Revamping Brasov (Romania) Through Jessica 4 Cities

Urban Development Funds (UDFs) provided for in the JESSICA 4 Cities (J4C) initiative can be used to invest in Public Private Partnerships (PPPs) and other projects included in an integrated plan for sustainable urban development. The role of cities in J4C is essential: they develop strategies and integrated plans for sustainable urban development; they identify and design projects intended to mobilise J4C funding; and they implement projects supported by J4C. The objective is to determine, in close cooperation with the European Investment Bank (EIB) and the Council of Europe Development Bank (CEB), how European cities can draw the maximum benefit from UDF and J4C. And also how the implementation of J4C can be structured with regard to existing Structural Fund regulations best to accommodate the needs of cities.

In this case study the focus will primarily be on J4C in Brasov, Romania. Grants were allocated to the Brasov area in order to rehabilitate the city as part of its focus on restoring the tourist industry. Part of the financing for this project came from J4C. Other cities and regions which received funding are: Tuscany (Italy), Greater Manchester (UK), Porto Vivo (Portugal), Poznan (Poland), and Athens (Greece). In Brasov five projects were carried out, namely: (1) the rehabilitation of Rasnov Historic Centre, (2) the rehabilitation of the Codlea Business Centre and of (3) the CORESI Office and Trade Fair and Congress Centre,  (4) the rehabilitation of the Patria cinema as a cultural centre and base for the philharmonic orchestra, and (5) the extension of parking capacity and construction of the public transport terminal in Poiana Brasov, which is the tourist resort.

Issue: developing and disseminating best practices on Urban Development Funds

The purpose of the project is to develop and disseminate best practices on Urban Development Funds (UDF) in different European countries. On the basis of the results of the review of local problems and processes, the aim is to develop a “JESSICA Toolbox for Cities”. This will serve to assist with the achievement of the main objective of the working group, namely to enable cities effectively to use opportunities offered by J4C to attain sustainable development outcomes and indicate to Managing Authorities (MAs) and other relevant parties how best to structure J4C to benefit cities. This means that working group partners must develop a thorough understanding of the procedures for developing by means of the urban investment cycle suitable strategies, integrated plans, projects and project portfolios and co-operate with managing authorities to incorporate them into the relevant operation programmes and fund them through J4C.

Approach: an area-based approach

UDFs aim to improve the social, physical, and economic conditions of the targeted district or neighbourhood. Basically, UDFs are packages of concrete measures and projects that deal with some central elements. For example the improvement of the social conditions, the built environment, and the local economy of the district involved which are usually interrelated, in the sense that positive changes in one element will often lead to changes in the others. This integrated approach is synonymous for J4C and participating partners have therefore benefitted from this programme.

UDFs are area-based, and they tend to focus on neighbourhoods or districts that are characterised as deprived. An alternative way of tackling urban problems would be a policy aimed at certain population groups, wherever they live, such as “newcomers”, the unemployed, children, or the elderly. The fact that these groups might happen to be concentrated in specific urban areas would not render the programmes area-based: in those cases the spatial dimension is just an unintended feature. Thus, it is important that programmes specify why they adopt an area-based approach. There are three reasons for choosing such an approach:

  • The existence of a “neighbourhood effect”;
  •  A preference for an integrated approach to solving problems;
  • Cost-effectiveness compared to other approaches.

Results: implementation of the methodology

The project has been finalised and reached it objectives. Some of the results are:

  1. There is a generic methodology in place to create and operate the UDFs to fund urban development. The methodology can be used by any European country and is developed according to EU laws, national laws and structural funds regulations;
  2.  All six partners became aware of their capacity to fund urban development using the J4C instrument, based on the evaluation studies elaborated for each partner (at the national level for Portugal and Greece and regional level for Italy, the UK, Poland and Romania);
  3. Three out of six partners in the project started to implement the methodology (agreement with the EIB to create and operate the Holding Fund, which is a fund set up to invest in several UDFs – it is an option for MAs. Also included are the decisions on the number of UDFs and their operation and management, and a set of criteria for the projects to be funded through the UDF). The fourth partner, which is the UK, already has its own system and a tradition of funding urban development. The fifth partner, Romania, postponed the decision until 2013, when there will be greater certainty about the future of cohesion policy.

     

Added value of Cohesion Policy: current generation of cohesion policy programmes

J4C was launched with a view to providing new opportunities for managing authorities responsible for the current generation of cohesion policy programmes by:

  • Raising the productivity of SF and public funds by making use of innovative and revolving financial instruments in the urban sector (complementary to grant financing);
  • Ensuring long-term sustainability through the revolving character of the Structural Funds’ contribution to UDF specialising in investing in Urban Projects;
  • Creating greater incentives for successful implementation by beneficiaries, by combining loans and other financial instruments;
  • Leveraging additional resources for PPP and other projects for urban development with a focus on sustainability and recyclability in the regions of the EU;

Bringing together financial and managerial expertise from specialist institutions such as EIB, CEB, other International Financial Institutions (IFIs) and other financial institutions.

Integrated development and lessons learned: projects and proposals are considered in relation to one another

The main problems with J4C implementation as applied in Romania were:

  1. The only Operational Programme (OP) with specific financial allocation for growth poles is the Regional Operational Programme, which has Priority Axis 1 Support meaning that €74,3 million has been put in place for sustainable development of urban growth poles for Brasov for the programming period of 2007-2013. This axis has complementarities with other OPs, yet other OPs do not have allocations per growth pole, which results in a lack of predictability as to the level of funding that could be attracted into a Holding Fund for Brasov growth pole; other urban funds than those specified under this axis are spent on a competitive basis, organised at national level. According to the latest information, 18% of funds allocated to ROPs have been contracted out, but no projects have been submitted under Axis 1 .This fact coupled with a general structural funds absorption level of around 10% potentially creates the scenario for doubting the success of a JESSICA instrument – as there seems to be little incentive for attracting urban funding in the form of grants with the obvious advantage of not needing to return the funding, interest in the JESSICA instrument should be built on other strong premises and a very important counterpart in such a discussion is without doubt the Authority for Structural Funds Coordination (ASFC);
  2. A clear question to be answered is what steps the ASFC and the MAs have taken hitherto to make effective the stipulations of the Government Decision no. 998/2008 designating the national growth poles that have priority for investments to be made from national or EU funds. Article 3 of this Decision says “the Ministry of Development, Public Works and Housing as well as the Ministry of Economy and Finance coordinatethe drafting and implementing of the integrated development plans for national growth poles mentioned at article 1 by involving all central public administration authorities relevant for the implementation of policies in the field of growth poles, especially those Ministries that include MAs for EU programs”. Only the ROP has already earmarked money for growth poles – if the funding of UDF(s) and/or HF from other OPs is feasible and recommended, then there will be even stronger grounds for discussing with other MAs the possibility of allocating funds in their OPs for growth poles;
  3. Projects preliminarily selected from the Urban Integrated Development Plan need to be mature enough to comply with all relevant urban regulations (feasibility studies, approvals from different authorities, etc.). The maturity of a project is an essential criterion for determining whether the project in question has access to a UDF (as it must comply with the maturity requirements of the structural instruments);
  4. Difficult situation on the credit market and restrictive requirements of banks acting as creditors may limit the potential for obtaining debt financing for projects;
  5. The scope of interest in JESSICA will probably overlap in some areas with the use of other funds on the market (e.g. national programmes for energy efficiency, loans from the EBRD, World Bank, etc). This should not be a problem even if existing funds are capable of offering more favourable financing conditions. JESSICA may remain an additional financing source and could finance projects which for any reason do not stand a chance of finding financial support from other sources or which cannot be fully funded by these funds;
  6.  The lack of expertise in the Brasov Region with regards to the financial vehicles for urban development, and, hence, complex analyses for selecting best administrators for future UDFs or HFs, formed a problem;
  7. Another problem was the lack of mature projects from the technical and financial point of view in Brasov, on a local as well as at national level;
  8. The main entities that may be able to engage in the JESSICA initiative as fund managers are banks and institutions professionally managing funds. The participation of other organisations established by public administration entities for the purpose of UDF management would require changes in the statutes of those organisations;
  9. The market assessment and identification of potential participants in JESSICA should apply to:

            i)    Romanian and international banks as well as other commercial financial institutions;
            ii)   International financial institutions;
            iii)  Public administration (local government and MAs);
            iv)  Various kinds of investment funds;
            v)   Professional institutions managing funds that invest in real property;
            vi)  Land developers;
            vii) Non-financial institutions supporting the processes of  urban regeneration and  development.