EU financial engineering instruments for revitalization of degraded urban areas BGK experiences

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1 EU financial engineering instruments for revitalization of degraded urban areas BGK experiences Ewa Kołodziej Mateusz Andrzejewski Bank Gospodarstwa Krajowego Brussels 7th March 2016

2 BANK GOSPODARSTWA KRAJOWEGO Established in % owned by the State, strong government back-up HQ in Warsaw 16 branch in each provincial capital Ca 1330 employees Operates pursuant to BGK act (cannot go into bankruptcy) Supervision by the National Financial Supervision Authority Fitch rating same as for the State Treasury A- in foreign currency and A in domestic currency. 2

3 BGK mission and values BGK MISSION Supporting social and economic growth of Poland and the public sector in the performance of its tasks. BGK VALUES Stability Transparency Continuous improvement Professionalism Joint accountability 3

4 Areas supported by BGK SMEs Large enterprises Housing Export Public sector Urban revitalisation Healthcare Infrastructure 4

5 Key development directions Funding of investment and growth of business Investment activity Services for the public sector and local governments Statutory activities 5

6 Services for the public finance sector and local governments Primary area-specific objectives Public finance sector central government institutions Public finance sector - local government institutions EU financial instruments for local governments 6

7 Cohesion policy in Poland Allocation of EU funds for Poland in MFF : EUR 67,9 bn EUR 50,6 bn for 5 national operational programmes EUR 17,3 bn (ERDF) for 16 regional operational programmes Less than 1% of the total funds were allocated to financial instruments dedicated to: support to SMEs (loans, guarantees, equity) revitalisation of cities social economy Further allocation of PLN 250 m (ca. EUR 60 m) to Guarantee Fund set up by BGK in Dec 2015 ca. EUR 1,16 bn 7

8 Roles of BGK in EU funds management In the MFF has been playing different roles: Urban Development Fund (Financial Intermediary): JESSICA (Joint European Support for Sustainable Investment in City Areas) Paying Agent: Servicing payments of all (non-agricultural) EU Funds Holding Fund Manager: JEREMIE (Joint European Resources for Micro-to-Medium Enterprises) Operational Programme Development of Eastern Poland Social Economy Entities Financing Guarantee Fund from OP Innovative Economy (set up Dec 2015) Implementing Agency Technology Credit Fund 8

9 JESSICA in Poland general scheme Regional Operational Programme Managing Authority Holding Fund (Manager - European Investment Bank) Urban Development Funds Urban Projects (possible investors: municipalities, municipal companies, private companies, public-private partnerships and others) 9

10 BGK role Urban Development Fund in 3 regions. Wielkopolskie PLN 329 m supporting areas: revitalization of urban areas, supporting business environment institutions Pomorskie PLN 175 m supporting areas: revitalization of urban areas, public transport and energy efficiency Mazovia PLN 197 m supporting areas: revitalization of urban areas, energy efficiency and clusters In Pomorskie and Mazovia implemented with regional development agencies Manages almost 70% of JESSICA funds in Poland

11 Key tasks of the UDF Identification of viable urban projects (covered by Integrated Plans for Sustainable Urban Development) Assessment of the loan applications Structuration of transaction Negotiation with the investors Monitoring and control of the urban projects Securing of co-financing of the projects Repayment of recovered debts 11

12 JESSICA within BGK (1) Loans granted both in: aid schemes (regional investment aid RIA and de minimis aid) and non-aid schemes (beyond public aid) Share of JESSICA loan in investment up to 75% (regional investment aid)/up to 100% (de minimis aid and non-aid scheme) No fees or commissions Loan maturity: up to 20 years Grace period for capital repayment: up to one year after project completion The possibility of financing projects already under implementation (for loans with de minimis aid and non-public aid loans) Common problem - the creditworthiness of the entity and the transaction risk (the requirement of increased own contribution) 78% of investors using the maximum lending period No possibility of financing already launched projects under the RIA 12

13 JESSICA within BGK (2) Type of investors Main areas of financing local governments municipal companies revitalization of urban areas development of public space private investors other public entities (univercities, NGOs, PPP etc.). business environment & clusters energy efficiency / renewable energy 13

14 Loans interest rate social index The loan rate is determined based on the National Bank of Poland (NBP) reference rate (presently 1.5%) with possibility of reduction by so called social index (UP to 80%) Social index (SI) is the BGK developed index listing the strength of interaction of social, economic, spatial and environmental investments and the degree of implementation of the ROP indicators Loan interest rate: NBP reference rate reduced by Social index (currently 1.5%) (up to 80%) Estimation of SI is demonstrating social effects of the project in the most objective and quantified way SI value results not only from factors that can be expressed in monetary terms, but also qualitative factors, which evaluation is impossible or unreasonable for a single project as well as for the implementation of the ROP indicators 14

15 Projects social impact - examples Revitalization of historic buildings Unpaid access to office and conference spaces for local governments and NGOs Development of public spaces Creating of development conditions for micro and small businesses, including the start-ups Creating new jobs The observed change in attitude of private investors towards social effects, increased cooperation with cities and NGOs in the development of projects social components Very strong emphasis on social components from the regional governments Application of energy efficient solutions 15

16 Stages of granting the loan Loan application receipt Eligibility assessment Formal evaluation Engineering and technical evaluation The quality assessment (economic and financial of the investor, economic and financial of the project, the project s social components, risk assessment) Loan decision The signing of the investment agreement Establishment of collateral Period of application evaluation: from 1 month up to 1 year, depending on the degree of documentation preparation Bank employees often support investors in documentation preparation and in modification of projects objectives both in terms of structuring the transaction as well as aid regulations Implementation of the projects ranging from 6 months to 3 years Limits concerning signing the investment agreements final date Restrictions concerning final date of investment settlement Loan disbursement (tranching) Investment settlement 16

17 JESSICA in BGK number and value of loan applications [PLN m] Total applications / PLN 2,03 bn [applications] applications applications 63 applications 0 0 Wielkopolska Pomorze Mazowsze 17

18 JESSICA within BGK number and value of granted loans [PLN m] Total loans / PLN 715,7 m. [loans] loans 35 loans 32 loans 0 0 Wielkopolska Pomorze Mazowsze 18

19 Financed projects structure Energy efficiency (34) Education and culture (19) Offices, services (10) Sports and recreation (9) Hotels and restaurants (8) Public space (8) Clusters & Business env. (6) Health and social care (5) Public transport (5) Others (2) (number of projects) Public sector - 60 Other

20 Common reasons for refuse to finance Lack of creditworthiness of the investors Lack of own contribution Lack of collateral Project implementation date exceeds the date of closing the programme Public aid issues 20

21 Cases of URBAN PROJECTS 21

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35 Bridge financing for rural development In BGK granted bridge financing (loans, form stae budget) for projects in rural areas to benefit from Rural Development Programme (EAFRD) The loans were granted in PLN on preferential terms and collateralized by blank promissory note The instrument is continued in MFF on similar conditions Beneficiaries: rural municipalities and local action groups Interest rate: preferential 0,25% of the WIBOR3M Low commission fee 0,1% of the loan amount Fast track procudure loan agreements signed within month from sending the complete application No need for public procurement 35

36 Cohesion Policy in Poland : scale, OPS, state of play Allocation of EU funds for Poland in MFF : EUR 76,88 bn: EUR 45,58 bn for 6 national operational programmes: Infrastructure and Environment (EUR 27,41 bn) Eastern Poland (EUR 2 bn) Smart Growth (EUR 8,61 bn) Digital Poland (EUR 2,17 bn) Knowledge, Education, Growth (EUR 4,69 bn) Technical Assistance (EUR 0,7bn) EUR 31,3 bn for 16 regional operational programmes 36

37 Cohesion Policy in Poland : tasks run/envisaged/planned for BGK continuation of paying agent activity (operational) continuation of Innovative Technology Credit in sligthly modified formula (oparetional) continuation of providing prefinancing for rural areas (operational) guarantees for innovative SMEs (planned) loans for social economy entities (planned) continuation of JESSICA-like and JEREMIE-like innitiatives (under negotation with regional authorities) VC instruments for SMEs (planned) 37

38 Thank you phone: mail: 38