preparatory study on the application of jessica in the ... · preparatory study on the application...

Preparatory Study on the application of JESSICA in the Apulia Region

Final Report Summary - March 2010 This document has been produced with financial assistance from the European Union. The opinions expressed herein should not be considered as the official positions of the European Union under any circumstances.

Lecce

Brindisi

Taranto

Foggia

Barletta-Andria-Trani

BARI

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 Italy 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 AMAT Azienda per la Mobilità nell’Area di Taranto (Taranto public

transport company) AO Azienda Ospedaliera (hospital trust) APQ Accordo di Programma Quadro (framework programme

agreement) ARPA Agenzia Regionale Protezione Ambiente (regional

environmental protection agency) ASI Area di Sviluppo Industriale (industrial development area) ASL Azienda Sanitaria Locale (local health authority) BAT Barletta Andria Trani EIB European Investment Bank BURP Bollettino Ufficiale Regione Puglia (official journal of Apulia) EC European Commission CIPE Comitato Interministeriale di Programmazione Economica

(interministerial committee for economic planning) COCOF Coordination Committee of the Funds CNR Consiglio Nazionale delle Ricerche (national research council) D.G.R. Delibera Giunta Regionale (regional council resolution) DRAG Documento Regionale di Assetto Generale (regional general

structure document) DSR Documento Strategico Regionale (regional strategic

document) ECU European Currency Unit ERP Edilizia Residenziale Pubblica (public residential building) EAFRD European Agricultural Fund for Rural Development ERDF European Regional Development Fund HF Holding Fund SF Structural Funds ESF European Social Fund UDF Urban Development Fund CG Central Government

R. C. Regional Council HSRM San Raffaele del Mediterraneo Hospital IRCSS Istituto di Ricovero e Cura a Carattere Scientifico (research

hospital) VAT Value Added Tax JESSICA Joint European Support for Sustainable Investment in City Areas R. L. Regional Law CSG Community Strategic Guidelines PA Public Administration PAR Piano di Attuazione Regionale (regional implementation plan) CIP Community Initiative Programme GDP Gross Domestic Product PIRP Programmi Integrati di Riqualificazione delle Periferie

(integrated suburb upgrading programmes) PIS Programmi Integrati Settoriali (integrated sectoral

programmes) PIT Programmi Integrati Territoriali (integrated local

programmes) SMEs Small and Medium Sized Companies POI Programma Operativo Interregionale (interregional

operation programme) PON Programma Operativo Nazionale (national operation

programme) POR Programma Operativo Regionale (regional operation

programme) PPP Public-Private Partnership PROTECT Project for the Organic Recovery of Coastal Areas with Transnational Cooperation PRU Programmi di Recupero Urbano (urban recovery programmes)

PRUSST Programmi di Riqualificazione Urbana di Sviluppo Sostenibile del Territorio (urban upgrading and sustainable local development programmes)

RSA Residenze Sanitarie Assistenziali (residential healthcare establishments)

QSN Quadro Strategico Nazionale (national strategic framework)

SLL Sistema Locale del Lavoro (local labour system)

SPV Special Purpose Vehicle SSR Sistema Sanitario Regionale (regional healthcare system) CIT Communication and Information Technology IRR Internal Rate of Return EU European Union

UTAP Unità Territoriali per l’Assistenza Primaria (local primary assistance units)

Contents

- Past visions...............…………………………………………………………………… 3 - Difficulties of the Apulian production system………………………………… 3 - Population and demographic changes.........………………………………… 4 - Distribution of the population across the region...………………………… 6 - Infrastructure and environmental conditions.......……………………….. 8 - The framework............……………………………………………………………… 11 - The 2007-2013 ERDF OP……………………………………………………………… 12 - The JESSICA Community Initiative……………………………………………… 14 - Urban dimension of the ERDF OP in the Apulia Region...…………… 17 - More easily "JESSICAble" OP actions.........………………………………. 19 - Cross-subsidies and ineligible costs.....…………………………………….. 25 - General framework.......…………………………………………………………… 28 - ERDF OP Integrated Plans..……………………………………………………...... 29 - Integrated Urban Regeneration Programmes..……………….....……… 30 - Area Social Plans................……………………………………………………...... 30 - Integrated suburb upgrading programmes (PIRP)…..................... 31 - Large Area Strategic Plans..……………………………………………………...... 32 - Overall vision…………………………………………………………………............ 35

- Urban CIPs and the Urban Italia Programme in Apulia…………………… 33 - Bari, Foggia and Lecce (Urban I)……………………………………………………….. 38 - Mola di Bari and Taranto (Urban II)…………………………………………………… 39 - Taranto URBAN II CIP ………………………………………………………………………… 40 - Brindisi and Bitonto (Urban Italia)……………………………………………………… 41 - Bitonto Urban Italia Programme…………………………………………………………. 42 - Key elements of the JESSICA Initiative.....……………………………………. 44 - Potential application models…........………………………………………………… 49 - UDF scenarios in Apulia…...................…………………………………………… 51 - A UDF dedicated to rationalising healthcare service………………………. 52 - The typical benefits of JESSICA tools………………………………………………. 55 -The benefits of a UDF dedicated to rationalising healthcare services 56 - Architecture of the JESSICA Initiative in Apulia…………….………………. 57

- The “San Raffaele del Mediterraneo Hospital” (HSRM) project………… 60 - Implementation tools and sources of funding…………………………………… 61 - Option 1: a contract with JESSICA……………………………………………………. 62 - Alternative structures: leasing vs project financing…………………………. 66 - Option 2: leasing………………………………………………………………………………… 67 - Comparison between a works contract and leasing….……………………… 69 - 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. BACKGROUND (page 2) What are the problems and opportunities in the Apulian

2. ANALYSIS OF THE 2007-2013 ERDF OP (page 10) What is the urban dimension of the ERDF OP in the Region?

3. LOCAL PLANNING (page 27) What “JESSICAble” opportunities does it contain?

5. JESSICA AND ITS APPLICATION IN APULIA What could be the first JESSICA-type UDF? (page 43)

6. THE PILOT PROJECT (page 59) How could the new Taranto HSRM be financed?

4. URBAN PROGRAMMES (page 37) What has been financed by Urban Programmes in the past?

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. 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 number of pilot projects, the European Commission launched the URBAN I (1994-1999) and URBAN II (2000-2006) Community Initiative 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 the current programming cycle (2007-2013) because they are seen as one of the key instruments for implementing the Göteborg and Lisbon strategies: making Europe a strongly competitive area, increasing employment and innovation rates, requires investments to be made in cities, which are the driving forces of innovation and growth.

For this reason, the new EC Regulations relating to the Structural Funds have incorporated the urban dimension directly into the mainstream of Community policies and have introduced innovative financial engineering tools known as Urban Development Funds (Regulation 1083/2006, article 44), specifically dedicated to promoting sustainable urban development.

In order to implement these new tools, the European Commission and the EIB - with the support of the Council of Europe Development Bank – have launched the JESSICA Initiative (Joint European Support for Sustainable Investment in City Areas).

Using the financial resources made available by the Operational Programmes, the intention is to launch financial instruments that can bring together the skills and resources of the public and private sectors, combining (i) the need to invest in "repayable" projects – i.e. projects that can provide some kind of return for investors – with (ii) the need to promote urban development that can be sustainable and integrated - the financed projects must be part of an “Integrated sustainable development plan”.

The ultimate aim is not only to finance quality projects but also to provide the cities of the Union with a tool that can help them review the development of their areas strategically and in the long term, using urban transformation as a lever for economic and social development.

The way in which these tools operate in practice depends on the context to which they are applied. The aim of this study is to investigate the potential applications in the Apulia Region, which UDFs could serve the Administration and how the rationalisation of the hospital and healthcare system could contribute to promoting strategic urban development in the Region.

1994-1999

Urban I

2000-2006

Urban II

JESSICA

Lille Action Programme (2000) Lisbon Strategy (2000) Göteborg Strategy (2001) Urban Acquis (2004) Bristol Agreement (2005)

2007-2013

Structural Funds Programme Periods

Leipzig Charter (2007) Marseilles Declaration (2008)

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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

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Before the 1980s, development in Apulia was guided by three successive fundamental visions:

Creation of a bridge between West and East in the Mediterranean;

Representation of the material culture of European civilisations;

Development of the Region as a "European California".

These visions assigned Apulia a decidedly primary role and were particularly justified, according to planners at the time, by the geographical location of the region, its historical and cultural heritage, the beauties of its landscape and its climate. From the 1960s onwards, a heavy industrialisation programme developed alongside these visions, primarily launched with the encouragement of central government and focused on initiatives in the iron and steel, chemical and energy industries. These actions had a profound effect on the appearance and quality of the Apulian landscape, changing the appearance of what were to become the region's main industrial centres: Taranto and Brindisi above all. As of the 1980s, however, the Apulian system became involved in a major economic and social transformation process which had considerable repercussions on its cities. This process was associated on the one hand with the crisis taking place in its biggest industrial companies and, on the other hand, with the ineffectiveness of the development models used as reference. The vision of Apulia as a "European California", for example, had arisen from a desire to combine the resources available in the farming sector with the opportunities offered by the food industry, and from an intention to promote the research and innovation sector. 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 and of the opportunities offered by its economic and social environment.

Apulia is one of the Italian regions included in the Convergence Objective1. Despite the fact that its per capital GDP is less than 75% of the Community average, it has undergone a positive increase in recent years, recording better performance than the other regions of southern Italy, albeit far from the absolute values of the central and northern regions of the country. Data processed and published by the Region show that the main difficulties encountered by the Apulian economy, which are also the most important reasons for the difference compared to the national and Community averages, are associated with:

A crisis in its production specialisation model; Limited development of medium to high technology

production sectors; Insufficient accumulation of capital; Low productivity of production factors.

One indicator appears to be particularly critical: the high unemployment rate (11.2%, approximately twice the national figure - 2007 data), particularly among young people and women. The decline recorded in traditional manufacturing activities and in the industrial districts has led to an increase in the number of workers in the construction, property and entrepreneurial sectors, while the development of companies connected with the aerospace and renewable energies sector appears to open the way to a structural transformation of the regional economy in favour of more innovative and technological industries.

1 The other Italian regions admitted to the Convergence Objective are Sicily, Campania and Calabria, while Basilicata has been placed in the "phasing-out" category.

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

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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.

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 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.

1.3 Population and demographic changes

Δ (1951‐2008) =+26.58%

Source: ISTAT (2008) data processed by CERTeT

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

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…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:

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 % of the total for the Region 30.54% 26.30% 23.33% 21.44% 20.22% 19.85%

0‐24

25‐44 1,208,685 1,164,267 961,124 798,890 707,550 640,305 % of the total for the Region 30.06% 28.58% 24.15% 20.92% 19.56% 18.99%

25‐44

45‐59 732,131 823,542 908,932 809,671 652,912 567,475 % of the total for the Region 18.21% 20.21% 22.83% 21.20% 18.05% 16.83%

45‐59


60‐74


75‐89

90 and over 20,542 28,992 57,400 80,062 110,289 140,045 % of the total for the Region 0.51% 0.71% 1.44% 2.10% 3.05% 4.15%

90 and over

Total for Apulia Region 4,020,707 4,074,063 3,980,594 3,818,685 3,616,863 3,372,196 % compared to previous decade 1.33% ‐2.29% ‐4.07% ‐5.29% ‐6.76%

Total for Region

Graph 3.1 Resident population pyramids by age band – source: ISTAT interactive graphs

Table 1.1 Apulian population grouped by age band - forecasts for 2051

1982 1992 2002

* 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

Regione Puglia

Maschi

Femmine

Apulia Region

Male

Female

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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".

As the table opposite shows, the size of the seven conurbations has gradually shrunk over the past thirty years, to the benefit of medium-sized cities and municipalities with over 10,000 inhabitants which have instead gained ground.

This reflects a trend, which has also been recorded nationally, towards a gradual move away from the largest conurbations to the benefit of more competitive urban areas in terms of cost and quality of life.

In the case of Apulia, among the seven largest cities, only Andria and Barletta have experienced uninterrupted growth, while there has been an evident decline in the municipalities of Taranto (-49,000 inhabitants between 1981 and 2008) and Bari (-48,511 in the same period), followed by Lecce, Foggia and Brindisi, caused in particular by the crisis in the larger industrial companies.

However, it is interesting to note that despite the demographic crisis that has been affecting Italy since the 1970s, the population of all Apulia's average sized cities continued to grow even after 1991. The most prominent of these is Altamura, the chief town of one of the Region's industrial districts and employment systems (upholstered furniture and homeware industry) which has doubled it's population over a period of just over thirty years, reaching 68,000 people in 2008.

A steadily falling trend is instead being recorded in small and very small municipalities, which are destined to lose further ground in the coming years.

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 Salento in the south, which are already sparsely populated, are the areas most likely to be abandoned, penalised by a declining economy and poor accessibility.

Municipalities by size 1971 1981 1991 2001 2008Bari 357.274 371.022 342.309 316.532 322.511% of the total for the Region 9,97% 9,58% 8,49% 7,87% 7,91%Taranto 227.342 244.101 232.334 202.033 195.130% 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% of the total for the Region 3,96% 4,04% 3,88% 3,86% 3,76%Andria 77.065 84.661 90.063 95.653 98.841% of the total for the Region 2,15% 2,19% 2,23% 2,38% 2,42%Lecce 83.050 91.289 100.884 83.303 94.178% 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% of the total for the Region 2,11% 2,16% 2,22% 2,29% 2,30%Brindisi 81.893 89.786 95.383 89.081 89.979% of the total for the Region 2,29% 2,32% 2,37% 2,22% 2,21%7 conurbations (over 89,900 inh.) 1.044.063 1.120.779 1.106.768 1.033.899 1.047.703% of the total for the Region 29,14% 28,95% 27,45% 25,71% 25,70%12 average cities (over 44,000 inh.) 531.540 580.452 618.925 642.019 653.966% of the total for the Region 14,84% 14,99% 15,35% 15,97% 16,04%30 large municipalities (over 20,000) 681.603 751.922 808.520 821.849 833.594 % of the total for the Region 19,02% 19,42% 20,05% 20,44% 20,45%60 average municipalities (over 10,000 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%117 small municipalities (over 2,000 inh.) 572.964 601.773 622.590 616.647 620.261% of the total for the Region 15,99% 15,54% 15,44% 15,34% 15,22%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%

Total for Apulia Region 3.582.787 3.871.617 4.031.885 4.020.707 4.076.546

Table 2.1 Apulian population grouped by size of municipality

Source: ISTAT data processed by CERTeT

1.4 Distribution of the population across the region

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5 2 1

34 6

7

9 8

1011

1213

12

3

54

6

78

9

1011

1213

14

15

123 45 6

7891011

1213

1415

16

…continued – distribution of the population across the region

Figure 1.1 Population changes between 1991 and 2001

Source: Projections contained in the Apulia DSR (regional strategic document), CLAS and TPS Group (2006)

1- Vieste 2- Cagnano Varano 3- Monte Sant’Angelo 4- San Giovanni Rotondo 5- Apricena 6- San Severo 7- Lucera 8- Bovino 9- Ascoli Satriano 10- Manfredonia 11- Foggia 12- Cerignola 13- Barletta

1- Corato 2- Bisceglie 3- Bari 4- Altamura 5- Gioia del Colle 6- Rutigliano 7- Putigliano 8- Monopoli 9- Fasano 10- Taranto 11- Ginosa 12- Ostuni 13- Ceglie Messapica 14- Francavilla Fontana 15- Manduria

1- Alessano 2- Presicce 3- Taviano 4- Tricase 5- Gallipoli 6- Casarano 7- Otranto 8- Maglie 9- Galatina 10- Nardò 11- Copertino 12- Veglie 13- Melendugno 14- Lecce 15- San Pietro Vernotico 16- Brindisi

Figure 2.1 Local employment systems in Apulia

Agricoltura, caccia e silvicoltura

Turistici

Commercio e agricoltura

Pelli, cuoio e calzature

Tessile e abbigliamento

Metallurgia

Mobili e prodotti in ceramica

Agricoltura, caccia e silvicoltura Turistici Commercio e agricoltura Pelli, cuoio e calzature Tessile e abbigliamento Metallurgia Mobili e prodotti in ceramica

Farming, hunting and forestry Tourism Trade and farming Animal skins, leather and footwear Textile and clothing Metalworking Furniture and ceramic products

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Table 3.1 and 4.1 Apulian infrastructure endowment indexes

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.

1.5 Infrastructure and environmental conditions

Figures 3.1 and 3.2 Apulian infrastructure indicators Source: Istituto G. Tagliacarne

Indicatori delle infrastrutture economiche (2007) Puglia Mezzogiorno Italia Rete stradale Rete ferroviaria Porti (e bacini d’utenza) Aeroporti (e bacini d’utenza) Impianti e reti energetico-ambientali Strutture e reti per la telefonia e la telematica Reti bancarie e servizi vari Indicatori delle infrastrutture sociali (2007) Puglia Mezzogiorno Italia Strutture sociali e ricreative Strutture per l’istruzione Strutture sanitarie

Economic infrastructure indicators (2007) Apulia Southern Italy Italy Road network Railway network Ports (and catchment areas) Airports (and catchment areas) Energy and environmental networks and installations Voice and data communication structures and networks Banking networks and other services Social infrastructure indicators (2007) Apulia Southern Italy Italy Social and recreational facilities Educational facilities Healthcare facilities

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Source: Data published by Istituto G. Tagliacarne and processed by CERTeT

… continued – infrastructure and environmental conditions

Infrastructure endowment Foggia Bari Brindisi Taranto Lecce Apulia Southern Italy ItalyRoad 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 ItalyCultural & 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

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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

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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.

Macro‐objectives Priorities 1. Making the most of human resources

Develop knowledge circuits 2. Disseminating research and innovation 3. Energy and environment: sustainable use Improve quality of life, security and social

inclusion 4. Social inclusion and local attractiveness 5. Natural and cultural resources 6. Mobility networks and links 7. Production systems and employment

Strengthen production chains, services and competition

8. Cities and urban systems 9. Attracting investments

Internationalise and modernise 10. Governance and efficient markets

2.1 The framework

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

3 Basic Priorities 1. Making Europe and its Regions more attractive to investment and employment 2. Promoting knowledge and innovation for growth 3. Creating more and better jobs

focusing attention on the importance of the local dimension.

Community Strategic Guidelines

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 following:

Strategic priority no. 8 states that the different “sectoral planning tools will be brought together in integrated urban development plans that will constitute the strategic and analytical basis for actions”.

One of the horizontal principles for implementing the QSN is explicitly aimed at cities and requires Convergence Objective Regions - like Apulia – to “have one or more urban/local priorities in their OPs”.

National Strategic Framework (QSN)

Structure of the DSR 1. To strengthen the factors that make the area attractive 2. To promote innovation […] General objectives 3. To improve employability, cohesion and social inclusion 1. Environment 2. Equal Opportunities 3. Local dimension of development 4. Cross‐border cooperation

Crossover objectives

5. Development of participation A. Context policies

‐ Transport and communication networks ‐ Sustainable urban development ‐ Environment and natural resources

B. Research and innovation policies Policy priorities

C. Social inclusion, employment, training and welfare policies

Regional Strategic Document (DSR)

According to the DSR, the Region “lacks the planning tools required for large areas and its town planning tools are old and for the most part lacking in strategic content”. “The rapid implementation of strategic redefinition and planning processes must include an integrated and multisectoral effort to a) upgrade the most run-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 […]”.

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Table 1.2 Financial Plan of the 2007-2013 Apulia OP

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:

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.

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.

Community Contribution

National Contribution

Indicative distribution of the national contribution

Total financing

Co‐financing

rate For information

Priority Axes

(a) (b)=(c)+(d) National publ.

finan. (c) National priv. finan. (c) (e) = (a)+(b) (f)=(a)/(e)

EIB contrib.

Other financing

AXIS I Promotion, enhancement and dissemination of research and innovation for competitiveness

290,500,000 290,500,000 290,500,000 0 581,000,000 50 0 0

AXIS II Sustainable and efficient use of environmental and energy resources for development

454,000,000 454,000,000 454,000,000 0 908,000,000 50 0 0

AXIS III Social inclusion and services for quality of life and attractiveness of the local area

285,000,000 285,000,000 285,000,000 0 570,000,000 50 0 0

AXIS IV Making the most of natural and cultural resources for attractiveness and development

196,000,000 196,000,000 196,000,000 0 392,000,000 50 0 0

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 employment

551,000,000 551,000,000 551,000,000 0 1,102,000,000 50 0 0

AXIS VII Competitiveness and attractiveness of cities and urban systems

260,000,000 260,000,000 260,000,000 0 520,000,000 50 0 0

AXIS VIII Governance, institutional skills and effective competitive markets

57,521,978 57,521,978 57,521,978 0 115,043,956 50 0 0

TOTAL 2,619,021,978 2,619,021,978 2,619,021,978 0 5,238,043,956 50 0 0

2.2 The 2007-2013 ERDF Operational Programme

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Table 2.2 Distribution of resources by Axis and source of financing

* Axis Endowment compared to Total Source: 2007-2013 ERDF Apulia OP data processed by CERTeT

... 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.

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 initiative”.

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

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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.

2.3 The JESSICA Community Initiative

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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)

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

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. 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.

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...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 consistent with the OP to be funded by JESSICA-type instruments are two:

The investments must be repayable – which means that they must provided some kind of return for investors.

Projects must be included in a sustainable integrated urban development plan - i.e. in a system of interconnected actions aimed at improving the economic, physical, social and/or environmental conditions of a city and/or a district.

It is clear, therefore, that not all the Structural Funds contained in the OP can be used to launch the JESSICA initiative.

Within the various Priority Axes - in the area destined for the financial engineering instruments - regions must have included a statement relating to their potential intention to use the JESSICA instrument to implement actions covered by the Axis itself. These will generally be Axes that are consistent with urban development. This is known to be the case in Apulia, which has explicitly stated its intention to use the JESSICA Initiative in its Axis VII, dedicated to the “Competitiveness and Attractiveness of cities and urban systems”. 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. A direct reference to the JESSICA Initiative in a specific Axis of the OP is not however an essential requirement for the Management Authority to decide to launch these financial engineering instruments.

Generally speaking, in fact, projects included in the OP that are repayable and included in an Integrated Plan for sustainable urban development can be considered to be entitled to funding by JESSICA-type instruments even if the Priority Axis does not explicitly mention the intention to use them. If it were necessary, however, it would be possible for the Management Authority to reformulate the OP in order to include the use of JESSICA and take any procedural steps required with the Commission's departments.

For example: ‐ City development plans; ‐ District programmes; ‐ Programmes aimed at renovating and restoring run-down

areas; ‐ Sectoral plans with a significant local urban component.

An appropriate foundation can be provided not only by plans devised and adopted according to existing planning protocols, but also by unofficial plans and other programme documents approved through public consultation and following appropriate community impact assessments.

Periodic cash flows can be guaranteed, for example, by: - selling goods/services on the market; - charging users fees and tolls; - charging public organisations concession/usage fees payable

to the private investor for the construction/management of infrastructure.

These do not however rule out different payment mechanisms.

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

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:

Axes and Action Lines Amounts for Urb. Dev. Axis Total % urb. dev.

AXIS

I

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 1.3 Interventions to improve digital infrastructure 1.4 Interventions to disseminate CIT in SMEs 1.5 Interventions to develop digital public services

130,000,000 290,500,000 44.75%

AXIS

II

2.1 Interventions to protect, use sustainably and save water resources 2.2 Interventions to improve the water supply, adduction and distribution system 2.4 Interventions for the use of renewable energy resources and the adoption of energy saving techniques in the various

sectors of use 2.5 Interventions to improve the management of the integrated waste cycle and to reclaim polluted sites

200,000,000 454,000,000 44.05%

AXIS

III

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 3.3 Programme of actions for the accessibility of services, the inclusion of people at risk of social marginality and

balancing life and work. 3.4 Interventions to improve legality and safety for the benefit of the local area, citizens and companies

250,000,000 285,000,000 87.72%

AXIS

IV

4.1 Tourism industry infrastructure, promotion and enhancement 4.2 Protection, enhancement and management of cultural heritage 4.3 Development of cultural activities and entertainment 4.4 Interventions for the environmental network

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

AXIS

V

5.1 Consolidation and improvement of sea port nodes 5.2 Adaptation and improvement of urban transport systems 5.3 Development of the logistical system 5.4 Adaptation and improvement of local railways

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

AXIS

VI

6.1 Interventions to improve the competitiveness of companies 6.2 Initiatives for production centre support infrastructure 6.3 Interventions for local marketing and the internationalisation of production systems and companies

350,000,000 551,000,000 63.52%

AXIS

VII 7.1 Integrated urban development plans 7.2 Integrated local development plans

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

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

2.4 Urban dimension of the ERDF OP in the Apulia Region

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

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

This shows that: The Operational Programme itself acknowledges that, in order to promote the internal cohesion, attractiveness and competitiveness of cities, “an integrated and multisector effort” is needed, in order to: a) quickly improve the quality of public services; b) boost the number of cultural facilities; c) strengthen and improve the social infrastructure; d) promote environmental protection and renewal.

There is therefore great potential for JESSICA financial instruments to be implemented in the case of Apulia.

At this point, in an entirely indicative and preliminary way, we can look at the relevant action lines for urban development (see table 4.2) and investigate how they could contain potentially "JESSICAble" actions.

For Structural Funds to be used to set up a JESSICA-type UDF:

For each of the Priority Axes considered, the percentage of resources associated with urban development is greater than 40% of the total resources for the Axis (EU share)

The ERDF OP has a very strong urban dimension

The highest percentages are found not only in Axis VII but also in Axis III (Social inclusion and services for quality of life and attractiveness of the local area), in Axis IV (Making the most of natural and cultural resources for attractiveness and development) and in Axis VI (Competitiveness of production systems and employment)

Multiple Axes and Action Lines could be used to launch JESSICA-type UDFs

Urban development is recognised as having a crossover and multisectoral dimension

This appears to be perfectly consistent with the integrated dimension of urban development promoted by the JESSICA instruments

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

- the actions funded with the resources allocated to the Axis have to be part of an Integrated Plan for sustainable urban development;

- the actions have to be able to provide some kind of return for investors.

Projects included in an Integr. Plan for Sust. Urb. Dev.?

Projects that provide some kind of return for investors?

"JESSICAble" Projects

Action line of an OP Axis consistent with urban dev.?

UDF/HF

Projects consistent with and eligible for OP spending?

YES

YES

YES

YES

€

€ €

Other investors (if any)

€

"JESSICAble" Projects

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Table 4.2 More easily "JESSICAble" types of action

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:

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

Objective 1 a) To increase the demand and propensity of companies to invest in research

Activity 1.2 Strengthening of the scientific and technological potential of the region to support the demands of companies → Networks to improve the regional technological potential (regional technological districts and public‐private laboratories)

Objective 2 a) To improve the Digital Communication Infrastructure Activity 1.3 Actions to improve digital infrastructure → Actions to boost the strategic broadband, wireless and satellite infrastructure

AXIS I Promotion, enhancement and dissemination of research and innovation for competitiveness → URBAN COMPETITIVENESS

Objective 2 b) To increase the use of innovative digital services in SMEs Activity 1.4 Actions to disseminate CIT in SMEs → Support for the development of SMEs specialised in offering digital content and services.

Objective 1 a) To promote the everyday sustainable and durable use of water [...]

Activity 2.1 Actions to protect, use sustainably and save water resources → Actions to complete/adapt/optimise water infrastructure […] in coastal conurbations.

Objective 1 c) To set up a broad and efficient local governance and oversight system [...]

Activity 2.3 Actions to prevent and reduce natural risks and protect against hydraulic, hydrogeological and seismic risk and coastal erosion. → Actions to restore and make eco‐sustainable use of abandoned mining areas owned exclusively by the public;

Objective 1 d) To protect soil and coastal strips against erosion → Actions to deal with coastal erosion and to provide services that increase and improve accessibility.

Objective 2 a) To develop the use of renewable energy sources, promote energy saving and improve energy efficiency and the general energy policy objectives contained in the regional environment and energy plan or PEAR [Piano Ambientale Energetico Regionale]

Activity 2.4 Actions for the use of renewable energy sources and the adoption of energy saving techniques [...] → Actions to promote the use of renewable energy sources, particularly solar power and biomass; → Actions aimed at promoting energy saving and using solar power in public non‐residential buildings […];

AXIS II Sustainable and efficient use of environmental and energy resources for development → ENVIRONMENTAL SUSTAINABILITY

Objective 1 e) To reduce the quantity and dangerousness of waste by encouraging re‐use and recycling

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 waste cycle [...] particularly by creating high quality composting plants; → Actions to […] reclaim contaminated sites, make them safe and restore their environment […]

2.6 More easily "JESSICAble" OP actions

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…continued - more easily "JESSICAble" OP interventions


Objective 1 c) To improve the local healthcare infrastructure in socio‐medical districts

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 districts […]; → Boosting of public provision and of the services managed by companies and non‐profit‐making organisations, centres of excellence for integrated and social care […]; → Boosting of the network of local socio‐medical services protecting the health of women and children and supporting family carers.

AXIS III Social inclusion and services for quality of life and local attractiveness The mix of objectives “must also take into account the need to integrate inclusion and health protection policies with development and urban upgrading policies in order to achieve full scale integration (economic, social and political) by means of inclusion policies” → SOCIAL SUSTAINABILITY

Objective 1 b) To support a policy of improving the standards of health and welfare of Apulian citizens [...] “The new infrastructure building programme will involve the creation of new centres to house essential socio‐medical services […], primarily by renovating, adapting the structure or restoring the operation of existing buildings according to principles of sustainability, particularly where the recovery allows the social or socio‐medical structure to be integrated in the urban context”

Activity 3.2 Action programme to create local social and socio‐medical infrastructure →Creation of social infrastructure for the region; → Building of community structures […] for the initial reception and integration of immigrants in urban systems and rural areas […]; → Building of social infrastructure to increase the availability of places for children in early childhood centres […]; → Building of infrastructure for emergency social and welfare services […].

Objective 1 a) Promote the tourism industry by improving, diversifying and promoting a local integrated tourism offer, completing and improving infrastructure and engaging in local marketing activities

Activity 4.1 Tourism industry infrastructure, promotion and enhancement → Actions to complete infrastructure supporting the tourism industry, particularly: marinas; removal of architectural barriers.

Objective 1 b) Protect, enhance and promote historical and cultural heritage in order to improve local attractiveness

Activity 4.2 Protection, enhancement and management of cultural heritage → Actions to protect and enhance cultural heritage that can attract significant flows of visitors and tourists […].

AXIS IV Making the most of natural and cultural resources for attractiveness and development “Strategies […] should be considered in a broader integration framework with the other ERDF OP axes, with particular focus on boosting transport links and infrastructure […], and on upgrading urban systems” → URBAN ATTRACTIVENESS

Objective 1 d) Promote actions to support and develop protected areas and implement the Natura 2000 network by developing green tourism and engaging in sustainable local marketing

Activity 4.4 Interventions for the environmental network → Implementation of projects to support the sustainable use of the natural environment for tourism purposes, by means of action to recover the use of compromised and degraded areas of environmental interest.

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Objective 1 a) Boost the on‐shore and off‐shore structures and services of "strategic" ports of regional interest [...] Objective 1 b) Improve the accessibility of strategic ports of regional interest [...]

Activity 5.1 Consolidation and improvement of sea port nodes → Complete the building of infrastructure and equipment for port nodes […]; → Integrate port nodes with road, railway and/or metro systems in order to facilitate links with urban and metropolitan areas and production systems.

Objective 2 a) Take integrated action to implement environmentally‐friendly intermediate distance urban transport systems [...] Objective 2 b) Create interchange infrastructure at the main public transport nodes [...] for commuters, promoting integrated ticketing systems Objective 2 c) Create urban cycle paths [...]

Activity 5.2 Adaptation and improvement of urban transport systems → Creation of light railway tram‐train lines, including the upgrading of transport nodes; → Creation and boosting of modal interchange nodes; → Creation of cycle paths.

AXIS V Mobility networks and links → INTEGRATED AND SUSTAINABLE URBAN MOBILITY

Objective 3 a) Create logistical infrastructure [...] to manage goods transport Objective 3 b) Promote the establishment of logistical platforms to serve local production systems [...]

Activity 5.3 Development of the logistical system → Creation of logistical platforms.

Objective 1 a) Promote the tourism industry by improving, diversifying and promoting a local integrated tourism offer, completing and improving infrastructure and engaging in local marketing activities

Activity 4.1 Tourism industry infrastructure, promotion and enhancement → Actions to complete infrastructure supporting the tourism industry, particularly: marinas; removal of architectural barriers [...].

Objective 1 b) Protect, enhance and promote historical and cultural heritage in order to improve local attractiveness

Activity 4.2 Protection, enhancement and management of cultural heritage → Actions to protect and enhance cultural heritage that can attract significant flows of visitors and tourists […].

AXIS VI Competitiveness of production and employment systems “The crossover priority of the new regional programme is to mobilise and activate all local resources, starting with the ones that, by their nature and purpose, attempt to combine local development with social inclusion”. → URBAN COMPETITIVENESS

Objective 1 d) Promote actions to support and develop protected areas and implement the Natura 2000 network by developing green tourism and engaging in sustainable local marketing

Activity 4.4 Interventions for the environmental network → Implementation of projects to support the sustainable use of the natural environment for tourism purposes, by means of actions to recover the use of compromised and degraded areas of environmental interest.

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Many of the actions included in the OP might therefore fulfil the eligibility requirements for JESSICA financial instruments. 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 very different.


Objective a) Urban regeneration by means of integrated urban development plans consisting to a large extent of actions aimed at achieving environmental sustainability and, in particular, at upgrading the existing city and limiting urban expansion, intended for medium‐sized cities (over 200,000 inhabitants) or the areas of large cities in which physical, social and economic problems are concentrated.

Activity 7.1 Integrated urban development plans → Integrated urban development plans focused on environmental regeneration, intended for areas of cities which have been most affected by the industrial policies of the 60s and 70s […]; → 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 physical environment, social and economic problems […].

AXIS VII Competitiveness and attractiveness of cities and urban systems The axis aims to "combine the various sector policies and interests of social and economic players" “The Large Area planning process […] will serve to build the knowledge and programming framework in which the integrated local and urban development plans will be implemented” → URBAN COMPETITIVENESS AND ATTRACTIVENESS

Objective b) Local regeneration by means of local integrated development plans aimed at strengthening, upgrading, rationalising and, where necessary, designing functional networks and relationships that connect the systems of minor urban centres, particularly those that have strong environmental, historical and cultural connections.

Activity 7.2 Integrated local development plans → Action to make the most of abandoned buildings, structures and open spaces by building physical and virtual connections.

Source: 2007-2013 ERDF Apulia OP content processed by CERTeT

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…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

TYPES OF ACTION INCLUDABILITY IN INTEGRATED

URBAN PLANS ABILITY TO PROVIDE

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 plants

low high

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 integrated and social care

medium medium

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 recover the use of compromised and degraded areas of environmental interest

medium medium

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Source: 2007-2013 ERDF Apulia OP content processed by CERTeT


To summarise, therefore, actions that appear to be easier to include in Integrated Plans for Sustainable Urban Development are - in addition to the activities included in Axis VII - all actions that seem to be able to:

rethink the development of the city – e.g. by improving accessibility and mobility, by building interconnected and sustainable transport networks;

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;

convert abandoned or insufficiently used areas or infrastructure – e.g. by promoting the creation of technology parks, establishing new companies or creating socio-medical infrastructure.

Action which instead seems to guarantee a greater ability to provide a return on investments and, therefore to remunerate investors, relate to:

water industry infrastructure, waste management, digital services and transport.

However, this does not mean that only these projects can be funded using JESSICA financial instruments. Cross-subsidies and different resources to those contained in the OP could in fact extend the type and number of actions funded by UDFs/HFs.

TYPES OF ACTION INCLUDABILITY IN

INTEGRATED URBAN PLANS

ABILITY TO PROVIDE A 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 systems

medium medium

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 industrial policies of the 60s and 70s

high medium

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 physical environment, social and economic problems

high medium

7.2 Action to make the most of abandoned buildings, structures and open spaces by building physical and virtual connections high medium

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

We shall now examine Apulian local planning in order to identify potential Integrated Plans that contain potentially "JESSICAble" projects.

2.7 Cross-subsidies and ineligible costs

Figure 4.2 Ineligible expenditure

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

1 Figure 3.2 Cross-subsidies

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.

2

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 identified, and therefore provide the Community's institutions with the relevant information and transparency.

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.

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3.2

… continued cross-subsidies and ineligible costs

FSU Compon. calda Compon. fredda Hp 2 – Sussidi incrociati tra componenti di uno stesso progetto Progetto "JESSICAbile" freddo Progetto "JESSICAbile" caldo HP1 – Sussidi incrociati tra progetti

UDF Hot compon. Cold compon. Hp 2 – Cross-subsidies between components in the same project Cold “JESSICAble” project Hot “JESSICAble” project HP1 – Cross-subsidies between projects

FSU Compon. ammiss. Compon. non am. HP2 – Componente non ammissibile € ≠ FS Contabilità separata Progetto non ammissibile Progetto ammissibile HP1 – Progetto non ammissibile

UDF Admiss. compon. Non-adm. compon. HP2 – Non-admissible component € ≠ SF Separate accounting Non-admissible project Admissible project HP1 – Non-admissible project

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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

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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.

3.1 General framework

- Need to progress beyond the PIT and PIS [Integrated Local and Sectoral Programmes] experience;

- Need to develop Large Area planning instruments;

- Area Social Plans are a sound basis for integrating policies in urban areas.

- Axis VII “Competitiveness and attractiveness of cities and urban systems”: its action lines are Integrated Urban Development Plans and Integrated Local Development Plans;

- The knowledge and planning base of the OP consists of the Large Area planning processes designed to build on the PIT 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 Paesaggistico (landscape plan);

b) at provincial level with the local coordination plans - an essential point of reference for large areas - and with the Piani Urbanistici Generali (general urbanisation plans).

Integrated suburb upgrading programmes

Integrated urban regeneration programmes

Large Area Strategic Plans

Regional Strategic Document (DSR)

ERDF Operational Programme

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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 Urban Development Plans and Integrated Local Development Plans. Their features are summarised below:

1. Integrated Urban Development Plans Intended for medium to large cities, they are defined in the ERDF OP as “intervention programmes that include actions involving the physical, social and economic environment, developed with the involvement of local operators”. The plans can relate to places that are physically external or internal to the established city and focus on environmental, cultural or social regeneration, depending on the problems affecting them and the resources that can be leveraged for the regeneration. More specifically, the plans will relate to defined parts of the urban fabric but must be able to generate multiplying effects that are relevant to the city as a whole. In view of this, the Integrated Urban Development Plans can be focused on:

- Environmental regeneration of areas of medium to large cities that have been most affected by the industrial policies of the 60s and 70s - particular attention will be paid to cities with a 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 functions and abandonment by its inhabitants.

Provision will also be made for specific premiums for plans that include the re-use of de-commissioned sites (military, industrial, etc.), the reclamation of contaminated sites, initiatives that are highly innovative and have a significant effect on generating employment, or develop sustainable transport systems or youth employment.

2. Integrated Local Development Plans Intended for smaller towns which can demonstrate the presence of common issues affecting the physical, social or economic environment, concentrated to an extent that allows an area to be characterised. These plans are integrated action systems aimed at implementing forms of cooperation between towns for the purpose of creating more balanced and multi-centred urban systems. These Plans will focus in particular on boosting infrastructure networks, “meaning both transport and technology networks and environmental networks, with a view to rebuilding connections between natural and cultural environments and landscapes”. The interventions will therefore concentrate on “making the most of abandoned buildings and open spaces (in the established city and suburbs) by building physical as well as intangible connections ”. Provision will also be made for specific premiums for plans that include action which is able to create significant connections between small towns and the environmental network or the towns themselves to one another by using sustainable mobility systems.

3.2 ERDF OP Integrated Plans

In view of the integrated approach promoted by these Plans and the urban/local development objectives pursued by them, it is reasonable to expect that they could be "JESSICAble".

It would still be necessary to verify their ability to 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”.

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Integrated Urban Regeneration Programmes are defined as “instruments intended to promote the upgrading of significant areas of cities and urban systems by means of organic interventions of public interest” (Regional Law 21/2008, containing “Rules for urban regeneration”). These programmes consist of a coordinated series of interventions providing an integrated solution to problems of physical degradation and socio-economic difficulty and relating primarily to: These Programmes are set up by individual or associated municipalities, although proposals can also be made by other public and private entities, and their effects are those of executive town planning instruments. 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".

Area Social Plans are mentioned in the DSR as “important premises for a desirable process of consolidation of the integration between intervention policies in urban areas”. Building on the positive results achieved by their first generation (Regional Council Resolution 1104/2004), the Region has decided to propose them again for the three-year period 2009-2011. Compared to the previous experiences, changes have been made to the participation procedures and intervention priorities, as well as to the way in which financial resources are assigned and used. The overall volume of resources assigned for the three-year period 2009-2011 is substantially the same as that available in the first three-year period – approximately 200 million euros – and the financial resources used primarily come from two specific Funds: the Fondo Nazionale Politiche Sociali [national fund for social policies] and the Fondo Globale socio-assistenziale [global social care fund].

3.3 Integrated Urban Regeneration Programmes

i) recovering and renovating residential buildings [particularly social housing] both structurally and for town planning purposes; ii) eliminate architectural barriers; iii) improving the resources, accessibility and operation of social care services; iv) supporting education and employment; v) regenerating the environment of towns and expanding sustainable mobility; vi) making the most of cultural assets; vii) recovering and reusing existing buildings.

Urban regeneration is one of the fundamental objectives of the JESSICA Initiative. It is therefore reasonable to expect that the projects included in these Programmes could be "JESSICAble".

The civic participation and consultation with the local community carried out to develop these Programmes are perfectly in line with the options give by JESSICA to build Integrated Plans with a shared and "bottom-up" approach.

Again the potential rotational nature of the investments would have to be assessed.

3.5 Area Social Plans

During this three-year period, social programming will also be funded by Line 3.2 of the ERDF OP, with a negotiated procedure 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 a map of the integrated system of social and socio-medical interventions and services that is considered necessary at local level.

Notwithstanding the fact that these Plans are focused mainly on social and socio-medical interventions, the possibility of “JESSICAble” interventions being included in Area Social Plans should not be ruled out.

If they contribute to urban development they could in fact be included in an Integrated Plan for sustainable urban development.

These Plans have been shown to be eligible for ERDF OP funding. What remains to be assessed is the ability of at least some of these projects, or their components, to generate positive and periodic cash flows.

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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 2006, when municipalities were invited to take part in the respective tender (Regional Council Resolution No. 870 of 2006). Eligible interventions include: The areas involved in these Programmes must primarily be ones that have not previously benefited from similar programmes proposed at national or European level and each PIRP can receive funding of up to four million euros. In order to promote greater integration, the inclusion in PIRPs of other types of projects carried out with public as well as private resources, possibly originating from regional sectoral programmes or Community programmes, is not ruled out and is in fact promoted.

Given that the selected infrastructure projects might be consistent with the 2007-2013 ERDF OP, the Regional Council has asked the Management Authority to verify the eligibility of these Programmes for funding under Axis VII of the OP - or possibly under other axes of the OP with which they are consistent. In August 2009, the Regional Council resolved to provide financing with ERDF funds for the infrastructure required by PIRPs which could not be financed using funds from the Piano Casa Regionale [regional housing plan]. The available financing amounts to a total of 122 million euros under Axis VII of the OP “Competitiveness and attractiveness of cities and urban systems”, which can be used for the recovery and construction of primary and secondary urbanisation structures, as well as for acquiring areas or buildings needed for their creation.

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.

Seventy-four programmes (out of a total of 129 presented) were selected in June 2008, but only the first 27 were funded.

The possibility that programmes included in the shortlist but as yet unfunded because of a shortage of resources could be considered as "JESSICAble" cannot therefore be ruled out.

If the expenditure were not eligible (such as interventions relating to housing) the projects could be funded using resources contained in the UDF that are not Structural Funds.

- upgrading the built environment by restoring buildings and public spaces; - environmental regeneration of the city by saving on the use of natural resources, reusing areas sold and providing cycle paths and pedestrianised areas; - reorganising the urban structure; - improving the quality of the environment; - promoting employment and local enterprise; - combating social exclusion. 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.

3.4 Integrated suburb upgrading programme (PIRP)

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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, by the Region, of ten Large Areas into which its territory would be divided (see Figure 1.3). Each of these Large Areas was required to draw up a Strategic Plan - based on the Guidelines devised by the Region – which constitutes “a basis for entering into Programme Agreements with the Region to implement the proposed interventions”. The approval process for these Strategic Plans is expected to be completed by 2010. However, in order to speed up the launch of these projects that are already at an advanced planning stage, on 28 December 2009 an initial Programma Stralcio di interventi di Area Vasta [urgent projects programme for large area interventions] was approved, funded by various Axes of the ERDF OP, with resources amounting to a total of 340 million euros and distributed as follows:

These are the resources allocated to the ten Large Areas:

The biggest interventions in terms of size include:

Making public buildings more energy efficient – locations and buildings as yet to be determined [3-7 million euros in all the Large Areas, charged to Intervention Line 2.4 of the OP];

Integrated systems for logistics, public transport [8 million euros to Taranto] and cycle/pedestrian routes;

Integrated projects for local development and Urban regeneration programmes;

Waterfront [€ 8.5 million to Bari] and upgrading of ports [€ 7 million in the Salento area];

Improvement of water supply infrastructure; Operational recovery of buildings.

AXIS ERDF OP Intervention Line Large Area Urgent Projects Programme

I 1.5 Digital Public Services 15,000,000

II 2.3 Environmental protection 60,000,000

II 2.4 Energy/public buildings 50,000,000

II 2.5 Waste and reclamations 30,000,000

III 3.2 Building of social infrastructure 5,000,000

III 3.3 Accessibility of services 7,000,000

IV 4.1 Tourism promotion and infrastructure 30,000,000

IV 4.2 Cultural heritage 54.000.000

IV 4.3 Cultural activities 1.000.000

V 5.2 Urban transport 20,000,000

VI 6.2 Production areas 18,000,000

VII 7.2 Integrated local development plans 50,000,000

TOTAL 340,000,000

Large Area ERDF resources destined for the Large Area (€)

Metropoli Terra di Bari 2015 48,213,621

Capitanata 2020 ‐ Foggia 34,377,453

Taranto 33,956,214

Lecce 30,555,566

Salento 2020 ‐ Casarano 29,697,993

Brindisi 29,691,610

Vision 2020 ‐ Barletta 29,655,464

Valle d’Itria 23,930,802

Città Murgiana 22,059,910

Monti Dauni 20,777,400

TOTAL 302,916,033

3.6 Large Area Strategic Plans

Source: Regional Council Resolution No. 917 of 26.05.2009

Source: Regional Council Resolution No. 2683-2692 of

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Source: www.regione.puglia.it

... continued - Large Area Strategic Plans

... continued - Large Area Strategic Plans

Figure 1.3 The ten Large Areas of Apulia

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 has been funded by all the ERDF OP Axes.

Vast Areas

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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 private entities through project financing or a works contract”, the creation of biomass collection, storage and energy recovery centres and a pilot project to build an 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).

Interventions in the Research and Innovation sector (Taranto

"Magna Grecia" Science and Technology Park project); Sustainable mobility interventions (Taranto light metro); Interventions in the Logistics sector.

Many of these interventions are however at a preliminary design stage and would need to be appropriately structured in order to obtain some or all of their funding through a JESSICA-type UDF.

A Protocol of Understanding signed by the Municipality, Province of Taranto, Polytechnic of Bari, University of Bari, ARPA Puglia, CNR, Confindustria and ASL already exists. The park is expected to be build in the Paolo VI district of Taranto e could lead to the enhancement of an area currently affected by physical and social degradation.

"Magna Grecia" science and technology park

A feasibility study has been carried out that provides for two alternative scenarios: metro-train (estimated cost 800 million euros) and metro-tram (estimated cost 470 million euros). The first of the two options in particular would allow the disused army railway to be recovered.

Light metro In addition to these interventions, the Taranto Area is involved in the PIRP integrated suburb upgrading programmes for the districts of Paolo VI and Talsano and in the Tamburi APQ signed in 2007 by the Region and the Ministry of Infrastructure and Transport.

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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:

Plans/Programmes References Subjects and Interventions Resources Consistency with JESSICA Main problems

Integrated Urban Development Plans

2007‐2013 ERDF OP [Axis VII]

Medium to large cities Environmental regeneration/protection, enhancement and use of historic sites.

€ 97,555,554 ERDF OP Axis VII, Intervention Line 7.1

JESSICA is mentioned among the financial engineering instruments fundable by JESSICA

‐ putting together a "JESSICAble portfolio"

Integrated Local Development Plans

2007‐2013 ERDF OP [Axis VII]

Small urban centre systems Boosting of infrastructure networks, enhancement of abandoned open spaces.

€ 83,774,460 ERDF OP Axis VII, 7.2

JESSICA is mentioned among the financial engineering instruments fundable by JESSICA

‐ putting together a "JESSICAble portfolio"

Integrated urban regeneration programmes

Regional Law No. 21/2008, "Rules on urban regeneration"

Region's Municipalities, individually or associated.

Restoration of buildings and open spaces, integrated intervention against physical and social degradation.

€ 273,000,000 [resources also intended for

PIRPs] PAR FAS Axis VII, 7.1

‐ Urban focus ‐ integration of interventions ‐ participatory approach

‐ less advanced implementation stage than PIRPs ‐ identify refundable projects

Integrated suburb upgrading programmes (PIRP)

Regional Council Resolution No. 870/2006 Regional Law No. 4/2008 Regional Council Resolution No. 1510 Regional Council Resolution No. 2192/2008 Regional Council Resolution No. 463 Regional Council Resolution No. 641/2009

Region's Municipalities (122 responded to the call for bids)

Creation/Upgrading of infrastructure and public housing (ERP) interventions.

€ 92.639.712,43 ‐ ERDF OP Axis VII (32 million regional cofin.) for infrastructure interventions; ‐ PAR FAS Axis VII, 7.1 for Public Housing

‐ Focus on suburbs ‐ integration of interventions ‐ ERDF OP funding

‐ assess the refundability of projects; ‐ pay attention to the type of eligible/ineligible expenditure.

Area Social Plans

Regional Law No. 328/2000 Regional Council Resolution No. 1104/2004 Regional Council Resolution No. 249/2008 Regional Council Resolution No.

Region's Municipalities, individually or associated.

Integrated interventions relating to social and socio‐medical services.

€ 200,000,000 approx. ‐ ERDF OP Axis III, 3.2 ‐ National Funds

‐ Potential impacts on urban development ‐ ERDF OP funding

‐ put together a possible Integrated Plan ‐ identify refundable projects

3.7 Overall vision

Table 1.3 Overview of the main Integrated Plans/Programmes promoted by the Apulia Region

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168/2009

Large Area Strategic Plans

Regional Council Resolution No. 1072/2007 Regional Council Resolution No. 1617/2007 Regional Council Resolution No. 917/2009 Regional Council Resolution No. 2683‐2692 of 28 December 2009

Ten Large Areas of the Region. Multi‐sector plans

€ 340.000.000 ERDF OP Axes I to VII

€ 82,000,000 approx. PAR FAS Axis VII, 7.2 for pilot projects

‐ Multi‐sector interventions, many of them "JESSICAble" if appropriate put together (sustainable mobility‐innovation‐energy efficiency...] ‐ participatory and collaborative approach to drawing up the Plans ‐ ERDF OP funding.

‐ putting together portfolios of JESSICAble projects

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Taranto

Lecce

Brindisi

Mola di BariBARI

Bitonto

Foggia

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)

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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.

Municipality Characteristics Funded activities

BARI

Target Area: “Borgo Antico” – Historic Centre Unemployment rate: 25% Programme Expenditure: 21 million ECUs approx. Objectives:

- to combat the disappearance of activities and services; - to deal with social problems (young people, unemployment a

ageing of the population).

FOGGIA

Target Area: Northern area of the city Unemployment rate: 20% Programme Expenditure: 18 million ECUs approx. Objectives:

- to improve the physical environment and attract new economactivities;

- to promote private initiative; - to support training activities.

LECCE

Target Area: “Quartiere Centro” – Historic Centre Unemployment rate: 28% Programme Expenditure: 13 million ECUs approx. Objectives:

- to promote economic activities and create employment opportunities;

- to support gender equality, social integration and the physicand environmental improvement of the area.

Support for companies and the development of new economic activities, particularly by recovering the use of public buildings;

Renewal of public spaces and historic buildings, particularly to house new social activities;

Training activities for specific groups;

Fight against crime and improvement of safety;

Improvement of urban mobility;

Creation of information centres for women and immigrants.

4.1 Urban CIPs and the Urban Italia Programme in Apulia

Source: www.urbanitalia.it

Figure 1.4 Network of Urban cities

Urban I CIP (1994-1999):

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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:

Restructuring of the Waterfront

Giardini “don Pedro” – a suburb of “S. S. Trinità” lacking most of the services required to ensure the appropriate social integration of the resident population. Intervention adjacent to public housing buildings, a nursery school, a family centre and a day nursery. Project launched in the 1980s, suspended for a long time, intended to regenerate the district.

Former Convent of St. Dominic – used as the Town Hall until 1993, now disused, situated in the urban centre, adjacent to the Church of St. Dominic. Establishment of the municipal library and of cultural services and activities. Complementary to other activities involving Piazza degli Eroi.

Piazza degli Eroi Gardens – adjacent to the Convent of St. Dominic. Repaving of pedestrian areas, integration of green areas, upgrading of the lighting system and renewal of urban furniture with the addition of an ornamental basin.

Former Monastery of St. Claire – now the site of the Academy of Fine Arts. Conservative restoration and extraordinary maintenance of the building, conservation and enhancement, improving accessibility.

Out-of-town rural park equipped with a dog shelter. The overall projects has a dual function: - healthcare (dog kennels, veterinary services) - recreational-sports-landscape (phytodepuration area, training area, mountain biking trails, car parks).

"Radar" marine activities training institute – the intermediate floor houses the public offices of the Urban programme. Upgrading of the building, improvement of the structural conditions and installation of photovoltaic panels.

Source: www.urban2mola.it

Sports Field Work done to develop the installations and bring them up to standard. Creation of additional five-a-side football pitches and improvement of the surrounding green areas.

- 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.

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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:

Tamburi - Porta Napoli District (18,482 inhabitants). - Built close to the ILVA iron and steel works as a typical workers' district; - Serious problems with links to the new city, high levels of pollution and criminality, high rates of youth and adult unemployment; - Depopulation by the middle classes moving to other districts of the city. The area could be relaunched by transforming it into the gateway to the city, establishing modern facilities and services. The catalyst for this transformation could be the development of the multipurpose dock and marina.

La Città Vecchia – Isola (4,378 inhabitants). - 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.

Il Borgo (24,541 inhabitants). - Created from the end of the 19th century as an extension to the city; - Widespread signs of degradation of the buildings; - High numbers of elderly people requiring primary care; - Crisis in the retail sector and pollution, serious rates of criminality and drug addiction. Funding was provided for the renovation and recovery of buildings and public spaces to be used for offices as well as training and cultural activities, the replacement of paving and the removal of architectural barriers, the renewal of public lighting, the installation of bus shelters to encourage the use of public transport and the restructuring of the Mar Grande waterfront.

Source: www.re-set.it

Mar Piccolo Mar Grande

- 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.

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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: The target areas of the Programme were mainly the inner port, historic city centre and adjacent suburbs:

Intermediate port: commercial activities

Inner port

Source: www.waterfrontbrindisi.it

Historic Centre: Recovery and upgrading of the Regina Margherita waterfront - new layout for Piazzetta San Dionisio. Completion of the restoration of the Corte D'Assise, to be used as a cultural centre (auditorium, exhibitions, conferences). Completion of the restoration of the former Scuole Pie Convent, to be used as craft shops. Renovation of the Galiano Gym.

Perrino District: Upgrading of Via Cellie corner of Via Aniene area - new layout, planting and urban furniture. Paradiso District:

Upgrading of Piazza Pirandello - new layout, planting and urban furniture.

Casale District: Creation of a treatment pool for people with limb injuries.

Seno di Ponente, occupied by the Navy which has transformed the Svevo-Angioino Castle into its own installation.

Seno di Levante, intended primarily as a customs clearance area for goods unloaded in the outer port, site of the city's main activities.

Outer port: industrial activities

- 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 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.

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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 Creation of the Centro Residenziale per cure palliative globali hospice providing palliative care to the terminally ill, with 30 beds, promoted by the Opera Santi Medici Cosma e Damiano foundation of Bitonto. Facility created to fulfil the clinical, care, psychological and spiritual needs of patients in the advanced stages of illness.

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.

South of the city, in the Palo del Colle 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.

Furthermore: Palombaio sports centre – the creation of new sports infrastructure was seen as a tool for integrating and strengthening youth policies. Reopening of the Umberto I Theatre – municipal theatre dating back to the 19th century, a tool for relaunching the socio-cultural life of the city. Restoration of the Torrione Angioino – the city's ancient defence tower, heart of the renewed historic centre.

Source: http://maps.google.it

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.

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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

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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:

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. 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.

5.1 Key elements of the JESSICA Initiative

Source: European Investment Bank

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.

Figure 1.6 Diagram of the JESSICA Initiative

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Figure 1.6 translation

COMMISSIONE EUROPEA Sovvenzioni dei Fondi strutturali ALTRI INVESTITORI (strutture pubbliche e private) STATI MEMBRI (tramite un’Autorità di gestione designata) CITTÀ Investimenti (Fondi propri, prestiti o garanzie) Fondo di partecipazione (Facoltativo) FONDO DI SVILUPPO URBANO Prestiti Istituzioni finanziarie internazionali/Banche Compresi apporti sotto forma di terreni e di edifici Progetti inseriti in un Piano integrato per lo sviluppo urbano sostenibile

EUROPEAN COMMISSION Structural Fund grants OTHER INVESTORS (public and private organisations) MEMBER STATES (through a designated management authority) CITIES Investments (own funds, loans or guarantees) Participation fund (Optional) URBAN DEVELOPMENT FUND Loans International financial institutions/Banks Including contributions in the form of land and buildings Projects included in an integrated sustainable urban development plan

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5.1.1. The Holding Fund

Main activities 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 main activities that an HF is required to carry out relate to:

Before the UDF is set up

- Marketing of the Initiative; - preparation of calls for expressions of interest addressed to financial intermediaries and UDFs; - appraisal and selection of UDFs; - preparation of the UDF business plan; - negotiation of the HF-UDF contractual structure.

After the UDF is set up

- Support in establishing the criteria for selecting investments made by the UDF; - assistance for the structuring "JESSICAble" projects; - assistance to the UDF on specific subjects (e.g. State aid) and (EC) Regulations; - supervision of the eligibility of investments; - reporting to the MA and Committee of Investors; - establishment of accounting systems in accordance with (EC) regulations; - implementation of the winding-up policy agreed in the Financing Agreement signed with MA.

If the MA should decide not to set up an HF, the aforesaid activities must be supported directly by the UDF and MA, although technical assistance may be received from the EIB.

Advantages and benefits of the HF The main reasons that make it beneficial to have recourse to an HF are: - the accrual of interest on the amounts allocated to them. Particularly because the Structural Funds are disbursed very shortly

after the HF is set up, these resources accrue interest even before the UDFs and final projects are identified and selected; - the technical assistance and support provided by the MA to the UDF; - the promotion of the instrument among investors and the encouragement of private investment (lever effect); - the coordination between UDFs if there are multiple ones.

Costs of the HF According to Community rules, the management costs must not exceed 2% of the OP's contribution to the HF, “unless a higher percentage proves necessary after a competitive tender” [see article 43 (4) of (EC) Regulation 1828/2006]. Before the instrument is launched, therefore, a cost-benefit analysis has to be carried out in order to determine whether an HF is appropriate in the case in question.

Selection and nature of the HF According to Community rules, the HF may be set up: - as an independent legal entity or - as a separate block of finance within a financial institution. The only situation in which a competitive tender is not required in order to select it is if the role of the HF is entrusted directly to the EIB – with savings in terms of time and procedures. The HF must be seen as a temporary instrument servicing the MA and, 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 (UDFs) and the respective projects have been transferred to it. It cannot in fact be ruled out that the presence of the HF may be considered strategic by the MA even after the Initiative has been launched – e.g. in order to coordinate multiple local or theme-based UDFs.

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

Autorità di Gestione Fondo di Partecipazione Holding Fund FSU

Management Authority Participation Fund Holding Fund UDF

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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 it.

Selection and nature of the UDF 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 financial market maturity - the regulations make two provisions: - allowing the UDF to be set up as an independent legal entity, - or as a separate block of finance within a financial institution. In the latter case, separate accounting must be maintained between the institution's capital and that of the UDF, so that the disbursement of funds drawn from the Structural Funds can always be distinguished and verified. In order to be selected as a UDF, a Fund must also demonstrate that it has sufficient skills and managerial independence, a business plan suited to the activities that need to be financed, budgets that are in line with the implementation of eligible projects and an adequate level of financial solidity. According to the Regulations, its management costs may not exceed 3% of the capital contributed from the OP to the UDF, unless a higher percentage proves necessary after a competitive tender.

Types of UDF Two types of UDF are essentially possible: - “theme-based”: investing mainly in interventions regarding a particular sector [e.g. fund for energy saving in public buildings, fund for high technology and attracting human capital]; - “territorial”: investing mainly in a specific area, promoting integrated urban development plans relating to various sectors [e.g. UDF for a city or one of its districts]. 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].

Features of the main UDFs The UDF is required to be a “rotating instrument”, i.e. one which is able to reconstitute its capital over time and to remunerate investors - public and private – thanks to the investments made and/or financing granted. This objective is pursued by investing in “repayable projects” (as previously illustrated in paragraph 2.3) which, despite providing various kinds of return, allow the UDF overall to feed itself and to remunerate investors. The types of return can vary according to the investors considered. In order to attract private capital, the MA may in fact decide to grant them a rate of return that is in line - or almost in line - with the market rate, contenting itself with recovering only the Structural Funds or public capital invested. The resources thus provided by the investments made can be used by the MA to promote new urban development projects, either by launching a new cycle of JESSICA-type investments or - it would seem - by disbursing the resources generated by the first cycle in the form of traditional grants.

Eligible expenses These correspond to the eligible expenses identified by (EC) Regulations in the context of the Structural Funds. In a Member State like Italy, which joined the EU before 1 May 2004, for example, interventions relating to housing cannot be funded [see article 7 of (EC) Regulation 1080/2006] and this non-eligibility applies to all the resources included in the OP, including those earmarked for the UDF. However, if resources other than the Structural Funds are present in the UDF, these could fund non-eligible costs and cost components, and therefore housing interventions as well. For this purpose, it is essentially to maintain a separate accounting system so that costs charged to the OP are always distinguished.

5.1.3. PPP and “JESSICAble” projects

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".

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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, waste - and district infrastructure;

- Parts of the historic and cultural heritage, for production, tourism or other uses that are compatible with them, including cultural complexes and attractions;

- 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 attracting offices, including spaces for exhibitions, industrial, research and high technology parks;

- Spaces and structures for small and medium sized companies (SMEs) and for high tech sector companies (IT, Research and Development);

- Social infrastructure - healthcare / education, including facilities for all levels of education and training, medical facilities, biotechnologies and other specialised fields;

- Multifunctional complexes (commercial activities, leisure, offices); - Actions to improve energy efficiency. Project selection

Community legislation does not contain any specific provisions regarding the procedure for selecting PPPs and other projects in which JESSICA-type financial instruments invest. While they have to be part of an integrated and sustainable urban plan, wide-ranging independence is in fact granted to MAs.

Three models have therefore developed in the European Union:

- Competitive tender approach: a public procedure is carried out, following which the projects are selected. Some MAs, for example, have published a call for bids inviting local authorities that fulfil certain requirements to draw up Integrated Plans and, based on pre-established requirements that are known to the candidates, have selected the final beneficiaries;

- Direct identification approach: the MAs may directly identify one or more projects that might fulfil the “JESSICAbility” requirements and therefore launch the Initiative more quickly with the boost of pilot projects;

- One-stop shop approach: in this case, the UDF - as already happens with services provided to companies - is conceived as a permanent office within the MA that 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.

Autorità di Gestione Fondo di Partecipazione Holding Fund (eventuale) FSU PPP e altri progetti inseriti in un Piano Integrato per lo Svil. Urb. Sost.

Management Authority Participation Fund Holding Fund (if any) UDF PPP and other projects included in an integrated plan for sust. urb. dev.

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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).

5.2 Potential application models

The UDF provides equity- i.e. risk capital – to projects selected as “JESSICAble”. E.g.: the UDF purchases shares in the project company (SPV) that will actually carry out the interventions. Final remuneration of the UDF: - 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.

UDF invests by means of equity instruments

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 capital, making up for an evident market failure.

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.

The UDF provides loans- i.e. debt capital – to projects selected as “JESSICAble”. E.g.: the UDF disburses a loan directly to a PPP or SPV [Alternative 1], or to a financial institution which in turn would disburse it to the PPP or SPV [Alternative 2]. Final remuneration of the UDF: - repayment of the loan; - interest. Community legislation does not specify a threshold or method for calculating the interest rate to be applied by the UDF. Great independence is left to the MA and to the JESSICA-type instruments to structure the disbursement of the loan according to the most appropriate conditions.

UDF invests by means of loans

Phase 1

UDF/HF

PPV/SPV/Projects

€ investm.

Phase 2

UDF/HF

PPV/SPV/Projects

shares € remunerat.

Alternative 1

PPV/SPV/Projects

€ loan

€ repayment

UDF/HF

Financial institution

UDF/HF

PPV/SPV/Projects

€ loan

€ loan

€ repayment

€ repayment

Alternative 2

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...continued - potential application models

The UDF provides guarantees to PPPs or SPVs that fund projects selected as “JESSICAble”. E.g.: a PPP or an SPV approach a financial institution to open a credit line and need the UDF to guarantee a percentage of the loan. Remuneration of the UDF: - periodic insurance premium - which is therefore added to the amount of interest payable and to the capital amount that the PPP/SPV has to pay to the financial institution. The amount of the guarantee premium is determined by three main variables: the amount of the loan guaranteed, the length of the guarantee period and the extent of the risk, as determined during 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.

UDF invests by means of guarantees

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.

€ repayment

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 to its context and to the projects that it intends to finance.

Sample h

€ guarantee premium

Financial institution

UDF

PPV/SPV/Projects

guarantee

€ loan

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Carry out sustainable mobility interventions

Upgrade suburbs

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:

However the Region will still have the opportunity to identify other theme-based/local UDFs funded by other OP resources. 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.

5.3 UDF scenarios in Apulia

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

Rationalise social and healthcare services

Create advanced research centres and science and technology parks

Improve energy efficiency in public buildings

San Raffaele del Mediterraneo Hospital in Taranto [or other projects, e.g. in the Hospital Building Programme]

Installation of photovoltaic systems on public buildings [or Pipelines of other projects contained, for example, in the Large Area Strategic Plans]

“Magna Grecia” Science and Technology Park a Taranto, but also other University Campuses and Research Centres [e.g. contained in the Bari Large Area Strategic Plan]

Taranto light metro and sea tram and Bari tram-train [or Pipelines for other projects contained, for example, in the Large Area Strategic Plans]

Pipelines for projects contained in the PIRPs (integrated suburb upgrading programmes)

Axis III “Social inclusion and services for quality of life and local attractiveness”

Axis II “Sustainable and efficient use of environmental and energy resources for development”

Axis I "Promotion, enhancement and dissemination of research and innovation for competitiveness"

Axis V "Mobility networks and links"

Axis III “Social inclusion and services for quality of life and local attractiveness”

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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:

The mix of objectives pursued by Axis III “must take into account the need to integrate inclusion and health protection policies with development and urban 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 creation of new centres to house essential socio-medical services […], primarily by renovating, adapting the structure or restoring the operation of existing buildings according to principles of sustainability, particularly where the recovery allows the social or socio-medical structure to be integrated in the urban context”

Axis III of the ERDF OP

Integrating the interventions promoted in the field of healthcare with the urban development dimension could easily justify the establishment of a JESSICA-type UDF using resources contained in this Axis.

The Regional Health Plan refers directly to the 2007-2013 RDF OP for Apulia and, in particular, to the resources contained in its Axis III. Referring to the resources in line 3.1 of the ERDF OP, the Regional Health Plan states that these resources will be spent according to negotiations and agreements with Apulian health authorities.

Regional Health Plan

The main problems facing the Apulian hospital network are the following:

- Large number of hospitals; - Small size of the establishments, often non-specialised; - Inadequate and obsolete establishments which do not fulfil requirements for

institutional accreditation and would be difficult to renovate; - Located in the historic centres of cities or in neighbouring areas, with serious

repercussions in terms of accessibility; - Fragmentation into small establishments, which prevents appropriate care

being provided and uses up precious resources.

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

Need to:

- Combine small hospitals; - Relocate hospitals situated in historic city centres; - Create new main hospitals located in easily accessible sites.

Hospital building programme (2008-2013): "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.

5.4 A UDF dedicated to rationalising healthcare service

The action contained in the Regional Health Plan is co-funded by Axis III of the ERDF OP.

The establishment of a UDF aimed at funding interventions in the healthcare sector appears to be consistent with the provisions of both documents.

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This Fund could operate as follows:

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 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.

With the capital raised, the UDF invests - in the form of equity or loans - in the SPV destined to fund the interventions. (The UDF cannot act as an SPV itself – directly supporting the cost of the project – but, if it invests in the form of equity, it must acquire shareholdings in the capital of the project company [see Guidance Note on financial engineering, COCOF 2, 2008]).

The UDF receives periodic payments from the SPV - particularly if it invests by means of loans - or shares in the profit/increased value achieved by the shares in the SPV itself – typically, an investment in the form of equity. The cash flows channelled to the UDF by the SPV are generated from the income that the SPV obtains by managing the new infrastructure - in addition to which there would be any auxiliary services that may develop alongside the main infrastructure. This allows the UDF to remunerate its investors.

The UDF is set up on the initiative of the Region, which allocates it part of its Structural Funds. The regional co-financing share could be covered by allocating the hospitals to be sold to 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 Authorities interested or involved in the project.

Private investors (financial institutions, qualified investors, builders/developers) interested in the project and the prospects for a return might also be attracted to invest in the UDF - perhaps with different forms of return.

2

1

Any sale of healthcare facilities provided by the Region to the UDF would allow resources to be earned from the property market, although the potential options will differ. Rather than simply selling the existing facilities, the UDF might look at the possibility of using former hospital infrastructure for other purposes, for the benefit of the Region, even investing in the respective conversion projects.

3

4

5

€ €

€

ERDF and other public resources

Private Resources

Property market

UDF

SPV

Builder

Any facilities to be sold

Any sale of facilities New facilities

€

€

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The main sources of public funding available to launch the hospital building programme and rationalise the Apulian healthcare system are:

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.

Healthcare Building Programme [Law 67/88, article 20]

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 by the public health system and to the creation of residential centres for the elderly and non‐self‐sufficient individuals”. Funding provided under the State budgets.

Amounts assigned to Apulia

First Programme Agreement for Urgent Projects (2004): 287 million euros Second Programme Agreement for Urgent Projects (2007): 459 million euros 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

FAS [2003 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 achieving economic and social balance”. 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: 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.

Total available Amounts allocated by the FAS PAR to health care infrastructure: 310 million euros, not yet approved by the CIPE (interministerial committee for economic planning).

ERDF European Regional Development Fund, aimed at promoting economic and social cohesion between the Member States, reducing regional disparities [EC Reg. No. 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.

‐ 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.

Total available Amounts allocated to interventions in the healthcare sector (EU+State+Region): 485.5 million euros, including 130 million (EU+State) earmarked in the regional budget for 2008 but not yet committed.

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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 European Commission to the Management Authority. The use of part of the financial resources of the OP to set up a UDF or HF is in fact considered to be an "intermediate payment" and, as such, the Structural Funds are credited at the same time.

Given that these resources are disbursed before projects are identified

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 be funded are actually identified and selected.

Given that the investments made by the HF and UDF have to be

repayable (the projects are not funded on a "sinking fund" basis but have to be able to repay investors in some way), the return or profit generated - withheld by the UDF or repaid to the Management Authority – can be used to fund new urban upgrading projects. The return on the investment must in particular allow the UDF to reconstitute its capital at least once but, once the investors have been repaid – with returns that may vary according to the various public and/or private operators involved - the Management Authority will be free to reuse the resources released for new urban development activities, possibly in the form of traditional grants – if this is confirmed by the European Commission.

Management Authorities will therefore have the opportunity to

transform the current structural Funds into a permanent source of 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.

The share of the Structural Funds allocated to a UDF/HF does not

necessarily have to be spent within two years of the resources being recorded in the Financial Plan. In fact it is sufficient for the resources to be used – i.e. allocated to clearly identified projects, even if they have not been completed - by 31 December 2015. This abolishes the traditional rule of automatic decommittal – or “n+2” [see article 93 of Regulation 1083/2006].

If the UDF/HF invests in a “revenue-generating project”, the

admissible expenditure is not restricted, as is the case with traditional Structural Fund spending procedures, to the difference between the current value of the investment and current value of the net income resulting from it [see article 55 of Regulation 1083/2006]. In fact if this were the case the rotation capacity of the UDF resources would be limited.

The JESSICA Initiative is not therefore an additional source of European funding for MAs but it might allow them to obtain additional resources outside it. One of the main objectives, in fact, is to attract other investors - public as well as private - to invest in the UDF/HF and/or project, creating a lever effect that will not only bring additional financial resources to the Structural Funds but also valuable technical and financial know-how from international financial institutions and specialised operators.

5.5 The typical benefits of JESSICA tools

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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:

5.6 Benefits of a UDF dedicated to rationalising healthcare services

Resources to be used that are known and certain: the resources contained in the ERDF OP are known for the whole 2007-2013 programming period - unlike the Healthcare Building Programme, the amounts for which are established annually by the State Budget and FAS Funds, which are awaiting approval by the CIPE (interministerial committee for economic planning);

Resources to be available in a very short time: see paragraph 5.5;

The share of regional co-financing for the ERDF OP to be partly or totally paid as an in-kind contribution (property and land): recent changes made to Community regulations have introduced the option of using in-kind contributions to cover the share of national co-financing for the OP and these contributions can also be allocated to JESSICA instruments. Given that the Regional Health Plan provides for the sale of a number of hospitals and the building of new ones in more accessible areas, the Region might consider handing the sold hospitals directly to the UDF, using them to cover some or all of the regional co-financing for the ERDF OP;

Resources from different ERDF OP Axes to be allocated to healthcare: Axis III - “Social inclusion and services for quality of life and attractiveness of the local area” - seems to be the most consistent with the funding of healthcare sector interventions. However, if the building or improvement of a hospital should take place in an area to be upgraded, the UDF might also be financed by resources from Axis VII - “Competitiveness and attractiveness of urban systems”;

The currently available resources to be transformed into a 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;

Various sources of funding to be used in synergy: allowing the Region to channel other public resources to the UDF, in addition to ERDF OP resources, which are consistent with investments in the healthcare sector, thus increasing the fund available to the UDF and the likelihood that its potential to act as a financial lever, attract private investors, access the market and generate a return on investments will be improved;

The available sinking fund resources (e.g. FAS) to be set aside for interventions that would not be able to generate a return on the investment. The Regional Healthcare System requires multiple interventions. A long-term strategic vision might suggest reserving most of the available sinking-fund reserves (e.g. FAS) for priority interventions which are unable to generate a return and would be difficult to include in a "JESSICAble" projects portfolio, funding the bigger projects (e.g. the San Raffaele del Mediterraneo Hospital) and other interventions that might constitute a “JESSICAble” portfolio via a UDF that would be able to reconstitute its resources, releasing them for the benefit of new projects. This would allow more resources to be allocated to "cold" projects and, thanks to the UDF's investment in "hot" projects, new resources to be generated that could fund both "cold" and "hot" projects in future;

Responsibility and autonomy regarding the use of resources to remain in the hands of the Region: the UDF is a financial instrument serving the Region and, even if the role of Holding Fund should be assigned to the EIB it would operate on behalf of the Region, which would ultimately be responsible for establishing the criteria and characteristics of the investments made by the UDF.

All conditions being equal, therefore, the establishment of a UDF reduces the burden on the regional budget and releases resources for new investments.

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HF as separate capital within a financial institution Public competitive

tender.

Direct assignment - shorter timescale and identified procedures.

UDF set up as separate capital within a financial institution

The UDF can invest in the form of loans and receive periodic repayments

The UDF provides risk capital - but the projects require "patient capital"

UDF set up as an independent legal entity

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:

5.7 Architecture of the JESSICA Initiative in Apulia

Need to set up a Holding Fund?

Are there any Società Finanziarie Regionali or in-house entities that could act as a UDF?

Need to carry out a public competitive tender, although for in-house entities the possibility of direct assignment would need to be ascertained.

Yes

Are there any financial institutions that could perform the role of an HF?

Yes

No

EIB acts as HF

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.

Are the projects somehow able to generate positive and periodic cash flows?

UDF as a cash fund – could be set up as separate capital within a financial institution, maintaining an adequate system of separate accounting.

More potential to attract private investors - less consistent with traditional public investment systems and more suited to markets in which financial instruments for urban development are already developed.

No

Yes

Need to carry out a public competitive tender.

No

Yes

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...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 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. 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.

Need to set up a Holding Fund?

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 up an HF would be greater than the benefits generated. 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 Società Finanziarie Regionali or in-house entities that could act as a UDF?

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

The San Raffaele del Mediterraneo Hospital project, if appropriately structured, would be able to generate periodic cash flows with which to repay the UDF – see chapter 6. The method of investment adopted by the UDF - equity or loans - must be identified in agreement with the Region. Given that the market for financial instruments applied to urban regeneration still appears to be fairly undeveloped it seems more likely that the UDF would invest by means of loans.

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San Raffaele del Mediterraneo Hospital, Taranto

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

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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 The building of the new San Raffaele del Mediterraneo Hospital in Taranto fulfils three fundamental requirements:

- to replace the Taranto health authority's main hospital (SS Annunziata), which is now obsolete;

- 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.

This project therefore aims to build a hospital which can guarantee excellent architectural, managerial and organisational standards and to combine clinical care with scientific research and healthcare training in a single infrastructure.

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:

- it would free up buildings currently housing hospital services - the SS Annunziata hospital, located in the city centre (Borgo District), would be sold, while the S. G. Moscati site could be upgraded to be integrated with the future excellence complex;

- the new San Raffaele del Mediterraneo hospital complex would be built outside the city walls, in an area that lies within the Paolo VI District, which is well known for being run down.

The upgrading of the area could also be boosted further by the development of the "Magna Grecia" Science and Technology Park in the same district (see page 30).

Partners involved in carrying out the project The public-private collaboration envisaged would provide to the establishment of a private non-profit-making foundation: the “Istituto S. Raffaele del Mediterraneo Foundation” (HSRM) – involving:

- The Apulia Region: responsible for governance and planning, and for providing access to any public financing programmes;

- Taranto Health Authority: contribution of the two SS. Annunziata and S. G. Moscati hospitals to the HSRM Foundation;

- The private partner – IRCSS “Fondazione Centro San Raffaele del Monte Tabor” of Milan: managerial and professional skills already acquired in similar contexts, clinical care, scientific and managerial know-how.

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.

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

Source: Data from www.re-set.it processed by CERTeT

Future S. Raffaele del Mediterraneo Hospital

Existing SS Annunziata Hospital

Paolo VI District

Borgo District

Existing S.G. Moscati site

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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 Mediterraneo Hospital is estimated to be 135-140 million euros for the construction and installation work and 25-30 million euros for equipment and furnishings. This initiative must not create any capital costs for Apulia's regional budget and the sources of funding that may be used for this purpose can be classified as: public sources and private sources. In principle, the contractual instruments that may potentially be usable to build the new hospital and into which the public and private resources might be channelled are:

The choice of the financial instrument to be used must be guided by principles such as:

quantitative and qualitative improvement of the services delivered to the community in response to the public requirements expressed by it;

minimising of the overall costs (construction costs, costs of raising the finance, cost of managing the establishment, etc.) which the community will have to bear in order to create the new hospital.

The choice of the financial structure for the operation must therefore take into account restrictions such as:

the limited availability of sources of public finance and, in the current market situation, private finance;

the budgeting requirements of Public Administration (P.A.);

considerations of an operational nature associated with the industrial features of the specific project - PPP experiment with the San Raffaele del Mediterraneo (HSRM) Hospital;

the other restrictions relating to completion time, nature and extent of the risks which the P.A. is prepared to shoulder or intends to transfer.

The main structural/strategic variables to be considered are:

‐ the public-private experiment: benefits and restrictions; ‐ which risks does one want to transfer to or maintain with the P.A.? ‐ which are the timing restrictions? ‐ which order of priority is assigned to the project in the context of

regional interventions in the field of healthcare? ‐ is the P.A. interested in equipping itself with permanent instruments

for enhancing urban assets?

The main financial variables to be considered are: ‐ extent of the subsidies that can be obtained to fund the project; ‐ value of the hospitals to be sold; ‐ availability of other public funds (ERDF) to be used to fund the

project; ‐ amount of annual rental that is "affordable" by the new hospital; ‐ recoverability of part of the public funds to be allocated to funding

other projects.

These considerations must therefore guide Apulia in choosing the financial instruments most suited to funding the project in question.

6.2 Implementation tools and sources of funding

- works contract - project financing - leasing

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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:

Construction period diagram

Example in figures

During construction of the works, the available funds (grants and structural 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. Part of the cost of the project would be covered by selling the existing hospitals once the new facility has come into operation.

‐ Cost of the project: € 187.3 million, plus VAT (average rate 12%) ‐ 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. 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.

6.3 Option 1: works contract with JESSICA

HSRM

Fondo SviluppoUrbanoFINANZIAMENTO

a TASSO ZERO

CostruttorePREZZO

Regione (AdG)SOVVENZIONI

DISMISSIONESTRUTTURE

ESISTENTIPREZZO

Mercato immobiliare

NUOVO OSPEDALE

JESSICA

APPALTO

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

HSRM

Fondo SviluppoUrbanoFINANZIAMENTO

a TASSO ZERO

CostruttorePREZZO

Regione (AdG)SOVVENZIONI

DISMISSIONESTRUTTURE

ESISTENTIPREZZO

Mercato immobiliare

NUOVO OSPEDALE

JESSICA

APPALTO

NUOVO OSPEDALE Costruttore HSRM PREZZO APPALTO FINANZIAMENTO A TASSO ZERO SOVVENZIONI PREZZO Fondo Sviluppo Urbano Regione (AdG) DISMISSIONE STRUTTURE ESISTENTI Mercato immobiliare

NEW HOSPITAL Builder HSRM PRICE CONTRACT 0% FINANCE GRANTS PRICE Urban Development Fund Region (Management Authority) DECOMMISSIONING OF EXISTING FACILITIES Property market

ATTIVO FONTI DI FINANZIAMENTO COSTO TOTALE OPERA (EUR 209,8) SOVVENZIONI (EUR 100) FABBISOGNO RESIDUO (JESSICA) (EUR 109,8) UE + GC (EUR 93,3) REGIONE (EUR 16,5)

ASSETS SOURCE OF FINANCING TOTAL COST OF WORK (EUR 209.8) GRANTS (EUR 100) RESIDUAL REQUIREMENT (JESSICA) (EUR 109.8) EU + CG (EUR 93.3) REGION (EUR 16.5)

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

Importi in € mln Sovvenzioni disponibili Fabbisogno Residuo (fondi Jessica) Rata annuale (su 15 anni) Rata annuale (su 20 anni) Rata annuale (su 25 anni)

Amounts in millions of € Available grants Residual requirement (Jessica funds) Annual instalment (over 15 years) Annual instalment (over 20 years) Annual instalment (over 25 years)

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…continued – Option 1: works contract with JESSICA

Post-construction cash flows

Considerations

The commissioning body

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.

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%.

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 repaid. On completion of the hospital construction period, therefore, the "JESSICA public resources" would gradually become available again to the Management Authority to be used again (as a loan under the JESSICA scheme or as a sinking fund) to fund new interventions on the regional infrastructure and social care facilities.

Summary The works contract structure could be applied if the cost of the project could be covered entirely with public funds, assuming that there are restrictions which require no recourse to debt. 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).

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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 structure

More complex in the case of PF because it has to marry the needs of multiple entities - whose interests may differ - while guaranteeing a fair distribution of the risks among them.

Procedure Implementation times are generally longer in the case of PF, leading to a consequent increase in direct costs (construction/management of the new facility) and indirect costs (continued existence and operation of the old facility).

Comparability of offers

Owing to the economic and financial characteristics of PF, making a comparison between the various offers is a more complex task. In leasing, the main reference parameter is the amount of the all-inclusive rental.

Costs The costs of PF are generally higher, because of the incidence of certain initial costs - such as the cost of setting up and managing the SPV, the arrangement and advisory commissions - and the higher return expected by equity investors compared to the remuneration of a leasing company.

Allocation of risks

If it is well-structured, leasing allows a substantial amount of performance risks (primarily constructions time and costs) to be transferred to the leasing company, which will in turn transfer them to the builder and to the other suppliers of goods and services (e.g. insurance), both during the construction period and while the facility is being leased.

Timescale

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 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.

Cash flows The leasing company is potentially able to finance the whole project during the construction period: disbursements by the lessee 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.

Public-private The multiplicity of entities involved in the public-private project might create "integration" difficulties in PF, extending the timescale and creating the risk of disputes and higher costs.

6.4 Alternative structures: leasing vs project financing

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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

Structure of the operation - stage 2

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 leasing company.

4 – Financing of the construction work: during the works construction 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 leasing company that owns the property. 7 - Life of the contract and redemption: The life of the contract will be established based on the technical obsolescence of the asset. On expiry of the contract, the lessee will take over ownership of the works by exercising its right of redemption.

6.5 Option 2: leasing

Costruttore Fornitori Società di leasing CONTRATTO DI LEASING IMMOBILIARE IN COSTRUENDO HSRM

Builder Suppliers Leasing company PUBLIC PROPERTY LEASING CONTRACT HSRM

Sovvenzioni Proventi Vendita SSA Anticipo Società di leasing USO STRUTTURA CANONE DI LEASING A scadenza vs riscatto HSRM

Grants Proceeds from the sale of healthcare facilities Advance Leasing company USE OF FACILITY LEASE PAYMENT Term vs redemption HSRM

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…continued – Option 2: leasing

Example in figures

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 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 shown separately in order to then illustrate the impact that JESSICA can have on these charges. Sources of finance:

‐ 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

leasing company, and 1.20% margin of interest

‐ Redemption amount assumed to be zero for simplicity

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

€ 98 million in capital (€ 4.9 million on average p.a.); € 20.5 million in VAT (€ 1 million on average p.a.); € 72.9 million in financial charges (€ 3.6 million p.a.).

Sensitivity analysis

The following table shows how, all conditions being equal, the rental can vary according to two parameters:

- the amount of public contributions available (grants + proceeds from the sale of existing hospitals);

- length of the leasing period.

CONTRIBUTI PUBBLICI DISPONIBILI Importi in € mln DURATA PERIODO DI LOCAZIONE ESEMPIO CASO IPOTIZZATO

PUBLIC CONTRIBUTIONS AVAILABLE Amounts in millions of € LEASING PERIOD EXAMPLE

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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:

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.

6.6 Works contract vs leasing comparison

OggettoAPPALTO

con JESSICALEASING A - L

Costo Totale Opera (IVA esclusa)

€ 187,3 mln € 187,3 UGUALE

Durata period di rimborso finanziamento Jessica / locazione

20 anni 20 anni UGUALE

Esborso della P.A. durante il PERIODO di COSTRUZIONE

€ 209,8 mln(pari al costo +

IVA)€ 100 mln + € 109,8 mln

Fondi Pubblici destinati a finanziare l’opera

€ 209,8 mln(sovvenzioni + FESR + proventi

dismissione asset)

€ 100 mln + € 109,8 mln

Ricorso al funding privato

-€ 98 mln +

IVA - € 98 mln + IVA

Costo del finanziamento

0% 6,00% - 6,00%

Importo canone annuo (rimborso FSU / leasing)

€ 5,5 mln € 9,6 mln - € 4,1 mln

Oneri finanziari annui € - mln € 3,6 mln - € 3,6 mln

Fondi pubblici disponibili fine periodo di rimborso /locazione

€ 109,8 mln € - + € 109,8 mln

Oggetto APPALTO LEASING

PROCEDURA di GARAPuò comportare più gare di appalto

Gara unica

TRASFERIMENTO RISCHI di PERFORMANCE

Limitato o nulloSi, se adeguatamente strutturato

FONTI di FINANZIAMENTOEsclusivamente fondi pubblici (+ finanziamento DEBITO)

Fondi pubblici + privati

ESBORSI PERIODO di COSTRUZIONE

Pagamenti a SALPagamento eventuale anticipo a completamento opera

ESBORSI PERIODO di RIMBORSO

Rata rimborso FSU (se impiego Jessica)

Canone di leasing + riscatto a scadenza (rifinanziabile)

COSTO del FINANZIAMENTONullo (se non si ricorre al debito)

Tasso base (IRS “x” anni) + costi coperture + margine

TRATTAMENTO CONTABILEGenera debito se si ricorre a funding privato

Canone = spesa corrente se rischi effettivamente trasferiti alla società di leasing

ASPETTI FISCALIEsborso IVA periodo di costruzione. Aliquota IVA ordinaria su costi gestione.

Finanzia anche IVA. IVA su canone = aliquota IVA asset

JESSICAConsente di colmare gap (costo totale – fondi pubblici)

Può abbassare in modo rilevante il costo complessivo dell’opera

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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 JESSICA

LEASING C - L

Total cost of work (excluding VAT)

€ 187.3 million € 187.3 THE SAME

Length of Jessica loan repayment / leasing period

20 years 20 years THE SAME

Disbursement by P.A. during CONSTRUCTION PERIOD

€ 209.8 million (equal to cost +

VAT)

€ 100 million € 109.8 million

Public funds intended to finance the work

€ 209.8 million (grants + ERDF +

proceeds from decommissioning

of assets)

€ 100 million + € 109.8 million

Recourse to private funding

- € 98 million + VAT

- € 98 million + VAT

Cost of financing 0% 6.00% - 6.00% Annual instalment (UDF/leasing repayment)

€ 5.5 million € 9.6 million - € 4.1 million

Annual financial charges

€ - million € 3.6 million - € 3.6 million

Public funds available at end of repayment/leasing period

€ 109.8 million € - + € 109.8 million

Subject CONTRACT LEASING TENDER PROCEDURE May involve more than

one tender Single tender

TRANSFER OF PERFORMANCE RISKS

Limited or none Yes, if properly structured

SOURCE OF FINANCE Exclusively public funds (+ loan -> DEBT)

Public + private funds

DISBURSEMENTS DURING CONSTRUCTION

UDF repayment instalment (if Jessica used)

Leasing instalment + redemption on expiry (refinancing possible)

COST OF FINANCING Nil (if there is no recourse to debt)

Basic rate (IRS “x” years) + cost of cover + margin

ACCOUNTING TREATMENT Generates debt if recourse is made to private funding

Instalment = current expenditure if risks actually transferred to leasing company

TAX ASPECTS VAT disbursement during construction. Ordinary VAT rate on operating costs.

Also finances VAT. VAT on instalment = VAT asset rate

JESSICA Allows gap to be filled (total cost – public funds)

Can considerably reduce the total cost of the work

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Generally speaking, introducing the JESSICA element into the public property leasing scheme would contribute significantly to reducing the overall cost of the works because it would finance the leasing company at a 0% rate. The leasing company, in fact, would qualify as a project vehicle fundable by the UDF and be linked by a property leasing contract to the "Istituto San Raffaele del Mediterraneo" (HSRM) Foundation.

Leasing stage During the leasing period, HSRM would pay the leasing company the 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 recovering resources to be used to fund other projects.

6.7 Option 3: JESSICA involvement in the leasing structure

FSU RIMBORSO FINANZIAMENTO € 3,4 mln Società di leasing CANONE DI LOCAZIONE € 6,8 mln HSRM FSU FINANZIAMENTO A TASSO ZERO NEL PERIODO DI COSTRUZIONE CONTRATTO DI LEASING IMMOBILIARE IN COSTRUENDO

UDF LOAN REPAYMENT € 3.4 million Leasing company LEASE PAYMENT € 6.8 million HSRM UDF 0% FINANCE DURING CONSTRUCTION PUBLIC PROPERTY LEASING CONTRACT

“PURE” Leasing Leasing WITH JESSICA PURE CONSTRUCTION COST € 178.4 million FINANCIAL CHARGES € 8.9 million € 5.5 million LEASING COMPANY FUNDING COSTS

3.5% of entire requirement

3.5% of requirement not financed by the UDF

TOTAL COST (excluding VAT)

€ 187.3 million € 183.9 million

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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 from the sale of existing facilities), covers € 89.3 million + VAT of the cost of the works.

‐ Balance to be financed (nominal value of leasing contract): € 94.6 million (vs € 98 million for "pure" leasing)

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

‐ 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

on average per annum)

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).

LEASING “PURO” CONTRIBUTI PUBBLICI DISPONIBILI Importi in € mln DURATA PERIODO DI LOCAZIONE

“PURE” LEASING PUBLIC CONTRIBUTIONS AVAILABLE Amounts in millions of € LEASING PERIOD

LEASING & JESSICA CONTRIBUTI PUBBLICI DISPONIBILI Importi in € mln DURATA PERIODO DI LOCAZIONE

LEASING & JESSICA PUBLIC CONTRIBUTIONS AVAILABLE Amounts in millions of € LEASING PERIOD

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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:

6.8 Comparative analysis of implementation instruments

APPALTO LEASING PROJECT FINANCING

ESBORSI PERIODO di COSTRUZIONE

Pagamenti a SALNon richiede pagamenti.

Pagamento eventuale anticipo a completamento opera

Pagamento contributo pubblico a SAL

ESBORSI PERIODO di RIMBORSO/LOCAZIONE/CONCESSIONE

Rimborso rata finanziamento

Pagamento canone di leasingPagamento canone di disponibilità

e servizio concessionario

COSTI INIZIALI Contenuti Contenuti Elevati

COSTO del FINANZIAMENTO

Costo della raccolta + rendimento atteso

finanziatore

Costo della raccolta + rendimento atteso società di

leasing

Costo del finanziamento SPV + rendimento atteso promotore

ORIZZONTE TEMPORALE

- 15/20 anni 20/30 anni

TRATTAMENTO CONTABILE

Genera debito se si ricorre a funding privato

Non genera debito (canone = spesa corrente) se rischi

effettivamente trasferiti alla società di leasing

Non genera debito. Canone di disponibilità e servizio = spesa

corrente

RISCHIO CONTENZIOSO

Elevato Contenuto Elevato

COMPATIBILITA’ CON SPERIMENTAZIONE PUBBLICO - PRIVATO

Elevata Elevata Contenuta

APPALTO LEASING PROJECT FINANCING

STRUTTURA CONTRATTUALE

Articolata Semplice Molto articolata

CONTROPARTI + controparti Controparte unica Molte controparti

PROCEDURA di GARA

Può comportare più gare di appalto

Gara unica Può comportare più gare

TEMPISTICA di GARA

Elevata Contenuta Molto Elevata

DIFFICOLTA’ VALUZIONE PROPOSTE

Contenuta Contenuta Elevata

TRASFERIMENTO RISCHI ATTIVITA’ COSTRUZIONE

Nullo Elevato Parziale

COSTO DELL’OPERA a CARICO della P.A.

Integrale Integrale Preponderante

FONTE di FINANZIMENTO PRIVATO

Bancaria alla P.A. Società di leasing Bancaria all’SPV

CONTRACT LEASING PROJECT FINANCING

CONTRACT STRUCTURE Complex Simple Very complex

COUNTERPARTS Multiple counterparts Single counterpart Many counterparts

TENDER PROCEDURE May involve multiple tenders

Single tender May involve multiple tenders

TENDER TIMESCALE Long Short Very long BID ASSESSMENT DIFFICULTY

Low Low High

TRANSFER OF CONSTRUCTION ACTIVITY RISKS

Nil High Partial

COST OF WORK BORNE BY P.A.

Full Full Majority

SOURCE OF PRIVATE FINANCE

Banks to P.A. Leasing company Banks to the SPV

CONTRACT LEASING PROJECT FINANCING

DISBURSEMENTS DURING CONSTRUCTION PERIOD

Payments to SAL Requires no payments. Possible payment of advance on completion of work

Payment of public contribution to SAL

DISBURSEMENTS DURING REPAYMENT/LEASING/CONCESSION PERIOD

Repayment of finance instalment

Payment of leasing instalment Payment of concessionary availability and service fee

INITIAL COSTS Low Low High

COST OF FINANCING Cost of collection + return expected by finance provider

Cost of collection + return expected by finance provider

Cost of SPV finance + return expected by promoter

TIME HORIZON - 15-20 years 20-30 years

ACCOUNTING TREATMENT Generates debt if recourse is made to private funding

Does not generate any debt (lease payment = current expenditure) if risks actually transferred to leasing company

Does not generate any debt. Availability and service fee = current expenditure

RISK OF DISPUTE High Low High

COMPATIBILITY WITH PUBLIC-PRIVATE EXPERIMENT

High High Low

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...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).

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...continued - comparative analysis of implementation instruments Finally, the figures given in this chapter as examples show that:

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...continued - comparative analysis of implementation instruments

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:

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.

CONTRACT with JESSICA "PURE" LEASING "JESSICA" LEASING

Total cost of work (excluding VAT)

€ 187.3 million € 187.3 million € 187.3 million

Public funds intended to finance the work

€ 209.8 million (grants + ERDF + proceeds from decommissioning of

assets)

€ 100 million (grants + proceeds from

decommissioning of assets)

€ 168 million (grants + ERDF + proceeds

from decommissioning of assets)

Recourse to private funding - € 98 million € 24.6 million

Amount of annual payment (UDF repayment / leasing)

€ 5.5 million € 9.6 million € 6.8 million (gross) € 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

Management Authority’s funds € - € 39 million at the end

of the construction period (current value € 68 million @ 6% x 20

years)

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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:

L’Asse III del PO FESRpromuove l’integrazione dellepolitiche di tutela della salutecon le politiche di sviluppo eriqualificazione urbana.L’Asse VII del PO FESR affermache “si intende utilizzarel’iniziativa JESSICA”.Le risorse contenute in questiAssi potrebbero essereutilizzate per lanciare il FSU.

FSU JESSICA dedicato alla

razionalizzazionedel sistema

sanitario pugliese

Gli interventi di razionalizzazione del sistemasanitario possono contribuire a promuovere losviluppo urbano sostenibile – recupero delleinfrastrutture obsolete esistenti e realizzazione di nuovestrutture in aree degradate/dismesse/poco accessibili.Essi possono essere inclusi dunque in un PianoIntegrato per lo Sviluppo Urbano Sostenibile.

Gli interventi di razionalizzazionedel sistema sanitario, seopportunamente costruiti,possono essere in grado diremunerare in qualche modogli investitori – progetti“rimborsabili” – perché ingrado di generare flussi di cassaattraverso la gestione dell’operaprincipale e di eventuali opereaccessorie.

Il progetto Ospedale San Raffaele del Mediterraneoè un intervento “JESSICAbile”: contribuisce allariqualificazione del Quartiere Paolo VI di Taranto – èinseribile in un Piano Integrato - e sarebbe in grado digenerare periodici flussi di cassa.Esso potrebbe dunque fungere da “progetto pilota”per il lancio del FSU.

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.

The healthcare sector rationalisation work can contribute to promoting sustainable urban development – recovery of existing obsolete infrastructure and building of new facilities in degraded/decommissioned/poorly accessible areas. They can therefore be included in an Integrated Plan for Sustainable Urban Development.

The healthcare sector rationalisation work, if appropriately structured, can provide some kind of return for investors – “refundable” projects – thanks to the cash flow generated by the management of the primary project and any secondary projects.

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.

ERDF OP Axis III promotes the integration of healthcare policies with urban development and regeneration policies. ERDF OP Axis VII states that “it is expected that the JESSICA initiative will be used”. The resources contained in these Axes may be used to launched the UDF.

JESSICA UDF dedicated to rationalising the Apulian healthcare system

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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 the Region

- Amount of resources available in the 2007-2013 ERDF OP which the Region intends to allocate to setting up JESSICA-type financial instruments.

- Identification of the UDFs which can be used according to the Region to pursue its strategic objectives and to fund the projects it intends to launch in the short/medium term. Based on the initial preferences expressed by the Region, the study has in fact focused on a UDF dedicated to rationalising social and healthcare services in the territory but the overall analysis carried out has shown that other UDFs could be set up to serve the Administration (e.g. see page 45). Further analyses could therefore be carried out regarding other types of UDF.

- Any indications of other potentially "JESSICAble" projects that might arise in the vicinity of the San Raffaele del Mediterraneo Hospital in Taranto (e.g. the “Magna Grecia” Science and Technology Park in the same Paolo VI District of the city, see page 30) or in relation to other integrated programmes promoted by the Region (e.g. contained in the Large Area Strategic Plans, see chapter 3).

- 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.

2. Decisions that will have to be made regarding the financial structure of the Initiative

- Any statement of the need to set up a Holding Fund. In the case of a single project - as examined in this study – it does not seem necessary to use such an instrument because the costs would be considerably higher than the benefits. However, if additional projects were to be developed in the Taranto area or regionally, the Administration might consider it appropriate to set up an HF.

- Choice of the way in which the Initiative will be applied in relation to the Urban Development Fund identified. As the study has shown, there does not seem to be a Società Finanziaria Regionale at present that could perform the role of the UDF in-house. It is up to the Region, therefore, to set up the UDF with separate capital within a Financial Institution or as an ad-hoc financial vehicle. In both cases, further analysis could be carried out regarding the requirements that these entities would have to fulfil and to identify the instruments that already exist in the area or could be created from scratch to perform the role of the UDF.

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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.

REVENUE EXPENDITURE

Heading I: Revenue from taxes levied by the region itself, from national taxes or from the shares of these taxes paid to the region

Heading II: Revenue from contributions and transfers of current assets from the European Union, the State and other entities

Heading III: Non-fiscal revenue

∑ (I+II+III) Current Revenue

Heading I: Current expenditure

Heading IV: Revenue from sales, capital transformation, credit collection and capital transfers

Heading II:

Capital expenditure

Heading V: Revenue from loans or other credit operations Heading

III: Expenditure for the repayment of loans

Heading VI: Special accounting revenue Heading

IV: Special accounting 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.

Table I.1. Breakdown of the forecast Regional Budget in Headings

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...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.

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 the regional budget

- - 1,407,087 n.a. n.a. n.a. n.a. -

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 the regional budget

- - 946,296 n.a. n.a. n.a. n.a. -

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%

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.

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

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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.

AXES Tot 2007-2013 OP

(EU + State) A

2008 budget alloc. (EU + State)

B B/A

2008 budget alloc. committed (EU + State)

C

% 2008 budget alloc. committed (EU + State)

C/B

Axis 1 Information Society and Research

493,850 215,330 43.60% 86,000 40%

Axis 2 Environment and Territory 771,800 771,800 100.00% 20,000 2.59%

Axis 3 Social Services 484,500 153,000 31.58% 0 0%

Axis 4 Natural and cultural resources 333,200 258,400 77.55% 12,258 4.74%

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 Systems

442,000 181,330 41.02% 0 0%

Axis 8 Governance and Technical Support 97,787 26,630 27.23% 10,309 38.71%

Total 4,452,337 2,864,290 56.73% 280,567 9.80%

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

82

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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:

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 possible to carry them forward to subsequent financial years.

Table I.4 – Accounting timetable for the resources contained in the ERDF OP (in thousands of euros) - estimate

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