AIM To develop awareness of the financial aspects relevant to engineers in brownfield regeneration

Transcription

1 Modules 4 Financial Aspects Before you attempt to study or to deliver this module, please make sure that you understand the LEPOP Brownfields Handbook and the overall LEPOB Brownfields Course. Much of the complementary knowledge which will help you to present this Module can be derived by studying these materials. Delivering this Module effectively and retaining your delegates interest involves including, where ever you can, local and national examples of good or bad practice; references, drivers and pressures. Your personal knowledge and experiences should also be used to illustrate the points and findings arising from these presentations. AIM To develop awareness of the financial aspects relevant to engineers in brownfield regeneration LEARNING OUTCOMES By the end of this module you will have: An awareness of the financial aspects of brownfield regeneration Who pays Who gets paid and for what Who benefits Who carries the risk RESOURCES Flip chart/ white board and suitable writing implements Powerpoint file: LEPOB real estate.ppt SLIDES Activities or discussion points are shown in italicized text. 1. Financial aspects of brownfield regeneration Title slide - please retain the author name but you can add your name for making presentation, especially when adding your own examples. 2. aim A simple statement of the purpose of the course. With reference to the RESCUE VTC explain that awareness is the starting point and delegates should recognize there are higher levels of learning: understanding, ability to do and ability to develop. Our focus is on engineers but other professionals may also benefit. 3. Learning outcomes What delegates should learn after they have been through the course. Make sure the audience are clear about what you can achieve by the end of the session they will not be experts or have a detailed understanding! If you have experienced practitioners in the audience try and draw out from them examples to illustrate some of the ideas being communicated.

2 4. What sort of finance? The nature of the finance will influence what is expected from the project. Investors run a risk of losing their money and would therefore seek a return (a profit) from their investment. The degree of return and their willingness to invest will reflect the level of risk. Usually 25% returns on investment on moderately risky projects are required. Lenders loan funds and expect repayment of those funds (the capital) and extra interest. Capital can be repaid over time or at the end of the duration of the loan. Interest can be paid back during the life of the loan or at the end in which case it is added periodically to the capital and interest is charged on the interest ie it is compounded. Loans still involve the possibility that the money will be lost. Securities (some tangible asset that would be forfeited/ given up if the loan cannot be repaid) minimize that possibility and result in a lower interest rate. Grants are made to achieve usually non financial objectives. The EC structural and cohesion funds are made to achieve political objectives which can eventually be couched/ discussed in social, economic and/ or environmental terms. Most projects will require funds from two or more sources a hybrid form of financing. 5. Return on Investment Discuss what level of return each delegate wants from: Loaning 10 euros to a friend Loaning 10,000 euros to a child to buy a car or pay for university fees Investing in a pension fund during your working life Buying shares in a privatised utility eg electricity Buying shares in a new property development company being set up <pick on someone in the room as a light hearted example> Try and draw out that we have different expectations depending on how much, who, how long for and what the purpose of the transfer of funds is. 6. Loans Discuss who sets base rate (central bank) interest rates in each country?

3 7. EU Structural funds ( Explain that the Euro zone interest rates are set centrally whereas independent banks such as the Bank of England controls its own interest rates. Discuss how far above base rate loans charge interest at and how that is determined/ regulated. Introduces the concept of European funds for regeneration and other initiatives. Point out that these are time limited funds and as new countries join the amount and spatial allocation of funds change. Eg Spain, Greece and Portugal benefitted when they first joined; now it is the time for the 10 new members to get substantial grants and in the next few years it will be Bulgaria, Romania and Croatia followed perhaps by Turkey who will be the main beneficiaries. 8. Structural Funds concentrate on three priority Objectives Eventually the 10 new members will become or should aim to become net contributors rather than recipients. The definitions of objective 1, 2 and 3. These terms are changing but the overall principles will probably not. Discuss what sort of projects delegates are aware of having received funding from the EC in their own neighbourhoods and countries look for the blue flag with yellow stars. Focus on infra structure, culture, education atlas/index_en.htm Where are the wealth creating projects in their countries? This slide shows the areas of Obj 1 in red broadly the centre and north and west of Europe is NOT in obj 1 and the south and east is almost entirely in Obj 1. Allow some time for this slide to sink in. Ask them to think about what it means in terms of transfer of funds from the blue/ white areas in to the red areas. Ask them to think about what they would feel if they were coloured blue or even white. Ask them to think about when their own country would cease to need objective 1 funds and what would need to have happened for that to take place.

4 10. Structural Funds: UK Eligible areas for Objective 1 & 2: 2000 to 2006 s on the regional differences. Point out that the SE is the powerhouse of the UK economy. Note the Obj 1 areas are marginal geographically (Waes and Cornwall) or former industrial cities (eg Liverpool-Manchester). 11. Csech Republic Almost entirely objective 1. Ask about trends in population movement to/ away from Prague. What is the Csech Republic s role in the EC? 12. Slovak Republic Almost entirely objective 1. Ask about trends in population movement to/ away from Bratislava. Is there the same concentration of economic activity or is the economy more widely dispersed in Slovakia? Is this because of the young history of the country? What is the Csech Republic s role in the EC? Why is there a tract of obj 2 at the border with the Csech republic? Is it trade? 13. Poland Almost entirely objective 1. Ask about trends in population movement to/ away from Warsaw. What is the Csech Republic s role in the EC? (Traditionally it has been a buffer state between Germany and Russia)

5 14. Croatia especially for Irene! Ask about trends in population movement to/ away from Zagreb. What would Croatia see its role in the EC? 15. Cohesion funds Think about what such funds mean in terms of mobility and therefore CO2 emissions! 16. Aid also granted by 4 Community Initiatives Ask if any have experience with any of these. This is where specific projects on the ground start to happen. 17. National funds Most European funds require some degree of match funding at the national or local level. However EC competition rules aim to prevent national subsidies creating infair competition between European companies. Is brownfield regeneration a competition issue? In the UK it is in the sense that limited government funds are allocated on a competition basis eg Green Cities; City Challenge etc. Is it a trans-national competition? What about shifts in car manufacturing plants? Or steel production? Or call centres? Point those wishing to read more to the

6 CABERNET website. <Insert details of your own country s funds in this or new slides.> 18. Regional funds How are funds allocated within a country? What are the regional equivalents in CS, SL & POL? 19. Hybrids The need to satisfy multiple funders priorities with the need to satisfy stakeholder needs and deliver a regeneration project is not a trivial task. When in a project life cycle do different types of funding become applicable or redundant? Discuss delegates experience of funding projects with multiple sources of funds this could be engineering projects or depending on the audience research, mergers and acquisitions or land buying. 20. Project costs Discuss how project costs build up Consider what you are paying for in a regeneration project what the client s expectations are and what he is willing to pay for. Tease out the issue of wanting confidence in the product eg the safety of the land but the reluctance to pay for the level of confidence needed. Discuss the role of the state in providing guarantees relating to land condition what happens in each country? What should happen? What are the pros and cons of each option? Eg no role for the state; industry funded national fund (cf SuperFund in USA and Csech National Fund); tax payer funded pot of money etc. 21. Risks All projects involve some risk. Understanding the risk, who carries it and who benefits from the project is essential. The time to think about risks is at the contract negotiation stage. Ask if anyone has had contractual disputes in a regeneration project. What were the issues and how were they resolved? Bring in any of your own experiences. 22. Project finance reflects project risk management Draw a clear distinction between the assessment and management of the risk. Ask what sort of risky activities folks indulge in eg sky diving, pot holing, down hill skiing. Try and tease out that the benefits outwieght the risks for some people but not for others. Try and avoid

7 issues such as drugs, smoking, obesity or other personally sensitive issues. 23. Risk management The safest form of risk management is avoidance do nothing and you will pick up no liability but you will make no money either! (NB polluters still have liability and can pick up more by doing nothing!). Owners can also pick up liability for pollution in the UK if you know about a pollution problem and do nothing about it (knowingly permit) you are as liable as the original polluter. Ask about what forms of risk management they use in their personal lives related to financial aspects eg avoidance, home insurance, contents insurance, savings, currency etc. 24. Finance mechanisms A reminder about the various types of finance mechanisms that may be used on a brownfield regeneration project. 25. Final thought INVEST don t just spend! Further resources (Royal Institution of Chartered Surveyors) Brownfield Briefing weekly e-newsletter on brownfield issues in the UK - CoreNet Global is an international association for corporate real estate and related professionals. - maps of objective 1 and 2 areas - general information on finance - summary of a report on attracting private finance into regeneration - website of weekly magazine; lots of news and jobs - candian experiences on tax incentives for brownfields (Many individual US states also have brownfields finance pages use google to search for the name of the state and brownfields finance