Investing instead of distributing money

JESSICA may only be a 4-year old toddler, but long queues are building up outside her door, although not with unselfish intent. She has EUR 1 bln to spend across Europe, mainly for the integrated growth of urban infrastructure

Emil Górecki

JESSICA, The Joint European Support for Sustainable Investment in City Areas, is a programme that has been jointly set up by the European Commission, the European Investment Bank (EIB) and the European Council Development Bank. It is the road now being used to finance urban projects, which are the bread and butter of cities’ development plans. The money for such projects is channelled through special funds for the growth of urban areas or through trust funds. Such schemes can be brought into being through capital contributions, loans or bank guarantees. It is important to note that the source of financing can be combined with others, for instance with private capital. But to be eligible for funding through a JESSICA instrument, projects cannot be financed by funds already in operation.

A billion euros for reproduction

The EIB’s commitment to such projects is nothing new, the more so that such projects are targeted at revitalizing cities and public transport. JESSICA’s purpose is to enhance that commitment. Eugenio Laenza, the leader of the JESSICA initiative, comments that: “The programme has a value of EUR 1 bln. Employing financial levers we will be able to introduce twice that amount to the market, which is evidently of great importance today. The investments we shall be financing within the JESSICA programme are attracting increasing numbers of investors. Up to now, 43 countries and regions have said they are interested in the programme, with Poland’s Zachodniopomorskie and Wielkopolskie regions having already concluded contracts to finance trust funds through the EIB, and with others soon to follow. Four regions have given the green light to this initiative throughout Europe as a whole.”

The question which must be answered is: will a given city or region use this instrument to generate income or will it instead regard the finance as simple subsidies? Since this is a pilot programme, it will take some years to reveal which regions were justified in opting for this or that possibility. Having said that, those who have already decided to use this instrument accept that it has many more positive than negative features. Leszek Wojtasiak, vice-marshal (wicemarszałek) of Wielkopolskie province is able to list these, while admitting that: “Such a form of financing is a much more risky business, but even the least intelligent can distribute unrestricted subsidies. Were it not for JESSICA, I would have access to just a little over EUR 40 mln for revitalization schemes – good enough for only a few projects. But now I have three times that amount to invest. We have successfully secured finance from the national budget, with the EIB promising us a further EUR 50 mln loan. Basically, we have EUR 122 mln for investment.”

The province has not yet drafted a list of projects to be implemented, although there are around a dozen in almost each of its cities. There are ideas galore, but the important fact to remember is that each has a plan to commercialize a part of the revitalized facilities to ensure there will be something available to pay back bank loans, for instance in the form of hotels, offices or retail outlets. Leszek Wojtasiak adds that: “Stress will be placed on public-private partnerships when implementing these projects. Private businesses will be brought in, which will surely cope much more efficiently than publicly-owned companies.”

Expanding a city’s foundations

The projects which can count on support are similar to those eligible for structural funds. To some extent, these are restricted to financing urban infrastructure projects, such as transport, sewage removal and water supplies, reclaiming post-industrial and post-military land and preparing them for development, scientific parks and business-office centre projects for small and medium-sized businesses, and renovating historic and university buildings. But once a project has been completed, the finance it generates will be channelled into a trust fund and reinvested in similar schemes.

According to Władysław Husejko, the governor (marszałek) of Zachodniopomorskie province, which recently started to introduce this initiative: “This is by no means a subsidy. The investment must be paid back, which does not mean that it has to go back to the European Commission, but only that it must generate income.” He adds that the province has already drafted several large projects which should be carried out using this instrument. But how many will see the light of day depends on what the EIB offers. The province has earmarked more than EUR 33 mln from the Regional Operative Programme. Władysław Husejko makes no secret of his plans: “One of these will be the revitalization of Kwartały Norweskie (Norwegian District), a run-down district of old tenements in Szczecin city centre. The project involves the reconstruction of the ground floors of the buildings to house retail and service outlets, while the upper storeys are to be converted into offices and apartments.”

Making space for private investors

The JESSICA programme will make itself felt in those places where private capital, for various reasons, is afraid to invest on its own – for instance in run-down districts. The scheme may be made direct use of by local governments, although the private sector will also have much to say and do. JESSICA will finance large, integrated projects, where, eg. it is not worth repairing one tenement building, but instead to tackle a whole district at one go.

A good example of the successful introduction of the JESSICA initiative is the change in the direction of traffic of Berlin’s Altes Stadthaus, Rotes Rathaus and Grossen Judenhof streets. The original street plan was reinstated, allowing new thoroughfares to be built lined with residential buildings with a total area of 39,000 sqm and 33,000 sqm of commercial space.

“At the moment only two so-called ‘New European’ countries – Poland and Lithuania – have made any advances with this initiative, although they will soon be followed by Bulgaria, Estonia, Slovakia, Czech Republic, Hungary and Latvia,” claims Eugenio Laenza. Lithuania wants to revitalize residential blocks installing thermal insulation with JESSICA’s support. The beneficiaries will be residential communities as well as other private and state owners. Bulgaria is also planning such a venture. Valius Serbenta, director of the Lithuanian Housing and City Development Agency, which is preparing the introduction of the JESSICA initiative, reveals that: “The programme to upgrade post-Soviet housing blocks started operating in 2005, but we are now trying to adapt it to the requirements of the JESSICA initiative and, from that source, obtain finance for the project. We are currently adapting the law to this mechanism. The total value of the investment which we wish to implement with the assistance of the JESSICA programme exceeds EUR 200 mln.”