruments

YES

UDF/HF The Operational Programme itself acknowledges that, in order to promote Projects that provide some kind of the internal cohesion, attractiveness and competitiveness of cities, “an return for investors? integrated and multisector effort” is needed, in order to: a) quickly € improve the quality of public services; b) boost the number of cultural YES facilities; c) strengthen and improve the social infrastructure; d) promote € € environmental protection and renewal. Other investors of the 2007-2013 OP ERDF Chapter 2: Analysis "JESSICAble" (if any) There is therefore great potential for JESSICA financial Projects instruments to be implemented in the case of Apulia.

19

2.6 More easily "JESSICAble" OP actions

Analysing the OP Axes to determine whether the actions they contain are repayable and included in Integrated Plans for sustainable urban development, in an entirely indicative way, the following types of action can be identified:

Table 4.2 More easily "JESSICAble" types of action

Priority Axes Strategic consistency ‐ sustainable urban development Types of action (Integrated Plans and remuneration potential) Activity 1.2 Strengthening of the scientific and technological Objective 1 a) To increase the demand and propensity of companies to invest in potential of the region to support the demands of companies AXIS I research → Networks to improve the regional technological potential (regional Promotion, enhancement and technological districts and public‐private laboratories) dissemination of research and Activity 1.3 Actions to improve digital infrastructure innovation for Objective 2 a) To improve the Digital Communication Infrastructure → Actions to boost the strategic broadband, wireless and satellite competitiveness infrastructure

→ URBAN COMPETITIVENESS Activity 1.4 Actions to disseminate CIT in SMEs Objective 2 b) To increase the use of innovative digital services in SMEs → Support for the development of SMEs specialised in offering digital content and services. Activity 2.1 Actions to protect, use sustainably and save water resources Objective 1 a) To promote the everyday sustainable and durable use of water [...] → Actions to complete/adapt/optimise water infrastructure […] in coastal conurbations. Activity 2.3 Actions to prevent and reduce natural risks and protect against hydraulic, hydrogeological and seismic risk and coastal Objective 1 c) To set up a broad and efficient local governance and oversight system erosion. [...] → Actions to restore and make eco‐sustainable use of abandoned AXIS II mining areas owned exclusively bye th public; → Actions to deal with coastal erosion and to provide services that Sustainable and efficient use Objective 1 d) To protect soil and coastal strips against erosion of environmental and energy increase and improve accessibility. resources for development Activity 2.4 Actions for the use of renewable energy sources and the Objective 2 a) To develop the use of renewable energy sources, promote energy adoption of energy saving techniques [...] → ENVIRONMENTAL saving and improve energy efficiency and the general energy policy objectives → Actions to promote the use of renewable energy sources, SUSTAINABILITY contained in the regional environment and energy plan or PEAR [Piano Ambientale particularly solar power and biomass; Energetico Regionale] → Actions aimed at promoting energy saving and using solar power in public non‐residential buildings […]; Activity 2.5 Actions to improve the management of the integrated waste cycle and to reclaim polluted sites → Actions to finish building a system of plants to complete the urban Objective 1 e) To reduce the quantity and dangerousness of waste by encouraging re‐ of the 2007-2013 OP ERDF Chapter 2: Analysis waste cycle [...] particularly by creating high quality composting use and recycling plants; → Actions to […] reclaim contaminated sites, make them safe and restore their environment […] 20 …continued - more easily "JESSICAble" OP interventions

Priority Axes Strategic consistency ‐ sustainable urban development Types of action (Integrated Plans and remuneration potential)

Activity 3.1 Action programme to build local healthcare infrastructure for socio‐ medical districts → Healthcare infrastructure for the network of services of the Apulian socio‐medical AXIS III Objective 1 c) To improve the local healthcare infrastructure in socio‐ districts […]; Social inclusion and services for medical districts → Boosting of public provision and of the services managed by companies and non‐ quality of life and local profit‐making organisations, centres of excellence for integrated and social care […]; attractiveness → Boosting of the network of local socio‐medical services protecting the health of The mix of objectives “must also women and children and supporting family carers. take into account the need to integrate inclusion and health protection policies with development and urban upgrading Objective 1 b) To support a policy of improving the standards of policies in order to achieve full Activity 3.2 Action programme to create local social and socio‐medical infrastructure health and welfare of Apulian citizens [...] scale integration (economic, social →Creation of social infrastructure for the region; “The new infrastructure building programme will involve the creation and political) by means of inclusion → Building of community structures […] for the initial reception and integration of of new centres to house essential socio‐medical services […], primarily policies” immigrants in urban systems and rural areas […]; by renovating, adapting the structure or restoring the operation of → Building of social infrastructure to increase the availability of places for children in existing buildings according to principles of sustainability, particularly → SOCIAL SUSTAINABILITY early childhood centres […]; where the recovery allows the social or socio‐medical structure to be → Building of infrastructure for emergency social and welfare services […]. integrated in the urban context”

AXIS IV Objective 1 a) Promote the tourism industry by improving, Activity 4.1 Tourism industry infrastructure, promotion and enhancement Making the most of natural and diversifying and promoting a local integrated tourism offer, → Actions to complete infrastructure supporting the tourism industry, particularly: cultural resources for completing and improving infrastructure and engaging in local marinas; removal of architectural barriers. attractiveness and development marketing activities “Strategies […] should be considered in a broader integration framework with the other ERDF OP Activity 4.2 Protection, enhancement and management of cultural heritage Objective 1 b) Protect, enhance and promote historical and cultural axes, with particular focus on → Actions to protect and enhance cultural heritage that can attract significant flows heritage in order to improve local attractiveness boosting transport links and of visitors and tourists […]. infrastructure […], and on upgrading urban systems” Activity 4.4 Interventions for the environmental network → URBAN ATTRACTIVENESS Objective 1 d) Promote actions to support and develop protected

→ Implementation of projects to support the sustainable use of the natural of the 2007-2013 OP ERDF Chapter 2: Analysis areas and implement the Natura 2000 network by developing green environment for tourism purposes, by means of action to recover the use of tourism and engaging in sustainable local marketing compromised and degraded areas of environmental interest.

21 …continued - more easily "JESSICAble" OP interventions

Priority Axes Strategic consistency ‐ sustainable urban development Types of action (Integrated Plans and remuneration potential) Objective 1 a) Boost the on‐shore and off‐shore structures and Activity 5.1 Consolidation and improvement of sea port nodes services of "strategic" ports of regional interest [...] → Complete the building of infrastructure and equipment for port nodes […];

→ Integrate port nodes with road, railway and/or metro systems in order to facilitate Objective 1 b) Improve the accessibility of strategic ports of regional links with urban and metropolitan areas and production systems. interest [...] Objective 2 a) Take integrated action to implement environmentally‐ friendly intermediate distance urban transport systems [...] Activity 5.2 Adaptation and improvement of urban transport systems → Creation of light railway tram‐train lines, including the upgrading of transport AXIS V Objective 2 b) Create interchange infrastructure at the main public nodes; Mobility networks and links transport nodes [...] for commuters, promoting integrated ticketing

systems → Creation and boosting of modal interchange nodes; → INTEGRATED AND

SUSTAINABLE URBAN MOBILITY Objective 2 c) Create urban cycle paths [...] → Creation of cycle paths.

Objective 3 a) Create logistical infrastructure [...] to manage goods transport Activity 5.3 Development of the logistical system

Objective 3 b) Promote the establishment of logistical platforms to → Creation of logistical platforms. serve local production systems [...]

AXIS VI Objective 1 a) Promote the tourism industry by improving, Activity 4.1 Tourism industry infrastructure, promotion and enhancement Competitiveness of production diversifying and promoting a local integrated tourism offer, → Actions to complete infrastructure supporting the tourism industry, particularly: and employment systems completing and improving infrastructure and engaging in local marinas; removal of architectural barriers [...]. “The crossover priority of the new marketing activities regional programme is to mobilise and activate all local resources, Activity 4.2 Protection, enhancement and management of cultural heritage starting with the ones that, by their Objective 1 b) Protect, enhance and promote historical and cultural → Actions to protect and enhance cultural heritage that can attract significant flows nature and purpose, attempt to heritage in order to improve local attractiveness combine local development with of visitors and tourists […].

social inclusion”. Activity 4.4 Interventions for the environmental network Objective 1 d) Promote actions to support and develop protected → URBAN COMPETITIVENESS → Implementation of projects to support the sustainable use of the natural areas and implement the Natura 2000 network by developing green environment for tourism purposes, by means of actions to recover the use of tourism and engaging in sustainable local marketing compromised and degraded areas of environmental interest.

of the 2007-2013 OP ERDF Chapter 2: Analysis 22 …continued - more easily "JESSICAble" OP interventions

Priority Axes Strategic consistency ‐ sustainable urban development Types of action (Integrated Plans and remuneration potential)

AXIS VII Activity 7.1 Integrated urban development plans Competitiveness and Objective a) Urban regeneration by means of integrated urban → Integrated urban development plans focused on environmental regeneration, attractiveness of cities and urban development plans consisting to a large extent of actions aimed at intended for areas of cities which have been most affected by the industrial policies of systems achieving environmental sustainability and, in particular, at the 60s and 70s […]; upgrading the existing city and limiting urban expansion, intended → Integrated urban development plans focused on protecting, using and making the The axis aims to "combine the for medium‐sized cities (over 200,000 inhabitants) or the areas of most of historical structures in parts of the city characterised by the presence of various sector policies and large cities in which physical, social and economic problems are assets of high historical, cultural and symbolic value, and, at the same time, by a interests of social and economic concentrated. concentration of problems relating to the physical environment, social and economic players" problems […].

“The Large Area planning process […] will serve to build the knowledge and programming Objective b) Local regeneration by means of local integrated framework in which the integrated development plans aimed at strengthening, upgrading, rationalising Activity 7.2 Integrated local development plans local and urban development plans and, where necessary, designing functional networks and → Action to make the most of abandoned buildings, structures and open spaces by will be implemented” relationships that connect the systems of minor urban centres, building physical and virtual connections. particularly those that have strong environmental, historical and → URBAN COMPETITIVENESS AND cultural connections. ATTRACTIVENESS

Many of the actions included in the OP might therefore fulfil the eligibility requirementsSource: 2007-2013 for JESSICA ERDF Apulia financial OP content instruments. processed by CERTeT

Even though they relate to very different strategic sectors [attractiveness of the city, social inclusion, competitiveness of production systems, to mention only the main ones], these actions could contribute to promoting sustainable and integrated urban development to various extents.

Specifically because of their nature and diversity, however, the extent to which they might be included in the Integrated Plans for

Sustainable Urban Development, and particularly their potential to generate profit that allows a return to be paid to investors, is of the 2007-2013 OP ERDF Chapter 2: Analysis very different. 23 …continued - more easily "JESSICAble" OP interventions

In terms of methodology, on a purely indicative basis, the types of action identified above as being "JESSICAble" can be distinguished according to their ability (low-medium-high) to be included in Integrated Plans for Sustainable Urban Development and to provide a return for investors. Table 5.2 More “JESSICAble” types of intervention and their indicative fulfilment of eligibility criteria

INCLUDABILITY IN INTEGRATED ABILITY TO PROVIDE TYPES OF ACTION URBAN PLANS A RETURN

1.2 Networks to improve the regional technological potential (regional technological districts and public‐private laboratories) medium medium 1.3 Actions to boost the strategic broadband, wireless and satellite infrastructure low high 1.4 Support for the growth and development of SMEs specialised in supplying digital content and services low medium 2.1 Actions to complete/adapt/optimise water infrastructure […] in coastal conurbations low high 2.3 Actions to restore and make eco‐sustainable use of abandoned mining areas owned exclusively by the State low medium 2.3 Actions to deal with coastal erosion and to provide services that increase and improve accessibility low low 2.4 Actions to promote the use of renewable energy sources low medium 2.4 Actions aimed at promoting energy saving and using solar power in public non‐residential buildings low medium 2.5 Actions to finish building a system of plants to complete the urban waste cycle [...] particularly by creating high quality composting low high plants 2.5 Actions to […] reclaim contaminated sites, make them safe and restore their environment medium medium 3.1 Healthcare infrastructure for the network of services of the Apulian socio‐medical districts medium medium 3.1 Boosting of public provision and of the services managed by companies and non‐profit‐making organisations, centres of excellence for medium medium integrated and social care 3.1 Boosting of the network of local socio‐medical services protecting the health of women and children and supporting family carers medium low 3.2 Creation of social infrastructure for the region medium medium 3.2 Building of community structures […] for the initial reception and integration of immigrants in urban systems and rural areas medium low 3.2 Building of social infrastructure to increase the availability of places for children in early childhood centres medium medium 3.2 Building of infrastructure for emergency social and welfare services medium low 4.1 Actions to complete infrastructure supporting the tourism industry, particularly: marinas; removal of architectural barriers low medium 4.2 Actions to protect and enhance cultural heritage that can attract significant flows of visitors and tourists low medium 4.4 Implementation of projects to support the sustainable use of the natural environment for tourism purposes, by means of action to medium medium

recover the use of compromised and degraded areas of environmental interest of the 2007-2013 OP ERDF Chapter 2: Analysis 24 …continued - more easily "JESSICAble" OP interventions

Source: 2007-2013 ERDF Apulia OP content processed by CERTeTABILITY TO INCLUDABILITY IN TYPES OF ACTION PROVIDE A INTEGRATED URBAN PLANS RETURN 5.1 Complete the building of infrastructure and equipment for port nodes low medium 5.1 Integrate port nodes with road, railway and/or metro systems in order to facilitate links with urban and metropolitan areas and production medium medium systems 5.2 Creation of light railway tram‐train lines, including the upgrading of transport nodes medium high 5.2 Creation and boosting of modal interchange nodes low medium 5.2 Creation of cycle paths medium low 5.3 Creation of logistical platforms low medium 6.2 Action to improve areas intended for production sites and their functional completion, and to ensure that they are fully operational medium medium 6.2 Actions to modernise and restore the function of infrastructure or to build technological networks medium medium 7.1 Integrated urban development plans focused on environmental regeneration, intended for areas of cities which have been most affected by the high medium industrial policies of the 60s and 70s 7.1 Integrated urban development plans focused on protecting, using and making the most of historical structures in parts of the city characterised by the presence of assets of high historical, cultural and symbolic value, and, at the same time, by a concentration of problems relating to the high medium physical environment, social and economic problems 7.2 Action to make the most of abandoned buildings, structures and open spaces by building physical and virtual connections high medium

To summarise, therefore, actions that appear to be easier to include in Action which instead seems to guarantee a greater ability to provide Integrated Plans for Sustainable Urban Development are - in addition a return on investments and, therefore to remunerate investors, relate to: to the activities included in Axis VII - all actions that seem to be able to:  water industry infrastructure,  rethink the development of the city – e.g. by improving  waste management, accessibility and mobility, by building interconnected and sustainable  digital services and transport networks;  transport.  regenerate contaminated and degraded districts – e.g. by

carrying out reclamation work and projects to restore the function of compromised areas of natural or cultural interest; However, this does not mean that only these projects can be  convert abandoned or insufficiently used areas or funded using JESSICA financial instruments. Chapter 2: Analysis of the 2007-2013 OP ERDF Chapter 2: Analysis infrastructure – e.g. by promoting the creation of technology Cross-subsidies and different resources to those contained in parks, establishing new companies or creating socio-medical infrastructure. the OP could in fact extend the type and number of actions funded by UDFs/HFs.

25

2.7 Cross-subsidies and ineligible costs

Two final considerations in fact extend the scope of JESSICA instruments:

1 Notwithstanding the fact that action funded by the UDP has to be repayable, it is Figure 3.2 Cross-subsidies not necessary for all projects/project components to be able to generate periodic positive cash flows (known as "hot" projects).

Thanks to cross-subsidies, one can in fact offset the negative return from some projects/project components against the strongly positive return from others, building a portfolio of projects that is "JESSICAble" in overall terms. The potential applicability of JESSICA instruments can therefore be extended to so-called "cold" projects. E.g.: the creation of a technology park that involves the creation of a cycle path or requires the reclamation of contaminated sites

These last two components, which would be unlikely to generate positive cash flows, could be funded by a JESSICA-type UDF, provided that the other components of the project were able to repay the overall investment.

Cross-subsidies could also be applied not only at project level [hp 2] – balancing their

"hot" and "cold" components - but also at UDF level [hp 1] – balancing their "hot" and "cold" projects, as shown opposite.

Figure 4.2 Ineligible expenditure

2 If a project or a project component were not be eligible for funding from the Structural Funds, they could nonetheless be supported by JESSICA-type financial instruments, albeit with resources other than the Structural Funds contained in

the OP.

E.g.: action relating to housing in Member States that acceded to the European Union before 1 May 2004, like Italy.

In this case, however, an appropriate separate accounting system must be adopted in order to ensure that UDF actions financed by Structural Funds are always of the 2007-2013 OP ERDF Chapter 2: Analysis identified, and therefore provide the Community's institutions with the relevant information and transparency. We shall now examine Apulian local planning in order to identify potential Integrated Plans that contain potentially "JESSICAble" projects. 26 3.2 … continued cross-subsidies and ineligible costs

FSU UDF Compon. calda Hot compon. Compon. fredda Cold compon. Hp 2 – Sussidi incrociati tra componenti di uno stesso progetto Hp 2 – Cross-subsidies between components in the same project Progetto "JESSICAbile" freddo Cold “JESSICAble” project Progetto "JESSICAbile" caldo Hot “JESSICAble” project HP1 – Sussidi incrociati tra progetti HP1 – Cross-subsidies between projects FSU UDF Compon. ammiss. Admiss. compon. Compon. non am. Non-adm. compon. HP2 – Componente non ammissibile HP2 – Non-admissible component € ≠ FS Contabilità separata € ≠ SF Separate accounting Progetto non ammissibile Non-admissible project Progetto ammissibile Admissible project HP1 – Progetto non ammissibile HP1 – Non-admissible project

Chapter 3: Local planning Chapter 3: Local planning 27

3. Local planning

What “JESSICAble” opportunities does it contain?

- General framework - ERDF OP Integrated Plans - Integrated Urban Regeneration Programmes - Area Social Plans - Integrated suburb upgrading programmes (PIRP) - Large Area Strategic Plans - Overall vision

Chapter 3: Local planning Chapter 3: Local planning 28

3.1 General framework

Both the Regional Strategic Document and the 2007-2013 ERDF Operational programme state the key importance of urban development and local planning in pursuing the competitiveness and attractiveness of Apulia during the current planning period. These two documents, which are at the heart of the region's Community programming, include a number of important references to urban/local development plans and programmes which are promoted by the region and could be considered as "Integrated Plans for Sustainable Urban Development" in light of Community legislation, as well as also containing potentially "JESSICAble" projects.

A brief analysis of the contents and objectives of the main local/urban development plans promoted by the region is particularly useful in understanding which projects could be more easily funded by JESSICA-type instruments and how these might help the region pursue its strategic objectives effectively.

ERDF Operational Programme

Regional Strategic Document (DSR) - Axis VII “Competitiveness and attractiveness of cities and

- Need to progress beyond the PIT and PIS [Integrated Local and urban systems”: its action lines are Integrated Urban Sectoral Programmes] experience; Development Plans and Integrated Local Development Plans; - Need to develop Large Area planning instruments; - The knowledge and planning base of the OP consists of the - Area Social Plans are a sound basis for integrating policies in urban Large Area planning processes designed to build on the PIT areas. and PIS experience; - The 2007-2013 programming will have to connect:

a) at regional level with the DRAG (Documento Regionale di Assetto Generale - general regional structure document) and with the new Piano Large Area Paesaggistico (landscape plan); Strategic Plans b) at provincial level with the local coordination plans - an essential point of reference for large areas - and with the Piani Urbanistici Generali (general Integrated urban urbanisation plans).

Chapter 3: Local planning regeneration programmes

Integrated suburb upgrading programmes

29

As previously stated in chapter 2, Axis VII of the ERDF OP (“Competitiveness and attractiveness of cities and urban systems”) intends to use two fundamental tools to pursue its objectives: Integrated Urban3.2 Development ERDF OP Plans Inte andgrated Integrated Plans Local Development Plans.

Their features are summarised below:

1. Integrated Urban Development Plans 2. Integrated Local Development Plans

Intended for medium to large cities, they are defined in the ERDF Intended for smaller towns which can demonstrate the presence of OP as “intervention programmes that include actions involving the common issues affecting the physical, social or economic environment, physical, social and economic environment, developed with the concentrated to an extent that allows an area to be characterised.

involvement of local operators”. These plans are integrated action systems aimed at implementing The plans can relate to places that are physically external or internal to forms of cooperation between towns for the purpose of creating more the established city and focus on environmental, cultural or social balanced and multi-centred urban systems. regeneration, depending on the problems affecting them and the These Plans will focus in particular on boosting infrastructure networks, resources that can be leveraged for the regeneration. More specifically, “meaning both transport and technology networks and environmental the plans will relate to defined parts of the urban fabric but must be networks, with a view to rebuilding connections between natural and

able to generate multiplying effects that are relevant to the city as a cultural environments and landscapes”. whole. The interventions will therefore concentrate on “making the most of In view of this, the Integrated Urban Development Plans can be abandoned buildings and open spaces (in the established city and focused on: suburbs) by building physical as well as intangible connections ”. Provision will also be made for specific premiums for plans that include - Environmental regeneration of areas of medium to large cities action which is able to create significant connections between small that have been most affected by the industrial policies of the towns and the environmental network or the towns themselves to one 60s and 70s - particular attention will be paid to cities with a another by using sustainable mobility systems. high risk of environmental crisis;

- Protecting, using and making the most of historical sites in

cities characterised by the presence of assets of high historical, cultural and symbolic value, and, at the same time, by a concentration of problems relating to the physical, social and economic environment due to the loss of traditional In view of the integrated approach promoted by these functions and abandonment by its inhabitants. Plans and the urban/local development objectives

pursued by them, it is reasonable to expect that they Provision will also be made for specific premiums for plans that include Chapter 3: Local planning the re-use of de-commissioned sites (military, industrial, etc.), the could be "JESSICAble". reclamation of contaminated sites, initiatives that are highly innovative and have a significant effect on generating employment, or develop It would still be necessary to verify their ability to sustainable transport systems or youth employment. remunerate investors but - thanks to cross-subsidies – it might be possible to consider putting together an ad-hoc package of interventions that is in overall terms “JESSICAble”.

30 3.3 Integrated Urban Regeneration Programmes 3.5 Area Social Plans

Integrated Urban Regeneration Programmes are defined as “instruments Area Social Plans are mentioned in the DSR as “important premises for a intended to promote the upgrading of significant areas of cities and urban desirable process of consolidation of the integration between intervention systems by means of organic interventions of public interest” (Regional Law policies in urban areas”. 21/2008, containing “Rules for urban regeneration”). Building on the positive results achieved by their first generation (Regional These programmes consist of a coordinated series of interventions providing Council Resolution 1104/2004), the Region has decided to propose them an integrated solution to problems of physical degradation and socio- again for the three-year period 2009-2011. Compared to the previous economic difficulty and relating primarily to: experiences, changes have been made to the participation procedures and intervention priorities, as well as to the way in which financial resources are i) recovering and renovating residential buildings [particularly social assigned and used. housing] both structurally and for town planning purposes; The overall volume of resources assigned for the three-year period 2009- ii) eliminate architectural barriers; 2011 is substantially the same as that available in the first three-year period

iii) improving the resources, accessibility and operation of social care – approximately 200 million euros – and the financial resources used services; primarily come from two specific Funds: the Fondo Nazionale iv) supporting education and employment; Politiche Sociali [national fund for social policies] and the Fondo Globale socio-assistenziale [global social care fund]. v) regenerating the environment of towns and expanding sustainable mobility; During this three-year period, social programming will also be vi) making the most of cultural assets; funded by Line 3.2 of the ERDF OP, with a negotiated procedure

vii) recovering and reusing existing buildings. that will lead to the signing of a Programme Agreement between the

Region and the local area concerned by the funding provided under the Area Plan and the social Investment Plan. In fact, within each local area considered, the Area Plan is ultimately These Programmes are set up by individual or associated municipalities, a map of the integrated system of social and socio-medical although proposals can also be made by other public and private entities, interventions and services that is considered necessary at and their effects are those of executive town planning instruments. local level. The law requires the areas involved in the intervention to be totally or for the most part built upon and requires the municipalities to draw up an "Urban

Regeneration Programme Document". Notwithstanding the fact that these Plans are focused mainly

Urban regeneration is one of the fundamental objectives of on social and socio-medical interventions, the possibility of “JESSICAble” interventions being included in Area Social the JESSICA Initiative. It is therefore reasonable to expect that the projects included in these Programmes could be Plans should not be ruled out. Chapter 3: Local planning "JESSICAble". If they contribute to urban development they could in fact be The civic participation and consultation with the local included in an Integrated Plan for sustainable urban community carried out to develop these Programmes are development.

perfectly in line with the options give by JESSICA to build These Plans have been shown to be eligible for ERDF OP

Integrated Plans with a shared and "bottom-up" approach. funding. What remains to be assessed is the ability of at

least some of these projects, or their components, to Again the potential rotational nature of the investments would have to be assessed. generate positive and periodic cash flows.

3.4 Integrated suburb upgrading programme (PIRP) 31

Aimed at promoting the upgrading of areas affected by physical degradation and socio-economic difficulties, “Integrated suburb regeneration programmes” (PIRP) have been promoted by the Apulia Region since June Given that the selected infrastructure projects might be consistent with the 2006, when municipalities were invited to take part in the respective tender 2007-2013 ERDF OP, the Regional Council has asked the Management (Regional Council Resolution No. 870 of 2006). Authority to verify the eligibility of these Programmes for funding Eligible interventions include: under Axis VII of the OP - or possibly under other axes of the OP with which they are consistent. - upgrading the built environment by restoring buildings and public spaces; In August 2009, the Regional Council resolved to provide financing - environmental regeneration of the city by saving on the use of with ERDF funds for the infrastructure required by PIRPs which could natural resources, reusing areas sold and providing cycle paths and not be financed using funds from the Piano Casa Regionale [regional housing pedestrianised areas; plan].

- reorganising the urban structure;

- improving the quality of the environment; The available financing amounts to a total of 122 million euros under Axis VII

- promoting employment and local enterprise; of the OP “Competitiveness and attractiveness of cities and urban systems”, which can be used for the recovery and construction of primary and - combating social exclusion. secondary urbanisation structures, as well as for acquiring areas or buildings

needed for their creation. To this end, interventions can be funded to restore housing and

renovate the urban environment, as well as to build new subsidised housing and acquire areas or buildings. The upgrading of suburbs and reclamation of areas sold is one of the priority objectives of the JESSICA Community Initiative and the Management Authority has already verified that PIRPs are eligible for ERDF OP funding.

The areas involved in these Programmes must primarily be ones that have Seventy-four programmes (out of a total of 129 presented) not previously benefited from similar programmes proposed at national or were selected in June 2008, but only the first 27 were funded. European level and each PIRP can receive funding of up to four million euros. The possibility that programmes included in the shortlist but

as yet unfunded because of a shortage of resources could be In order to promote greater integration, the inclusion in PIRPs of other types of projects carried out with public as well as private resources, considered as "JESSICAble" cannot therefore be ruled out. Chapter 3: Local planning Chapter 3: Local planning possibly originating from regional sectoral programmes or If the expenditure were not eligible (such as interventions Community programmes, is not ruled out and is in fact promoted. relating to housing) the projects could be funded using resources contained in the UDF that are not Structural Funds.

32

3.6 Large Area Strategic Plans

Large Area strategic planning processes are defined in the ERDF OP as fundamental information and programme framework for the Operational Programme and are a concrete response to the lack of innovative and strategic instruments noted in the DSR. Contributions to the implementation of these Plans also come from the resources of ERDF, ESF, EAFRD and FAS Operational Programmes relating to the 2007-2013 programming period.

The Large Area planning process was launched in 2005 with the selection, These are the resources allocated to the ten Large Areas: by the Region, of ten Large Areas into which its territory would be divided (see Figure 1.3). Large Area ERDF resources destined for the Large Area (€)

Each of these Large Areas was required to draw up a Strategic Plan - based Metropoli 2015 48,213,621 on the Guidelines devised by the Region – which constitutes “a basis for Capitanata 2020 ‐ Foggia 34,377,453 entering into Programme Agreements with the Region to implement the proposed interventions”. Taranto 33,956,214 The approval process for these Strategic Plans is expected to be completed Lecce 30,555,566 by 2010. However, in order to speed up the launch of these projects that Salento 2020 ‐ Casarano 29,697,993 are already at an advanced planning stage, on 28 December 2009 an initial Brindisi 29,691,610 Programma Stralcio di interventi di Area Vasta [urgent projects Vision 2020 ‐ Barletta 29,655,464 programme for large area interventions] was approved, funded by various Axes of the ERDF OP, with resources amounting to a total of 340 million Valle d’Itria 23,930,802 euros and distributed as follows: Città Murgiana 22,059,910 Monti Dauni 20,777,400 TOTAL 302,916,033

Source: Regional Council Resolution No. 2683-2692 of Large Area Urgent AXIS ERDF OP Intervention Line Projects Programme The biggest interventions in terms of size include: I 1.5 Digital Public Services 15,000,000 II 2.3 Environmental protection 60,000,000  Making public buildings more energy efficient – locations and buildings as yet to be determined [3-7 million euros in all the Large II 2.4 Energy/public buildings 50,000,000 Areas, charged to Intervention Line 2.4 of the OP]; II 2.5 Waste and reclamations 30,000,000  Integrated systems for logistics, public transport [8 million euros to Chapter 3: Local planning III 3.2 Building of social infrastructure 5,000,000 Taranto] and cycle/pedestrian routes; III 3.3 Accessibility of services 7,000,000  Integrated projects for local development and Urban regeneration IV 4.1 Tourism promotion and infrastructure 30,000,000 programmes; IV 4.2 Cultural heritage 54.000.000  Waterfront [€ 8.5 million to Bari] and upgrading of ports [€ 7 million in the Salento area]; IV 4.3 Cultural activities 1.000.000  Improvement of water supply infrastructure; V 5.2 Urban transport 20,000,000  Operational recovery of buildings. VI 6.2 Production areas 18,000,000 VII 7.2 Integrated local development plans 50,000,000 TOTAL 340,000,000 Source: Regional Council Resolution No. 917 of 26.05.2009 33 ... continued - Large Area Strategic Plans Figure 1.3 The ten Large Areas of Apulia

Chapter 3: Local planning

Vast Areas Source: www.regione.puglia.it

The Strategic Large Area Plans are an excellent example of integrated and participatory local planning and excellent opportunities for the JESSICA Initiative to be applied could emerge from the approval of these Programmes. Their eligibility for OP funding has been verified by the Region itself and the first Urgent Projects Programme of Large Area ...Interventions continued has been - Large funded Areaby all the Strategic ERDF OP Axes. Plans 34

An examination of the work carried out by the ten Apulian Large Areas - even beyond the Urgent Projects Programme - shows that there are many different kinds of "JESSICAble" projects. In the case of the Metropoli Terra di Bari and Taranto areas, for instance, the most interesting interventions appear to be the following, although various more details analyses may be carried out on the instructions of the Regional authority's departments:

 Sustainable mobility intervention (including the Bari tram-train project, a network of multimodal stations and the sea tram on the Large Area coastline);  Interventions in the Energy sector (including the installation of photovoltaic plants to serve public buildings, to be carried out “with the assistance of  Interventions in the Research and Innovation sector (Taranto private entities through project financing or a works "Magna Grecia" Science and Technology Park project);

contract”, the creation of biomass collection, storage and  Sustainable mobility interventions (Taranto light metro); energy recovery centres and a pilot project to build an  Interventions in the Logistics sector. energy district in Bari);  Interventions in the Industrial Development sector (including the creation of logistical hubs for the storage of goods and the creation of an eco-industrial park);

 Interventions in the Research and Innovation sector

(the building of new university campuses and advanced research centres). "Magna Grecia" science and technology park

A Protocol of Understanding signed by the Municipality, , Polytechnic of Bari, University of Bari, ARPA Puglia, CNR, Confindustria and ASL already exists. Many of these interventions are however at a preliminary The park is expected to be build in the Paolo VI district of Taranto e design stage and would need to be appropriately structured could lead to the enhancement of an area currently affected by in order to obtain some or all of their funding through a physical and social degradation. JESSICA-type UDF. Chapter 3: Local planning

In addition to these interventions, the Taranto Area is involved in Light metro the PIRP integrated suburb upgrading programmes for the A feasibility study has been carried out that provides for two districts of Paolo VI and Talsano and in the Tamburi APQ signed alternative scenarios: metro-train (estimated cost 800 million in 2007 by the Region and the Ministry of Infrastructure and euros) and metro-tram (estimated cost 470 million euros). The Transport. first of the two options in particular would allow the disused army railway to be recovered. 35 3.7 Overall vision

On the basis of the overall analysis carried out one can surmise that many Integrated Plans proposed by the Apulia Region could contain "JESSICAble" projects. An overview is provided below: Table 1.3 Overview of the main Integrated Plans/Programmes promoted by the Apulia Region Plans/Programmes References Subjects and Interventions Resources Consistency with JESSICA Main problems

Integrated Urban Medium to large cities € 97,555,554 JESSICA is mentioned among the 2007‐2013 ERDF OP ‐ putting together a Development Environmental regeneration/protection, ERDF OP Axis VII, financial engineering instruments [Axis VII] "JESSICAble portfolio" Plans enhancement and use of historic sites. Intervention Line 7.1 fundable by JESSICA Integrated Local Small urban centre systems JESSICA is mentioned among the 2007‐2013 ERDF OP € 83,774,460 ‐ putting together a Development Boosting of infrastructure networks, financial engineering instruments [Axis VII] ERDF OP Axis VII, 7.2 "JESSICAble portfolio" Plans enhancement of abandoned open spaces. fundable by JESSICA Region's Municipalities, individually or ‐ less advanced Regional Law No. € 273,000,000 Integrated urban associated. ‐ Urban focus implementation stage 21/2008, [resources also intended for regeneration Restoration of buildings and open spaces, ‐ integration of interventions than PIRPs "Rules on urban PIRPs] programmes integrated intervention against physical ‐ participatory approach ‐ identify refundable regeneration" PAR FAS Axis VII, 7.1 and social degradation. projects Regional Council Resolution No. 870/2006 Regional Law No. 4/2008 € 92.639.712,43 Regional Council ‐ assess the refundability Integrated suburb Region's Municipalities ‐ ERDF OP Axis VII (32 Resolution No. 1510 ‐ Focus on suburbs of projects; upgrading (122 responded to the call for bids) million regional cofin.) for Regional Council ‐ integration of interventions ‐ pay attention to the type programmes Creation/Upgrading of infrastructure and infrastructure interventions; Resolution No. ‐ ERDF OP funding of eligible/ineligible (PIRP) public housing (ERP) interventions. ‐ PAR FAS Axis VII, 7.1 for 2192/2008 expenditure. Public Housing Regional Council Resolution No. 463 Regional Council Resolution No. Chapter 3: Local planning 641/2009 Regional Law No. 328/2000 Regional Council Resolution No. Region's Municipalities, individually or ‐ put together a possible € 200,000,000 approx. ‐ Potential impacts on urban 1104/2004 associated. Integrated Plan Area Social Plans ‐ ERDF OP Axis III, 3.2 development Regional Council Integrated interventions relating to social ‐ identify refundable ‐ National Funds ‐ ERDF OP funding Resolution No. and socio‐medical services. projects 249/2008 Regional Council Resolution No. 36

168/2009 Regional Council Resolution No. 1072/2007 Regional Council € 340.000.000 ‐ Multi‐sector interventions, many of Resolution No. them "JESSICAble" if appropriate put ERDF OP Axes I to VII 1617/2007 together (sustainable mobility‐ ‐ putting together Large Area Ten Large Areas of the Region. Regional Council innovation‐energy efficiency...] portfolios of JESSICAble Strategic Plans Multi‐sector plans € 82,000,000 approx. Resolution No. ‐ participatory and collaborative projects 917/2009 PAR FAS Axis VII, 7.2 for approach to drawing up the Plans pilot projects Regional Council ‐ ERDF OP funding. Resolution No. 2683‐ 2692 of 28 December 2009

Chapter 3: Local planning Chapter 3: Local planning 37

4. Urban Programmes

What has been financed by Urban Programmes in the past?

- Urban CIPs and the Urban Italia Programme in Apulia - Bari, Foggia and Lecce (Urban I) - Mola di Bari and Taranto (Urban II) - Brindisi and Bitonto (Urban Italia)

Foggia

BARI Mola di Bari Bitonto

Brindisi

Taranto Chapter 4: Urban Programmes

Lecce 38

4.1 Urban CIPs and the Urban Italia Programme in Apulia

During past programming periods (1994-1999 and 2000-2006), seven Apulian cities benefited from the Urban I and Urban II Community Initiative Programmes (CIPs) and from the national Urban Italia programme promoted by the Ministry of Infrastructure and Transport to extend the option to implement their own programmes (Law No. 388/2000) to the first twenty Italian cities in the Urban II CIP selection shortlist.

The seven Apulian municipalities that benefited were: five provincial capitals - Bari, Brindisi, Lecce, Foggia and Taranto - and two municipalities of the province of Bari - Mola di Bari and Bitonto.

Figure 1.4 Network of Urban cities Urban I CIP (1994-1999):

Municipality Characteristics Funded activities Target Area: “Borgo Antico” – Historic Centre Unemployment rate: 25% Programme Expenditure: 21 million ECUs approx. BARI Objectives:  Support for companies and the - to combat the disappearance of activities and services; development of new economic - to deal with social problems (young people, unemployment a activities, particularly by ageing of the population). recovering the use of public Target Area: Northern area of the city buildings; Unemployment rate: 20%  Renewal of public spaces and Programme Expenditure: 18 million ECUs approx. historic buildings, particularly to Objectives: FOGGIA house new social activities; - to improve the physical environment and attract new econom activities;  Training activities for specific - to promote private initiative; groups; - to support training activities.  Fight against crime and Target Area: “Quartiere Centro” – Historic Centre improvement of safety; Unemployment rate: 28%  Improvement of urban mobility; Programme Expenditure: 13 million ECUs approx. Chapter 4: Urban Programmes Source: www.urbanitalia.it Objectives:  Creation of information centres LECCE - to promote economic activities and create employment for women and immigrants.

opportunities; - to support gender equality, social integration and the physic and environmental improvement of the area.

39 Mola di Bari URBAN II CIP (2000-2006) The Programme was carried out in close synergy with the PRUSST urban upgrading and sustainable local development programmes, focused on the port area, and with the PRU urban recovery programmes, focused on a residential district in the suburbs. The actions taken (almost 22 million euros) were concentrated on:

- the urban coastal strip, in order to create the urban waterfront and upgrade the seafront; - the adjoining urban areas and public buildings, in order to make the most of new or previous restoration work; - existing buildings, in order to promote their recovery and therefore the establishment of new public and private activities.

Restructuring of the Waterfront "Radar" marine activities training institute – the intermediate floor Sports Field houses the public offices of the Urban Work done to develop the programme. installations and bring them up to Upgrading of the building, improvement of the structural standard. Creation of additional five- a-side football pitches and conditions and installation of improvement of the surrounding photovoltaic panels. green areas.

Giardini “don Pedro” – a suburb of “S. S. Trinità” lacking most of the Former Monastery of St. Claire – now services required to ensure the the site of the Academy of Fine Arts. appropriate social integration of the Conservative restoration and resident population. extraordinary maintenance of the Intervention adjacent to public building, conservation and housing buildings, a nursery school, a enhancement, improving accessibility. family centre and a day nursery. Project launched in the 1980s, suspended for a long time, intended to regenerate the district.

Source: www.urban2mola.it Out-of-town rural park equipped with a Chapter 4: Urban Programmes dog shelter. Former Convent of St. Dominic – used as the Town Hall until Piazza degli Eroi Gardens – adjacent to the 1993, now disused, situated in the urban centre, adjacent to Convent of St. Dominic. The overall projects has a dual function: the Church of St. Dominic. Repaving of pedestrian areas, integration of - healthcare (dog kennels, veterinary Establishment of the municipal library and of cultural services green areas, upgrading of the lighting system services) and activities. Complementary to other activities involving and renewal of urban furniture with the - recreational-sports-landscape Piazza degli Eroi. addition of an ornamental basin. (phytodepuration area, training area, mountain biking trails, car parks).

40

Taranto URBAN II CIP (2000-2006) The Programme was carried out in close synergy with a Contratto di Quartiere [district contract] focused on a suburb of the city, with three Patti Territoriali [local agreements] focused on the textile and tourism sectors and the P.R.O.T.E.C.T. project for the organic recovery of coastal areas with transnational cooperation. The actions promoted by the Programme (over 38 million euros) were focused on the following problems:

- environmental, social and economic deterioration caused mostly by the influence of major industrial groups (ILVA, Belleli, AGIP, Fincantieri); - shift from activities connected with the sea to activities of an industrial nature (iron and steel, mechanical, naval and oil processing sectors); - pollution, changes to the distribution of the population and to the conditions of the existing stock of buildings in the area.

Tamburi - Porta Napoli District (18,482 inhabitants). Il Borgo (24,541 inhabitants). - Built close to the ILVA iron and steel - Created from the end of the 19th century works as a typical workers' district; as an extension to the city; - Serious problems with links to the new - Widespread signs of degradation of the city, high levels of pollution and criminality, buildings; high rates of youth and adult - High numbers of elderly people requiring

unemployment; primary care; - Depopulation by the middle classes Mar Piccolo - Crisis in the retail sector and pollution, moving to other districts of the city. Mar Grande serious rates of criminality and drug The area could be relaunched by addiction. transforming it into the gateway to the city, Funding was provided for the renovation and establishing modern facilities and services. recovery of buildings and public spaces to be The catalyst for this transformation could used for offices as well as training and be the development of the multipurpose cultural activities, the replacement of paving dock and marina. and the removal of architectural barriers, the renewal of public lighting, the installation of

bus shelters to encourage the use of public Source: www.re-set.it transport and the restructuring of the Mar Grande waterfront. La Città Vecchia – Isola (4,378 inhabitants). Chapter 4: Urban Programmes - Former city centre, affected by the gradual disappearance of traditional economic activities (fishing, craftwork and small shops) and the slow abandonment of its buildings;

- Many vacated buildings donated by private citizens to the Municipal authorities, which have tried to launch property renovation work. Upgrading of the area by developing offices for public entities, university departments and tourism.

Funding was therefore provided for the renovation and recovery of municipal properties, the upgrading of pedestrian routes, the restructuring of the Mar Piccolo waterfront, the purchase of properties in which to establish socio-economic activities, the installation of bus shelters to encourage the use of public transport and the renewal of public lighting. 41

Brindisi Urban Italia Programme (2000-2006) The Programme was carried out in synergy with the P.R.O.T.A.G.O.N.I.S.T. – Pilot for the Recovery of Old Town Areas to Generate Occupation and New Initiatives in the Social and Tourist Sectors – programme aimed at restoring the historic centre, focusing in particular on the waterfront areas, particularly for the purposes of tourism. These are the problems affecting the area:

- few large companies, most of them non-local and operating in the energy, petrochemical and aeronautical sectors, many local micro-companies, often undercapitalised and fairly uncompetitive, operating in the third party processing sector; - industrial area policies (1960s-1970s) have had a radical effect on the economic system and on urban development, creating serious social and environmental problems in the suburbs, new districts and industrial area; - poor quality healthcare and social care and widespread illegality and unemployment.

The target areas of the Programme were mainly the inner port, historic city centre and adjacent suburbs: Perrino District: Casale District: Outer port: Upgrading of Via Cellie corner of Via industrial activities Creation of a treatment pool for people Aniene area - new layout, planting and urban furniture. with limb injuries.

Intermediate Historic Centre: Paradiso District: port: Recovery and upgrading of the Regina Upgrading of Piazza Pirandello - new commercial Margherita waterfront - new layout for layout, planting and urban furniture. activities Piazzetta San Dionisio. Completion of the restoration of the Corte

Seno di Ponente, occupied by the D'Assise, to be used as a cultural centre Inner port Navy which has transformed the Svevo- (auditorium, exhibitions, conferences). Angioino Castle into its own installation. Completion of the restoration of the former Scuole Pie Convent, to be used as craft shops. Seno di Levante, intended primarily as Renovation of the Galiano Gym. a customs clearance area for goods unloaded in the outer port, site of the city's main activities. Chapter 4: Urban Programmes

Source: www.waterfrontbrindisi.it

The historic centre includes a large number of disused and deteriorated public buildings. The extent of the building stock creates a management problem for the municipal authorities, which have therefore tried to promote its full use, particularly by granting concessions for social, cultural and private activities. Among the interventions carried out, priority has been given to increasing the number and improving the usability of urban green spaces, as well as investing in socio-medical facilities to promote social care and integration. 42

Bitonto Urban Italia Programme (2000-2006)

The Programme (25 million euros) was used by the Municipality of Bitonto to promote solutions to problems of social exclusion in the urban area and to improve the safety of the city, involving the establishment of facilities and services for the elderly and infirm, as well as the creation of a city of culture in the historic centre, with the recovery of buildings to house historic/artistic activities and the creation of the Polo delle Solidarietà [solidarity centre].

North of the city, along Via G. Dossetti: Creation of the Casa e centro polivalente dell’anziano – Villa Giovanni XXIII, a centre of excellence for providing care to patients affected by Alzheimer's Disease. The Bari health authority has appointed the facility as an experimentation and specialisation centre.

North of the city

Creation of the Centro Furthermore: Residenziale per cure palliative Palombaio sports centre – the creation of globali hospice providing new sports infrastructure was seen as a tool for integrating and strengthening youth palliative care to the terminally ill, with 30 beds, promoted by policies. the Opera Santi Medici Cosma e Reopening of the Umberto I Theatre – Damiano foundation of Bitonto. municipal theatre dating back to the 19th Facility created to fulfil the century, a tool for relaunching the socio- clinical, care, psychological and cultural life of the city. spiritual needs of patients in the Restoration of the Torrione Angioino – the advanced stages of illness. city's ancient defence tower, heart of the renewed historic centre.

Source: http://maps.google.it Chapter 4: Urban Programmes South of the city, in the suburb: Restoration of the Maria Cristina di Savoia Institute – an educational and residential facility housing needy children, women and families. Improvement of the quality of socio-medical and social care services with a view to ensuring their integration with the rate of urban development.

The Urban Programmes carried out by these cities have contributed to improving the scope and quality of urban intervention programming across the territory. Building on these experiences, Apulian cities must now progress from the "Urban tradition" to the JESSICA innovation. 43 5. JESSICA and its application in Apulia

What could be the first JESSICA-type UDF?

- Key elements of the JESSICA Initiative - Potential application models - UDF scenarios in Apulia - A UDF dedicated to rationalising healthcare service - The typical benefits of JESSICA tools -The benefits of a UDF dedicated to rationalising healthcare services - Architecture of the JESSICA Initiative in Apulia

Chapter 5: JESSICA and its application in Apulia in and its application Chapter 5: JESSICA 44

5.1 Key elements of the JESSICA Initiative Chapter 2 provided a general description of the way in which the JESSICA Initiative operates (see paragraph 2.3 in particular) and analysed the 2007-2013 ERDF OP in order to identify the areas of intervention which might present the greatest potential for the instrument to be applied in the case of Apulia. At this point it seems appropriate to go into more detail, identifying what the key elements of this Initiative might be and their characteristics, in order to gain a better understanding of the benefits of using JESSICA-type instruments and of their potential application in the context of Apulia.

Going back to the diagram shown on page 12, chapter 2, we stated that: Figure 1.6 Diagram of the JESSICA Initiative

According to the new Regulations on the Structural Funds (Regulation 1828/2006, article 43), Management Authorities are entitled to:

- allocate part of their structural Funds - to setting up Holding Funds (optional) and - Urban Development Funds which, having a leveraging effect, - might make repayable investments in favour of - partnerships between the public and private sectors (PPP) or other projects - included in an Integrated Plan for sustainable urban development.

The ultimate aim of the Initiative is to promote investments and attract resources to the types of projects in which the potential for the public sector to intervene according to the traditional forms of funding – e.g. a sinking fund – is limited but which have the potential to attract resources from the private sector at the same time.

Source: European Investment Bank Thanks to the performance of JESSICA-type instruments in fact even private investors, guided by the objective of diversifying their portfolio of projects and achieving an appropriate level of return, might be attracted to invest in urban development areas and projects in which they would not traditionally and independently have been interested. In fact it is reasonable to expect that the target projects of the Initiative will present a positive financial internal rate of return (IRR) - but one which is not high enough to encourage independent involvement by the private sector - and a high economic IRR, indicating the great and positive impact that the investment generates in terms of benefits for the community and for local development. By combining incentives and resources originating from the public sector with other resources and expertise from the private sector, the JESSICA Initiative could therefore play a potentially key role in filling the gap in the market that is a characteristic of many urban areas in the Union, which receive few investments, particularly because of the lack of appropriate information and ad-hoc investment tools. This demonstrates the importance of moulding the financial architecture of the Initiative in such a way as to ensure that it fulfils the

requirements and strategic priorities of the various areas considered. Apulia in and its application Chapter 5: JESSICA 45

Figure 1.6 translation

COMMISSIONE EUROPEA EUROPEAN COMMISSION Sovvenzioni dei Fondi strutturali Structural Fund grants ALTRI INVESTITORI (strutture pubbliche OTHER INVESTORS (public and private e private) organisations) STATI MEMBRI (tramite un’Autorità di MEMBER STATES (through a designated gestione designata) management authority) CITTÀ CITIES Investimenti (Fondi propri, prestiti o Investments (own funds, loans or garanzie) guarantees) Fondo di partecipazione (Facoltativo) Participation fund (Optional) FONDO DI SVILUPPO URBANO URBAN DEVELOPMENT FUND Prestiti Loans Istituzioni finanziarie International financial institutions/Banks internazionali/Banche Including contributions in the form of Compresi apporti sotto forma di terreni e land and buildings di edifici Projects included in an integrated Progetti inseriti in un Piano integrato per sustainable urban development plan lo sviluppo urbano sostenibile

Chapter 5: JESSICA and its application in Apulia in and its application Chapter 5: JESSICA 46

Autorità di Management 5.1.1. The Holding Fund Gestione Authority Fondo di Participation Devised by Community Regulations as a financial engineering instrument aimed at investing in Partecipazione Fund Holding one or more Urban Development Funds, the key objective of the Holding Fund (HF) - during Holding Fund Fund the launch of the Initiative - is to guide and assist the MA in implementing the Initiative itself. FSU UDF It is not obligatory but it serves the purposes of the MA.

after the HF is set up, these resources accrue interest even before the UDFs  Main activities and final projects are identified and selected; In accordance with the contents of the Financing Agreement [see article 44 of Community Regulation 1828/2006] signed between the MA and the HF, - the technical assistance and support provided by the MA to the the main activities that an HF is required to carry out relate to: UDF; - Marketing of the Initiative; - the promotion of the instrument among investors and the encouragement of private investment (lever effect); - preparation of calls for expressions of interest addressed - the coordination between UDFs if there are multiple ones. Before the UDF to financial intermediaries and UDFs; is set up - appraisal and selection of UDFs; - preparation of the UDF business plan;  Costs of the HF - negotiation of the HF-UDF contractual structure. According to Community rules, the management costs must not exceed 2% of the OP's contribution to the HF, “unless a higher percentage proves - Support in establishing the criteria for selecting necessary after a competitive tender” [see article 43 (4) of (EC) Regulation investments made by the UDF; 1828/2006]. Before the instrument is launched, therefore, a cost-benefit - assistance for the structuring "JESSICAble" projects; analysis has to be carried out in order to determine whether an HF is - assistance to the UDF on specific subjects (e.g. State aid) appropriate in the case in question. and (EC) Regulations; After the UDF - supervision of the eligibility of investments;  Selection and nature of the HF is set up - reporting to the MA and Committee of Investors; According to Community rules, the HF may be set up: - establishment of accounting systems in accordance with - as an independent legal entity or (EC) regulations; - as a separate block of finance within a financial institution. - implementation of the winding-up policy agreed in the The only situation in which a competitive tender is not required in order to Financing Agreement signed with MA. select it is if the role of the HF is entrusted directly to the EIB – with If the MA should decide not to set up an HF, the aforesaid activities must be savings in terms of time and procedures. supported directly by the UDF and MA, although technical assistance may be The HF must be seen as a temporary instrument servicing the MA and, received from the EIB. even if its role is entrusted to the EIB, the tendency should be gradually to transfer direct responsibility for the instrument to the local level, once the skills and knowledge required to manage the Urban Development Funds  Advantages and benefits of the HF (UDFs) and the respective projects have been transferred to it.

The main reasons that make it beneficial to have recourse to an HF are: Apulia in and its application Chapter 5: JESSICA It cannot in fact be ruled out that the presence of the HF may be considered - the accrual of interest on the amounts allocated to them. strategic by the MA even after the Initiative has been launched – e.g. in Particularly because the Structural Funds are disbursed very shortly order to coordinate multiple local or theme-based UDFs.

47 5.1.2. The Urban Development Fund The Urban Development Fund (UDF) has been defined by Community Regulations as a financial engineering instrument that invests in public private partnerships (PPP) and other projects included in an Integrated Plan for sustainable urban development. Community rules do not specify the legal form of these Funds (Property Fund/Joint-Stock Company/Trust/In-house structure of the MA), therefore entrusting the Management Authority with the task of identifying  Features of the main UDFs it. The UDF is required to be a “rotating instrument”, i.e. one which is able  Selection and nature of the UDF to reconstitute its capital over time and to remunerate investors - public and private – thanks to the investments made and/or financing granted. Responding to the need to apply the (EC) Regulations in the 27 countries of the Union - each one having its own legal system and a different level of This objective is pursued by investing in “repayable projects” (as financial market maturity - the regulations make two provisions: previously illustrated in paragraph 2.3) which, despite providing various kinds of return, allow the UDF overall to feed itself and to remunerate - allowing the UDF to be set up as an independent legal entity, investors. The types of return can vary according to the investors - or as a separate block of finance within a financial institution. considered. In order to attract private capital, the MA may in fact decide to In the latter case, separate accounting must be maintained between the grant them a rate of return that is in line - or almost in line - with the institution's capital and that of the UDF, so that the disbursement of funds market rate, contenting itself with recovering only the Structural Funds or drawn from the Structural Funds can always be distinguished and verified. public capital invested. In order to be selected as a UDF, a Fund must also demonstrate that it has The resources thus provided by the investments made can be used by the sufficient skills and managerial independence, a business plan suited to the MA to promote new urban development projects, either by launching a activities that need to be financed, budgets that are in line with the new cycle of JESSICA-type investments or - it would seem - by disbursing implementation of eligible projects and an adequate level of financial solidity. the resources generated by the first cycle in the form of traditional grants. According to the Regulations, its management costs may not exceed 3%  Eligible expenses of the capital contributed from the OP to the UDF, unless a higher These correspond to the eligible expenses identified by (EC) Regulations in percentage proves necessary after a competitive tender. the context of the Structural Funds. In a Member State like Italy, which  Types of UDF joined the EU before 1 May 2004, for example, interventions relating to Two types of UDF are essentially possible: housing cannot be funded [see article 7 of (EC) Regulation 1080/2006] and - “theme-based”: investing mainly in interventions regarding a particular this non-eligibility applies to all the resources included in the OP, including sector [e.g. fund for energy saving in public buildings, fund for high those earmarked for the UDF. However, if resources other than the technology and attracting human capital]; Structural Funds are present in the UDF, these could fund non- eligible costs and cost components, and therefore housing interventions - “territorial”: investing mainly in a specific area, promoting integrated as well. urban development plans relating to various sectors [e.g. UDF for a city or one of its districts]. For this purpose, it is essentially to maintain a separate accounting system so that costs charged to the OP are always distinguished. They can be set up at national, regional or local/urban level depending on existing development plans, as a set of specific projects or as a response to interest expressed by a group of investors [the UDF acting as a one-stop shop, see page 42]. 5.1.3. PPP and “JESSICAble” projects Apulia in and its application Chapter 5: JESSICA As we have repeatedly mentioned, in order to be considered "JESSICAble", projects in which the UDFs invest must not only be repayable but must also be part of an "Integrated Plan for sustainable urban development". 48

Paragraph 2.5 provided a general definition of these Plans [“system of interconnected actions aimed at improving the economic, physical, social and/or environmental conditions of a city and/or a district”] and the main examples to be found in the MA's local plan were identified [City development plans, District programmes, Programmes aimed at renovating and restoring run-down areas, Sectoral plans with a significant local urban component].

The purpose of this paragraph is to identify, on a purely indicative basis, the types of projects that might be easier to include in an Integrated Plan for sustainable urban development and, secondly, to identify the ways in which the final projects could be selected.

 Types of potentially "JESSICAble" projects Purely as a non-comprehensive illustration, the following types of intervention could contribute to the sustainable development of cities and be included in an Integrated Plan for sustainable urban development:

- Basic urban infrastructure - public spaces, urban furniture, roads,

public transport, water resources/waste water treatment, energy, Autorità di Gestione Management Authority Fondo di Partecipazione Holding Fund Participation Fund Holding Fund (if any) waste - and district infrastructure; (eventuale) UDF

- Parts of the historic and cultural heritage, for production, tourism or FSU PPP and other projects included in an other uses that are compatible with them, including cultural PPP e altri progetti inseriti in un Piano integrated plan for sust. urb. dev. complexes and attractions; Integrato per lo Svil. Urb. Sost. - Conversion of abandoned or underused areas, industrial sites and structures, for production and/or community use, including reclamation and decontamination work;

- Spaces and structures for commercial and production use and for Three models have therefore developed in the European Union: attracting offices, including spaces for exhibitions, industrial, research and high technology parks; - Spaces and structures for small and medium sized companies - Competitive tender approach: a public procedure is carried out, following which (SMEs) and for high tech sector companies (IT, Research and the projects are selected. Some MAs, for example, have published a call for bids Development); inviting local authorities that fulfil certain requirements to draw up Integrated Plans - Social infrastructure - healthcare / education, including facilities for and, based on pre-established requirements that are known to the candidates, have all levels of education and training, medical facilities, biotechnologies selected the final beneficiaries; and other specialised fields; - Multifunctional complexes (commercial activities, leisure, offices); - Direct identification approach: the MAs may directly identify one or more projects - Actions to improve energy efficiency. that might fulfil the “JESSICAbility” requirements and therefore launch the Initiative  Project selection more quickly with the boost of pilot projects; Community legislation does not contain any specific provisions regarding the procedure for selecting PPPs and other projects in which JESSICA-type financial instruments invest. - One-stop shop approach: in this case, the UDF - as already happens with services Chapter 5: JESSICA and its application in Apulia in and its application Chapter 5: JESSICA While they have to be part of an integrated and sustainable urban plan, provided to companies - is conceived as a permanent office within the MA that wide-ranging independence is in fact granted to MAs. promotes urban transformation and upgrading. Structured as a physical interface intended to serve the promoters of integrated plans and projects, it could provide assistance and information to investors interested in funding projects, local authorities, HFs and citizens.

49 5.2 Potential application models

Having briefly examined the nature and characteristics of the key elements of the JESSICA Initiative, there are three potential investment procedures that the HF and UDF can adopt: “equity instruments, loans and guarantees” (Regulation 1828/2006, article 46). Phase 1 Phase 2

UDF invests by means of equity instruments UDF/HF UDF/HF

The UDF provides equity- i.e. risk capital – to projects selected as €

“JESSICAble”. investm. shares € E.g.: the UDF purchases shares in the project company (SPV) that will remunerat.

actually carry out the interventions. Final remuneration of the UDF: PPV/SPV/Projects PPV/SPV/Projects - periodic share of the profits of the company; - transfer of the shares at the end of the project, benefiting from the increase in their value from the time when they were

purchased.

Advantages: types of projects or areas perceived as too risky by private investors may become attractive. The presence of public capital and individuals may contribute to reducing the risk perceived by investors and therefore to attracting private

UDF invests by means of loans capital, making up for an evident market failure.

Alternative 1 Alternative 2 The UDF provides loans- i.e. debt capital – to projects selected as “JESSICAble”. UDF/HF E.g.: the UDF disburses a loan directly to a PPP or SPV [Alternative UDF/HF 1], or to a financial institution which in turn would disburse it to the € € PPP or SPV [Alternative 2]. € € loan repaymen loan repayment Final remuneration of the UDF: t

- repayment of the loan;

Financial institution - interest. PPV/SPV/Projects Community legislation does not specify a threshold or method for € calculating the interest rate to be applied by the UDF. Great € loan repayment independence is left to the MA and to the JESSICA-type instruments

to structure the disbursement of the loan according to the most Apulia in and its application Chapter 5: JESSICA

appropriate conditions. PPV/SPV/Projects

Advantages: provision of a loan at a concessionary rate compared to the market rate, which could be accompanied by traditional financing lines.

Particularly suitable when funded projects generate periodic cash flows (concession/lease payments, bills), making it easier to repay the capital and interest that PPPs/SPVs have to periodically pay to the UDF or financial institution. 50

...continued - potential application models

UDF invests by means of guarantees Sample h

The UDF provides guarantees to PPPs or SPVs that fund projects UDF selected as “JESSICAble”.

E.g.: a PPP or an SPV approach a financial institution to open a credit guarantee line and need the UDF to guarantee a percentage of the loan. Remuneration of the UDF: € Financial institution - periodic insurance premium - which is therefore added to guarantee premium the amount of interest payable and to the capital amount that the PPP/SPV has to pay to the financial institution. € € loan repaymen The amount of the guarantee premium is determined by three main t variables: the amount of the loan guaranteed, the length of the

guarantee period and the extent of the risk, as determined during PPV/SPV/Projects the analysis of the business plan by the UDF. In the event of a default, the UDF would be required to repay the amount of the guaranteed loan to the financial institution. Advantages: payment of a guarantee premium by the PPP/SPV at a lower rate than the one offered on the market.

In the case of particularly risky projects, furthermore, the private sector

might not be prepared to grant guarantees and therefore the UDF- JESSICA would play a key role in making up for a market failure.

Great flexibility is therefore offered by JESSICA-type instruments – in terms of overall financial architecture (with or without an HF) and in terms of the investment procedure adopted by the UDF/HF (equity, loans or guarantees).

Among the three investment procedures provided, the issuing of guarantees is the option which will presumably be the least applied, while the choice between equity investments and loans will be dictated mostly by the type of project considered, the degree of maturity of the market and the choices/preferences of the Administration.

Great autonomy is therefore granted to the MA to identify from among the available options the combination that is best suited Apulia in and its application Chapter 5: JESSICA to its context and to the projects that it intends to finance. 51

5.3 UDF scenarios in Apulia

The analysis of the ERDF OP (chap. 2) and of the main local programming documents promoted at regional level (chap. 3) has revealed ample opportunities for the JESSICA initiative to be applied in the context of Apulia. For example, the UDFs that could be launched more easily include the following in particular:

UDF intended to: Pilot project(s): ERDF resources (indicative):

Rationalise social and San Raffaele del Mediterraneo Hospital in Axis III “Social inclusion and services

healthcare services Taranto [or other projects, e.g. in the Hospital for quality of life and local Building Programme] attractiveness”

Installation of photovoltaic systems on public Axis II “Sustainable and efficient use Improve energy buildings [or Pipelines of other projects contained, of environmental and energy resources for example, in the Large Area Strategic Plans] efficiency in public for development” buildings

“Magna Grecia” Science and Technology Park Create advanced Axis I "Promotion, enhancement and a Taranto, but also other University Campuses and research centres and dissemination of research and Research Centres [e.g. contained in the Bari Large science and technology innovation for competitiveness" parks Area Strategic Plan]

Taranto light metro and sea tram and Bari Carry out sustainable tram-train [or Pipelines for other projects Axis V "Mobility networks and links" mobility interventions contained, for example, in the Large Area Strategic Plans]

Pipelines for projects contained in the PIRPs Axis III “Social inclusion and services

Upgrade suburbs (integrated suburb upgrading programmes) for quality of life and local attractiveness”

However the Region will still have the opportunity to identify other theme-based/local UDFs funded by other OP resources. Chapter 5: JESSICA and its application in Apulia in and its application Chapter 5: JESSICA For the purposes of this study, specific interest has been expressed by the Region in verifying the potential for using JESSICA instruments in support of the “San Raffaele del Mediterraneo Hospital” project in Taranto. Consequently, attention has been focused on the proposal for a UDF dedicated to rationalising social and healthcare services in the urban areas of the Region.

52 5.4 A UDF dedicated to rationalising healthcare service

A UDF dedicated to rationalising Apulian social and healthcare services would be consistent to a certain extent with the provisions of Axis III of the ERDF OP “Social inclusion and services for quality of life and local attractiveness” and with the content of the Regional Health Plan:

Axis III of the ERDF OP

The mix of objectives pursued by Axis III “must take into Integrating the interventions promoted in the field of healthcare with the account the need to integrate inclusion and health urban development dimension could easily justify the establishment of a protection policies with development and urban JESSICA-type UDF using resources contained in this Axis. upgrading policies in order to achieve full integration: (economic, social and political) by means of inclusion policies”. “The new infrastructure building programme will involve the The main problems facing the Apulian hospital network are the following:

creation of new centres to house essential socio-medical - Large number of hospitals; services […], primarily by renovating, adapting the - Small size of the establishments, often non-specialised; structure or restoring the operation of existing - Inadequate and obsolete establishments which do not fulfil requirements for

buildings according to principles of sustainability, institutional accreditation and would be difficult to renovate; particularly where the recovery allows the social or socio- - Located in the historic centres of cities or in neighbouring areas, with serious medical structure to be integrated in the urban repercussions in terms of accessibility; context” - Fragmentation into small establishments, which prevents appropriate care being provided and uses up precious resources.

Furthermore: - Low attraction index; Regional Health Plan - High number of patients from other areas.

Need to: The Regional Health Plan refers directly to the 2007-2013 RDF OP for Apulia and, in particular, to the resources - Combine small hospitals; contained in its Axis III. Referring to the resources in line 3.1 - Relocate hospitals situated in historic city centres; - Create new main hospitals located in easily accessible sites. of the ERDF OP, the Regional Health Plan states that these resources will be spent according to negotiations Hospital building programme (2008-2013): and agreements with Apulian health authorities. "The work will allow the considerable problems faced by an ageing hospital system and a serious inadequate local system to be overcome". Creation of 10 new hospitals. Estimated cost: 1.7 billion euros.

The action contained in the Regional The establishment of a UDF aimed at funding interventions in the Health Plan is co-funded by Axis III healthcare sector appears to be consistent with the provisions of of the ERDF OP. both documents. Chapter 5: JESSICA and its application in Apulia in and its application Chapter 5: JESSICA

53

This Fund could operate as follows: 4 1 With the capital raised, the UDF invests - in the form of equity or loans - The UDF is set up on the initiative of in the SPV destined to fund the interventions. (The UDF cannot act as the Region, which allocates it part of an SPV itself – directly supporting the cost of the project – but, if it its Structural Funds. The regional co- invests in the form of equity, it must acquire shareholdings in the financing share could be covered by capital of the project company [see Guidance Note on financial allocating the hospitals to be sold to engineering, COCOF 2, 2008]). the UDF - “in-kind contributions” [Regulation 1828/2006, article 51]. Further public resources could be channelled to the UDF, both by the Region and by Local or Public ERDF and Authorities interested or involved in other public €

the project. resources Any facilities to be sold

€ Private € 2 € Resources UDF SPV Builder Private investors (financial institutions, qualified investors, builders/developers) interested in the € project and the prospects for a return Property New facilities market Any sale of facilities might also be attracted to invest in the UDF - perhaps with different forms

of return.

5

3 The UDF receives periodic payments from the SPV - particularly if it invests by means of loans - or shares in the profit/increased value Any sale of healthcare facilities provided by the Region to the UDF would allow achieved by the shares in the SPV itself – typically, an investment in resources to be earned from the property market, although the potential the form of equity. options will differ. The cash flows channelled to the UDF by the SPV are generated from Rather than simply selling the existing facilities, the UDF might look at the the income that the SPV obtains by managing the new infrastructure possibility of using former hospital infrastructure for other purposes, for the - in addition to which there would be any auxiliary services that may benefit of the Region, even investing in the respective conversion projects. develop alongside the main infrastructure. This allows the UDF to remunerate its investors.

At the end of the first cycle of investments, therefore, the resources remaining in the UDF will be at least equal to the amount of Apulia in and its application Chapter 5: JESSICA Structural Funds which the Management Authority had allocated to it at the start of the project. These resources could be used by the regional Administration to promote the building of new healthcare facilities or other sustainable urban development projects. 54 The main sources of public funding available to launch the hospital building programme and rationalise the Apulian healthcare system are:

Healthcare Building Law 67/88, article 20: “Authorisation is given for a multiannual programme of action relating to the renovation of buildings and modernisation of technology owned Programme by the public health system and to the creation of residential centres for the elderly and non‐self‐sufficient individuals”. [Law 67/88, article 20] Funding provided under the State budgets. First Programme Agreement for Urgent Projects (2004): 287 million euros Second Programme Agreement for Urgent Projects (2007): 459 million euros Amounts assigned to Apulia 2007 State Budget: 186 million euros 2008 State Budget: 220 million euros expected (Regional Health Plan) Total available As of 31.12.2007: 343 million euros +220 million expected from the 2008 State Budget

2003 State Budget: “As of 2003, a "fondo per le aree sottoutilizzate" (FAS) (fund for underused areas) has been set up for depressed areas […] for the purpose of FAS achieving economic and social balance”. [2003 State Budget] Funding can be provided for public investments ‐ physical and virtual infrastructure ‐ and incentives provided to private citizens. In the context of the Programmi di interesse strategico regionale (regional strategic interest programmes), Apulia has been allocated 3,271 million euros. Out of these funds, the Region has allocated, through the FAS Programma Attuativo Regionale (PAR) (regional implementation programme) (action line 3.1), 310 million to a “Programma di interventi per l’infrastrutturazione della sanità territoriale nei distretti socio‐sanitari e per l’edilizia ospedaliera” (programme of local healthcare infrastructure building in socio‐medical districts and hospital building), aimed at funding: Amounts assigned to Apulia  Expansion of the Case della salute (healthcare homes) network and provision of equipment to hospitals;  Grande Progetto Polo Materno‐Infantile per il Mezzogiorno (southern Italy mother and child care project);  “San Raffaele del Mediterraneo” Hospital Project;  Hospital building by the Brindisi health authority and BAT. Amounts allocated by the FAS PAR to health care infrastructure: 310 million euros, not yet approved by the CIPE (interministerial committee for economic Total available planning).

European Regional Development Fund, aimed at promoting economic and social cohesion between the Member States, reducing regional disparities [EC Reg. No. ERDF 1080/2006, No. 1083/2006, No. 1828/2006, No. 284/2009]. In Axis III of the OP “Social inclusion and services for quality of life and local attractiveness”, the Region has allocated: ‐ 225 million to a “Programme of interventions to build local healthcare infrastructure in socio‐medical districts” (line 3.1) aimed at funding:  Innovation and technological improvement of outpatient facilities;  Expanding the number of centres of excellence for disabled people;  Expanding the network of surgeries and diagnostic facilities. Amounts assigned to Apulia ‐ 260.5 million to a “Programme of interventions for local social and socio‐medical infrastructure” (line 3.2), aimed at funding:  Community day centres for minors, adults in difficulty, disabled and elderly people  Community residential centres for immigrants  Facilities for young children, nursery schools  Emergency welfare services. Amounts allocated to interventions in the healthcare sector (EU+State+Region): 485.5 million euros, including 130 million (EU+State) earmarked in the regional Total available Apulia in and its application Chapter 5: JESSICA budget for 2008 but not yet committed. Compared to the traditional use of these sources of funding - sinking fund - the launch of a JESSICA-type UDF into which some of these resources could be channelled could present significant benefits for the Region. 55

5.5 The typical benefits of JESSICA tools

As we have already pointed out, the JESSICA Initiative is not an additional source of European funding for Management Authorities because it does not change the resources contained in the Operational Programme's financial plan. However, the provisions contained in the Community Regulations regarding Structural Funds make it particularly beneficial to activate this kind of instrument. These are the main reasons:

Community resources contained in the OP and used for JESSICA are credited immediately – or in any case very quickly - by the The share of the Structural Funds allocated to a UDF/HF does not European Commission to the Management Authority. The use of necessarily have to be spent within two years of the resources being part of the financial resources of the OP to set up a UDF or HF is in fact recorded in the Financial Plan. In fact it is sufficient for the resources to considered to be an "intermediate payment" and, as such, the Structural be used – i.e. allocated to clearly identified projects, even if they have Funds are credited at the same time. not been completed - by 31 December 2015. This abolishes the traditional rule of automatic decommittal – or “n+2” [see article 93 Given that these resources are disbursed before projects are identified of Regulation 1083/2006]. and implemented, interest is accrued by the HF and the UDF from the moment they are set up, and therefore even before the projects to If the UDF/HF invests in a “revenue-generating project”, the be funded are actually identified and selected. admissible expenditure is not restricted, as is the case with traditional Structural Fund spending procedures, to the difference Given that the investments made by the HF and UDF have to be between the current value of the investment and current value of the net repayable (the projects are not funded on a "sinking fund" basis but have income resulting from it [see article 55 of Regulation 1083/2006]. In fact to be able to repay investors in some way), the return or profit if this were the case the rotation capacity of the UDF resources would be generated - withheld by the UDF or repaid to the Management limited. Authority – can be used to fund new urban upgrading projects. The JESSICA Initiative is not therefore an additional source of The return on the investment must in particular allow the UDF to European funding for MAs but it might allow them to obtain reconstitute its capital at least once but, once the investors have been repaid – with returns that may vary according to the various public additional resources outside it. and/or private operators involved - the Management Authority will be free One of the main objectives, in fact, is to attract other investors - public as to reuse the resources released for new urban development activities, well as private - to invest in the UDF/HF and/or project, creating a lever possibly in the form of traditional grants – if this is confirmed by the effect that will not only bring additional financial resources to the European Commission. Structural Funds but also valuable technical and financial know-how from international financial institutions and specialised operators. Management Authorities will therefore have the opportunity to transform the current structural Funds into a permanent source of Apulia in and its application Chapter 5: JESSICA resources and to have ad-hoc instruments available for urban transformation. In fact these instruments act both as financial instruments and as potential governance instruments that can manage the transformation and regeneration of urban areas. 56

5.6 Benefits of a UDF dedicated to rationalising healthcare services In the case of Apulia, activating a UDF could assist it both with selling and making the best use of obsolete healthcare infrastructure and with launching a hospital building programme, while at the same time promoting the competitiveness and attractiveness of the cities. To summarise, it would allow:

Various sources of funding to be used in synergy: allowing the Resources to be used that are known and certain: the resources contained in the ERDF OP are known for the whole 2007-2013 Region to channel other public resources to the UDF, in addition to ERDF programming period - unlike the Healthcare Building Programme, the OP resources, which are consistent with investments in the healthcare amounts for which are established annually by the State Budget and sector, thus increasing the fund available to the UDF and the likelihood FAS Funds, which are awaiting approval by the CIPE (interministerial that its potential to act as a financial lever, attract private investors, committee for economic planning); access the market and generate a return on investments will be improved; Resources to be available in a very short time: see paragraph 5.5; The available sinking fund resources (e.g. FAS) to be set aside The share of regional co-financing for the ERDF OP to be partly for interventions that would not be able to generate a return on or totally paid as an in-kind contribution (property and land): the investment. The Regional Healthcare System requires multiple recent changes made to Community regulations have introduced the interventions. A long-term strategic vision might suggest reserving most

option of using in-kind contributions to cover the share of national co- of the available sinking-fund reserves (e.g. FAS) for priority financing for the OP and these contributions can also be allocated to interventions which are unable to generate a return and would be JESSICA instruments. Given that the Regional Health Plan provides for difficult to include in a "JESSICAble" projects portfolio, funding the the sale of a number of hospitals and the building of new ones in more bigger projects (e.g. the San Raffaele del Mediterraneo Hospital) and accessible areas, the Region might consider handing the sold hospitals other interventions that might constitute a “JESSICAble” portfolio via a directly to the UDF, using them to cover some or all of the regional co- UDF that would be able to reconstitute its resources, releasing them for

financing for the ERDF OP; the benefit of new projects. This would allow more resources to be

Resources from different ERDF OP Axes to be allocated to allocated to "cold" projects and, thanks to the UDF's investment in "hot"

healthcare: Axis III - “Social inclusion and services for quality of life projects, new resources to be generated that could fund both "cold" and and attractiveness of the local area” - seems to be the most consistent "hot" projects in future; with the funding of healthcare sector interventions. However, if the Responsibility and autonomy regarding the use of resources to building or improvement of a hospital should take place in an area to be remain in the hands of the Region: the UDF is a financial instrument upgraded, the UDF might also be financed by resources from Axis VII - serving the Region and, even if the role of Holding Fund should be “Competitiveness and attractiveness of urban systems”; assigned to the EIB it would operate on behalf of the Region, which would ultimately be responsible for establishing the criteria and The currently available resources to be transformed into a characteristics of the investments made by the UDF. source of new resources: see paragraph 5.5. If the same interventions were only funded by sinking fund resources (e.g. FAS or

Healthcare Building Programme), once building was completed no resources would be available for new investments; All conditions being equal, therefore, the establishment of a UDF reduces the burden on the regional budget and releases

resources for new investments. Apulia in and its application Chapter 5: JESSICA

57

5.7 Architecture of the JESSICA Initiative in Apulia Based on the illustration given in the previous paragraphs one can assume - on a purely indicative and theoretical basis - the "optimum" architecture for JESSICA can be determined considering three fundamental elements:

HF as separate capital Public competitive within a financial institution Yes tender. Are there any financial institutions that could Yes perform the role of an Direct assignment - Need to set up a HF? shorter timescale and Holding Fund? No EIB acts as HF identified procedures.

No

Direct establishment of the UDF, HF's activities performed by the MA and UDF. Although the option of receiving technical assistance from the EIB remains open.

UDF set up as separate capital Are there any Yes within a financial institution Need to carry out a public competitive tender, although for Società Finanziarie in-house entities the possibility of direct assignment would Regionali or in- need to be ascertained. house entities that could act as a UDF? UDF set up as an independent legal No entity Need to carry out a public competitive tender.

Are the projects Yes The UDF can invest in the form of UDF as a cash fund – could be set up as separate capital somehow able to loans and receive periodic within a financial institution, maintaining an adequate system generate positive repayments of separate accounting. and periodic cash The UDF provides risk capital - but flows? More potential to attract private investors - less consistent the projects require "patient No with traditional public investment systems and more suited capital" to markets in which financial instruments for urban development are already developed.

Apulia in and its application Chapter 5: JESSICA

58 ...continued - architecture of the JESSICA Initiative in Apulia In light of the information available, in the case of Apulia one can reasonably assume that:

The choice is up to the Region and must be assessed considering the number and type of UDFs that need to set up. If there is only one project, like the San Raffaele del Mediterraneo Hospital, it seems reasonable to believe that the cost of setting Need to set up a up an HF would be greater than the benefits generated. Holding Fund? However, if it should be necessary, it would appear to be more convenient (in terms of time and responsibilities) for the role of HF to be assigned directly to the EIB, which would act in the interest of the MA, with the aim of gradually transferring responsibilities and tools to local level. Particularly during the launch of the Initiative, the Region could however rely on the technical assistance provided by the EIB, even without setting up an HF.

Are there are The potential for setting up a UDF as separate capital within an in-house entity of the Region seems to be ruled out because Società Finanziarie there is currently no Società Finanziaria Regionale [Finpuglia was put into liquidation by Regional Law No. 40 of 31 December 2007]. Regionali or in- house entities that There is therefore the option of identifying a financial vehicle or institution which might act as the UDF locally. This would

could act as a UDF? be an entity serving the regional administration that could assist it with the whole process of transforming the regional social and healthcare system and integrating these interventions with the strategic and sustainable review of the urban areas themselves.

Are the projects The San Raffaele del Mediterraneo Hospital project, if appropriately structured, would be able to generate periodic cash

somehow able to flows with which to repay the UDF – see chapter 6. generate positive The method of investment adopted by the UDF - equity or loans - must be identified in agreement with the Region. Given and periodic cash that the market for financial instruments applied to urban regeneration still appears to be fairly undeveloped it seems more flows? likely that the UDF would invest by means of loans.

The UDF could become a "permanent" structure serving the Region, emerging as a new operator in the urban regeneration and transformation market, able to guide investments and generate profit, while operating in the interest of and in accordance with the strategic priorities identified by the regional administration.

Chapter 5: JESSICA and its application in Apulia in and its application Chapter 5: JESSICA It would allow the MA to recover the share of the Structural Funds allocated to the Urban Development Fund, releasing resources which, if they had been disbursed to beneficiaries according to the traditional sinking fund financing method, it would not have been possible to reconstitute. 59

6. The pilot project

How could the new Taranto HSRM be financed?

- The “San Raffaele del Mediterraneo Hospital” (HSRM) project - Implementation tools and sources of funding - Option 1: works contract with JESSICA - Alternative structures: leasing vs project financing - Option 2: leasing - Works contract vs leasing comparison - Option 3: JESSICA involvement in the leasing structure - Comparative analysis of implementation instruments

Chapter 6: The pilot project

San Raffaele del Mediterraneo Hospital, Taranto

60

6.1 The “San Raffaele del Mediterraneo Hospital” (HSRM) project

The setting-up of a UDF dedicated to rationalising social and healthcare services in Apulia could easily be promoted by the launch of the "San Raffaele del Mediterraneo Hospital" pilot project in Taranto.

. Objectives Future The building of the new San Raffaele del Mediterraneo Hospital in Taranto Existing S.G. S. Raffaele fulfils three fundamental requirements: Moscati site del Mediterraneo Hospital - to replace the Taranto health authority's main hospital (SS Annunziata), which is now obsolete; Paolo VI District - to upgrade and improve the hospital care provided, promoting scientific research and healthcare training, establishing links with the

Apulia university system;

- to stem the increasing flow of patients travelling from other areas to

receive healthcare, the cost of which reached 133 million euros in 2007, including hospital care and specialist diagnosis and care services. Borgo District This project therefore aims to build a hospital which can guarantee excellent Existing SS Annunziata architectural, managerial and organisational standards and to combine . Partners involved in carrying out the project Hospital clinical care with scientific research and healthcare training in a single infrastructure.

Source: Data from www.re-set.it processed by CERTeT . Relevance to the urban development dimension In addition to upgrading and rationalising the Region's hospital network, the project would have a dual effect on urban development: The public-private collaboration envisaged would provide to the establishment of a private non-profit-making foundation: the “Istituto S. it would free up buildings currently housing hospital services - Raffaele del Mediterraneo Foundation” (HSRM) – involving: - the SS Annunziata hospital, located in the city centre (Borgo

District), would be sold, while the S. G. Moscati site could be The Apulia Region: responsible for governance and planning, and upgraded to be integrated with the future excellence complex; - for providing access to any public financing programmes;

- the new San Raffaele del Mediterraneo hospital complex Chapter 6: The pilot project Taranto Health Authority: contribution of the two SS. Annunziata would be built outside the city walls, in an area that lies within - and S. G. Moscati hospitals to the HSRM Foundation; the Paolo VI District, which is well known for being run down. - The private partner – IRCSS “Fondazione Centro San Raffaele

del Monte Tabor” of Milan: managerial and professional skills The upgrading of the area could also be boosted further by the development already acquired in similar contexts, clinical care, scientific and of the "Magna Grecia" Science and Technology Park in the same managerial know-how. district (see page 30).

An appropriate degree of involvement in the initiative must also be guaranteed for the Municipality of Taranto, particularly in view of its town planning responsibilities.

61

6.2 Implementation tools and sources of funding

The choice of the best combination between contractual instrument/sources of financing for the project must be made on the basis of a comparative cost/benefit analysis of the potential alternatives, considering the sources of funding actually available, the specific features of the project and the client's scale of priorities.

The total cost of the investment needed to build the San Raffaele del . considerations of an operational nature associated with the industrial Mediterraneo Hospital is estimated to be 135-140 million euros for the features of the specific project - PPP experiment with the San construction and installation work and 25-30 million euros for equipment Raffaele del Mediterraneo (HSRM) Hospital; and furnishings. . the other restrictions relating to completion time, nature and extent This initiative must not create any capital costs for Apulia's regional budget of the risks which the P.A. is prepared to shoulder or intends to and the sources of funding that may be used for this purpose can be transfer. classified as: public sources and private sources. In principle, the contractual instruments that may potentially be The main structural/strategic variables to be considered are: usable to build the new hospital and into which the public and private ‐ the public-private experiment: benefits and restrictions; resources might be channelled are: ‐ which risks does one want to transfer to or maintain with the P.A.?

‐ which are the timing restrictions?

- works contract ‐ which order of priority is assigned to the project in the context of regional interventions in the field of healthcare? - project financing is the P.A. interested in equipping itself with permanent instruments - leasing ‐ for enhancing urban assets?

The choice of the financial instrument to be used must be guided by The main financial variables to be considered are: principles such as: ‐ extent of the subsidies that can be obtained to fund the project; . quantitative and qualitative improvement of the services delivered ‐ value of the hospitals to be sold; to the community in response to the public requirements ‐ availability of other public funds (ERDF) to be used to fund the expressed by it; project; . minimising of the overall costs (construction costs, costs of raising ‐ amount of annual rental that is "affordable" by the new hospital; the finance, cost of managing the establishment, etc.) which the Chapter 6: The pilot project ‐ recoverability of part of the public funds to be allocated to funding community will have to bear in order to create the new hospital. other projects.

The choice of the financial structure for the operation must therefore take into account restrictions such as: These considerations must therefore guide Apulia in choosing . the limited availability of sources of public finance and, in the the financial instruments most suited to funding the project in current market situation, private finance; question. . the budgeting requirements of Public Administration (P.A.);

62

6.3 Option 1: works contract with JESSICA

If the project could be entirely funded by public funds - so as not to generate debt for the Region - a works contract structure could be applied and could operate as follows:

JESSICA Fondo Sviluppo . Construction period diagram FINANZIAMENTO Urbano a TASSO ZERO During construction of the works, the available funds (grants and structural NUOVO OSPEDALE funds) would be used by the Istituto San Raffaele del Mediterraneo (HSRM) Foundation in order to pay the builder when the work progress reports are presented. Costruttore HSRM Regione (AdG) Part of the cost of the project would be covered by selling the existing PREZZO SOVVENZIONI hospitals once the new facility has come into operation.

APPALTO DISMISSIONE STRUTTURE ESISTENTI . Example in figures PREZZO Mercato ‐ Cost of the project: € 187.3 million, plus VAT (average rate 12%) immobiliare

‐ Total requirement: € 209.8 million

‐ Residual Requirement = Total cost – Available Grants (additional funds to be obtained via Jessica to cover the requirement in full)

In the event of JESSICA being implemented, the regional share of the structural funds could be replaced by an "in-kind contribution" of the existing hospitals (allowing the Region to make a saving on the financial costs).

If the value of the existing hospitals should be insufficient to provide resources to cover the residual requirement (= total cost - grants), the difference would have to be covered by other sources in the regional budget.

Chapter 6: The pilot project However, if the funds provided via JESSICA should exceed the residual requirement, the surplus could be allocated to funding other projects, again via the JESSICA instrument.

63 6.3 Option 1: works contract with JESSICA – Translation of diagrams

JESSICA Fondo Sviluppo FINANZIAMENTO Urbano a TASSO ZERO NUOVO OSPEDALE

Costruttore HSRM Regione (AdG) PREZZO SOVVENZIONI

APPALTO DISMISSIONE STRUTTURE ESISTENTI PREZZO Mercato immobiliare NUOVO OSPEDALE NEW HOSPITAL Costruttore Builder HSRM HSRM PREZZO PRICE APPALTO CONTRACT FINANZIAMENTO A TASSO ZERO 0% FINANCE SOVVENZIONI GRANTS PREZZO PRICE Fondo Sviluppo Urbano Urban Development Fund Regione (AdG) Region (Management Authority) DISMISSIONE STRUTTURE ESISTENTI DECOMMISSIONING OF EXISTING Mercato immobiliare FACILITIES Property market

ATTIVO ASSETS Chapter 6: The pilot project FONTI DI FINANZIAMENTO SOURCE OF FINANCING COSTO TOTALE OPERA (EUR 209,8) TOTAL COST OF WORK (EUR 209.8) SOVVENZIONI (EUR 100) GRANTS (EUR 100) FABBISOGNO RESIDUO (JESSICA) RESIDUAL REQUIREMENT (JESSICA) (EUR 109,8) (EUR 109.8) UE + GC (EUR 93,3) EU + CG (EUR 93.3) REGIONE (EUR 16,5) REGION (EUR 16.5) 64

6.3 Option 1: works contract with JESSICA – Translation of diagrams continued

Importi in € mln Amounts in millions of € Sovvenzioni disponibili Available grants Fabbisogno Residuo (fondi Jessica) Residual requirement (Jessica funds) Rata annuale (su 15 anni) Annual instalment (over 15 years)

Rata annuale (su 20 anni) Annual instalment (over 20 years) Chapter 6: The pilot project Rata annuale (su 25 anni) Annual instalment (over 25 years) 65

…continued – Option 1: works contract with JESSICA

. Post-construction cash flows

In the years following completion of the project, the HSRM Foundation would have to repay the urban development fund (UDF) for the funding received (at a zero rate) in constant annual instalments over a period to be defined according to the new hospital's ability to generate cash.

The table opposite shows what the annual "instalment" would be according to the amount of structural funds "activated" using JESSICA and the repayment period.

. Considerations

If the resources constituting grants (whether regional or otherwise) should be insufficient to cover the whole requirement, JESSICA could be the instrument most suited to "activating" additional Community and government resources to increase the public funds available to fund the project. These additional resources would be only temporarily deducted from the funding of other projects, given that JESSICA requires the funds "loaned" to the project to be Summary repaid. The works contract structure could be applied if the cost of On completion of the hospital construction period, therefore, the "JESSICA public the project could be covered entirely with public funds, resources" would gradually become available again to the Management assuming that there are restrictions which require no recourse

Authority to be used again (as a loan under the JESSICA scheme or as a sinking to debt.

fund) to fund new interventions on the regional infrastructure and social care facilities. JESSICA is the instrument that can activate the additional public resources needed to fill the gap between the total cost of the project and the sinking fund contributions available. Full recourse to public funds contributes to reducing the overall cost of the project by reducing financial costs (which only arise during the construction period). . The commissioning body Chapter 6: The pilot project

The works contract instrument ensures that the commissioning body bears all the risks associated with the project (cost increases, completion delays, etc.). The commissioning body has the duty to carry out all the preparatory activities for the project by means of several competitive tenders pursuant to Legislative Decree 163/06 for the executive design, construction, supply of equipment, maintenance, etc., with the duty to manage relations with individual suppliers over time. For taxation purposes, the support and maintenance services would be subject to VAT at 20% rather than 10%.

66

6.4 Alternative structures: leasing vs project financing

If the public funds available to fund the project are insufficient or the MA believes it would be appropriate to limit the share of public funds allocated to the new hospital, it would be necessary to opt for different contractual structures to a works contract which could bring in private funds. These contract structures are generally leasing of public property and project financing.

In general, partial recourse to sources of private finance leads to an increase in the overall cost of the project, because of the need to remunerate lenders and, in the case of project financing (PF), equity investors. Furthermore, contract structures such as leasing and PF allow certain risks associated with the project, which would otherwise be borne by the commissioning body, to be transferred to third parties. The implementation of JESSICA is compatible with both these contract structures and could considerably reduce the additional cost of recourse to sources of private finance. Based on the analyses carried out and considering the specific nature of the project, we believe that the public property leasing instrument might be preferable to project financing, considering the following elements of comparison:

Elements Leasing of public property vs PF Contract More complex in the case of PF because it has to marry the needs of multiple entities - whose interests may differ - while structure guaranteeing a fair distribution of the risks among them. Implementation times are generally longer in the case of PF, leading to a consequent increase in direct costs Procedure (construction/management of the new facility) and indirect costs (continued existence and operation of the old facility). Comparability of Owing to the economic and financial characteristics of PF, making a comparison between the various offers is a more complex task. offers In leasing, the main reference parameter is the amount of the all-inclusive rental. The costs of PF are generally higher, because of the incidence of certain initial costs - such as the cost of setting up and managing Costs the SPV, the arrangement and advisory commissions - and the higher return expected by equity investors compared to the remuneration of a leasing company. If it is well-structured, leasing allows a substantial amount of performance risks (primarily constructions time and costs) to be Allocation of transferred to the leasing company, which will in turn transfer them to the builder and to the other suppliers of goods and services risks (e.g. insurance), both during the construction period and while the facility is being leased. Concessions normally last a long time (25-30 years) and their duration cannot be changed. The establishment of long-term contractual relations involves a risk of creating a binding relationship that favours the concessionary, who receives a high level of Timescale remuneration while taking on a limited amount of risks. Leasing, however, allows for refinancing, partial early repayment and early redemption of the property during the lease period. Chapter 6: The pilot project The leasing company is potentially able to finance the whole project during the construction period: disbursements by the lessee Cash flows might only take place during the lease period. PF for "cold" projects, such as hospitals, cannot however avoid paying the public contribution during the construction period. The multiplicity of entities involved in the public-private project might create "integration" difficulties in PF, extending the timescale Public-private and creating the risk of disputes and higher costs.

67

6.5 Option 2: leasing

Given that the leasing option has been judged to be preferable to the project finance option, we shall now identify what the operation mechanism for the public property leasing scheme would be.

. Structure of the operation - stage 1

1 - Competitive tender: a competitive tender would be launched on the basis of a preliminary project for the construction of a new hospital by means of a public property leasing scheme pursuant to article 160-bis of the CCP (public contracts code); 2 – Leasehold: pursuant to article 160-bis, paragraph 4-quater “The works that are the subject of the financial leasing contract (…) the works can be constructed on an area available to the contractor”. The leasing company is generally granted a leasehold to construct the works. The leasing company therefore becomes the owner of the works until the right of redemption is exercised by the lessee. 3 - Leasing contract: the HSRM foundation signs the leasing contract with the Costruttore Builder leasing company. Fornitori Suppliers Società di leasing Leasing company

CONTRATTO DI LEASING PUBLIC PROPERTY LEASING . Structure of the operation - stage 2 IMMOBILIARE IN COSTRUENDO CONTRACT HSRM 4 – Financing of the construction work: during the works construction HSRM period, the leasing company finances the construction work with its own resources. 5 - Use of public funds: the available grants and the proceeds from the sale of the existing hospitals may be used at the end of the construction period, constituting the "advance" on the leasing contract and therefore reducing the amount of the periodic rental due during the lease period. 6 - Lease period: under the terms of the leasing contract, for the whole leasing period, HSRM will pay the leasing company a fixed rental. The rental amount will include the management costs of the

hospital (maintenance, insurance, etc.), which will be covered by the Chapter 6: The pilot project leasing company that owns the property. Sovvenzioni Grants 7 - Life of the contract and redemption: The life of the contract will be Proventi Vendita SSA Proceeds from the sale of healthcare established based on the technical obsolescence of the asset. On Anticipo facilities expiry of the contract, the lessee will take over ownership of the works Società di leasing Advance by exercising its right of redemption. USO STRUTTURA Leasing company CANONE DI LEASING USE OF FACILITY A scadenza vs riscatto LEASE PAYMENT HSRM Term vs redemption HSRM

68 …continued – Option 2: leasing

 € 98 million in capital (€ 4.9 million on average p.a.); . Example in figures  € 20.5 million in VAT (€ 1 million on average p.a.);  € 72.9 million in financial charges (€ 3.6 million p.a.). Cost of the project: € 187.3 million, including:

‐ € 178.4 million of "pure" construction cost

‐ € 8.9 million of financial charges

[assuming that the leasing company finances itself at an annual . Sensitivity analysis rate of 3.5% for an average amount of € 85 million over the construction period of the hospital, 3 years]. The "implicit" financial charges incurred during the construction period are The following table shows how, all conditions being equal, the rental can shown separately in order to then illustrate the impact that JESSICA can vary according to two parameters: have on these charges. - the amount of public contributions available (grants + proceeds from the sale of existing hospitals); Sources of finance: - length of the leasing period. ‐ Public funds available in the form of grants and proceeds from the sale of existing hospitals: € 100 million.

[These funds would be used as an "advance" on the leasing contract, therefore reducing the share of the total cost to be funded by rental during the leasing period]. ‐ The share of the construction costs not covered by the above two sources will be financed by the leasing contract, the nominal value of which will be € 98 million.

Hypothetical leasing contract conditions: ‐ Nominal value of the leasing contract: € 98 million ‐ Lease period: 20 years ‐ Leasing contract interest rate: 6%, assuming:  10-year IRS rate of 3.50%, plus  1.30% spread - cost of collection and other costs incurred by the CONTRIBUTI PUBBLICI PUBLIC CONTRIBUTIONS Chapter 6: The pilot project leasing company, and DISPONIBILI AVAILABLE  1.20% margin of interest Importi in € mln Amounts in millions of € Redemption amount assumed to be zero for simplicity ‐ DURATA PERIODO DI LEASING PERIOD

LOCAZIONE

ESEMPIO CASO EXAMPLE ‐ Annual rental: € 9.6 million (equal to € 9.1 million plus 12% VAT) with a total disbursement of € 191.5 million over 20 years, IPOTIZZATO therefore subdivided as follows:

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6.6 Works contract vs leasing comparison

Given that the project financing option appears to be less appropriate in this case than property leasing - for the reasons illustrated in paragraph 6.4 – the alternatives to be considered appear to be limited to the works contract and public property leasing options. The figures given above and the characteristics of the two schemes show that:

APPALTO Oggetto LEASING A - L con JESSICA Oggetto APPALTO LEASING Costo Totale Opera € 187,3 mln € 187,3 UGUALE Può comportare più gare di (IVA esclusa) PROCEDURA di GARA Gara unica appalto Durata period di TRASFERIMENTO RISCHI di Si, se adeguatamente rimborso finanziamento 20 anni 20 anni UGUALE Limitato o nullo Jessica / locazione PERFORMANCE strutturato Esborso della P.A. € 209,8 mln Esclusivamente fondi durante il PERIODO di (pari al costo + € 100 mln + € 109,8 mln FONTI di FINANZIAMENTO pubblici (+ Fondi pubblici + privati COSTRUZIONE IVA) finanziamento  DEBITO)

ESBORSI PERIODO di Pagamento eventuale anticipo € 209,8 mln Pagamenti a SAL Fondi Pubblici destinati (sovvenzioni + COSTRUZIONE a completamento opera € 100 mln + € 109,8 mln a finanziare l’opera FESR + proventi Canone di leasing ESBORSI PERIODO di Rata rimborso FSU dismissione asset) + riscatto a scadenza RIMBORSO (se impiego Jessica) (rifinanziabile) Ricorso al € 98 mln + - - € 98 mln + IVA Nullo Tasso base (IRS “x” anni) funding privato IVA COSTO del FINANZIAMENTO (se non si ricorre al debito) + costi coperture + margine

Costo del Canone = spesa corrente se 0% 6,00% -6,00% Genera debito se si ricorre a finanziamento TRATTAMENTO CONTABILE rischi effettivamente trasferiti funding privato alla società di leasing Importo canone annuo (rimborso FSU / € 5,5 mln € 9,6 mln -€4,1 mln Esborso IVA periodo di Finanzia anche IVA. IVA su leasing) ASPETTI FISCALI costruzione. Aliquota IVA canone = aliquota IVA asset ordinaria su costi gestione.

Oneri finanziari annui € - mln € 3,6 mln -€3,6 mln Chapter 6: The pilot project Consente di colmare gap Può abbassare in modo

Fondi pubblici JESSICA (costo totale – fondi rilevante il costo complessivo disponibili fine periodo € 109,8 mln € - + € 109,8 mln pubblici) dell’opera di rimborso /locazione

The works contract option is much more expensive than a "pure" leasing scheme – i.e. without JESSICA – during the works construction period. During the management period, however, the advantage of a works contract with JESSICA would be the absence of financing costs [assuming that public resources invested in the UDF are repaid at a rate of 0%], the resulting absence of financial charges and, above all, the recovery of the public resources invested in the UDF at the end of the period. 70

The JESSICA works contract route only seems viable, however, if the public funds available cover the whole cost of the works – otherwise the Region would have to take on a new debt. It is interesting, therefore, to look at how the leasing scheme would change if the JESSICA element were introduced, thus combining the advantages of the former (lower disbursement of public funds, particularly during the construction period) with those of the latter (0% finance, recovery of resources and reduction of the rental).

Translations of tables:

Subject CONTRACT with LEASING C - L Subject CONTRACT LEASING JESSICA TENDER PROCEDURE May involve more than Single tender Total cost of work € 187.3 million € 187.3 THE SAME one tender (excluding VAT) TRANSFER OF Limited or none Yes, if properly PERFORMANCE RISKS structured Length of Jessica 20 years 20 years THE SAME SOURCE OF FINANCE Exclusively public Public + private funds loan repayment / funds (+ loan -> leasing period DEBT) DISBURSEMENTS DURING UDF repayment Leasing instalment + Disbursement by € 209.8 million € 100 million € 109.8 million CONSTRUCTION instalment (if Jessica redemption on expiry P.A. during (equal to cost + used) (refinancing possible) CONSTRUCTION VAT) COST OF FINANCING Nil (if there is no Basic rate (IRS “x” PERIOD recourse to debt) years) + cost of cover + margin Public funds € 209.8 million € 100 million + € 109.8 ACCOUNTING TREATMENT Generates debt if Instalment = current intended to finance (grants + ERDF + million recourse is made to expenditure if risks the work proceeds from private funding actually transferred to decommissioning leasing company TAX ASPECTS VAT disbursement Also finances VAT. VAT of assets) during construction. on instalment = VAT Recourse to private - € 98 million - € 98 million Ordinary VAT rate on asset rate funding + VAT + VAT operating costs. Cost of financing 0% 6.00% - 6.00% JESSICA Allows gap to be filled Can considerably (total cost – public reduce the total cost of Annual instalment € 5.5 million € 9.6 million - € 4.1 million funds) the work (UDF/leasing repayment)

Annual financial € - million € 3.6 million - € 3.6 million Chapter 6: The pilot project charges Public funds € 109.8 million € - + € 109.8 available at end of million repayment/leasing period 71

6.7 Option 3: JESSICA involvement in the leasing structure

Generally speaking, introducing the JESSICA element into the public property FSU UDF leasing scheme would contribute significantly to reducing the overall cost of the RIMBORSO FINANZIAMENTO LOAN REPAYMENT € 3,4 mln € 3.4 million works because it would finance the leasing company at a 0% rate. Società di leasing Leasing company The leasing company, in fact, would qualify as a project vehicle fundable by the CANONE DI LOCAZIONE LEASE PAYMENT € 6,8 mln € 6.8 million UDF and be linked by a property leasing contract to the "Istituto San Raffaele HSRM HSRM del Mediterraneo" (HSRM) Foundation. FSU UDF FINANZIAMENTO A TASSO ZERO 0% FINANCE DURING NEL PERIODO DI COSTRUZIONE CONSTRUCTION . Leasing stage CONTRATTO DI LEASING IMMOBILIARE IN COSTRUENDO PUBLIC PROPERTY LEASING During the leasing period, HSRM would pay the leasing company the CONTRACT rental, while the leasing company would repay the UDF for the financing received:

. There would be three advantages for the lessee: - Lower cost of constructing the works because the leasing company can finance part of its requirement during the construction period with funds available at a 0% rate; - Lower rental (see figures shown on the next page);

- Possibility of recovering the JESSICA resources used to finance

the leasing company at the end of the construction period by

"discounting" the UDF's credit in respect of the leasing company, thus Chapter 6: The pilot project

recovering resources to be used to fund other projects.

“PURE” Leasing Leasing WITH JESSICA PURE CONSTRUCTION COST € 178.4 million FINANCIAL CHARGES € 8.9 million € 5.5 million LEASING COMPANY 3.5% of entire 3.5% of requirement not FUNDING COSTS requirement financed by the UDF TOTAL COST (excluding € 187.3 million € 183.9 million VAT)

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. Example in figures

Total construction cost (excluding VAT): € 183.9 million (vs € 187.3 million for the works contract and "pure" leasing)

Leasing contract - main data:

‐ Advance: € 100 million (funded using the grants and proceeds LEASING “PURO” “PURE” LEASING from the sale of existing facilities), covers € 89.3 million + VAT of CONTRIBUTI PUBBLICI PUBLIC CONTRIBUTIONS

the cost of the works. DISPONIBILI AVAILABLE ‐ Balance to be financed (nominal value of leasing contract): € Importi in € mln Amounts in millions of € 94.6 million (vs € 98 million for "pure" leasing) DURATA PERIODO DI LEASING PERIOD

‐ Lease period: 20 years, as per the previous examples LOCAZIONE

‐ Annual rental: € 6.8 million (vs € 9.6 million for "pure" leasing and

€ 5.5 million for the works contract), including € 3.4 million available

annually to the MA as the leasing finance repayment (meaning that

the "net" disbursement is € (6.8 – 3.4) = € 3.4 mln).

‐ Total disbursement during the leasing period: € 136.6 million (€ 6.8

million x 20 years) including:

 € 94.6 as capital (€ 4.7 million on average per

annum)

 € 14.6 million in VAT (€ 0.7 million on average per annum)  € 27.4 million in financial charges (€ 1.4 million LEASING & JESSICA LEASING & JESSICA CONTRIBUTI PUBBLICI DISPONIBILI PUBLIC CONTRIBUTIONS AVAILABLE on average per annum) Importi in € mln Amounts in millions of € DURATA PERIODO DI LOCAZIONE LEASING PERIOD Chapter 6: The pilot project

This simulation clearly shows that introducing JESSICA would allow the regional Administration to make a considerable saving on the rental payable to the leasing company. The leasing with JESSICA option therefore combines the advantages of "pure" leasing (less disbursement of public resources during construction of the works) with those of the JESSICA element (0% finance, recovery of resources at the end of the period and reduction of the rental). 73

6.8 Comparative analysis of implementation instruments

The considerations set out in this chapter regarding the possible implementation instruments and the respective sources of finance that could be used for the San Raffaele del Mediterraneo Hospital project can be summarised as follows:

PROJECT APPALTO LEASING PROJECT FINANCING APPALTO LEASING FINANCING Non richiede pagamenti. ESBORSI PERIODO di Pagamento contributo STRUTTURA Pagamenti a SAL Pagamento eventuale anticipo Articolata Semplice Molto articolata COSTRUZIONE pubblico a SAL CONTRATTUALE a completamento opera ESBORSI PERIODO di Rimborso rata Pagamento canone di disponibilità CONTROPARTI + controparti Controparte unica Molte controparti RIMBORSO/LOCAZIONE Pagamento canone di leasing finanziamento e servizio concessionario /CONCESSIONE PROCEDURA di Può comportare più Può comportare Gara unica GARA gare di appalto più gare COSTI INIZIALI Contenuti Contenuti Elevati TEMPISTICA di Costo della raccolta + Costo della raccolta + Elevata Contenuta Molto Elevata COSTO del Costo del finanziamento SPV + GARA rendimento atteso rendimento atteso società di FINANZIAMENTO rendimento atteso promotore DIFFICOLTA’ finanziatore leasing VALUZIONE Contenuta Contenuta Elevata ORIZZONTE - 15/20 anni 20/30 anni PROPOSTE TEMPORALE Non genera debito (canone = TRASFERIMENTO Non genera debito. Canone di TRATTAMENTO Genera debito se si spesa corrente) se rischi RISCHI ATTIVITA’ Nullo Elevato Parziale disponibilità e servizio = spesa CONTABILE ricorre a funding privato effettivamente trasferiti alla COSTRUZIONE corrente società di leasing COSTO DELL’OPERA a Integrale Integrale Preponderante RISCHIO Elevato Contenuto Elevato CARICO della P.A. CONTENZIOSO FONTE di COMPATIBILITA’ CON FINANZIMENTO Bancaria alla P.A. Società di leasing Bancaria all’SPV SPERIMENTAZIONE Elevata Elevata Contenuta PRIVATO PUBBLICO - PRIVATO CONTRACT LEASING PROJECT FINANCING CONTRACT LEASING PROJECT FINANCING DISBURSEMENTS DURING Payments to SAL Requires no payments. Possible Payment of public contribution to CONTRACT STRUCTURE Complex Simple Very complex CONSTRUCTION PERIOD payment of advance on completion of SAL work COUNTERPARTS Multiple counterparts Single counterpart Many counterparts DISBURSEMENTS DURING Repayment of finance Payment of leasing instalment Payment of concessionary Chapter 6: The pilot project TENDER PROCEDURE May involve multiple Single tender May involve multiple REPAYMENT/LEASING/CONCESSION instalment availability and service fee tenders tenders PERIOD TENDER TIMESCALE Long Short Very long BID ASSESSMENT Low Low High INITIAL COSTS Low Low High DIFFICULTY COST OF FINANCING Cost of collection + Cost of collection + return expected by Cost of SPV finance + return TRANSFER OF Nil High Partial return expected by finance provider expected by promoter CONSTRUCTION finance provider ACTIVITY RISKS COST OF WORK BORNE Full Full Majority TIME HORIZON - 15-20 years 20-30 years BY P.A. ACCOUNTING TREATMENT Generates debt if Does not generate any debt (lease Does not generate any debt. SOURCE OF PRIVATE Banks to P.A. Leasing company Banks to the SPV recourse is made to payment = current expenditure) if risks Availability and service fee = current FINANCE private funding actually transferred to leasing company expenditure

RISK OF DISPUTE High Low High COMPATIBILITY WITH PUBLIC- High High Low PRIVATE EXPERIMENT 74

...continued - comparative analysis of implementation instruments

The complexity of the project financing option – particularly in terms of contract structure, implementation times, costs and risk allocation - has led to attention being focused on the other two schemes: works contract and leasing. In both cases, using a JESSICA instrument would allow the Regional Administration to reduce the construction costs of the works and, above all, to have new resources available at the end of the period, with which to invest in new urban development projects. The public property leasing scheme appears to be the most appropriate option in view of the Region's requirements (it creates no debts for the Administration, it allows a substantial amount of performance risks to be transferred to the leasing company, it requires no disbursements to be made by the Administration during the construction stage and the rental is all-inclusive). Chapter 6: The pilot project 75 ...continued - comparative analysis of implementation instruments Finally, the figures given in this chapter as examples show that:

Chapter 6: The pilot project

76

...continued - comparative analysis of implementation instruments

CONTRACT with JESSICA "PURE" LEASING "JESSICA" LEASING

Total cost of work (excluding € 187.3 million € 187.3 million € 187.3 million VAT) Public funds intended to € 209.8 million (grants + ERDF + € 100 million (grants € 168 million (grants finance the work proceeds from decommissioning of + proceeds from + ERDF + proceeds assets) decommissioning of from decommissioning assets) of assets) Recourse to private funding - € 98 million € 24.6 million

Amount of annual payment € 5.5 million € 9.6 million € 6.8 million (gross) (UDF repayment / leasing) € 3.4 million (net)

Annual financial charges € - million € 3.6 million € 1.4 million

Cost of financing 0% 6.00% 2.55% Residual amounts available € 5.5 million p.a. included in the € - € 39 million at the end Management Authority’s funds of the construction period (current value € 68 million @ 6% x 20 years)

The final choice of contract scheme that can be used in order to build the new hospital complex will undoubtedly rest with the Regional Administration, but it is useful to point out that:

Chapter 6: The pilot project A works contract is a viable solution if the public funds obtainable to finance the works cover the whole cost and there is no opportunity/willingness to take on debt; Implementing JESSICA might allow additional public funds to be "activated" to fill the gap between the total cost of the works and the available grants, thus avoiding recourse to expensive private funding; Necessity or expediency might suggest that recourse should be made to private funds, thus combining the "industrial" and "financial" sides of the project: public property leasing seems more appropriate than project financing; Recourse to private lenders increases the overall cost of the works, but adopting JESSICA would allow considerable savings to be made in terms of financial charges and the possibility of recovering public funds early, with which to finance other works.

77 Main results of the Study The preparatory study carried out has shown that JESSICA-type financial instruments could be widely applied in the context of Apulia. The ERDF OP has a very strong urban dimension that crosses over all the Priority Axes, and the main Integrated Programmes/Plans promoted at regional level constitute a series of projects on which one could easily draw in order to launch the Initiative. As regards the proposal to launch a UDF dedicated to rationalising social and healthcare services in the Region's urban areas, this study has shown that:

Gli interventi di razionalizzazione del sistema sanitario possono contribuire a promuovere lo The healthcare sector rationalisation work can contribute sviluppo urbano sostenibile – recupero delle to promoting sustainable urban development – recovery of infrastrutture obsolete esistenti e realizzazione di nuove existing obsolete infrastructure and building of new facilities in degraded/decommissioned/poorly accessible areas. They can strutture in aree degradate/dismesse/poco accessibili. therefore be included in an Integrated Plan for Sustainable Essi possono essere inclusi dunque in un Piano Urban Development. Integrato per lo Sviluppo Urbano Sostenibile.

JESSICA UDF dedicated to rationalising the L’Asse III del PO FESR Apulian healthcare Gli interventi di razionalizzazione system del sistema sanitario, se promuove l’integrazione delle politiche di tutela della salute opportunamente costruiti, possono essere in grado di con le politiche di sviluppo e FSU JESSICA remunerare in qualche modo riqualificazione urbana. dedicato alla gli investitori – progetti L’Asse VII del PO FESR afferma razionalizzazione “rimborsabili” – perché in che “si intende utilizzare del sistema grado di generare flussi di cassa l’iniziativa JESSICA”. sanitario pugliese attraverso la gestione dell’opera Le risorse contenute in questi principale e di eventuali opere Assi potrebbero essere utilizzate per lanciare il FSU. accessorie.

ERDF OP Axis III promotes the integration of healthcare The healthcare sector rationalisation policies with urban development and regeneration policies. work, if appropriately structured, can ERDF OP Axis VII states that “it is expected that the provide some kind of return for JESSICA initiative will be used”. Il progetto Ospedale San Raffaele del Mediterraneo investors – “refundable” projects – The resources contained in these Axes may be used to thanks to the cash flow generated by è un intervento “JESSICAbile”: contribuisce alla launched the UDF. riqualificazione del Quartiere Paolo VI di Taranto – è the management of the primary project inseribile in un Piano Integrato - e sarebbe in grado di and any secondary projects. generare periodici flussi di cassa. Esso potrebbe dunque fungere da “progetto pilota” per il lancio del FSU. Chapter 7: Main results and conclusions and Chapter 7: Main results

The San Raffaele del Mediterraneo Hospital project is a “JESSICAble” project: in addition to contributing to the regeneration of Taranto’s Paolo VI District, it can be included in an Integrated Plan and would be able to generate periodic cash flows. It could also act as a “pilot project” for the launch of the UDF.

If the Region should decide to fund the San Raffaele del Mediterraneo Hospital project, the creation of a JESSICA-type UDF would allow considerable savings to be made in terms of financial charges and the possibility of recovering funds early, with which to fund other works. 78 Conclusions In order to implement the JESSICA Initiative in Apulia and set up a UDF that will be able to launch the San Raffaele del Mediterraneo Hospital pilot project in Taranto, more detailed information and a number of clarifications have to be made available by the Regional Administration offices, which must also take various decisions regarding the structure of the Initiative.

1. Request for clarifications and more detailed information from 2. Decisions that will have to be made regarding the financial the Region structure of the Initiative - Amount of resources available in the 2007-2013 ERDF OP - Any statement of the need to set up a Holding Fund. which the Region intends to allocate to setting up JESSICA-type In the case of a single project - as examined in this study – it does financial instruments. not seem necessary to use such an instrument because the costs would be considerably higher than the benefits. - Identification of the UDFs which can be used according to the However, if additional projects were to be developed in the Taranto Region to pursue its strategic objectives and to fund the projects it area or regionally, the Administration might consider it appropriate intends to launch in the short/medium term. to set up an HF. Based on the initial preferences expressed by the Region, the study has in fact focused on a UDF dedicated to rationalising social and - Choice of the way in which the Initiative will be applied in healthcare services in the territory but the overall analysis carried relation to the Urban Development Fund identified. out has shown that other UDFs could be set up to serve the As the study has shown, there does not seem to be a Società Administration (e.g. see page 45). Further analyses could therefore Finanziaria Regionale at present that could perform the role of the be carried out regarding other types of UDF. UDF in-house. It is up to the Region, therefore, to set up the UDF with separate - Any indications of other potentially "JESSICAble" projects that capital within a Financial Institution or as an ad-hoc financial might arise in the vicinity of the San Raffaele del Mediterraneo vehicle. Hospital in Taranto (e.g. the “Magna Grecia” Science and Technology In both cases, further analysis could be carried out regarding the Park in the same Paolo VI District of the city, see page 30) or in requirements that these entities would have to fulfil and to identify relation to other integrated programmes promoted by the Region the instruments that already exist in the area or could be created (e.g. contained in the Large Area Strategic Plans, see chapter 3). from scratch to perform the role of the UDF.

- Indication of the contractual scheme which the Region believes to be the most appropriate for financing the pilot project (works contract/project financing/public property leasing),

indicating the total cost of the project, the public resources available and the public and private entities which the Administration intends

to involve. conclusions and Chapter 7: Main results

79 Appendix 1 – The Regional Budget and the ERDF OP The accounting system adopted by Italian public administration bodies differs from that of private companies in three fundamental ways: (i) the aims pursued, (ii) the subject of the records and (iii) the method used. In order to distinguish it from the general accounting system used by private companies, the one used by public administration is identified as "financial" accounting. The forecast Regional Budget drawn up according to financial accounting principles consists of two parts: Revenue and Expenditure, the former being split into seven headings, the latter into four headings (Legislative Decree No. 76 of 28 March 2000, and Apulia Regional Law No. 28 of 16 November 2001). The Revenue relating to Operational Programmes using Structural Funds is recorded under Revenue Heading IV - in fact it consists of capital transfers - and under this heading two separate chapters indicate the percentages of Community and national co-financing. In the same way as on the Revenue side, Expenditure financed by the Structural Funds is considered to be a "capital item" [resources intended for investment rather than financing ordinary administration]; as such, it is recorded under Expenditure Heading II and each intervention line contained in the OP corresponds to an individual chapter in the Budget - expenditure side.

Table I.1. Breakdown of the forecast Regional Budget in Headings REVENUE EXPENDITURE Revenue from taxes levied by the region itself, from national taxes Heading I: or from the shares of these taxes paid to the region Revenue from contributions and transfers of current assets from the Heading II: European Union, the State and other entities Heading I: Current expenditure Heading III: Non-fiscal revenue ∑ (I+II+III) Current Revenue Revenue from sales, capital transformation, credit collection and Heading Heading IV: Capital expenditure capital transfers II: Heading Expenditure for the Heading V: Revenue from loans or other credit operations III: repayment of loans Heading Special accounting Heading VI: Special accounting revenue IV: expenditure Total Revenue Total Expenditure

Every year, the Revenue allocated in the budget, recorded during the year but not collected as of the end of the financial year, is recorded in the forecast budget for the following year in the form of estimated residual assets (amounts that the Administration is not yet entitled to collect). Equally, Expenditure allocated during the year but not disbursed as of the end of the financial year is recorded in the subsequent budget as estimated residual liabilities: the “own” ones indicating amounts allocated but not yet disbursed and the “allocated” ones indicating the amounts recorded among allocated capital expenditure and not committed as of the end of the financial year. Only once it is committed does the Administration become legally obliged to incur the Expenditure. Appendix 1 – The Regional Budget and the ERDF OP Appendix 1 – The Regional Budget and the ERDF

80

...continued - Appendix 1 – The Regional Budget and the ERDF OP

Our analysis of the Apulia Region's Budget for 2009 – Revenue side - reveals that3:

 The estimated residual amounts in the two chapters relating to the 2007-2013 ERDF OP (EU share and State share) are considerable: in the 2008 budget, the Region had recorded almost 1,486 million euros as the share of Community co-financing and almost 1,040 million euros as the State share. These resources, which constitute over 50% of total transfers planned for the entire 2007-2013 programming period, were not actually collected during 2008 (except for a minimum amount – probably as a pre-financing percentage), and were therefore recorded as estimated residual assets in the 2009 budget;

 The estimates for the 2009 financial year relating to the ERDF OP are zero: they would normally correspond to the EU and State shares of co- financing for the current financial year, i.e., in 2009, 366 million as the EU share and 256 million as the State share, based on the Community Decision approving the ERDF OP (Decision (EC) No. C/2007/5726 of 20 November 2007). In this case, however, since considerable resources were previously recorded in 2008, no estimates were recorded for 2009;

 Cash flow estimates relating to the ERDF OP are equal to the estimated residual amounts: this means that in 2009 the Region forecast that it would collect the residual amounts carried over from the previous year. This will not be possible because it does not reflect the Expenditure chronology established by the Community Decision that approved the OP, on which the annual Expenditure allocations contained in the EU Budget and, therefore, the disbursement of Structural Funds to the MA, depend. However, it is clear that, having recorded over 50% of the total transfers for the programming period in the budget for 2008, the Region needs to “carry forward” the resources it has not yet collected to subsequent budgets.

Table I.2 Comparison between the financial plan in the (EC) Decision and the regional budget forecasts (in thousands of euros)

ERDF OP 2007* 2008 2009 2010 2011 2012 2013 TOTAL EU Share - EC Decision 352,290 359,335 366,522 373,853 381,330 388,956 396,735 2,619,022 EU Share - Regional budget forecasts - 1,485,658 0 n.a. n.a. n.a. n.a. 2,619,022 EU Share - Estimate residual amounts in - - 1,407,087 n.a. n.a. n.a. n.a. - the regional budget State Share – EC Decision ** 246,603 251,535 256,565 261,697 266,269 272,269 277,715 1,833,315 State Share - Regional budget forecasts - 1,039,962 0 n.a. n.a. n.a. n.a. 1,833,315 State Share - Estimate residual amounts in - - 946,296 n.a. n.a. n.a. n.a. - the regional budget

 The 2007-2013 ERDF OP was approved by EC on 20 November 2007. No allocation could therefore be recorded in the 2007 budget ** Share calculated considering that the State co-financing amounts to 35% of the OP Financial Plan and the EU one amounts to 50% Appendix 1 – The Regional Budget and the ERDF OP Appendix 1 – The Regional Budget and the ERDF

3 Apulia Regional Law No. 10 of 30 April 2009, BURP No. 65 of 30.04.09. Regional Law No. 21 of 12 October 2009 – Balance and first amendment to the budget for 2009 - did not amend the budget forecasts contained in its first version. 81

...continued - Appendix 1 – The Regional Budget and the ERDF OP Our analysis of the Apulia Region's Budget for 2009 – Expenditure side - reveals that:

 The Expenditure allocations drawn on the ERDF OP in the 2008 Budget became estimated residual assets in the 2009 Budget. This means that the Expenditure allocations recorded in 2008 were not disbursed as of the end of the same year: in fact the Region had recorded almost 2,864 million euros in the 2008 budget - Expenditure side - as the amount of Community and State co-financing. These resources, which account for over 50% of the EU and State shares for the whole 2007-2013 programming period, had not actually been disbursed during 2008, in fact they were carried forward as estimated residual liabilities in the 2009 budget – with the sole exception of intervention line 4.1 “tourism sector infrastructure building, promotion and enhancement” which made payments of just over 4 million euros;

 Among the amounts allocated and not disbursed in 2008, the "own residuals" are the committed resources, while the "allocated residuals" are the amounts not disbursed and not yet committed: in fact, even though the residual amounts from resources that have not been committed as of the end of the financial year cannot be retained in the residual account, all amounts resulting from allocations by the State and the EU for specific purposes - such as the Structural Funds - can be retained in the budget as allocation residuals for no more than three financial years after the one in which they are first recorded (Apulia Regional Law No. 28, article 93.5, of 16 November 2001). The regional budget shows that only 10% approximately of the amounts allocated in 2008 had been committed as of the end of the financial year (see table I.3 below). This low percentage is a result of the large amount of resources allocated in 2008 but is far from the Expenditure objectives that should have been achieved by 31 December 2009 to avoid the automatic decommittal relating to the amounts for 2007, estimated at € 548,717 million approximately (see table I.4 below);

 The estimates for the 2009 financial year relating to the ERDF OP are zero: this is consistent with the zero allocations for the year on the Revenue side and is probably a consequence of the large amounts allocated in 2008.

Table I.3 - Resources allocated in the 2008 budget - recorded as residuals in the 2009 budget (in thousands of euros)

Tot 2007-2013 OP 2008 budget alloc. 2008 budget alloc. % 2008 budget alloc. AXES (EU + State) (EU + State) B/A committed (EU + State) committed (EU + State) A B C C/B Axis 1 Information Society and 493,850 215,330 43.60% 86,000 40% Research Axis 2 Environment and 771,800 771,800 100.00% 20,000 2.59% Territory Axis 3 Social Services 484,500 153,000 31.58% 0 0% Axis 4 Natural and cultural 333,200 258,400 77.55% 12,258 4.74% resources Axis 5 Transport 892,500 492,430 55.17% 0 0% Axis 6 Economic Development 936,700 426,700 45.55% 152,000 35.62% Axis 7 Cities and Urban 442,000 181,330 41.02% 0 0% Systems OP Appendix 1 – The Regional Budget and the ERDF Axis 8 Governance and 97,787 26,630 27.23% 10,309 38.71% Technical Support Total 4,452,337 2,864,290 56.73% 280,567 9.80% 82 ...continued - Appendix 1 – The Regional Budget and the ERDF OP

The aggregate data shown above reveal (i) the large amount of resources allocated in the 2008 budget compared to the total amount of resources available for the whole 2007-2013 programming period (over 56%) and (ii) the limited percentage of resources committed (just under 10%) compared to those allocated, with almost zero disbursements being made in 2008 (the 2008 allocations are almost entirely carried forward as residuals in the 2009 budget).

A comparison of the resources committed in 2008 – Expenditure side - according to the 2009 budget - with the amounts that had to be used by 31 December 2009 in order to avoid the automatic decommittal, shows that approximately 268 million euros should have been committed during 2009. According to Community regulations, in fact, budget commitments connected with OPs must be used “by 31 December of the second year following the year of budget commitment” [article 93 of EC Regulation 1083/2006]. Based on the n+2 rule, therefore, payment requests and expenditure declarations relating to the 2007 shares must be submitted, net of the pre-financing received [art. 1.5 del Reg. CE 284/2009] which, in the case of Apulia, amounts to approximately 155,863 million euros. This is the Expenditure accounting timetable which must be adhered to by Apulia throughout the programming period in order to avoid automatic decommittal:

Table I.4 – Accounting timetable for the resources contained in the ERDF OP (in thousands of euros) - estimate ERDF OP 2007 2008 2009 2010 2011 2012 2013 2014 2015 TOTAL EU Share 352,290 359,335 366,522 373,853 381,330 388,956 396,735 - - 2,619,022 State Share * 246,603 251,535 256,565 261,697 266,269 272,269 277,715 - - 1,833,315 Regional Share * 105,687 107,801 109,957 112,156 114,399 116,687 119,021 - - 785,708 Accounting to the E.C. 548,717** 718,671 733,044 747,706 761,998 777,912 949,334 5,238,045

* Shares calculated bearing in mind that the EU co-financing amounts to 50% of the OP financial plan, the State one is 35% and the regional one 15%. ** The Community share to be accounted for by 31 December 2009 is net of the share of pre-financing received (155,863 million euros approximately, as the sum of the 2007/2008/2009 instalments). It must be accounted for by 31 December 2015, together with the last share committed, the one relating to 2013.

On the Revenue side, however, given the large amount of resources recorded in the 2008 budget, the estimated residual amounts carried forward to future budgets will continue to be considerable but will shrink gradually. In fact, the Region will receive these shares according to the Expenditure timetable established by the EC Decision approving the OP or will lose it as a result of the automatic decommittal.

It is therefore reasonable to expect that in the 2010 budget the Region will not carry forward as estimated residuals the resources relating to 2007 because they

must be used by 31 December 2009 - with the respective payment requests and expenditure declarations - net of the pre-financing received. It will not in fact be OP Appendix 1 – The Regional Budget and the ERDF possible to carry them forward to subsequent financial years.