SUPPLEMENTARY STUDY - European Investment Bank...JOINT EUROPEAN SUPPORT FOR SUSTAINABLE INVESTMENT IN CITY AREAS Implementation of the JESSICA financial instrument in Moravia-Silesia

JESSICA

JOINT EUROPEAN SUPPORT FOR SUSTAINABLE INVESTMENT IN CITY

AREAS

Implementation of the JESSICA financial instrument in

Moravia-Silesia

SUPPLEMENTARY STUDY

English version

June 2010

This document has been produced with the financial assistance of the European Union. The views

expressed herein can in no way be taken to reflect the official opinion of the European Union.

European Investment Bank

Implementation of the JESSICA financial instrument

In Moravia-Silesia

FINAL REPORT June 2010

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Contents

A. Introduction ............................................................................................................................... 6

B. Urban development .................................................................................................................... 7

B1. Priorities of Urban Development ................................................................................................ 8 B2. Definition of Strategic Plan ......................................................................................................... 8 B3. Relationship between Strategic Plans and IUDP ........................................................................ 9 B4. Issues of Synergy and Leverage and Benefits of Integrated Approach ...................................... 9

C. Summary Analysis of the IUDP .................................................................................................... 9

C1. IUDP Content ............................................................................................................................ 11 C1.1. Criteria for Choosing the Geographic Zones ............................................................................. 11 C1.2. Applicable Topics within IUDP .................................................................................................. 11

I. Economic Development .................................................................................................... 11 II. Social Integration .............................................................................................................. 11

III. Environment ...................................................................................................................... 12 IV. Attractive Cities ................................................................................................................. 12 V. Accessibility and Mobility ................................................................................................. 12 VI. Public Interest Administration .......................................................................................... 13

C1.3. Procedure and Principles of Preparation and Implementation of IUDP .................................. 14 C1.4. Conclusions ............................................................................................................................... 15

I. Principles of using Jessica and IUDP instruments............................................................. 15 II. Recommended course of action ...................................................................................... 15

C2. Ostrava – the "Pole of Development" IUDP ............................................................................. 16 I. Economic Development ................................................................................................... 17 II. Availability and Mobility ................................................................................................... 17

C3. Opava – the "Attractive City" IUDP ........................................................................................... 19 I. “Opava College” educational campus .............................................................................. 21 II. Swimming pool ................................................................................................................. 22

C4. Frýdek-Místek – "Attractive City" IUDP .................................................................................... 23 I. Multifunctional ice-hockey arena ..................................................................................... 24

C5. Karviná – IUDP .......................................................................................................................... 25 C6. IUDP Havířov – "Attractive Town" ............................................................................................ 26 C7. Conclusion of the IUDP Analysis ............................................................................................... 29

D. Areas where Jessica may be applied .......................................................................................... 30

D1. Recovery and preparation of land ............................................................................................. 30 D2. Business support ........................................................................................................................ 30 D3. Support of technologies and innovation.................................................................................... 30 D4. Energy infrastructure and energy savings ................................................................................. 30 D5. Civil infrastructure...................................................................................................................... 31 D6. Public municipal transport ......................................................................................................... 31 D7. Leisure infrastructure ................................................................................................................. 31 D8. Tourist infrastructure ................................................................................................................. 32 D9. Restoration and conversation of cultural heritage .................................................................... 32 D10. Public areas ................................................................................................................................ 32



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E. A multi-criteria assessment of the thematic areas ...................................................................... 33

F. Financial instrument indicators, rate of return, risk,

relevance and compliance with today's IUDPs ........................................................................... 36

F1. Financial instrument indicator (loan, equity, bank guarantee) ................................................ 36 F1.1. Financing by a loan .................................................................................................................... 36 F1.2. Funding by means of a capital participation in the project ...................................................... 37 F1.3. Bank guarantee ......................................................................................................................... 37 F2. Return indicators (loans, equity, bank guarantees) ................................................................. 37 F2.1. Potential return on the projects................................................................................................ 37 F2.2. Potential return indicators ........................................................................................................ 37 F3. Project risk indicators ............................................................................................................... 38 F3.1. Risk associated with loan repayment time ............................................................................... 39 F3.2. Risk associated with the project’s goals ................................................................................... 39 F3.3. Possible use of other funds ....................................................................................................... 39

G. Selection of Target Issues/IUDP ................................................................................................. 40

G1. UDF Structure............................................................................................................................. 40 G1.1. Loans and Guarantees ................................................................................................................ 40 G1.2. Equity participations .................................................................................................................. 41

I. Public structure ................................................................................................................. 41 II. Public-commercial structure ............................................................................................. 42 III. Commercial structure........................................................................................................ 42

G2. Examples of Jessica's contribution using typical projects ........................................................ 42 G2.1. LOAN-Project description ........................................................................................................... 42 G2.2. Equity ......................................................................................................................................... 44 G2.3. Bank guarantee .......................................................................................................................... 46

H. Legal advice concerning selected aspects of JESSICA initiative .................................................... 48

H1. Background ............................................................................................................................... 48 H1.1. Assignment 1 ............................................................................................................................ 48 H1.2. Legal advice 1 ............................................................................................................................ 49

I. Lack of specific rules .......................................................................................................... 51 II. Unclear legal status ........................................................................................................... 51 III. Amendment of the ROP MS .............................................................................................. 52

H2. Assignment 2 ............................................................................................................................ 53 H2.1. Legal advice 2 ............................................................................................................................ 53 H2.2. UDF as a separate block ........................................................................................................... 53 H2.3. UDF as an independent legal entity ......................................................................................... 53 H3. Assignment 3 ............................................................................................................................ 55 H3.1. Legal advice 3 ............................................................................................................................ 55 H4. Assignment 4 ............................................................................................................................ 55 H4.1. Legal advice 4 ............................................................................................................................ 56

I. JESSICA Inception Report Conclusion ......................................................................................... 57



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J. Operational rules and structure of Urban development Fund (UDF) .......................................... 58

J1. Legal and organizational structure of UDF .................................................................................. 58 J2. Organizational structure of UDF .................................................................................................. 63 J3. Investments steps of HF .............................................................................................................. 64 J4. Criteria for selection of UDF ........................................................................................................ 66 J5. Conditions of UDF operation ....................................................................................................... 67 K.1. Project Havířov ........................................................................................................................ 70

K1.1. Project Description .................................................................................................................. 70 K1.2. Financial analysis of the project .............................................................................................. 70 K1.3. Description of the proposed JESSICA ....................................................................................... 71 K1.4. Analysis of the project’s socio-economic benefits and risks ................................................... 73 K1.5. Recommendations of further steps ......................................................................................... 75 K.2. Project Opava .......................................................................................................................... 77

K2.1. Project Description .................................................................................................................. 77 K2.2. Financial analysis of the project .............................................................................................. 78 K2.3. Description of the proposed JESSICA ....................................................................................... 78 K2.4. Analysis of the project’s socio-economic benefits and risks ................................................... 80 K2.5. Recommendations of further steps ......................................................................................... 81 K.3. Project Ostrava ....................................................................................................................... 82

K3.1. Project Description .................................................................................................................. 82 K3.2. Financial analysis of the project .............................................................................................. 83 K3.3. Description of the proposed JESSICA ....................................................................................... 83 K3.4. Analysis of the project’s socio-economic benefits and risks ................................................... 86 K3.5. Recommendations of further steps ......................................................................................... 87 List of appendixes ................................................................................................................... 88



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A. Introduction JESSICA is a programme of financial engineering launched as a joint initiative of European Commission

(EC) and European Investment Bank (EIB) and supported by Council of Europe Development Bank (CEB).

The objective of JESSICA is to support projects focused on sustainable development of cities. JESSICA is

not a new source of funds, but it represents a new method of utilization of existing financial resources

from the structural funds of the European Union (EU).

In July 2009 PricewaterhouseCoopers Czech Republic (PWC) finalized a study on possibilities of the

JESSICA financial instrument in the Moravia – Silesia Cohesion Region. The study has analysed certain

legal issues related to the implementation of JESSICA in the Czech environment, generally examined

suitable projects in the Moravia – Silesia Region, elaborated several variants of an implementation

structure, and outlined possible functioning of urban development funds (UDF). Considering the growing

interest of the Moravia – Silesia Cohesion Region in the implementation of JESSICA, EIB requested from

the company CONTERA Management s.r.o. the elaboration of a study following up on the evaluation

study of PWC. This study is supposed to assess in more detail the possible types of urban development

projects, which could within the integrated plans of urban development (IUDP) potentially be financed by

the JESSICA financial instrument. The study should also provide answers to certain legal issues related to

financial resources´ flows within the JESSICA mechanism and legal structures of UDF.

The study is divided into two autonomous parts elaborated according to the request of EIB. The first part

in sections A-I (Inception Report) was completed in November 2009. The second part in sections J – K was

finalized in May 2010 and focuses on analyzing in greater detail possible legal and organizational set-ups

of an urban development fund (UDF), proposing also how and on the basis of which evaluation criteria a

UDF should be selected. The second part of the study also assesses, as examples, three potential projects

(with different financing structures) which could be financed by a UDF. Due to occasional lack of

information about the projects, in particular about their revenue sides, the data provided in this study

may differ from real data based on detailed on-ground research and on feasibility studies. The project

case studies should be therefore understood more as examples which demonstrate the principles of

functioning of JESSICA projects rather than as detailed project analyses.

The study was prepared on the basis of discussions with the representatives of statutory cities of Ostrava,

Opava, Karviná, Havířov and Frýdek Místek and with the help of representatives of RR MS and EIB.



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B. Urban Development

Analysis of Conditions in the Moravia – Silesia Region

Basic facts and comments:

� Limited funding for strategic urban investments outside ERDF operational programmes. – The

region and cities have limited means of financing their development. Besides standard income of

the cities and region it is possible to utilize especially the resources from ERDF. The resources are

invested into direct projects (the city is the project holder and investor) as well as into indirect

projects (the holder of the project is a different entity, however the project, if in line with an

integrated urban development plan, can help to reach the short-term or long-term targets of the

cities and regions). The non-existence or limited availability of resources can result in

disproportionate indebtedness of the cities and limitation of further development possibilities,

even in cases of cities with an obvious development potential.

� Low emphasis on the planning, ad hoc approach without deeper cohesion of plans. – The cities

put emphasis more on short–term goals, which lack deeper relation to the needs of larger

territorial units. However, cities are able to react to changes in the economic environment (both

in the entrepreneurial and non-entrepreneurial spheres) only to a limited extent. Often it proves

difficult for the cities to flexibly respond to a given situation by changing their long–term targets

and substituting outdated projects by more up-to-date or more acutely needed ones.

� Level of project management on the part of local governments. – Due to low interconnectedness

with the entrepreneurial sphere the project management of cities and of the region is not able to

react adequately to current needs and to market demand. Regional development plans often do

not correspond to the current goals. The entrepreneurial sphere is passing through generation

changes, which the local governments follow only with difficulties and their project management

is usually not able to prepare supporting projects taking into account current events.

� Experience with financial engineering instruments in the field of urban development. – Today,

cities and regions rarely use financial engineering instruments, namely due to the lack of products

(programs) which would enable them to use these instruments. Most of the local government

projects are not based on the principle of repayable investment (the projects focus on obtaining

grants) and the projects in the pipeline are currently also not adapted for revolving financing.

� PPP cooperation. – Cooperation of the cities and the region with the private sector is currently

relatively limited. There are only two PPP-type projects in the region. In the past the cities

cooperated with the private sector for example on industrial zones preparation, however in most

cases this concerned non-deprived, commercially attractive and easy-to-prepare locations



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without greater risk involved. The Moravia – Silesia Region is however characterized by a number

of deprived sites in the city centres or in their close neighbourhood, which could be revitalized in

cooperation with the private sector. Significant amount of land in deprived localities is owned by

private sector entities and it is only through a coordinated and synergic cooperation between the

private sector, the cities and the region that such brownfields can be regenerated in a way that

stimulates overall recovery and development of the cities and their functions.

B1. Priorities of Urban Development There are several general priorities of development of Moravian – Silesian cities (based on official citie’s strategics documents):

� Increase in the level of education of the productive age population

� Increase in the region’s competitiveness in the context of Central Europe

� Increase in the number of people with university degrees and high school education

� Support of small and medium-sized businesses

� Decrease in unemployment

� Increase in the population’s quality of life, which is currently lower compared to the majority of

regions in the Czech Republic.

The priorities of cities are currently affected by the global economic crisis and its impact on the region. It

is therefore a priority to maintain the employment rate and support related fields (education, supporting

of business activities, etc.)

B2. Strategic Plans of Urban Development

Every major city has elaborated a Strategic Plan of Urban Development, which builds upon the set

priorities of the city’s development and anticipates preparation of projects oriented on increasing the

region’s competitiveness, increasing the number of business entities, lowering unemployment, increasing

the quality of traffic infrastructure, lowering the number of educated people leaving the region after

graduation, increasing the number of strategic projects related to research and development of new

technologies, and attracting elites of technological development to the region. The aim of these

anticipated interventions is to increase the future appeal of the region for companies and other

entrepreneurs, to increase employment, and to activate the inflow of the capital, which should

progressively result in an increase of the population’s quality of life and environmental improvements.

Current strategic plans only mention in passing the need for development of alternative energy sources,

which would in future probably become one of the pillars of strategic planning of cities’ development.

Significant interconnection with the activities of the private sector can be expected also in this field.



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B3. Relationship between Strategic Plans and IUDPs In bigger cities, the structure of strategic urban planning documents includes - besides a “Strategic Plan of

Urban Development” - also one or more “Integrated Plans of Urban Development” (IUDP), which in the

Czech Republic constitute a necessary condition for cities’ access to funding under some support areas of

operational programmes. Due to regular innovation of IUDPs the majority of statutory cities tried to

implement into their IUDPs most of the priorities mentioned in their Strategic Plans of Urban

Development. These priorities cover a wide range of areas, which can be summarized into the following

topics:

� City � Economy � Infrastructure � Social environment, human resources, education � Environment

All of the above mentioned aspects are further elaborated in specific Integrated Plans of Urban Development and they are gradually adapted to the situation in the region.

B4. Issues of Synergy and Leverage and the Benefits of an Integrated Approach

By appropriate combinations of particular projects it is possible to create so called “synergies”, where

development in one area encourages development in other strategic areas. The process of elaborating

IUDPs should, inter alia, stimulate such synergic effects. In cases where public investment successfully

mobilizes private co-financing, one speaks about “leveraging” private co-investment. Individual IUDPs

generally are not focused on stimulating leverage, but their individual parts can create such effect if the

priority system is set up well. It is possible to achieve leveraging especially by realizing projects as PPPs.

Stronger linking of strategic urban development needs with the interests of the entrepreneurial sector

will enable a continuing economic growth with positive impact on the aspects mentioned in particular

strategic plans and on targets identified in the individual IUDP. Possible application of JESSICA to

individual thematic target areas of urban projects is analyzed in section D) of this inception report.

C. Summary Analysis of the IUDP

This chapter analyses the current methodology for integrated urban development plans (IUDPs) and

summarizes the identified targets of IUDPs of the statutory cities of Ostrava, Opava, Frýdek – Místek,

Karviná and Havířov in the way they are described in the individual IUDP documents. Part of the analysis

of the individual IUDPs consists of references to projects which could potentially be financed through the

JESSICA mechanism.



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Analysis of compliance of IUDP with the nature of the JESSICA financial instrument and analysis of the

potential to expand IUDPs by projects financed through UDFs.

Integrated Plans of Urban Development were prepared and are implemented in accordance with the

Guidelines issued by Ministry of Regional Development of the Czech Republic on 14 September 2007

pursuant to the Government Decree No. 883 dated 13 August 2007. The Guidelines were issued in order

to establish a unified procedure for preparation, assessment, approval and implementation of IUDPs.

IUDPs prepared according to this methodology aim mainly to secure a coordinated and synergic utilization

of the grant resources drawn down for urban development projects under relevant priority axes of

relevant OPs (in the case of Moravia-Silesia IUDPs are required as a condition of drawing down resources

under measure 3.1 of ROP MS. Separate IUDPs are in place for revitalization of problematic housing

estates under measure 5.2 of the Integrated Operational Programme).

Definition of an IUDP according to the Guidelines:

“Integrated plan of urban development is set of content- and time-wise mutually linked actions, which are

implemented in defined territory or within the thematic approach in the cities, and they are focused to

reaching a common target or targets of the city, town or territory. They can be subsidized from one or

more operational programs. Integrated plan of urban development is the basic coordination frame

connected to the overall vision and strategy of urban development in order to identify and solve problems

of the development areas of the city in relation to the use of the structural funds subvention in the

programming period 2007 – 2013.”

In accordance with the government methodological guidance, IUDPs were elaborated for cities over

50 000 inhabitants and Mladá Boleslav in order to facilitate drawdown of funds within Regional

Operational Programmes (ROPs) and for cities over 20 000 inhabitants for drawdown within the

Integrated Operational Programme (IOP).

UDFs, which are the basic unit of JESSICA, are in accordance with Article 44 of the General Regulation No.

1083/2006 and Article 43 of the Implementing Regulation No. 1828/2006 supposed to provide repayable

investments or guarantees for projects “contained in integrated plans of sustainable urban development”.

From this point of view the IUDPs satisfy this basic definition. Another aspect of JESSICA, namely the

prospect of financial return from a project, is not dealt with in the Guidelines; therefore generally no

conflict is identifiable. It also should not be excluded that the concept of an “integrated plan for

sustainable urban development” in the sense of Article 44 of Regulation 1083/2006 could include also

other strategic documents elaborated by cities which have an integrated character and are guided by

the principle of sustainable development.



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C1. IUDP Content

C1.1. Criteria for Choosing the Geographic Zones

Based on socio-economic analyses and own priorities, cities were able to focus an IUDP on a particular

geographical zone. Three types of such zones are envisaged in the government methodology for IUDP:

� deprived territory;

� territory for interventions in housing within the scope of support area 5.2 of IOP;

� territory with a high growth potential.

The JESSICA financial instrument can be most suitably applied within a territory with a high growth

potential, as long as in such territory it is possible to expect adequate financial return. On the other hand,

projects implemented within deprived zones aim more at addressing problems of social separation, low

level of public services, deprived public infrastructure, etc. (an exception could be projects aimed at

increase in employment).

C1.2. Applicable Topics within IUDP

Besides a geographic approach (determination of geographic zones) an IUDP can be also defined through

a thematic approach, i.e. the IUDP can be focussed at addressing selected thematic problems within the

whole territory of a city. The Guidelines of the Ministry of Regional Development presents the following

list of thematic areas to which the IUDP can be focused.

I. Economic Development

� retail and middle-size business support, support of small entrepreneurs including utilization of

financial engineering instruments;

� strengthening of the capacities for research, development and innovation in the cities;

� complex solution for support of innovative business and transfer of technologies;

� support of public and private sector cooperation in the research and development;

� investment preparation of territory for entrepreneurial activities and construction of

entrepreneurial buildings;

� education support in relation to the employment;

� increase of the work force quality;

� improvement of condition for tourism in the cities – improvement of cultural, sports and/or

entertainment infrastructure in the city centers or in relation to the existing touristic

targets/sights.

II. Social Integration

� fight with high and long-term unemployment;



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� better employment rate through increase of quality of education and qualification;

� preparation of employees for economics based on knowledge;

� amendment of capacity and increase of quality of educational infrastructure at all levels;

� support of social integration and equal opportunities;

� infrastructure for persons with lower motoric abilities and/or orientation;

� infrastructure for prevention of social-pathological phenomena (especially by teenagers);

� elaboration of system of social services in the cities (in relation to the urban planning);

� development of barrier-free cities, achievement of equal mobility conditions for everybody;

� measures for integration of handicapped groups of citizens on the labor market and in the

society;

� infrastructure for increase of citizens´ safety.

III. Environment

� air protection;

� water protection;

� noise protection;

� increase of quality of urbanized regions;

� supplementation and/or increase of quality of urban greenery in the cities;

� individual establishment and restoration of parks and other permanent non-forest greenery;

� measures for nature protection in the cities and in their immediate vicinity;

� elaboration of systems of waste disposal;

� utilization of renewable energy sources in the cities;

� optimization of energy management (reducing of energy intensity);

� flood control

� elevation of quality of crisis management and risk prevention.

IV. Attractive Cities

� restoration of deprived urban areas for business purposes and/or services;

� adjustment and restoration of deprived or insufficiently utilized free areas;

� elevation of quality of exposed public areas in the cities;

� elevation of quality of residential zones and public services;

� development and/or quality elevation of infrastructure for culture, leisure or tourism;

� protection and restoration of historical monuments and their use for culture, leisure time or

tourism.

V. Accessibility and Mobility

� city traffic decrease;

� increase of security, performance and quality of public transportation in the cities;

� support of using “soft” forms of transportation (bicycle, pedestrian);



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� support of ecological and low-energy consumption forms of transportation;

� building and strengthening of integrated systems of public transportation in the cities

(intensification and expansion of integrated transportation systems also behind the city

peripheries);

� investment into technological and organizational measures for public city transportation conduct;

� building of crossing-passage terminals, systems Park&Go, Park&Ride;

� building and/or capacity increase of public city transportation lines connecting important

development areas in the cities (residential and economic);

� building and/or reconstruction of technological facilities of public city transportation

organizations;

� connecting of the new residential, industrial, cultural or leisure zones to the public transportation;

� solutions for parking issues.

VI. Public Administration

� “smart governance” of the city and region;

� integrated approach to the sustainable urban development;

� citizens´ participation;

� networks and experience sharing.

Table 1: Summary and Analysis of IUDPs

Topic Relation to JESSICA Potential of Extension of

IUDP by Projects Financed

through UDF

Economic Development

A topic which significantly converges with the principles of the JESSICA financial instrument, especially with the potential for projects with financial return.

High

Social Integration

Within this topic, some integrated projects can be prepared where economically beneficial, but financially non-viable projects, can be complemented by (or put together with) projects with financial return.

Middle/Low

Environment This topic contains interventions such as creation of waste disposal systems, use of renewable energy sources or optimization of energy management.

High/Middle

Attractive Cities This is a widely defined topic, which combines land regeneration, improvements of quality of residential

High



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zones or development of tourism infrastructure. Financially repayable projects can definitely be identified within this topic.

Accessibility and Mobility

The topic of accessibility and mobility bears generally lower potential for implementation of financially viable projects. Financial return can be reached rather through combination of projects or by selection of a narrower topic (for example static transportation in cities).

Middle/Low

Public Interest Administration

This topic has no significant potential from the point of view of the JESSICA instrument.

Low/None

If the current IUDPs constituted the basis and definition for the application of the JESSICA instrument,

the UDFs created should build on the objectives of the respective IUDPs when defining their investment

strategies and they should also respect the zone and/or topic chosen in the IUDP. However, certain

zone categories and thematic categories of IUDPs generally already contain a potential for repayable

financing of projects.

A city as the holder of an IUDP can announce content modifications of the IUDP, e.g. inclusion of new

topics or projects that will be implemented through a UDF, in the obligatory annual report to the

Managing Authority of the ROP on the IUDP’s implementation. There is therefore a possibility of

adjusting the existing IUDPs to new means of financing (e.g. repayable financing through urban

development funds).

C1.3. Procedure and Principles of Preparation and Implementation of IUDP

The Guidelines of the Ministry of Regional Development of the Czech Republic does not specify in detail

the approach to the content elaboration of IUDPs, however it defines the planning and operating

structures of IUDP. The plans therefore applied the partnership principle, which is also one of the

principles of the JESSICA instrument (possibility of financing projects implemented as PPPs).

With respect to the partnership principle, the cities establish the IUDP steering committee for

preparation, elaboration and implementation of an IUDP. The cities can also establish working groups.

The possible partners are for example the regional authorities, central government authorities, enterprise

entities, non-for-profit organizations, universities and other important institutions. The key actor in the

whole process is the steering committee, which defines, approves or recommends individual partial

projects that have the best potential to fulfil the targets set in the IUDP. The IUDP as a whole

subsequently requires approval from the Managing Authority of the OP (Regional Council Moravia-



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Silesia). After the IUDP has been approved as a whole, cities pre-select projects which are best suited for

the achievement of the objectives and targets of the IUDP. The projects pre-selected by cities are

submitted to the MA of the OP and can be rejected by the MA only on the basis of formal or technical

flaws (e.g. ineligibility or insufficient budget].

Therefore the steering committee and the manager of the IUDP should closely cooperate with the MA of

the OP (Regional Council Moravia-Silesia) in the process of preparation or modification of an IUDP.

It follows from the above that good cooperation of IUDP steering committees and IUDP managers with

the Regional Council Moravia-Silesia and with UDF managers will be crucial for the planning and

utilization of the JESSICA instrument from the initial phase of UDF investment strategy preparation until

implementation and monitoring of individual projects.

C1.4. Conclusions

I. Principles of using the JESSICA instrument and IUDP

� JESSICA has been designed to support investments in the urban field, while the IUDP is a

specific planning instrument facilitating investments in city areas.

� Investment actions of Urban Development Funds should be integrated, and IUDPs may

assist to this. The funds invested from, and returned to, the UDFs should be reinvested –

the IUDP methodology does not address or rule out this possibility.

� UDFs may invest in projects based on public and private sector partnerships; this principle

has been fulfilled already at the stage of IUDP planning in the supervisory committee; the

use of private co-investment is neither addressed nor ruled out in the IUDP methodology.

� The investments made by the UDFs should support a leverage effect: within the IUDP, this

could include combination of funds from operational programmes and from the private

sector (PPP projects).

� The funds used within the JESSICA instrument should have a more flexible form of use;

the IUDP does not address project implementation formats or funding sources.

� The application of the JESSICA instrument should promote the use of knowledge in the

area of integrated planning, project management and financial engineering tools, which

might be implemented through the cooperation of the IUDP supervisory committees and

IUDP managers with the Holding Fund and the UDF.

II. Recommended course of action: utilization of the JESSICA instrument in the frame of IUDPs

The following steps will be taken during the preparation of the final report:



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� The IUDPs already approved by Moravian-Silesian municipalities will be reviewed in

further detail, and areas and themes will be identified within these IUDPs (by way of

examples) that could be implemented using JESSICA-type projects.

� Municipal representatives and IUDP supervisory committees will be contacted, and the

potential for implementing JESSICA-type projects within the relevant IUDPs will be

assessed in cooperation with them.

� An indicative list of interventions (projects) that interconnect both issues will be drawn

up.

� The need to amend the IUDPs in order to allow for the utilization of JESSICA funds will be

assessed for the model projects analyzed in the final report.

� Potential modifications to the IUDPs will be discussed with the IUDP supervisory

committees.

� A UDF structure that will best facilitate the implementation of these projects will be

sought.

C2. Ostrava – the "Pole of Development" IUDP

As of today, Ostrava has prepared a total of 3 IUDPs. Two of the plans allow to draw funds from the

Moravian-Silesian ROP (IUDP Magnet of the Region; IUDP Pole of Development), and one plan allows to

draw funds from the Integrated Operational Programme (IUDP Future of Vítkovice).

The Pole of Development IUDP analysed herein builds upon the objectives of several areas elaborated

within the Strategic development plan of the Statutory City of Ostrava for 2009 through 2015. These areas

and objectives include the following:

� Urban development – i.e. the objective to permanently support the city's metropolitan functions;

� Human resources development – i.e. the aim to raise, attract and maintain highly qualified and

creative professionals to develop economic sectors with high added value, and to ensure

availability of human resources for engineering and other technical fields;

� Economic development – i.e. the aim to create an environment suitable for dynamic development

of the local economy in key fields, and to offer high-quality medical, social and educational

services;

� Quality of life – i.e. the objective to expand the offer of high-quality leisure opportunities;

� Transport and technical infrastructure – i.e. the objective to set up conditions for the

development of intelligent transport systems, parking, and traffic pacification;

� Environment – i.e. the aim to reduce the negative impacts of transport



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The Pole of Development IUDP mainly aims to address two of the six thematic areas defined in the IUDP

Guidelines and their subareas.

I. Economic development

� Investment preparation of the territory for business, science, research and innovation,

and the development of real estate for business

� Support to education, linked to employment in science, research and innovation

� Increasing the quality of labour force

II. Accessibility and mobility

� Pacification of traffic

� Increasing the safety, performance and quality of public transport systems in cities

� Support to the use of „soft“ forms of transport (cycling, pedestrians)

� Building or increasing the capacity of city public transport routes to connect important

development areas in cities (both residential and business areas)

� Interconnection of new residential, business, cultural or leisure areas with public

transport

� Resolution of the parking issue

Analysis of the potential to implement projects within the Pole of Development IUDP that may yield

financial return:

� One of the focus areas mentioned in the Pole of Development IUDP is filling in the gap

created by suspended or scaled-back activities of developers in the region (affected by the

economic situation) and procuring sufficient job opportunities. In light of the current global

economic slowdown, we do not expect an arrival of new important investors and the

implementation of large investment projects (such as Hyundai) in the near future.

� In light of the generally low ratio of businesses to local population (as mentioned in the IUDP),

some projects might focus on the development of entrepreneurial zones that would

concentrate smaller and medium enterprises – manufacturers and service providers (e.g.

servicing stations, small workshops, small manufacturing plants, research and development

etc.). Given their nature, these projects should use relatively large parts of the regenerated

depressed areas.

� The individual projects should meet the goals set by the Pole of Development IUDP in terms

of target operations, which include, but are not limited to, electricity industry, IT



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technologies, materials engineering and technology development; existing experts, e.g. from

the metal industry, should be put to use in these projects.

� The use of brownfields outside city centres should (in line with the IUDP) result in a move of

traffic to high-capacity transit routes, thus reducing the volume of traffic in city centres, with

a partial side effect of alleviating the issue of insufficient parking space in city centres.

Examples of potential projects:

- Ostrava – Hrušov:

Location with a total area of 35ha, of which 50% is owned by the Statutory City of Ostrava, 26% is owned

by RPG RE and the remaining share is owned by the Czech Republic or other individuals or private entities.

Plots of land are being currently purchased to allow for the maximum possible integration of the area. The

existing area has been virtually left vacant, and now only concentrates very poor groups of population,

thus creating a strong social brownfield. The City of Ostrava and RPG RE concluded in February 2009 a

Memorandum on cooperation in development of the territory. In addition, the City of Ostrava and RPG RE

are partners in the ACT4PPP (Transnational Action for Public Private Partnership) project, aiming to

prepare a PPP cooperation model (to regenerate this site); the project hopes to obtain funding from EU

funds.

The project is currently1 in the territory preparation stage (i.e. demolition of existing buildings,

landscaping and creation of new infrastructure), with the total estimated costs of CZK 1.1 billion. It is

assumed that subsidies in the approximate amount of CZK 600 million will be available from the approved

funds of the government’s Inter-department Commission for the Revitalization of the Moravia-Silesia

Region. According to the project schedule, part of the land might be ready for subsequent investment

development at the end of 2013. In light of the location of the entire area, which is relatively close to the

city centre and the D47 motorway, the development of a business centre with buildings for research,

development, education, light industry, services and leisure activities can be considered. The project

would thus facilitate the development of modern premises for business, education and leisure activities,

and some traffic would also move out of the very centre of the city.

Note: City of Ostrava has also prepared “Magnet of the region” IUDP which analyses following objectives:

• Environment

• accessibility and mobility

• Tourism

• Culture and leisure

• Support for education

1 November 2009.



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Global aim

Improvement of the long-lasting negative image of the city caused by historical development. This improvement is to be achieved by forming of new, attractive image of the city centre

Specific target

I. Securing and extending of accessibility of the zone

II. Change of “educational structure” of citizens including support of research and innovations

III. Improvement of quality of the environment

Measures

I.1 Expanding of existing public transport system

II.1 Increasing of number of qualified individuals

II. 1. Increasing of number of qualified individuals

Activities

I.1.1 creation of ecological and low-energy consumption forms of transportation

II.1.1 development and realisation of educational programmes

III. 1.1 “Humanisation” of river Ostravice

III.2.1 revitalisation of greenery and relaxation zones

Application of JESSICA for the “Magnet of the region” IUDP could be considered as a priority number two

in case that financing by a UDF of projects under the “Pole of development” IUDP would not be possible.

C3. Opava – the "Attractive City" IUDP

For the purposes of the ROP, the City of Opava has prepared a thematically defined IUDP that focuses on

the city's 6 development priorities:

� Restoration of neglected areas of the city for business and/or services

� Refurbishment and restoration of neglected or insufficiently utilized public areas

� Increasing the quality of exposed public areas

� Increasing the quality of residential areas and public service areas

� Development and/or improvement of cultural, leisure or tourist infrastructure

� Protection and restoration of historic monuments and their use for culture, leisure or

tourism

The following activities are presented within the individual measures of Opava's Attractive City IUDP:

� Investments in sports facilities, i.e. the improvement of existing infrastructure which is

unsatisfactory in terms of technical quality and possible provision of alternative services;

� Investments in the development of cultural and community life, i.e. the refurbishments of and

additions to cultural buildings, improvements to the technical condition of public infrastructure,



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and improvement of ancillary cultural services;

� Protection and utilization of cultural heritage, i.e. the improvement of the bad condition of the

existing cultural and leisure infrastructure. The city features a number of cultural facilities and

buildings used for cultural purposes that are in a lower technical condition and that have a

capacity or amenities that no longer meet the current demands placed on culture as part of the

public life.

� Development of products and services in tourism, i.e. the development of a new, high-quality

navigation and orientation system for the city's residents and visitors or, as the case may be,

support to activities that raise public awareness of scientific knowledge thanks to adaptations of

the necessary premises.

� Regeneration of important sites and brownfields, i.e. making the stay of the city's residents and

visitors more pleasant thanks to the restoration of the most frequently used buildings in Opava

or, as the case may be, thanks to the refurbishment of facades in the city centre.

� Regeneration and revitalization of existing areas, i.e. the revitalisation of greenery along the

Opava River and the regeneration of the City Park;

� Development of relaxation zones, i.e. the identification of sites, and subsequent development of

zones for relaxations on the basis of the "Green Walls" concept. New relaxation zones will be

developed mainly in the exposed areas of the city and in the city's underdeveloped areas.

Analysis of the potential to implement projects within the Opava Attractive City IUDP that yields

financial return:

� The development priorities of Opava include dynamic development of small and medium

enterprises and increased industrial investments, along with the introduction of new

technologies. Therefore, the City Council of Opava issued the Catalogue of Development Areas of

the City of Opava that describes, among other things, the most important areas allocated, under

the valid Urban Development Plan, to industry (about 27ha), to business development (about

50ha) or, as the case may be, to leisure and sports activities (about 8ha). However, the

opportunities for the development in these areas, and thus the utilisation of the JESSICA financial

instrument, can be disputed due to the current ownership structure: most of the lands have been

speculatively purchased private entities that cannot be expected to cooperate easily.

The high prices of the lands and the early stages of the individual projects form yet another

obstacle.

� The JESSICA financial instrument can be successfully used in the area of research and

development, e.g. by means of cooperation between the Silesian University, the Silesian Institute

of the Czech Academy of Sciences, or a private university and a business entity, such as IVAX

Pharmaceuticals (development in the area of psychotropic and narcotic drugs liquidation), namely



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in the form of a joint scientific-technological park, innovation centre or, as the case may be, a

business incubator.


I. "Opava College" educational campus – utilization of the existing "brownfield" complex on the

premises of the former Dukla barracks in Opava having the area of about 9ha, owned by the

Statutory City of Opava.2 The campus will operate as a facility with high-quality equipment and

with a specific educational and accommodation function and with leisure use for direct users and

wider public. In this case, socioeconomic benefits will be generated by the combination of:

� revitalization of a large area on the lands of the city and making it accessible to the

public, while preventing further deterioration of historically valuable buildings built at

the beginning of the 19th Century and preventing further rise of the maintenance

costs;

� Development of a modern educational and interdisciplinary facility whose importance

extends beyond the city or the region

� Creation of new direct jobs (teaching staff, administration staff) and indirect jobs

(services)

� Support of the environment

� Preservation and development of historical buildings that form a part of the local

cultural heritage

A financial leverage effect may be achieved by implementing the project as a PPP, with the total costs

estimated at about CZK 1,500 Mio (EUR 58 Mio). The expected revenues will be known in 2010 after the

feasibility study is completed; nevertheless, we can already assume both direct revenues (tuition, college

fees, lease of non-residential premises) and indirect revenues (growing price of the land, savings social

benefits by creating new jobs, higher amount of taxes collected). The project's implementation is due for

launch in 2011 and for completion in 2016.

Potential partners of the project include:

� Private (probably foreign) university (academic curricula, motivation to support

educational development)

� Private entity (financial capital)

2 The project was analyzed in November 2009. However, in light of the situation in tertiary education and of an

uncertainty related to the possibility of accreditation of curricula the City was not able to progress with the preparation of the College project and a decision on the future use of the Dukla barracks still remains to be taken.



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� The City of Opava (the creator of the idea and the holder of the instruments for its

development, property owner)

The project is not included in the valid IUDP; however, it may be added thereto by means of a

Notice of Amendment of the IUDP or in the Annual Progress Report on the IUDP Implementation.

Note: Currently the project is re-evaluated and perhaps review the project.

II. Swimming pool – development of a new swimming pool as part of the "Sports and leisure area in

the Opava City Park" project on the land owned by the City. The project aims to:

� Improve sports facilities for the residents of the city and its surroundings

� Extend leisure facilities (water park), and thus support tourism

� Replace the existing pool that is technically unsound and situated in a wrong location

� Broaden the opportunities for sporting and leisure activities in the area of the City Park

(along with the existing multifunctional sports hall, the outdoor municipal pool and the

planned leisure area surrounding the "Silver Lake"

� Save operating costs (compared to the existing costs)

The project may be implemented as a PPP project, with the total costs estimated at about CZK 28

Mio. The estimated revenues will be known after the completion of the feasibility study. The

project's implementation is due for launch in 2011 and for completion in 2013.


� Investor (private developer)

� The City of Opava (strategic partner)

� Operator (private partner)

Another suitable type of a project would be the construction of a facility combining the

production of alternative sources of energy and their local consumption, e.g. a highly effective

incineration plant (with natural gas as the incineration medium) linked to a cogeneration unit that

produces electricity and heat for households.

In our opinion, the JESSICA instrument may be conditionally used within the Opava IUDP

activities "Regeneration of public areas and relaxation zones“ and "Conservation and use of

cultural heritage" activities, provided that the activities form a part of an integrated project, such

as the Campus.



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Conclusion and summary:

In light of their investment solidity, the "Opava College“ educational campus and the Swimming

pool projects are suitable for inclusion in the programme; however, feasibility studies and socio-

economic analyses of the projects would have to be completed prior to further assessment.

C4. Frýdek-Místek – "Attractive City" IUDP

Frýdek-Místek has also decided to define its integrated plan for ROP thematically, choosing the "attractive

city" focus. The priorities of the city within this IUDP have been set as follows:

� Quality of life

� Economic potential

� Human potential

� Technical and transport infrastructure

� Image of the city

The following activities are presented within the individual measures:

- Creation of conditions for the improvement of leisure opportunities of residents, i.e. the

improvement of sporting and cultural infrastructure, refurbishment of the existing, or the

development of new, sports and cultural facilities, development of missing infrastructure

or, as the case may be, development of multifunctional facilities;

- Restoration and maintenance of the landscape and the appearance of the city, i.e. the

development and landscaping of public areas, squares and boulevard-type streets,

refurbishment of squares, refurbishment of premises adjacent to public areas,

enhancements to the "utility" of public areas (increasing traffic safety, optimization of the

public transport system's operations in publicly used areas etc.)

Analysis of the potential to implement projects within the Frýdek-Místek Attractive City IUDP that yield

financial return:

- As the coal mining (Staříč, Paskov) and the heavy engineering (Lískovec bridge works) are

being gradually scaled back or suspended, and in light of the generally low ratio of

businesses to the number of residents, some JESSICA projects might focus on preparing

business areas on the premises of the existing brownfields that would concentrate smaller

and medium enterprises – manufacturers and service providers (e.g. servicing stations,

small workshops, small production plants etc.). Projects of this type are rather rare in the



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IUDP (Chlebovice, Lískovec, Kasárna) and, in addition, are not suitable for JESSICA funding

from the temporal perspective.

- We believe that the JESSICA financial instrument can be successfully used in Frýdek-

Místek in the area of sports infrastructure; this will improve leisure conditions and make

the city more attractive.


I. Multifunctional ice-hockey arena – demolition of the existing, and development of a new, ice-

hockey arena in the Poříčí Street. The project aims to:

� Improve sports facilities for the residents of the city and its surroundings

� Replace the technically unsound arena at an unsuitable site

� Save operating costs (compared to the existing costs)

The project may be implemented as a PPP project, with the total costs estimated at about CZK

200 Mio. The estimated revenues will be known after the completion of the feasibility study. The

documents for the zoning proceedings are currently being prepared; the project is due for launch

in 2011 and due for completion in 2013.


� Investor (private developer)

� The City of Frýdek-Místek (strategic partner)

� Operator (private partner).

The JESSICA instrument can be applied e.g. by means of operating funds provided to the operator

for a period of e.g. 5 years.

We believe that the "Development and landscaping of public areas, squares and boulevard-type

streets" and the "Addition and planting of public greenery" activities within the Frýdek-Místek

IUDP are unsuitable / impossible for the application of the JESSICA instrument.


We are yet to be provided with relevant economic indicators to recommend the multifunctional

ice-hockey arena project in Frýdek-Místek, and thus the potential future return on the

investment in the project remains unknown. This information will be available in several weeks.

According to previously known data does not in our view, a project of such economic indicators,

so that it can move up to Jessica.



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C5. Karviná – IUDP

The City has set the following thematic priorities:

� Support of the potential tourist attractions of the area, improvements in their promotion,

and focus on the city's visitors;

� Development of background facilities to increase tourism potential, leisure activities and

new accommodation facilities

� Improvements to mobility of persons with reduced mobility;

� Increased quality of background facilities and equipment for modern education in schools

and other educational institutions.

� Development of facilities and services for senior citizens, people with disabilities and

people facing the threat of social exclusion.

� Support of tourist attractions and socio-cultural facilities;

� Refurbishment of brownfields with modified type of use;

� Building the capacity to alleviate traffic while increasing its safety.

The following activities are presented within the individual measures:

- Economic development, i.e. promotion of tourist potential, development of background

facilities and infrastructure for sports and leisure activities and new accommodation

facilities for tourists and spa visitors

- Social integration, i.e. development of barrier-free accesses, improved quality of

infrastructure for primary and secondary school education, development of librarian and

information services, social system services

- Attractive cities, i.e. refurbishment of cultural and historic monuments, refurbishment of

neglected or underused public areas, refurbishment of buildings that fulfil community and

cultural functions;

- Accessibility and mobility, i.e. parking solutions at exposed locations, development and

expansion of the pedestrian route network, in-line skating and cycling routes.

Analysis of the potential to implement projects within the Karviná IUDP that yield financial return:



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The implementation of IUDP measures 1.4 – Business infrastructure for SMEs and start-up businesses, 2.4

– University campus development, are hindered by non-existent agreements with the owners of the

suitable lands described in measure 3.4 – Regeneration of brownfields. If a suitable strategy is chosen and

agreements on joint action are concluded with the private sector, joints steps might be taken to adapt the

current areas in the Western sector of the city (which are in a desolate condition) for a new use that will

be beneficial for the city. By way of conclusion, the projects and individual topics mentioned in Karviná’s

IUDP are described in very general terms, and unless quick negotiations are held with the owners of the

suitable lands and buildings, the operational programme deadlines will be missed (i.e. the preparation of

a specific project in 2013 and subsequent implementation by 2015). Nevertheless, points 1 and 2 of the

thematic priorities of the city's development can be very suitable for loan funding or for the UDF's

involvement in the project.


Karviná offers a very broad potential of suitable projects; however, the projects have not progressed to a

stage that would allow them to be easily included in the pool of projects assessed for eligibility for

JESSICA-type funding. Nevertheless, provided that the project preparation works start soon, specific

projects can be identified in the course of 2010.

C6. IUDP Havířov – "Attractive Town"

Havířov has also defined its IUDP for drawing funds from the ROP thematically. The IUDP summarises the

city's priority as follows:

- Improvements of the quality of life in the city and a balanced and sustainable long-term

development of the urban environment, utilising also the cultural, historic, economic,

social and human potential of the city as a natural pole and accelerator of the region's

growth

The following activities are presented within the summary measure:

- Regeneration of brownfields for public services, i.e. focus on regeneration and

revitalisation of buildings and lands that can be deemed brownfields and that deteriorate

as a result of their zero use;

- Revitalisation of other public areas, i.e. solutions for the outskirts of the city that are

mostly characterised by a small number of residents and insufficient quality of public

areas and infrastructure

- Development and technical appreciation of sports infrastructure, i.e. the development of

new facilities and centres focusing on developing sports activities of the youth and the

wide public and on informal activities of the residents in light of the currently insufficient



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capacities


- The City of Havířov is working on two strategic projects: the "Leisure Centre" project and the

revitalisation of parts of the Dolní Suchá brownfield.

I. Leisure Centre:

The City of Havířov lacks an integrated facility for active leisure activities that would accommodate all age

groups with a comprehensive solution and amenities. The suggested facility represents a consolidated

civic amenity that has a direct impact on the quality of life in the city. In addition, it will indirectly

contribute to the improvement of the city's economic standing, support its growth potential and increase

its attractiveness for residents and visitors from the surrounding municipalities.

The concept of the leisure centre stands on three pillars:

- Usability of the centre throughout the year

- Activities for visitors of all age groups

- Focused activities corresponding to the visitors’ interest categories

Benefits of the projects:

- Creation of new jobs

- Improvement of tourist infrastructure

- Increasing the attractiveness of the city and enhancement of the city's image

- Support of "internal" consumption of leisure activities

- Cost savings by the Leisure Centre visitors

- Development of business activities, and higher tax collections of the city

The total project costs amount to about CZK 430 million, with about CZK 10 million expected as annual

subsidy from the municipal budget; therefore, unless the project is at least partially reconsidered and the

profit of the individual parts of the leisure centre increased, the project cannot be recommended for

financing through the JESSICA instrument. Nevertheless, we believe that if further activities funded by the

private sector are added to the mix, the goal of increased profitability of the project could be achieved.



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II. Havířov - Dolní Suchá:

This is an area of about 19ha where mining operations have been terminated; the area has been

revitalised and no further costs associated with decontamination or recovery are expected. The project is

a joint project of the City of Havířov and RPG RE whereby a part of the area, marked as area 2 in the map

(3.5ha), will be transferred to the Statutory City of Havířov probably in January 2010. In the context of the

entire area, part 2, along with parts 1 and 6, are the most suitable areas for investment.

A subsidy from the Inter-departmental Commission for the Revitalization of the Moravia-Silesia Region

has been promised under the title "Preparation of territory after completed mining operations". The

subsidy will cover the costs of the backbone infrastructure, i.e. the restoration and addition of utilities

(sewage mains, central heating distributions and backbone electrical wiring) and roads, cleaning of the

necessary water course. The total subsidy will amount to CZK 212 million. A zoning decision has been

issued for the project, and the building permit is currently being negotiated.

The project's launch will be requested by the Czech Ministry of Finance in 2010. Therefore, the revitalised

plots of land may be used as a strategic business zone for the Havířov catchment area, with the possible



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establishment of a business incubator. A similar solution may reduce the high unemployment, increase

competitiveness and, last but not least, increase the attractiveness of Havířov and its nearest

surroundings in the future. In light of the expected deadlines for the development of backbone

infrastructure, it is expected that commercial projects' development, or the potential sale of plots of land

to other investors, may be launched at the beginning of 2013. Therefore, the lands might be delivered to

the users in 2014.


In our opinion, both the projects prepared in Havířov and mentioned above are worth attention. We

would emphasise the development of a high-quality business zone that may cover the certain financial

deficit of the Leisure Centre project in the future. We suggest that the Dolní Suchá project be given

priority no. 1, and that the Leisure Centre project be given priority 2. 3

C7. Conclusion of the IUDP Analysis

The existing IUDP analysis and the assessment of the individual projects show that the inclusion of the

Moravia-Silesia region in the JESSICA programme will meet with potential projects whose added value is

able to support the region in its efforts to achieve the highest possible competitiveness within the Czech

Republic and the immediately neighbouring states.

3 The Dolní Suchá project is further analyzed in section K1.



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D. Areas where JESSICA may be applied

D1. Recovery and preparation of land. Within the Moravian-Silesian region, depressed areas form a

substantial part of the entire region's territory, and usually constitute suitable locations for further

development. A large portion of these areas is suitable, for instance, for the relocation of

manufacturing and other industrial operations from the city centres, which would also reduce the

current load on the existing infrastructure, environment etc.).

Potential projects: Ostrava – Hrušov and Havířov – Dolní Suchá

D2. Business support – the region should further increase the number of local businesses, which is

currently below the average of the Czech Republic. With support from municipalities, business sites

can be developed outside the municipal centres with the aim to build modern business areas

allowing for a dynamic growth of small and medium enterprises that may fill the gap caused by the

decline of large industrial giants. In addition, high-quality transport accessibility must be offered,

and the entrepreneurs must be allowed to invest funds in modern manufacturing and servicing

technologies.

Potential projects: follow-ups on the projects created under Point I. Restoration and preparation of

land

D3. Support to technologies and innovation – Hand in hand with the support provided to businesses, it

is desirable to support projects that emphasise research, development and innovation and projects

that increase the economic benefit of doing business while reducing the environmental effects

thereof by simplifying manufacturing or servicing processes.

Potential projects: Support of the Opava College projects and the projects associated with the

Technical University of Ostrava (VŠB).

D4. Energy infrastructure and energy savings – in the nearest future, we see the need to address

alternative sources of energy, namely renewable sources and, in part, highly efficient incineration

plants, and to reduce the dependency on natural gas supplies from the East, while also scaling back

greenhouse gas emissions. Last but not least, the energy demand of civic amenity buildings and

residential buildings (panel housing estates) built in the past will have to be addressed. Some of the

buildings have been revitalised or are in the process of being revitalised; nevertheless, we see the

support provided to the completion of this process as one of the priorities that extend beyond the

region. Simple structural modifications and a reasonably set system of investment redemptions

may reduce energy consumption by up to 40% compared to the present state.



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Potential projects - revitalisation of panel housing estates, development of alternative types of

centrally distributed heating production. The revitalisation of panel houses shows an enormous

development potential: the comparison between tens of thousands of flats in the panel housing

estates that have not been refurbished and about 1000 flats revitalised annually indicates both

that the project will be extensive and that it will take some time. The project would allow for a

comprehensive modernisation of residential buildings with emphasis on substantial energy savings,

while tackling several problems at once: low energy efficiency, high operating costs (for both

owners and tenants), the unappealing appearance of some housing estates, thus substantially

increasing the quality of living. The projects and their implementation can be prepared in a very

short time frame.

D5. Civil infrastructure (education, social matters, healthcare, social housing) – increasing the quality of

education and the growth of the ratio of residents with secondary and tertiary education degrees

form an integral part of the entire region's development. In this context, it would be suitable to use

the existing educational infrastructure and seek new business sectors in the region as the region

moves away from the formerly prevalent mining and engineering sectors. In this area, the focus on

lighter engineering, electronics, services and, in light of the natural riches of the region, tourism,

has already been identified and can be further developed. The reduction in the number of vacant,

degraded lands should motivate the redevelopment of some parts of the region as spa centres,

making use of the region's potential in this area.

Potential projects: follow-ups on Section 3) and 4): the Mining University in Ostrava, the Opava

College, support to research and development of innovative technologies

D6. Public municipal transport – this is partly linked to the restoration of depressed areas and should

help address the transport accessibility of the newly developed business, leisure or retail centres

Potential projects: Implementation of an automated traffic management system in Ostrava – the

main goal is to scale back traffic in the city (directions to thoroughfares, directions to parking

facilities), hand in hand with development of P+R parking lots. The aim is to reduce the intensity of

traffic on the busiest roads. Possible returns may be generated from newly developed, paid parking

places. The data for an economic analysis is currently being processed.

D7. Leisure infrastructure (cultural and community centres) – increasing attractiveness of the entire

region in terms of business and the creation of new jobs entails the need to develop cultural and

community centres. Given their number in the region, new centres do not have to be developed,

but the existing centres should be revitalised where possible so that they may meet the current

demands placed on leisure activities, and so that the operating costs of the existing centres built in



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the past may be dramatically reduced. Without major innovations, it is not economically viable to

operate some of the centres for longer periods of time; therefore, partial or full renewal of

individual centres will have to be carried out if the existing centre is strategically located. In the

long run, existing residents of the region cannot be retained, and new residents cannot be attracted

in the region, without the development of leisure centres.

Potential projects: Leisure centre in Havířov, Winter arena in Frýdek Místek, Swimming pool in

Opava

D8. Tourism infrastructure – the Moravian-Silesian region benefits from its geographical location

between the Beskydy and Jeseníky mountains and from its spa resorts in Jeseníky mountain and

Darkov. In terms of mountain tourism, it is suitable to make investments to improve the quality of

accommodation facilities surrounding ski resorts, to increase the number of parking facilities, to

promote the region as a destination for post-season and out-of-season tourism and to regularly

modernise the ski infrastructure. All the above must take account of the skiing opportunities in the

nearby Tatry mountains in the neighbouring Slovakia and of today's reasonably priced offers of

stays in the Austrian or Italian Alps.

Potential projects: Karviná region spa projects, or hotel services in Opava

D9. Restoration and conservation of cultural heritage - Closer ties to municipal and regional authorities

are needed in this area; some monuments may replace the currently leased educational and

meeting centres, often owned by private entities, and profitable operation must be achieved in the

long run with potential follow-up investments

Potential projects: refurbishment and subsequent use of the Šilheřovice manor as the region's

meeting point where the municipalities and the region may organise a number of conferences,

meetings, lectures, exhibitions etc. Cities and the region currently rent premises for such activities

(hotels, administration buildings) from private entities and pay commercial rent. If a refurbishment

project of the decaying manor is prepared, the investment may yield good economic return. The

manor is a private property, therefore cooperation within a PPP project is possible.

D10. Public areas - Public areas and their development are very hard to address as separate projects;

therefore, we assume that these future projects may be linked to more profitable development

projects, such as the restoration and preparation of lands, transport infrastructure, business

support, energy projects etc. If public area development is added to these projects, an economically

viable unit will be created that may address also areas suitable mostly for grant funding. NOTE:

Dolní Suchá project is further analyzed in section K1 (April 2010).



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E. A multi-criteria assessment of the thematic areas

The following Table shows the links of the 10 aforementioned areas where JESSICA may be applied to the

ROP MS and its support areas. The Table also provides an estimate of the economic rate of return (ERR) of

projects in each of the 10 categories and summarizes the potential for JESSICA financing of the 10

categories of projects as analyzed in Chapter D:

Areas Link to ROP ERR indications Jessica

potential

Restoration and

preparation of

land

ROP MS lends only partial support to this area

today. Section 2.3 Brownfields utilisation support

allows for regeneration of lands with relatively

narrow future use definition. Therefore, to apply

JESSICA effectively, a change of the programme

must be reconsidered, including, without

limitation, the expansion of future uses of the

regenerated lands and buildings for business, and

the expansion of the support's beneficiaries to

businesses and developers.4

Regenerated areas may primarily bring

positive change of the lands'

environmental functions, increase the

prices of surrounding real estate and

generally appreciate the residential

functions of the municipality.

Subsequently, the prepared lands may

reduce unemployment by creating new

jobs.

High ERR

High

Support to

businesses

The ROP MS does not address support to

businesses implicitly, but rather through the

Business and Innovation OP. However, it would

be convenient to expand Section 2.3

Regeneration of brownfields to this area, in

particular as an incentive for further use of the

regenerated areas.

Support to businesses yields high

economic returns, especially due to its

potential ability to increase

employment by creating new jobs.

High ERR

High

4 Amendments of the ROP are being discussed with the European Commission.



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Support of

technologies

and innovation

The ROP MS does not address support of

innovative businesses implicitly, but rather

through the Business and Innovation OP. The

recommendations suggested for business

support apply to this area, as well.

Support to innovative businesses yields

high economic returns, especially due

to its potential ability to increase

employment by creating new jobs with

high added value.

High ERR

High

Energy

infrastructure

and energy

savings

The Regional Operational Programme does not

address energy and energy savings; this area is

covered in the Environment OP. Therefore, if the

fund were to address similar issues, the ROP MS

would have to be supplemented with a specific

support area with close ties to municipal

investments, i.e. a gap in the present support

scheme would have to be found.

In addition, potential transfer of some funds from

the Environment OP to the Moravian-Silesian

UDF could be considered and negotiated; UDF

would provide refundable financing to projects

that would meet the requirements of the

Environment OP and that would be incorporated

in the local IUDP.

In general, this area yields high

economic benefits; however, the ERR is

hard to forecast due to the absence of

this issue in the ROP MS: unlike other

support areas, these benefits remain

unmapped by the standard methods.

High

Civil

infrastructure

(education,

social matters,

healthcare,

social housing)

Investments in civil infrastructure have a strong

presence in the ROP MS, and are included in

Sections 2.1 Public services infrastructure, and in

Priority Axis 3 Municipal development.

Educational, social and healthcare projects can

be especially supported in these areas.

A whole number of benefits has been

identified in this area, including social

integration of discriminated individuals,

prevention of crime and diseases,

reduction of patient treatment times,

fatality reduction, longer life

expectancy, improvements to the

condition of educational and social

facilities, improved chances on the

labour market etc.

Medium ERR

Low



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Public transport

Under the ROP MS, investments in municipal

public transport are supported under Section 1.3

Development of transport accessibility. This area

includes transport integration projects (transport

terminals, purchase of new vehicles etc.). In light

of the considered transfer of funds to the JESSICA

fund from Priority Axes 2 or 3, the usability of

this area is limited.

Potential economic return on projects

that improve the condition of public

transport is directly correlated to the

size of the municipality and the

exposure of the node or line, i.e. to the

number of the infrastructure's potential

users. Increased traffic safety, increased

passenger comfort and time savings etc.

are mentioned in the context of the

busiest parts of the transport system.

Medium or high ERR

Medium

Leisure

infrastructure

(cultural and

community

centres)

The projects planned in this area can be

implemented within Priority Axis 3 Municipal

development, where investments can be made in

increasing the attractiveness of urban areas and

improving or expanding civic amenities (cultural,

sporting and leisure facilities of the

municipalities).

Benefits like improved leisure

infrastructure, improved quality of the

residents' living or improved cultural

infrastructure yield economic return

especially in larger municipalities.

Medium ERR

Medium

Tourist

infrastructure

This area finds support under Section 2.2

Development of tourism, wherein investments

can be made in development, modernisation and

restoration of tourist infrastructure, ancillary

services and tourist attractions, and in the

development and improvement of

accommodation facilities.

Benefits arising from the development

of tourism in the region and from

creating new jobs show a high potential

of yielding economic return.

High ERR

Medium



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Restoration and

conservation of

cultural heritage

Revitalisation and public access to cultural,

technical and industrial monuments that form a

part of cultural heritage is supported in Section

2.2.1 Development, revitalisation and

modernisation of tourist infrastructure, ancillary

services and tourist attractions. Therefore, the

investments should aim at making monuments

accessible or increasing the number of their

visitors; other areas are not supported. A change

of the programme towards a broader use of the

restored monuments, e.g. for combined

functionality (leisure, educational, civic and other

functions which are today supported in Section

3.2 Subregional centres)

Restoration of monuments is quite

costly and will bring benefits especially

by accessing cultural infrastructure,

increasing the number of visitors and

employment in services.

However, in light of the number of

heritage-protected sites and the high

investment costs, a high return on

investment cannot be expected.

Medium or low ERR

Medium

Public areas

Regeneration of public areas is today supported

in Section 3.2 Subregional centres; investments

should make the municipalities more attractive.

Public area improvement projects bring

benefits in the form of increased visitor

count of parks, playgrounds and similar

public areas. Investments may yield

economic return if the urban area is

highly exposed; otherwise, these

projects must be embedded in a

broader restoration context that will

cover multiple functions.

Medium or low ERR

Low

F. Financial instrument indicators, rate of return, risk, relevance and compliance with

today's IUDPs

F1. Financial instrument indicator (loan, equity, bank guarantee)

F1.1. Financing by a loan:

The standard parameters that govern the funding of commercial projects are currently substantially

affected by the global financial crisis and the economic situation in the world. The terms offered by

commercial lenders undergo dramatic developments in short periods of time; therefore, it is relatively

hard to talk about any "market standards". The interest rates set by commercial banks are derived from

the development of the underlying interest rates set by the central banks. When projects are funded by

loans, a standard achievable interest rate ranging from 4.5 to 6.5% p.a. if the loan is quoted in CZK, and an



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interest ranging from about 4.2 to 5.5% if the funds are provided in EUR, can be assumed, depending on

the parameters of the specific project. The payback period required by commercial banks is usually

capped at 10 years, or 15 years in extraordinary cases. The required amount of the borrower's equity

ranges from 30 to 40% of the project's value or cost (loan to value vs. loan to cost).

Taking into account the project's nature, we assume the payback period to range from 10 to 20 years

(ideally up to 15 years) for the use of the JESSICA financial instrument. The investment granted from the

JESSICA funds should not exceed 70% of the total investment. Therefore, the required ratio of the

borrower's equity should not drop below 30%. Depending on the parameters of the investment (amount

of the investment, share of equity, risk etc.), a combination of various financial instruments (loan + equity,

loan + guarantee for another loan), or the use of various combinations of payback periods and interest

rates (standard "commercial" interest rate and longer payback period vs. a shorter payback period and a

reduced interest rate) should be considered.

F1.2. Funding by means of a capital participation in the project (equity)

Funding by means of a capital participation in a project can be assumed for projects with a shorter

payback period, with a rate of risk above the rate acceptable for standard commercial bank, and with

lower appreciation of equity than the appreciation required by commercial investors. The amount of

invested equity through the JESSICA instruments can be assumed to range from 30 to 70%. If the share of

equity is higher (50% and more), more detailed monitoring of the project by the UDF with more

controlling opportunities and with more influence on the controlling mechanism of the project can be

expected. The capital participation instrument may be combined with debt financing under loans

provided by standard commercial institutions. In that case, the payback period can be longer (up to about

10 years).

F1.3. Bank guarantee:

We believe that the use of the guarantee instrument plays an important role in supporting the

development of small and medium enterprises that add substantial value to their manufacturing

programme (e.g. research, development, innovative technologies) but lack sufficient capital, which may

hinder future development. Guarantees may be granted to technology centre projects that may operate

under standard commercial terms but where an insufficient pool of companies (tenants) fails to represent

a sufficient guarantee for funding by commercial institutions.

F2. Return indicators (loans, equity, bank guarantees)

F2.1. Potential return on the projects (simple/combined)

F2.2. Project return indicators (ERR, IRR)



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� IRR (Internal Rate of Return) is the interest (discount) rate at which the net present value of

the investment's cash flows amounts to zero. An investment is acceptable if its internal rate of

return is higher than the market discount rate of investments entailing the same risk. A UDF

might accept also an IRR lower than market investors would, provided that this is in line with

state aid rules and compensated by sufficiently high ERR (UDF investments could thus help

address market failures).

� ERR (Economic Rate of Return) is the interest rate at which the costs and benefits of a project,

discounted over its life, are equal. ERR differs from the financial rate of return in that it takes

into account the effects and factors such as price controls, subsidies, and tax breaks to

compute the actual cost of the project relative to the economy.

� ROI (Return on Investment) is the indicator of returns (earnings, profitability) on the

investment equal to the ratio of average annual profit to the invested funds (total invested

capital).

� ROE (Return on Equity) is the indicator of returns (earnings, profitability) on equity equal to the

ratio of profit to equity.

� Payback – the period (number of years) in which the monetary income from the investment

reaches the initial capital expense for the investment.

F3. Project risk indicators

The assessment of projects in terms of the associated risk will form an important part of the assessment

of each individual project's suitability for funding under the JESSICA financial instrument. Risks will have to

be assessed for each project individually based on its parameters. What is important is that the

assessment of projects must be made by entities who know the local market and local conditions within

the individual municipalities. The assessment of the form of the investment's security will also be

important. The choice of the correct partners who will be the holders or co-holders of the projects will

also play an important role, with their financial standing and/or know-how being one of the key selection

criteria.

Potential projects identified within the IUDP review generally show relatively smaller rates of risk with

sufficient forms of security (liens over real estate, guarantees of future cash flow etc.). In light of the long-

term growth potential of the market and substantially lower prices compared to Western Europe and

some areas of the Czech Republic, major long-term fluctuations or decline of the Moravia-Silesia region's



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market cannot be expected.

A SWOT analysis that evaluates the strengths and weaknesses of a project relative to the opportunities

and threats associated with the project can be used as a project risk indicator.

F3.1. Risk associated with loan repayment time and return on investment – In general, the longer the

repayment period, the higher the risk; and the higher the risk, the higher the requested collateral.

Considering that the JESSICA instrument aims to allow for project funding with repayment periods of up

to 20 years, a higher rate of risk than the rate acceptable for the commercial sector must be expected. We

assume that the risk associated with a project will have to be at all times assessed on an individual basis

relative to the potential benefits of the project, taking account of the IUDP and the investment security

opportunities offered.

F3.2. Risk associated with the project's goals – as mentioned in Chapter D, projects should have a

synergic effect in a broader spectrum of development goals set by the municipalities and the region. This

might be related to the higher risk associated with the goals of these projects, especially in the short run.

By accepting a higher risk factor, one of the most important gaps can be filled in the market system that is

currently able to support only low-risk projects with investments without clearly assessing the added

value of the individual projects, defined as a sustainable development of municipalities or, as the case

may be, the Moravian-Silesian region in general (reduction of unemployment, higher number of profitable

businesses, increased quality of life, improved environment). If riskier projects remain unsupported, the

current regional competitiveness can stagnate or substantially drop at a later stage, which may hinder

completed investments or programmes. Therefore, we deem the higher risk associated with the key D1,

D2, D3 and D4 projects to be acceptable in light of the broader relationships and synergies, with high

growth potential added in.

F3.3. Possible use of other funds and the "leverage" effect, especially in the private sector – one of

the key priorities of the region is the plan to expand the cooperation of the public and private sectors in

PPP projects. Due to the current global economic situation, many private entities that make business in

the region and, at the same time, plan potential projects, lack sufficient funds or request higher returns,

and thus focus on other business opportunities. With a suitable combination of the public and private

sectors and the JESSICA financial instruments, a leverage effect can be created in cooperation with

commercial financial institutions that will facilitate the funding of larger investment volumes. A sufficient

investment volume can, as a side effect, motivate overall growth of the region and lead to higher returns

on investment in excess of the original forecasts.



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A model cooperation scheme might look as follows:

G. Selection of Target Themes

G1. UDF Structure

A UDF is to ensure direct application of the JESSICA financial instrument to specific projects in the given

region by city councils of the statutory cities and regional authorities, all in compliance with all the

structural funds rules. In principle, two types of UDFs can be considered for JESSICA implementation in

the Moravian-Silesian region:

G1.1. Loan and Guarantee UDF (“LG UDF”)

The functions of a loan and guarantee UDF virtually overlap with the functions of standard commercial

departments assessing individual projects when commercial banks provide guarantees and loans;

however, the assessment by a LG UDF must in addition take into account the rules of the JESSICA

programme as outlined in this study. Needless to say, the assessment of the individual programs that

have applied for a loan or a guarantee under the JESSICA programme will also have to draw upon local

empirical knowledge of the local banking and real estate and development markets and the knowledge of

approved development programmes of municipalities and the region, as well as the knowledge of laws

and regulations on the provision of financing products, including loans and guarantees. Therefore, the

specific UDF must have an experienced banking team, including legal and risk management staff.

A licensed commercial bank that has acquired practical experience in the development of the Moravia-

Silesia region could be appointed as the loan and guarantee UDF, based on a tender procedure.

UDF EUR 10 Mio

Private 2 Mio EUR

JESSICA 2 Mio EUR

Commercial loan EUR 6 Mio

Project 1 Project 1 Project 3 Project 4

Total investment of EUR 50 Mio



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Agreement between the HF and the LG UDF

� Terms governing the assessment of projects

� Legal form of applying loans between the HF and the UDF

� Remuneration of the UDF

� Final approval of the terms governing the application of the JESSICA financial instrument falls

within the sole powers of the HF

G1.2. Equity participation UDF (EP UDF)

The purpose of an equity participation UDF is to hold equity in special-purpose vehicles (SPVs) that own

the individual supported projects. The scope of the participation held by the co-investor or the co-

developer is quite flexible, depending on the terms of the specific project. When an EP UDF is set up, it is

crucial to emphasise the requirement for good empirical knowledge of the EP UDF's working team; at

least one half of the executive working team must be formed by experts that have acquired real working

experience in successful implementations of development or investment projects in the position of the

developer or investor; the EP UDF must be also able to procure comprehensive legal services associated

with the assessment of the projects and their subsequent senior management, progress monitoring and

continuous evaluation of compliance with the terms of the agreement on capital participation in the

individual projects, probably throughout the entire life of the project (the scope of the revised documents

should drop as the implementation progresses until the lowest necessary level is reached).

The EP UDF might have the legal form of a newly established joint-stock company with registered capital

in the amount of the HF contribution; moreover, the individual statutory cities and, as the case may be,

private sector should be allowed to participate in the UDF with their own capital.

Possible structures of EP UDFs in terms of law and ownership:

I. Public structure

� Shares of the UDF held by the Regional Council Moravia-Silesia (or, as the case may be, the

Holding Fund) and municipalities

� Board of Directors – representatives of governmental and regional development agencies

� Supervisory Board – municipal and regional representatives (government and local

government officials), representatives of the HF



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II. Public-commercial structure

� Shares of the company held by the Regional Council Moravia-Silesia (or, as the case may be,

the Holding Fund) and a private expert company

� Board of Directors – experts from the private company



III. Commercial structure

� Shares of the company held by a private company, pledged in favour of the Regional Board

until the end of the JESSICA application process

� Board of Directors – experts from the private company



In light of the local conditions, the G1.2. II or G1.2. III schemes are the most suitable, especially for

the following reasons:

� Flexible decision-making

� Guarantees to the Regional Board – private company wants to generate profit = project's

success

� Elimination of insufficiently expert, political interventions in the decision-making

� Empirical knowledge of the working team

� Negotiating abilities in procuring additional commercial loans

� Motivational aspects in the form of contractual terms between the HF and the UDF

G2. Model projects as examples of the benefits of JESSICA financing

G2.1. Loan

Project Description:

The Municipality organises a number of conferences, meetings, lectures, exhibitions etc. The premises for

these activities are usually rented at commercial rates, paid mostly to private entities. The Municipality

spends about EUR 380 000 annually for these activities. The Municipality owns a suitable, currently

decaying building of historic value in a convenient location that could be converted to a conference centre



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with several conference halls and the maximum capacity of 360 visitors if refurbished and redeveloped.

The conference rooms will be then used both for events organised by the Municipality and for other

commercial and non-commercial events.

Return on Investment:

The return on the investment in the project will be generated by the lease of the conference rooms and

by the income generated by associated services (lease of conference rooms and income from associated

services). If the Municipality's events and activities are relocated to the new conference centre, the

minimum future annual income of about EUR 380 000 will be secured. The Municipality will lease the

conference centre to a selected business entity that will operate the centre. The average annual rent is

estimated at EUR 433 000.

Funding:

The project has a 2-year construction period and its operation by the selected business entity ends after

17 years (2+15 years).

The estimated investment amounts to EUR 7.6 Mio. The Municipality will invest EUR 2.9 Mio, i.e. 38% of

the investment amount (value of suitable property for redevelopment in a depressed area owned by the

Municipality). The remaining EUR 4.7 Mio will be secured by a loan from the JESSICA funds. The project

goal is to maintain positive cash flow during the payback period.

Dividends to shareholders are only considered after the repayment of the loan and cannot exceed, for

each year, the amount of retained earnings plus net income for the previous year.

Project Summary:

Estimated investment EUR 7 600 000

Equity EUR 2 900 000 38% of investment amount

Loan EUR 4 700 000 62% of investment amount

Estimated average annual income EUR 433 000

Investment period 2 years

Payback period 15 years

Loan interest rate 2.74%

Repayment (Annuity) - EUR 386 336



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ROI 5.71%

IRR 4.21%

Project Assessment:

The return on the investment is too low for the project to be prepared for and funded by standard

commercial institutions. However, the project contributes to the development of cultural and societal

activities and to the development of education, prevents further deterioration of buildings of historic

value, helps creating new jobs, and, as a building located in a depressed area of the municipality, helps

the area's development. The benefits of the project match the fundamental aims set out in the IUDP.

Despite the relatively low return, the project provides sufficient and long-term guarantees of income both

in relation to the Municipality and the private operator. The project is a suitable candidate for funding

through the JESSICA instrument.

G2.2. Equity


A private entity owns about 30 ha of land affected by past mining operations, located at the outskirts of

the city with suitable transport accessibility and sufficient capacities of existing utilities. Under the urban

development plan of the city, the lands are to be used for development of industrial buildings utilised for

light manufacture and associated operations.

The owner of the real estate is interested in the area's revitalisation and the lands' development. If the

area is split and backbone utilities are built, a modern industrial zone may be developed at this site; the

zone will offer suitable lands for future use by private investors and developers.


The return on the investment should be generated by the sale of the revitalised lands with comprehensive

infrastructure to private investors and developers who will use the lands to develop buildings for

manufacturing operations, research activities, technological centres etc. The lands cannot be sold before

they are sufficiently ready (completed infrastructure, revitalisation).

Funding:

The project assumes a one-year construction period and its operation by the selected business entity will

end after five years at the latest (1+4 years).



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The total costs of the project are estimated at about EUR 6.6 Mio. The private investor owns the lands

and expects to participate in the total investment up to 50%, i.e. up to about EUR 3.3 Mio. The remaining

part of the expected costs should be funded by means of equity participation in the project through the

JESSICA instrument.

Private investor's share EUR 3.3 Mio 50%

JESSICA share EUR 3.3 Mio 50%

Total investment EUR 6.6 Mio

Project Costs and Revenues:

Description Unit cost (EUR/m2) Cost

Land cost EUR 7,7 EUR 2 307 692

Land revitalization cost EUR 3,5 EUR 1 038 462

Infrastructure cost EUR 9,6 EUR 2 884 615

Other costs (legal, agents fee, marketing, others) EUR 1,3 EUR 375 000

Total cost EUR 22,0 EUR 6 605 769

Value of revitalized land EUR 25,0 EUR 7 500 000

Profit EUR 3,0 EUR 894 231

Margin 13,5%

Project Assessment:

Standard bank funding cannot be obtained to fund the project. Capital participation by a private-sector

investor is impossible, either: the future profit to be generated by the project is lower than the standard

requirements of these investors.

Due to its location, the project revitalises an area of about 30 ha affected by former mining operations.

The project will help offer high-quality lands for development and open opportunities to attract investors



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from among manufacturers, technological and development centres, service centres and smaller

operations from among small and medium enterprises. In addition to the arrival of new investors in the

region, a substantial number of manufacturing operations are expected to relocate from the municipal

centre to the outer locations with good transport accessibility in the future.

Therefore, in addition to revitalising a depressed area, the nature of the project aims to support creation

of new job opportunities and also supports the relocation of manufacturing operations from the

municipal centre, which has a secondary benefit in relocating traffic from the municipal centre towards

the outskirts and the main transport routes. The aforementioned benefits of the projects correspond to

the main supported areas set out in the IUDP.

G2.3. Bank Guarantee


A private investor owns real estate and lands that were affected by past manufacturing operations and

that are located in the industrial part of the municipality near the municipal centre. The investor prepares

a project of developing rental units especially for small and medium enterprises that will be suitable for

sectors focusing on innovative technologies, research and development, services with higher added value

etc.


The project assumes a two-year investment period and will end after fourteen years at the latest (2+12

years).

The investment into area revitalisation and development of suitable buildings should yield return from

the leases of units especially to small and medium enterprises. Considering that the number of such

premises is insufficient in the region, the units are expected to be leased under standard market terms.

The return on investment should thus also correspond to the local market standards.

Funding:

The total investment in the project should amount to about EUR 5 Mio. The investor expects to contribute

equity of up to 30% of the future value of the project / real estate (EUR 1.5 Mio). The remaining part of

the project will be funded by a standard commercial loan (about EUR 4.5 Mio).

In light of the funding terms set forth by commercial institutions and considering the long time frame of

the project, high collateral is requested, in particular in the form of required financial standing of the

project's tenants. In this case, the tenants will be obliged to submit their financial statements and, in

addition, provide bank or cash guarantees of up to 12 monthly rents, or their parent company guarantees.



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However, these terms will be so demanding for a substantial part of developing small and medium

enterprises that they will render them unable to provide similar guarantees. These guarantees will be

provided through the JESSICA programme.

The investor expects an annual payment of EUR 15 000 for the provision of the guarantee at the average

estimated annual income of EUR 483 612.

Project Summary:

Estimated investment EUR 5 000 000

Equity EUR 1 500 000 30%

Loan EUR 3 500 000 70%

Estimated average annual income EUR 483 612

Investment period 2 years

Playback period 12 years

Loan interest rate 5.5%

Repayment (Annuity) - EUR 406 102

Annual payment for guarantee EUR 15 000 3.1% of expected annual income

ROI 9.7%

IRR 8.5%

Project Assessment:

Using the JESSICA programme, the UDF should provide corresponding guarantees to examined

companies/tenants with high development potential that would, given the nature of their operations,

make a substantial contribution in the supported areas (innovative technologies, research and

development, services with high added value etc.) but that would have been unable to meet standard

commercial terms relating to collateral.

In addition to developing an area affected by heavy manufacturing operations, the investment will

facilitate, in line with the IUDP goals, development of small and medium enterprises with a high growth

potential and help create new job opportunities. The development of these companies will also stimulate

the demand for experts in the supported areas identified by the IUDP.



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H. Legal advice concerning selected aspects of JESSICA initiative5

H1. Background

The Regional Council Moravia-Silesia (the “RCMS”) as the Managing Authority of the Czech Regional

Operational Programme of the RCMS (the “ROP MS”) contemplates availing itself of the possibility to

invest part of the finance of the ROP MS in urban development funds (“UDF”) within the JESSICA initiative

and the legal framework set by Council Regulation (EC) No 1083/2006, as amended, and related legal acts.

The RCMS contemplates setting up a holding fund (the “HF”) in the form of a separate block of finance

held by the European Investment Bank, which would further select and invest in UDFs. The funds

transferred to the holding fund shall be held in the name of EIB. Final decisions on the use of the funds in

the HF will be taken by an Investment Board appointed by RCMS.6

For the purpose of this Inception Report, we provide legal advice on the following aspects of the JESSICA

initiative.7

H1.1. Assignment 1

Assessment of the Czech legislation, including binding guidelines, in relation to financial flows at the

respective levels of implementation of JESSICA [a use of the finances of the Ministry of the Regional

Development destined for pre-funding of the ROP MS projects in the form of a deposit in the HF; a

transfer of the finances from the RCMS to the HF; a transfer from the HF to a UDF; a transfer from a UDF

to a respective project; a transfer of proceeds from the project to the UDF and to the RCMS], specifically:

� What legislation regulates the above matter at individual stages of the implementation?

� What are the limitations and risks in respect to the legislation?

� Is the current state of Czech legislation appropriate, in particular given the fact that the finances are

to be transferred to UDFs through the HF? Which documents should be amended, and generally in

what way?

5 This legal analysis was elaborated in November 2009 as part of the Inception Report.

6 The relationship between EIB and RCMS is defined in detail in the Funding Agreement, through the signature of

which on 8 February 2010 the Holding Fund was created. 7 In this Inception report, the currently applicable terminology of the European Communities law is used, as opposed to the terminology to apply following the Lisbon Reform Treaty. Neither our present conclusions, nor the intended course of implementation of JESSICA should, in our opinion, be modified due to the coming constitutional reform of the European Union, although, of course, we cannot guarantee it.



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� What are the conditions for a certification of the finances?

H1.2. Legal advice 1

The following are pieces of EC legislation and notes of the Committee for the Coordination of the Funds

(COCOF) which are material to JESSICA and our present legal advice:

� Council Regulation No. 1083/2006 laying down general provisions on the European Regional

Development Fund, the European Social Fund and the Cohesion Fund, as amended (the “General

Regulation”)

� Regulation No. 1080/2006 on the European Regional Development Fund (“ERDF”), as amended

� Regulation No. 1828/2006 setting out rules for the implementation of the General Regulation, as

amended (the “Implementation Regulation”)

� “Note of the Commission services on Financial Engineering in the 2007 – 2013 programming

period” dated 16 July 2007 (DOC COCOF/07/0018/01-EN FINAL) (“COCOF Note No. 1”)

� ”Guidance Note on Financial Engineering” dated 22 December 2008 (COCOF 08/0002/03) (“COCOF

Note No. 2”)

� “Rules and conditions applicable to actions co-financed from Structural Funds and Cohesion Fund -

An overview of eligibility rules in the programming period 2007-2013” dated February 2009,

available on

http://ec.europa.eu/regional_policy/sources/docgener/presenta/eligibility/eligibility_2009_en.pdf

The following are pieces of Czech legislation and Czech binding guidelines regulating financial flows within

JESSICA at the relevant stages of implementation:

� National Strategic Reference Framework of the Czech Republic 2007-2013

� Act No. 218/2000 Coll., on budgetary regulations, as amended

� Act No. 250/2000 Coll., on regional budgetary regulations, as amended

� Act No. 248/2000 Coll., on support of the regional development, as amended



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� Act No. 219/2000 Coll., on property of the Czech Republic and its representation in legal relations

as amended

� Act No. 47/2002 Coll., on Support of small and medium-sized enterprises, as amended

� Regulation No. 52/2008 Coll., on principles and terms of the financial settlement of the

relationships with the state budget, state financial assets and National Fund

� Guidelines on Financial Flows and Inspection of Programs Co-financed from the Structural Funds,

Cohesion Fund and European Fisheries Fund for the 2007 – 2013 Programming Period, effective as

of 1 October 2009 (“Guidelines on Financial Flows”)

� Guidelines on Certification of the Expenditures for the Programming Period of 2007 – 2013,

effective as of 1 October 2009 (“Guidelines on Certification”)

� Guidelines on the Eligible Costs for the Programs Co-financed from the Structural Funds and

Cohesion Funds of 2007 – 2013 Programming Period (“Guidelines on Eligibility of Costs”)

Finally, the following are binding documents pertinent to the ROP MS which are material to our present

legal advice:

� Terms of the ROP MS dated 3 December 2007

� Implementing Document for the ROP MS, version 3.04

The above Czech legislation and guidelines deal with financial flows in general form, namely they do not

deal specifically with individual stages of financial flows. Generally, we find that Czech legislation and the

respective guidelines are in compliance with Community law and that the current state of Czech

legislation and the respective guidelines does not constitute an obstacle to the implementation of the

JESSICA instrument in Moravia-Silesia. In this respect, it should be noted that the basic rules of the

JESSICA instrument are determined by directly applicable legislation of the European Community and

therefore when Czech legislation and guidelines are being applied, it is necessary to interpret Czech

legislation and guidelines in conformity with the existing provisions of Community law and their aims.

Notwithstanding the above conclusion on the compliance of Czech legislation with Community law, and as

a result of the obligation to interpret Czech law in conformity with Community law, we consider that for

the purposes of the JESSICA implementation, a more or less complex interpretation of the legislation and

guidelines is needed in order to determine the precise obligations of the respective beneficiaries (see



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below) and other relevant stakeholders. We therefore generally recommend that the Czech legislation

and guidelines foresee more specific rules applicable to JESSICA.

We have identified the following limitations and areas of potential concern in the relevant Czech

legislation and guidelines in relation to the financial flows within the implemention of JESSICA within the

ROP MS:

I. Lack of specific rules for flows of finance and for certification reflecting specificities of JESSICA

Based on Article 2(4) of the General Regulation and in line with the COCOF Note No. 1, when

implementing JESSICA, the HF, UDFs, and implementers of the individual urban projects are

‘beneficiaries’ of the respective finance. However, the relevant pieces of Czech legislation and

binding guidelines deal only with the traditional beneficiary structure whereby a beneficiary is the

only entity receiving a grant from an operational programme.

Furthermore, based on Article 78(6) of the General Regulation and in line with COCOF Note No. 1,

when implementing JESSICA, expenditures are incurred cumulatively at two stages: firstly,

expenditures are incurred when establishing and contributing to the HF/UDFs. Secondly, at the

partial or final closure of an operational programme, only the payments made from the UDFs into

urban projects (and eligible management costs) represent eligible expenditures. The relevant

pieces of Czech legislation and binding guidelines deal only with the traditional ex-ante and ex-

post types of expenditures, and do not reflect the complex structure of expenditures under

JESSICA.

Although it can be expected that lack of specific rules in this area may be a general issue arising in

many other EU Member States as well, we recommend for the above reasons that the respective

guidelines, as well as terms of the ROP MS, be amended to provide for explicit rules on the

financial flows and certification of expenditures for the case of JESSICA. This would strengthen the

legal position both of the RCMS, as well as the Payment and Certification Organ when dealing

with verifications and certifications of expenditures incurred by the different beneficiaries

involved in the implementation of JESSICA.

II. Unclear legal status of proceeds from investments of funds from the ROP MS

Based on Article 78(7) of the General Regulation, and whereas resources were allocated to UDFs

from certain operational programmes, resources returned to the operation from the investments

of finance allocated from the respective operational programme and undertaken by UDFs (or left

over after all guarantees have been honoured) should be reused by the competent Czech

authorities concerned for the benefit of urban development projects. According to COCOF Note

No. 2 and in case of JESSICA in Moravia-Silesia, the competent authority referred to above does



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not necessarily need to be the RCMS, it could be another Czech national authority. COCOF Note

No. 2 further recommends that “returned resources be re-used in the region(s) covered by the

operational programme” (in the present case Moravia-Silesia) and that this re-use should be

through financial engineering instruments, with a view to ensuring further leverage and recycling

of public money.

There does not seem to be any specific Community or Czech legal regulation further specifying

the legal status of the proceeds from the investments. For the sake of legal certainty, we

recommend that the Guidelines on Financial Flows and the terms of the ROP MS could specify

who should be further entitled to re-use the proceeds from the investments and under what

terms and conditions.

III. Amendment of the ROP MS – profit-seeking beneficiaries

For the implementation of JESSICA in Moravia-Silesia, funds available in the second priority axis,

area 2.3 (support of regeneration of brownfields), should be used. Under the current terms of the

ROP MS, profit-seeking companies are not eligible for the realisation of operations under area 2.3.

The purpose of JESSICA is to invest in operations generating revenue which could be again

invested in new operations. Although it is not a prerequisite that UDF-financed projects should

generate profit, it is a fact that in a market economy, the capacity to realize revenue-generating

projects often rests with private companies which are defined by law as profit-seeking. Therefore,

in order to facilitate realization of projects suitable for receiving JESSICA financing, the ROP MS

needs to be amended to render profit-seeking companies eligible for equity, loan or guarantees

financed from the ROP MS through JESSICA.

To summarise, based on the above limitations and areas of potential concern, we recommend that the

following documents be amended accordingly:

� Terms of the ROP MS

� Guidelines on Financial Flows

� Guidelines on Certification

� Guidelines on Eligibility of Costs



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H2. Assignment 2

Risk management:

� Which forms of UDFs do you recommend with regard to the minimisation of risks, while keeping

maximum control over the investments?

� How to legally deal with losses possibly resulting from UDFs’ failure to fulfill their business plan?


In line with Article 43(2) of the Implementing Regulation and with the conclusions of the PwC JESSICA

Study as regards possible legal forms of UDFs, with which we concur, we herewith contemplate the

following types of legal forms of UDFs:

H2.2. UDF as a separate block of finance within a financial institution (“UDF-Account”)

H2.3. UDF as an independent legal entity governed by agreements between the co-financing partners

or shareholders (“UDF-Entity”)

� Limited-liability company (“UDF LLC”)

� Joint-stock company (“UDF JSC”)

� Special fond of qualified investors (“UDF FQI”)

With regard to the plan to invest into UDFs, we have identified the following possible material risks:

� Insolvency of UDF

Both UDF-Accounts and UDF-Entities can find themselves in insolvency as defined by the Czech Insolvency

Act No. 185/2006 Coll, as amended. A considerable level of statutory control is exercised on financial

institutions and investments funds in accordance with the Act on Banks No. 21/1992 Coll., as amended,

and the Act on Collective Investment No. 189/2004 Coll, as amended8. As a result, it can reasonably be

8 Banks are subject to manifold business, corporate and operational requirements in order operate and to receive a bank license

in their home Member State, and are continuously subject to controls exercised by a national bank of the home Member State. Beside some corporate requirements, the investment funds of qualified investors are subject to continuous controls by a depository of its property (bank), and by the Czech National Bank, or have their portfolio managed by an investment company itself being subject to various corporate requirements and the continuous controls of the Czech National Bank.



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assumed that UDF-Accounts and UDF FQI are generally less vulnerable to the risk of insolvency than UDF

LLCs and UDF JSCs.

� UDF paralyzed due to conflicts among investors

There are many different ways how decision-making processes can be set within UDFs. On a general level,

we find UDF-Entities themselves managing the investments rather more vulnerable to conflicts among the

investors, compared to UDF-Accounts and UDF-Entities availing of the investment expertise of a third-

party professional.

From a risk-management point of view, we therefore conclude that UDF-Accounts and UDF FQI, especially

those availing of professional investment expertise (e.g., UDF FQI availing itself of services of an

investment company in accordance with Article 4(6) of the Czech Act on Collective Investment) can

generally be considered as less vulnerable to the aforementioned two foreseeable risks.

As regards differences among the UDF-types in a level of control which investors can exercise over UDF’s

investments, this almost completely depends on terms agreed between the HF and the UDF. Although in

some rather critical circumstances UDF FQI could become subject to a sequestration from the Czech

National Bank which would restrict the investors’ control over the investments, we believe this possibility

is outweighed by the increased certainty assured by the regular statutory control of the Czech National

Bank and the depository. As a result, none of the available UDF-types represent any material strengths or

weaknesses from the point of view of the level of control over investments, which should generally

influence their selection by the HF from the point of view of ensuring a necessary level of control.

Finally, as regards losses possibly resulting from UDFs’ failure to fulfill their business plans, this needs to

be dealt with in terms agreed between the HF and the UDF in the so-called exit strategies (sale of equity

in UDF, termination of agreement on asset management, etc.) and in setting applicable liability caps. It

can be generally assumed that the exit from a UDF not fulfilling its business plan should be easier where

the involvement in the UDF is based on a contract (on asset management), as opposed to equity

involvement (especially where UDF is a private company or UDF-FQI).

Based on the assignment, we herewith generally considered the selected risk-management aspects

amongst the available UDF-types. When selecting the particular UDFs into which to invest, the HF

obviously needs to consider many other aspects which will be related to the particular UDFs types, as well

as individual UDFs, such as the tax regime, administrative constraints, the capital strength, know-how,

portfolio of other business engagements etc. While taking into account the above general risk-

management aspects of UDF-types, the final decisions on the selection of UDFs will therefore need to be

based on a consideration of many more relevant aspects of the individual UDFs.



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H3. Assignment 3

Assessment of other financial contributions into the funds and their reporting within the implementation

of the program, specifically:

� Can public expenditures such as public expenditures of a region or a city be counted in the sum of

national public expenditures, if incurred at the level of HF/UDF/project?

� Are the other contributions at the level of HF/UDF/project also subject to the terms of ROP?


Based on Article 53 of the General Regulation, the contribution from the ERDF is limited to 85 % of overall

contributions, with the remaining contributions to originate from other public or private sources. This co-

finance rate applies to operations of the respective operational programmes, although its compliance is

to be assessed on the level of priority axes (see below).

In line with COCOF Note No. 1, and in case of the implementation of JESSICA in Moravia-Silesia,

operations comprise both contributions from the ROP MS to the HF and UDFs, and the subsequent

investments by UDFs. As a result, we believe all the national public expenditures incurred at the different

levels of implementation of JESSICA are to be counted in the total sum of national public expenditures, for

the purpose of the assessment of observation of the above co-finance rate.

Based on Article 44 of the General Regulation, the ERDF may finance contributions to the HF and UDFs as

part of the ROP MS. Based on Article 44(1)(b) of the Implementing Regulation, a funding agreement to be

concluded between the RCMS and the HF should take account of integrated urban development plans

included in the ROP MS. According to COCOF Note No. 1, operations should comprise both contributions

to the HF and UDFs, and subsequent investments within the scope of the ROP MS. As a result, we believe

all the operations made within the implementation of JESSICA, including contributions made at the level

of HF/UDF/project, are subject to terms of the ROP MS.

H.4. Assignment 4

Transfer of finance from the ROP to the HF: In 2010, the RCMS intends to transfer 20 mil EUR to the HF,

available in the ROP’s priority axis 2.3. The amount of 20 mil EUR consists of a contribution from the ERDF

(85 %) and of a contribution from the Czech treasury (15 %). The RCMS intends to avail itself of the so-

called flexible model of financing, whereby the co-finance ratio 85/15 applies at the level of priority axes,



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as opposed to individual operations executed within the axes. As in 2010 the RCMS will not dispose of a

half of the contribution from the Czech treasury, it intends to transfer only 17 + 1.5 mil EUR to the HF,

with the remaining part of a contribution from the Czech treasury of 1.5 mil EUR being transferred to the

HF subsequently in 2011.

� Is the above in accordance with the EC law and which part of a regulation deal with the subject?

� Is the above in accordance with the Czech law, and which generally applicable laws and binding

guidelines deal with the subject?

� If the above is not in accordance with the Czech law, which changes need to be executed to enable

the above?

� How to proceed with certification of expenditures?


Assignment 4 deals with the application of a requirement to ensure a specific co-finance rate of ERDF

contributions. This requirement is set by Article 53 of the General Regulation. In accordance with the

General Regulation, it is up to each Member State to decide whether the contribution from the ERDF shall

be calculated to the total eligible expenditures, including public and private expenditures, or to the public

eligible expenditures only. The rate of contribution from the ERDF to the ROP MS, as compared to the

other contributions, is 85 % according to the Annex III of the General Regulation.

According to Articles 53(1) and (4) of the General Regulation, and in the case of the implementation of

JESSICA in Moravia-Silesia, the contribution from the ERDF shall be calculated at the level of the ROP MS,

as opposed to individual priority axis or operations. However, according to Article 56(6), the Commission’s

decision on adopting an operational programme should fix the maximum rate and amount of the

contribution from the respective EC fund not only for each operational programme, but also for each

priority axis. As a result, for the sake of legal certainty, we conclude that the Community law stipulates

that the prescribed co-finance rate shall be observed at the level of priority axes. We believe this

conclusion is reflected by the provision of Article 67(2)(b) of the General Regulation, whereby the

Managing Authority shall regularly report on the financial implementation of the operational programme

(including the expenditure paid out by the beneficiaries and the corresponding public contributions) at

the level of the priority axis (as opposed to the level of the operational programme).

We further believe the observance of the requirement of the 85/15 co-finance rate shall be ensured for

the whole period of existence of the respective priority axis (as opposed to, for example, a one-year



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period, one statement of expenditure etc.), similarly as applies for observance of the cross-finance rule

(Article 34 of the General Regulation). We believe this conclusion to be in line with the Commission’s

reply to Question 4 COCOF Note No.2.

At a Czech national level, the requirement of the co-finance rate is reflected by the National Strategic

Reference Framework (Chapter 12) whereby the Czech Republic decided to apply the requirement only

vis-à-vis public expenditures (as opposed to both public and private expenditures). At the ROP MS level,

the requirement of the co-finance rate is reflected by terms of the ROP MS (Table 34 on page 162) setting

the total amount of the contribution from the ERDF and the total amount of Czech public contributions.

Based on the above, we conclude that the above flexible model of financing is in compliance both with

Community and Czech laws.

For the sake of legal certainty, we recommend amending the Guidelines on Certification to clearly state

that the requirement of reporting the amount of the ERDF and the other contributions shall apply

continuously for each statement of expenditure, and that, however, the fulfillment of the co-finance ratio

is being checked cumulatively at the level of priority axes and for the whole programming period.

I. JESSICA Inception Report Conclusion

The Inception Report of the implementation study demonstrates a wide potential of possible projects

suitable for a financial instrument such as JESSICA from both product-type and temporal points of view

and it summarizes basic facts and plans for potential development of the region. The Inception Report will

serve as a basis for the final report, which will provide a detailed analysis of potential projects and cover

additional technical and legislative aspects which we consider important before proceeding with projects.



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J. Operational rules and structure of Urban Development Fund (UDF)

The basic function of UDF is the utilization of funds from the operational program (OP) for returnable

investments into projects of urban development. Projects should qualify for financing from OP and should

be part of an integrated urban development plan. At the same time, the projects should bring socio-

economic benefits by dealing with certain market failures – for example by regenerating brownfields in

areas, where the private sector, due to local failure of the real estate market, is unable to naturally utilize

the potential of affected devastated areas on a commercial basis.

The JESSICA Holding Fund Moravia-Silesia was created on February 8th, 2010 by the signature of a contract

between Regional Council Moravia-Silesia and the EIB. The Holding Fund’s main purpose is to invest funds

of the Regional Council Moravia-Silesia in to one or more UDFs. The UDFs will be subsequently able to

invest funds into specific projects in Moravia-Silesia in three various forms:

- equity in a company

- loan

- provision of guarantees

In this section of the study, we focused primarily on the specification and proposal of the legal and

organizational structure of a UDF, its relations with associated subjects (HF, project promoters etc.), the

selection process of a particular UDF and the specification of individual investing steps of HF.

J1. Legal and organizational structure of UDF

From the viewpoint of the legal form of UDF, these options were identified in a previous section of this

study:

a) Limited Liability Company

b) Stock Company

c) Fund of Qualified Investors

In respect to expected totals of invested funds in 2012 – 2013 (10 – 15 million EUR), we do not

recommend the option of a Fund of Qualified Investors due to its high administrative cost.

The accompanying legislature of the JESSICA project enables the creation of a UDF in the form of a Special

Purpose Vehicle (SPV) or as a „detached“ financial unit of an existing financial institution.

With respect to the expected character of operation of the UDF and the customary practice of urban

project developments, we assume that under local circumstances it is feasible to apply both forms a) and



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b). It is understiood that the form will be proposed by individual applicants during their presentation of a

business plan. The following are the general advantages and disadvantages of both forms:

SPV:

+ clear organizational, executive and ownership structure

+ focus on purpose – operation is not influenced by other activities of the company

- higher insolvency risk (requirement to set effective control mechanisms)

Detached financial unit of existing financial institution:

+ lower insolvency risk (due to banking sector supervision)

+ generally easier to exit the SPV for the investor

- operation of UDF can be influenced by factors that are not related to the UDF or individual projects

(economic results of the company, conflicts of interest, competition, etc.)

Based on our experience, we recommend establishing the UDF as a Special Purpose Vehicle (SPV) without

previous accounting, tax or contractual history. In our view, SPV enables transparent organizational and

executive structure, while securing adequate options for control mechanisms. The purpose oriented

character of the UDF should minimize the risk of future influence by other entrepreneurial activities of the

UDF manager.

In order to achieve the maximum spectrum of offers, we recommend that Holding Fund Moravia-Silesia

opens its call for proposals to interested UDFs structured as both SPV and as separate blocks of finance of

financial institutions. On the basis of the above reflection about the suitability of the SPV form of a UDF

and taking into account the fact that the functioning of a UDF as a separate block of finance was already

analyzed in other evaluation studies, our analysis in this study will further focus primarily on various

models of UDF established as an SPV.

Legal form of UDF

From the viewpoint of the legal form of UDF, we assume that the UDF will always operate as a

commercial company – corporation (either as an SPV or detached unit). The founder of the company

should be either a corporation headquartered in the Czech Republic or an association of legal or natural

persons, or purpose based company of a city or village, possibly in combination with the private sector or

in an association in the framework of a PPP project. On the basis of the current legislative framework of

the Czech Republic, we expect that two forms of commercial company can be used - either a stock

company or a limited liability company. The basic characteristics of both forms are described in the table

below.

Comparison of a limited liability company and a stock company



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LIMITED LIABILITY

COMPANY

(LLC.)

STOCK COMPANY

(CORPORATION)

STOCK COMPANY WITH

SINGLE STOCK HOLDER

Founder(s)/Partner(s) LLC with single

founder/partner cannot

establish another LLC with

single founder/partner

maximum of 50 partners

one natural person can

become a single

founder/partner of max.

three limited liability

companies

Deed of Foundation can

establish no-competitition

clause also for partners

no limitations single founder has to have

prior corporation status

(single natural person cannot

establish a stock company

with a single stock holder,

but can become a single

stockholder subsequently)

Shares investment share (cannot be

replaced by commercial

paper)

shares (shares without voting

rights do exist, but have to

carry different benefits, for

example higher dividend or

liquidating dividend)

paper shares or recorded

shares

bearer shares or recorded

shares

only common shares

(without the difference in

voting rights)

Ditto

Share Related Lien share related lien has to be

recorded in Register of

Companies

paper shares can be used as

collateral by endorsement

ditto

Transferability of Shares with consent of General

Assembly, transfer shares on

different partner possible (if

not prohibited in Deed of

Foundation)

unlimited transferability with

possible limitations recorded

in Articles of Incorporation

transferability can be limited

but not completely

ditto



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if permitted by Deed of

Foundation, it is possible to

transfer shares to third

persons (also besides

partners) – transfer is

conditional upon consent of

General Assembly

mandatory record of share

transfer in Register of

Companies

prohibited

certain rights associated with

shares can be transferred

independently (for example

the dividends)

Minimum Basic Capital 200,000 CZK 2,000,000 CZK

(without public offering of

shares)

20,000,000 CZK

(with public offering of

shares)

ditto

Capital Underwriting and

Capital Pay-up

before submitting the motion

for registration in the

Register of Companies, at

least 30% of basic capital

must be paid-up, minimum is

set at 100 000 CZK (in case of

single shareholder 100% of

basic capital must be paid-

up)

liability of partners up to the

amount of unpaid capital of

all partners

before submitting the motion

for registration in the

Register of Companies, at

least 30% of underwritten

basic capital must be paid-up

each shareholder is liable up

to the amount of liquidating

balance (only at the moment

of company liquidation)

ditto

General Assembly (GA) single appointed partner

acts as GA

partners with more than 10%

investment share have the

right to summon GA

shareholder(s) with more

than 5% of shares (or more

than 3% if basic capital

exceeds 100 million CZK)

have the right to summon GA

single shareholder acts as GA

(GA does not meet)

Corporate Structure one or more executive heads

non-competition clause

Board of Directors –

minimum of 3 members

non-competition clause

Board of Directors – can

consist of less than 3

members

Supervisory Board (SB) non-obligatory structure, but

if is appointed, has to have

min. of 3 members

obligatory structure –

minimum of 3 members

if company has at least 50

employees, they nominate

1/3 of SB members

ditto



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Obligation of Due

Management Care

applies to executive heads,

partners, authorized agents

(professional care) and

shadow directors (in limited

capacity)

applies to Board of Directors

members, shareholders,

Supervisory Board members

and shadow directors (in

limited capacity)

ditto

Loyalty Obligation Applies to partners according

to some legal views and one

decision of the Supreme

Court of the Czech Republic)

N/A N/A

Mandatory Creation of

Reserve Fund (RF)

RF must be created from at

least of 10% of first net profit

annual accumulation of RF

until 10% level of basic

capital is reached

RF must be created from at

least 20% of first net profit

annual accumulation of RF

until 20% level of basic

capital is reached

ditto

Regular Updates of

Information in Register of

Companies

Company has to submit to the Register of Companies the following documents and their

changes: (i) Deed of Foundation/Articles of Incorporation (ii) documents proving appointment

and dismissal of corporate structure members or SB members; (iii) signature cards of persons

entitled to act on behalf of the company; (iv) annual reports and financial statements, if their

elaboration is obligatory (see below); (v) other documents determined by law.

Audit Audit of financial statements is obligatory, if at least 2 of following conditions apply: 1. overall book value of

company exceeds 40 million CZK;

2. annual revenues exceed 80 million CZK;

3. average annual number of employees exceeds 50;

audit of financial statements is obligatory if at least 1 of following conditions applies: 1. overall book value of

corporation exceeds 40 million CZK;

2. annual revenues exceed 80 million CZK;

3. average annual number of employees exceeds 50;

ditto

Advantages and disadvantages of a limited liability company:

+ simpler organizational structure

+ lower basic capital requirement

+ lower requirements on human resources in company bodies

+ adequate options of control and guaranties determined by Deed of Foundation

+ lower requirements on creation of reserve fund

- lower transferability of investment shares

- limitations in selection process of founders/partners (ban on chaining)

Advantages and disadvantages of a stock company:



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+ high transferability of shares without registration duty with the Register of Companies (with paper

registered shares)

+ no limitations in selection process of founders (except for a ban on founding of stock company by a

single natural person)

- more complicated organizational structure

- higher requirements on basic capital

- higher requirements on human resources in company structures

- higher requirements on creation of reserve fund

- higher requirements on obligatory audit

In connection to the above listed advantages and disadvantages of both types of company, we lean more

towards the form of a limited liability company; however it is possible to state that also a stock company

is a feasible option as a legal form of a UDF. Even if the stock company offers better transferability of

shares and its organizational structure is strictly determined by law, a limited liability company offers

similar parameters (if conditions are predetermined in the Deed of Foundation); however, it puts lower

requirements on basic capital and the creation of financial reserves that could needlessly burden a

flexibly managed UDF. Due to the fact that both forms appear as an acceptable option, we presume that

one of these two options should be proposed during the selection process by potential UDF founders.

J2. Organizational structure of UDF

Management and control levels of UDF

From the viewpoint of organizational structure and division of levels of operation and control of a UDF,

we propose a structure that would enable fulfillment of not only operational functions but also control

functions. We expect that the operational part of the UDF will be performed

by the Management Board and the control function will be executed by the HF

(the method of control is described below). Day-to-day operations will be

ensured by either its own employees or will be outsourced.

Management Board

MB should consist of at least 2-3 members, ideally, individuals with extensive

experience and professional background in the area of real estate

investment/development and management of real estate portfolios

(fund/asset management).

Day-to-day activity

Day-to-day activity of the UDF can be provided by either its own employees or

it will be outsourced to another professional company. The alternative of

having its own employees will probably be more beneficial with higher

UDF

Management Board

Holding Fund

Day-to-day activities

Operational Agreement



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investment volumes, on the other hand, with lower investment volumes, the fixed cost could

inadequately burden the UDF and outsourcing the services would be more suitable, for example to a

fund/asset manager or developer.

Control function

The control function will be provided by the HF and will be based on regular reporting from the UDF

(project realization progress, financial results, audit results, etc.). The relationship between the HF and

the UDF will be defined by the Operational Agreement, which will describe the methods of control in

detail. Members of the HF and the Regional Council Moravia-Silesia will have, among the other rights, the

right to perform checks on the operation of the UDF and on the realization of projects in the form of

inspections.

Beyond the control mechanisms outlined above, it could useful to consider also mechanisms enabling that

the UDF regularly justifies its decisions to the HF, informs the HF about planned actions or consults on key

decisions. These control mechanisms could be put in place through the establishment of a consultation

process where the HF and the Managing Authority would be involved. In any event, control mechanisms

should be set up in a way that the responsibilities of the respective actors are clearly delineated. We

suggest that these questions are analyzed further during the preparation of the Operational Agreement.

J3. Investment steps of HF

We expect the following phases/investment steps during the investment cycle of the HF:

Phase 0. Call for expressions of interest by potential UDFs, determination of parameters for selection

process

As a zero phase of the investment cycle, we consider the initiation by the HF of public competition or a

call for an expression of interest, including the determination of task parameters and the evaluation

parameters for the selection of the UDF. General task conditions, together with detailed specification of

selection and evaluation methods, are outside the extent of this study and should be created by the HF in

the next stage of the JESSICA implementation.

Phase 1. Announcement of public competition for UDF

We expect that the submission of bids to public competition should be performed in the form of a public

announcement with respect to internal regulations of the EIB for public competitions.9

9 Guide for the procurement of services, supplies and works by the EIB for its own account.

http://www.eib.org/projects/publications/guide-for-procurement-of-services-supplies-and-works-by-the-eib-for-its-own-account.htm



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We expect the following terms for partial process stages:

Activity Call for expression of interest Bid submission Evaluation,

selection, conclusion of

contractual documents

Month 1 2 3 4 5 6 7 8

Date 9 /

2010

10 /

2010

11 /

2010

12 /

2010

1 /

2011

2 /

2011

3/

2011

4 /

2011

With respect to the process of determination of the operational frame of the Holding Fund, we expect the

initiation of the process of a call for expression of interest in Q3 or Q4 of 2010, while bid submission and

their evaluation should occur in Q1 of 2011. The selection of the UDF, including contractual bindings

should be finished no later than in April 2011.

Phase 2. Evaluation of public bids, selection of UDF

Evaluation process of public bids and the UDF selection criteria will have to be determined in detail before

the announcement of a public competition as part of the call for expression of interest. Basic evaluation

and selection parameters are proposed in section J4. Criteria for selection of UDF.

Phase 3. Negotiation and conclusion of Operational Agreement

Based on the selection of the particular UDF with a specific business plan, it will be required to define the

relationship between the HF and the UDF in a contractual document (so-called Operational Agreement)

which will reflect the specifics of the proposed business plan and will refer to the business plan.

Phase 4. Drawing of funds into the UDF, investment into the project

We expect that based on the selection of the UDF and the determination of contractual documents

between the HF and the UDF, the HF will transfer to the UDF funds required for investments in projects

financed by the UDF. The UDF, within the frame of the business plan, should specify dates for drawing on

the funds for individual projects. We expect that the UDF will draw the funds either in single installment

or in several predetermined installments. In the case of a transfer in a single installment, the UDF should

specify the method of deposit and appreciation of free funds.

The UDF will enter into contractual agreements with subjects that execute individual projects. Basic

obligatory conditions of these agreements will already be determined at the level of Operational

Agreement between the HF and the UDF.



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Phase 5. Monitoring and control of UDF operations

During the entire life cycle of the UDF, the status of the project and the operation of the UDF will be

regularly monitored by the HF. We expect the following methods of monitoring:

1. Monitoring on the basis of regular reports subitted by the UDF

2. Regular audits of the UDF and companies involved in projects

3. Other options of control based on contractual documents and specific conditions of projects and of the

UDF organizational set-up (see also section J2)

Phase 5. Repayment of debt, termination of the relationship with the UDF

We expect that individual projects will be considered finished from the viewpoint of the HF through the

repayment of debt by project–implementing entities towards the UDF or in another predetermined

fashion. We also expect that the individual operations (investments of HF into UDF) will be terminated by

the repayment of debt that the UDF has towards the HF. Because of the difference between the deadlines

(termination dates) of individual projects, the termination of cooperation between the UDF and the HF

will occur at the time of the termination of the last project and of the repayment of the last debt by the

UDF to the HF. We expect that the UDF can further function on the market as a standard commercial

subject; however, during the cooperation with the HF, the UDF shall not be involved in projects other

than the projects financed by the funds from the HF.

J4. Criteria for selection of UDF

We expect that the future UDFs will be selected based on an open public competition in compliance with

internal regulations of the EIB for organizing public competitions. Business plans submitted by potential

UDFs should contain at least following items that will be evaluated in the selection process:

a) Investment strategy and target market of the UDF, proposed projects of urban development,

including Integrated Urban Development Plans (IUDPs) that they are based on, and criteria and

conditions of their financing

b) Projected cash flows, operational budget of the UDF, including the levels and structure of the UDF

management’s compensation

c) Ownership structure of the UDF

d) Co-financing partners or shareholders of the UDF

e) Internal regulations of the UDF

f) Decision-making structure of UDF, including clauses concerning professionalism, competency and

independence of management and appropriation of UDF with human/management resources,

management’s experience and expertise



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g) Justification of contributions from structural funds of the EU and its intended use, compliance

with the goals of the JESSICA initiative

h) Exit policy of the UDF from urban projects

i) Clauses concerning liquidation of the UDF, including re-use of funds earned by the UDF by

investing in projects of urban development or the use of funds remaining after fulfilling all

guaranties

Based on the above listed criteria, we deem most important, the part concerning the investment strategy

of the UDF and primarily of the particular projects envisaged for investment. The decisive factor should be

the meaningful utilization of funds, including maximizing the use of the private sector’s leverage effect

that should increase overall investment amount in the project and serve as a relative guarantee of

recoverability of invested funds.

Basic criteria for evaluation of business plan/project of UDF should be the following:

- Compliance with goals of the JESSICA instrument and intentions of Regional Council and the EIB

- Compliance with goals of the IUDP, emphasis on sustainable development of the city and the region

- Co-operation of public and private sectors

- Profitability of project, investment return period

- Method of investment returns guarantee

- Level of attractiveness for private sector

- Option of financing from other resources, co-financing options, financial leverage

- Transparency of the project – monitoring of financial flows and project progress

UDF – equity, loan, guarantee

We assume that one of the evaluation criteria within the framework of the investment program will

partially include the nature of the UDF. We do not think that in the UDF selection phase it is compulsory

to specify whether the UDF is of an „equity, loan or guarantee” nature. We expect that, due to a limited

volume of funds planned for investment in 2011 and 2012, the required nature of the UDF should be

determined by the composition of the project pipeline offered by the UDF, while in this phase it probably

will not be required to differentiate between UDFs based on their type.

J5. Conditions of UDF operation

From the viewpoint of selection and day-to-day operation of the UDF, we expect that the UDF should

comply with the following conditions:



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Responsibility

The UDF, its owner and management take on factual responsibility for the management and outcome of

projects/investments introduced by the UDF and approved by the HF. Even if the Holding Fund will have

its own control mechanisms in place, the HF won’t interfere with executive competences of the UDF

management.

Monitoring from HF

Control mechanisms of the HF will consist of instruments determined in the Operational Agreement

between the HF and the UDF. We expect that the Operational Agreement will enable monitoring of

individual projects by the HF and the Regional Council. Important mechanisms of control will be regular

reports submitted by project carriers to the UDF and regular reports submitted to the HF by the UDF. The

form of reporting will be specified in detail, based on the selection of particular projects with set

milestones of the individual project’s phases.

Duration of UDF operation

We expect that the UDF will remain active during the entire period of loan repayment to the HF, or during

the „financial“ life of the project. Duration of the UDF operation should not exceed 20 years, which we

consider to be the maximum loan term. In individual cases, based on the HF’s approval, exceptions to this

rule can occur.

Remuneration of UDF

The manager of the UDF will be entitled to remuneration for its work. We propose that the level of

remuneration is set as one of criteria that will be used for evaluation of the offers of the potential UDF

managers during the public competition process. The level of remuneration should depend on the UDF’s

performance in managing the entrusted funds.

Remuneration for the UDF should consist of the following components:

- fixed component – should be at the level of up to 1% p.a. of the invested volume

- performance-based component – will be paid when conditions determined by the HF are met,

this incentive can be based for example on:

- compliance with approved time schedule (timely investment of funds, completion of drawdown

of funds, etc.)

- achievement of a certain level of profit

- achievement of predetermined non-economic objectives

- component based on the UDF performance (internal profitability of the UDF)



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Profitability will depend mainly on the nature of projects and forms of the UDF.

- „loan-based“ UDF projects – for projects that will be funded by UDF, possible compensation for

the UDF will be significantly limited by the maximum allowed profit margin on the

entrusted/borrowed funds. The level of profit margin will be based on the potential of the

particular project and has to be in line with state aid rules.

- „equity-based“ UDF projects - for projects that will be funded by the UDF’s own resources, it is

possible to expect their higher profitability (relative to risk), especially if after the finalization of

the project, a certain portion of the project will be sold. In this case, the UDF should expect a

lower fixed component of its compensation and higher portion of compensation based on the

project’s profitability.

Based on the assumption that after 2015 it will not be possible to finance the UDF’s management fee

from the original ROP funds (after 2015 this will not be considered an eligible cost), it will be necessary to

count with the fact that the compensation of the UDF manager will be financed solely form the proceeds

„earned“ on the projects.

Compensation can also vary over time of operation of the UDF (for example one year of the project will

require higher involvement = higher compensation, other years lesser involvement, etc.) The system of

compensation will always depend on the investment program proposed by the prospective UDF.



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Examples of projects suitable for financing with JESSICA resources

K.1. Project “Havířov”

K1.1. Project Description

The premises of a former coal mine of approximately 190 000 m2 are located within the city limits of

Havířov. Currently, the premises are not being fully utilized. The premises consist of two parts. Within the

part described as Section A., primarily an old single story and multi story industrial buildings are found.

Some are under protected status due to their architectural uniqueness. The buildings are mostly in their

original condition, only some are partially renovated. Within the part described as Section B., mostly

vacant land plots affected by industrial mining are found. The premises are owned by a private company

that is the successor of the original mining company. A land transfer contract concerning the vacant land

in part of Section B of about 3.5 hectares was signed between the owner or the premises and the city of

Havířov this year. The city of Havířov received a grant of approximately 200 million Czech crowns (CZK)

for land reclamation and infrastructure development within the reclaimed area. The city and the owner

of the rest of the premises this way conducted the first step towards the development of this locality and

the city itself.

Goal:

The goal of the private investor and the city is the utilization of the premises (Section A.) for the

development of services and public amenities. Section B. is planned for primarily industrial use and

business development in the city and the region. Through land reclamation and the development of

infrastructure, the city and the private investor intend to attract other investors and enable them to

implement their business plans on reclaimed land.

The goal of the investor and the city in Section A. is the refurbishment and reconstruction of some original

buildings and their consecutive long term lease. The premises should be used primarily for leisure-time

activities. Part of the mainly single-story industrial buildings should be utilized as sport facilities, tennis,

squash and fitness centers should be built, including accompanying activities. Part of the renovated

buildings should be used by the city as the library and city culture center. The investor intends to lease

these buildings to the city and individual businesses on 15 year lease terms. The city would lease

approximately 40% of these premises.

K1.2. Financial analysis of the project

Basic project data, including planned cash flow of the project are listed in Appendix 1 – Financial analysis

of the project Havířov, Section A.



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K1.3. Description of the proposed JESSICA financial investment in the project

Basic Project Data

In the table below are listed the basic project data based on gross cost and revenue calculations, including

the estimate of current market value.

Project Summary

Current market value of the premises owned by private investor 83 528 000 CZK

Reconstruction cost 73 948 000 CZK

Current value including the reconstruction cost 157 476 000 CZK

Estimated annual lease revenues 13 262 400 CZK

Yield rate of the project 8,4%

Standard required commercial project yield rate 12,5%

Market value of buildings after reconstruction 106 099 200 CZK

Standard value financed by a commercial bank (70% of market value or cost) 74 269 440 CZK

Cost difference (calculated as current value including the reconstruction cost minus the value financed by the commercial bank) - 83 206 560 CZK

The premises, owned by the project carrier (former mining company) are heavily devalued due to the

previous mining activities, and at the same they are located in a future attractive zone of the city of

Havířov. While the data is listed as the market value estimate, according to our view, the premises are not

currently marketable at this price due to very limited number of potential buyers.

Should the owner of the premises decide to reconstruct and lease the buildings to individual

entrepreneurs at current market conditions, the project stands below the customary yield rate required

by the private sector. The minimum level is usually determined for quick comparison purposes by the

yield rate computed as the ratio of the annual revenues to the market or cost value of the premises. The

capitalization rate required by the private sector with a similar type of project will stand at approximately

12 – 12.5 %. While estimating the reconstruction cost in the amount of 73.948 million CZK, the yield rate

of the project was calculated at the level of 8.4%, which is significantly below the level required by the

private sector.

Should the owner of the premises consider financing the project with a commercial loan, most likely he

could finance a maximum of 70% of the premises‘ value which means that in case of reconstruction, he

would face a cost difference of approximately 83 million CZK. At the same time, the financial rating of

potential tenants would most likely be insufficient, therefore standard commercial loans would not be

feasible.



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The current value of the premises, calculated as market yield value*) of the premises minus the

reconstruction cost, is at the level of 32.151 million CZK. Due to the dysfunctional lease market in the

region (the level of the rent that the owner can collect is low) the yield value in this case is significantly

lower than real market value**). Due to this fact, the owner of the premises would rather continue

holding the premises without investments in reconstruction and wait for market conditions to improve,

nor would he be interested in selling the premises at this price.

____________________

*) Market yield value of the premises is determined as the ratio of net annual revenue from the premises (for

example the lease revenues minus the operational and other costs of the premises) and the customary required

market yield rate (the ratio of an annual profit and the investment cost to acquire the real estate) required by the

investors for a comparable type of project.

**) Real market value – value of comparable real estate offered at the market

Financing by means of the JESSICA instrument

In the case of the application of the JESSICA instrument, we assume the financing of the reconstruction

cost in the amount of approximately 74 million CZK basically at standard market conditions, except for the

acceptance of a higher risk rate of the project. The basic proposed conditions of the financing are as

follows:

Loan amount 73 948 000 CZK

Length of financing in years 15

Interest rate 4,60%

Annual payments - 6 933 000 CZK

Value of real estate after 15 years 141 728 400 CZK

IRR 3,25%

Advantages and disadvantages of the financing from the viewpoint of UDF / HF:

+ owner’s equity deposited into the project in the amount of approximately 15%

+ approximately 40% leased to the city of Havířov for 15 years (higher level of guaranty)

+ other buildings leased to various tenants – diversification of risk

+ significant benefit in regeneration of brownfield in an important developing city

sector

+ regeneration is an important goal set by IUDP (Integrated Urban Development Plan)

+ significant socio-economic benefits

- higher level of risk

- relatively long return period

- financial leverage of private sector is not utilized (commercial financing)



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Project risks

As main potential risks of the project we consider:

- occupancy of the premises by tenants

- lower financial rating of tenants / sport facilities operators

- partial dependency of revenues on the influence of the global economic situation on the region

- consistent ability to repay loan, missing lease revenues

Primary risk of the project is the question of tenant‘s ability to pay rent over a long term horizon of 15

years. Even if the financial rating of tenants and sport facilities operators is lower, we expect higher

diversification while leasing to multiple subjects. This sector will account for approximately 60% of the

facilities while approximately 40% will be leased to the city of Havířov, which can be considered a

financially sound partner. This way, the influence of the negative global economic situation on the region

will be partially eliminated.

K1.4. Analysis of the project's socio-economic benefits and risk, compatibility with the existing IUDP

(Integrated Urban Development Plan)

Project IUDP, previously created by the city of Havířov, states that the achievement of the general goals of

IUDP will be executed by mutually connected activities that deal with regeneration and restoration of

neglected or insufficiently utilized city premises and at the same time raise quality standards for highly

visible public areas.

The necessity of regeneration the city area is objectively determined by the insufficient state of most

public areas in the city, where in previous decades only emergency maintenance was performed and

where significant investments in maintenance and development was lacking. The attractiveness of the

city for its citizens and other visitors is primarily determined by the corresponding living standards of its

inhabitants and the level of the city environment, that can only be effectively provided by a complex

approach to the previously mentioned regeneration of public areas and the development of public

amenities and infrastructure of public services while respecting the principle of sustainable development.

The development and improvement of the quality of regional public amenities and infrastructure of public

services within the city limits (Operational Program NUTS II Moravia-Silesia 2007-2013) in connection with

the current insufficient quality or capacity of certain previously identified segments of the public

infrastructure will result in the increase in the quality of residential zones and basic public services such

as services provided in significant areas of social issues and education, while at the same time the issue of

building and improving infrastructure for the culture, sport, leisure time and other related areas will be

approached.



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We present several basic points from the goals of the city of Havířov that are related to this project

One of the priority areas is the economic development of the city.

The weaknesses and risks include:

� Low number of production factories and an absence of large prosperous companies that would

constitute basic economic stability for the city

� Few development areas suitable for an industrial zone causing lack of interest in potential investors or

entrepreneurs in the city

� The possibility to utilize DUKLA premises after the termination of mining activities in cooperation with

new owner

From other areas of SWOT analysis, we perceive as supportive for the creation of similar premises, the

following points:

Social integration

� Multifunctional stadium for larger events and retractable roof for the open air movie theatre are

missing

� Non existence of multifunctional congress center with appropriate technical equipment for organizing

seminars and conferences

� Insufficient opportunities for utilization of leisure time, very few youth sport clubs

� Poor technical condition of cultural facilities

� Inadequate space for the city library and information center

� Lack of sport facilities (arenas, gyms)

Environment

� Increased pressure on appropriation of premium land

ATTRACTIVE CITY

� Administrative significance and availability of government services (health care, education, postal

services, telecommunications) do not correspond with the size of the city

� Missing facilities for leisure time activities

� Necessity to revitalize some city areas from the viewpoint of the quality of urban environment and

public areas

Evaluation of project’s compliance with priorities of urban and regional development



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As for the IUDP of the city of Havířov, it is possible to claim that the integrated urban development plan,

focused on the area of the regeneration of urban space and the development of public amenities and

infrastructure of public services, will fulfill the priority program „Attractive Cities“ in correspondence with

the Guidance of the Ministry of Regional Development concerning the main rules for preparation,

evaluation and approval of IUDPs and with the Instructions for Preparation of IUDPs for Regional

Operational Programs for the 2007 -2013 planning period. As part of this priority area, the following

activities will be addressed:

- Regeneration of brownfield type areas for public services

- Revitalization of other public areas

- Construction and technical appreciation of sport related infrastructure

- Construction and technical appreciation of infrastructure related to activities engaging children and

youth, cultural and other leisure time activities

The above mentioned facts point to the obvious correspondence of this project with the goals of the city

and the region. The preparation of a multifunctional center project at the site of a neglected urban

brownfield, despite its peripheral location, should enable a suitable combination of the support of

insufficient business structure through the creation of smaller, economically feasible facilities that will be

able to attract, in its initial phase, local companies with the ability to attract further potential investors

due to already existing adequate development potential.

In respect to the location of the premises, the project will enable a rerouting of the traffic burden from

the city center to less a compressed peripheral area and thus will enable a decrease of environmental

burden on citizens. Thanks to a properly sized network of public transportation, the area is conveniently

accessible.

As a result of the proposed combination of cultural and leisure time functions with entrepreneurial

activities proposed for the rest of the premises, we find the project a suitable method for further

development of the area. Placement of the library, culture center for organizing exhibitions, workshops

for local artists and interest groups, seminar facilities and restaurants, and in the initial phase, the

placement of indoor squash and tennis courts should provide a strong starting position for future

perception of the zone by the citizens as a natural component of the city and an increase in its own

attractiveness.

K1.5. Recommendations of further steps of project promoters in relation to program JESSICA

In respect to the current status of the project we propose the following steps:

1. Complete the project of area development, clearly specify the future utilization method



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2. Prepare documents concerning the premises for an investment opportunity (project documentation,

consent of the local zoning authority)

3. Specification of city requirements and closure of clear contracts with the city of Havířov concerning

future usage of part of the premises (lease conditions, LOI, cooperation contract, etc.)

4. Determination of key lease conditions for the remaining commercial facilities

5. Identify in detail the expected project costs

We assume that clarification of cost and revenue data, including the acquisition of guarantee of at least

part of future revenues, will enable the project’s detailed evaluation as a whole and, with utilization of

Urban Development Fund (UDF) its integration into the financing program using JESSICA instruments.



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K2. Project Opava, Sport and Recreation Zone


The intention of the city of Opava is to develop a new Sport and Recreation Zone, including a facility for

water sports. The city is completely lacking a facility that combines swimming with activities more typical

of an aquapark. By execution of this project, the city of Opava is expecting to further develop tourism and

tourism related activities in the city. The city organized a public competition for the design and placement

of sport facilities. The selected design was with the one with the placement of the sport facilities in the

City Park next to a multifunctional sport arena.

The land plots for the intended sport facility are currently without specific use. The intention to build a

swimming pool in the greater area of the City Park is in correspondence with the plan to build a sport and

recreation zone that will serve the citizens and also visitors to Opava. Besides the multi-purpose sport

arena, the previously mentioned City Park is likewise located in this area. Also located here are the city

open-air swimming pool, football stadium and future recreation area around „Silver Lake“ (former

gypsum quarry). It is necessary to evaluate the current status also from the viewpoint of the quality of

provided services. The open-air swimming pool that is currently used by general public is located in the

city center with inadequate parking facilities. The technical equipment of the open-air swimming pool is

significantly outdated (inability to operate with profit, inability to provide services at required quality

level).

Goal:

Main goals of this project include:

� Improvement of sport facilities for citizens (in relation to inadequate existing facilities)



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� Increasing the options for fun activities in the swimming pool (water attractions, wellness center, etc.)

that should contribute to tourism development

� Replacement of technically inadequate and inconveniently located existing sport facilities of the same

type

� Increasing the options for sport and recreation in the area of the City Park

� Execution of this project in 2011 – 2013

The city of Opava is considering various options of project financing. Based on the fact that the yield rate of this type of project is usually unattractive to the private sector, the option of grant utilization, the cooperation with private sector through the PPP project and other alternatives of financing are being considered. Based on the project’s characteristics, the option of financing using JESSICA instrument appears as potentially attractive. K2.2. Financial analysis of the project

Basic project data, including the planned cash flow, are listed in Addendum 2 – Financial analysis of

project Opava, Sport and Recreation Zone.

K2.3. Description of proposed financial investment by means of JESSICA instrument

The option of financing this project by means of JESSICA resources is being considered. HF would provide

the loan through UDF based on the conditions listed below.

Basic project data

Project Summary Costs

City of Opava own invested resources (land, project preparation) 12% 37 000 000 CZK

Overall estimated project cost 88% 280 000 000 CZK

Cumulative project value 317 000 000 CZK

Revenues

Estimated average annual project revenues 20 942 328 CZK

Estimated average annual project operational cost - 5 235 582 CZK

Estimated net annual project revenue 15 706 746 CZK

The city of Opava is the owner of the land assigned to this project. We estimate the current value of the

land at approximately 37 million CZK. The city would contribute this value in the form of its own



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contribution (own resource). Overall estimated cost of the construction of the swimming pool and the

aquacenter, including the project and other costs are estimated at approximately 280 million CZK.

We estimate the average annual revenue from the project, after subtraction of operational cost (energies,

operational cost of swimming pool technologies, employees, etc.), at approximately 15.7 million CZK. The

revenue will likely vary over time, please see Addendum 2 – Project Cash Flow.

The average annual yield rate of this project is around 5%. The yield rate of this type of project is, from

the viewpoint of private sector, considered to be unattractive. Therefore, it is necessary to seek other

financing options.

Financing by means of JESSICA instrument

In case of utilization of the JESSICA financial instrument, we estimate financing project costs in the

amount of 280 million CZK. The city of Opava would contribute land valued at 37 million CZK (own

resources) to this project. Estimated conditions of project financing are listed below:

Financing

Loan amount 280 000 000 CZK

Length of financing in years 20

Interest rate 2,80%

Annual loan payment - 18 474 115 CZK


IRR 1,08%

Advantages and disadvantages of the project financing from the UDF / HF viewpoint:

+ significant socio-economic benefit for the region

+ strengthening of tourism and creation of related social and economic

activities

+ the ownership of land by the city – relatively strong guarantee

+ project corresponds with key goals set by the IUDP

- relatively low invested equity into the project (approximately 12%)

- higher level of risk connected to economic development in the region

- long return period

- financial leverage of private sector is not utilized as it should be (commercial financing)



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Project risks

As main potential risks of the project we identify:

- finding a suitable method of „commercial“ operation

- inability to create reserves „for bad times“ due to low yield rate

- partial dependency of revenues on the influence of the global economic situation on the region

- high operational cost

The main project risk identified by us primarily involves the ability to maintain the facility and the

operation of it in a manner that is sufficiently attractive for the entire duration of the loan repayment

period and to guarantee this way the repayment of borrowed funds within the expected time horizon.

The proposed option of the sport facility being operated by an „inexperienced“ operator in the form of

the city of Opava also appears relatively risky. The character of operation of similar facilities requires

extensive experience that would enable the design of equipment and technologies in a way that would

perform during the entire lifetime with optimal operational costs and at the same time would be able to

keep the facility „marketable“ during the long expected period of operation. The question of operational

costs is more than relevant because the operational costs are only partially dependant on the revenues

(the operational cost will be the same regardless of the visitor rate). Further risks include the dependency

on the overall economic situation of the region. In the case of economic fallout of the region as a whole,

the overall performance of the facility will be greatly affected. The economy of this project does not

allow for the creation of reserves, and thus the failure of revenues can quickly lead to the owner‘s

inability to make the loan payments.

Opportunities:

We see an opportunity in the potential cooperation of the city with a private investor (for example in a

form of PPP). The contribution of a private partner would mainly lie in his know-how associated with the

operation of similar facilities. Based on this know-how, more suitable, economically sound and

operationally effective proposals can be implemented; and resulting from his experience, the revenue

side of the project and thus the overall project effectiveness can be improved.

K2.4. Analysis of the project's socio-economic benefits and risk, compatibility with existing IUDP

By increasing the opportunities for active life of its citizens, the city expects to keep current citizens in the

city and to initiate a possible influx of new citizens. Moreover, the utilization of the city’s tourist potential

should increase thanks to its proximity to the border with Poland and further lead to an improvement of

the city’s and business owners’ revenues. This way, an already quite attractive location will achieve new



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opportunities that can subsequently increase the interest of investors and lead to the expansion of

existing entrepreneurial activities within the city and its immediate surroundings.


IUDP is focused on the project called Attractive Cities. This project incorporates regeneration of urban

areas, facilities and spaces by developing infrastructure and services for leisure time, including the

infrastructure for tourism and public services. The infrastructure for culture, sport and leisure time in

Opava is either in an unsatisfactory technical state or is completely missing.

Compliance of this project with IUDP does exist because the IUDP is focused on the Attractive City project.

At the same time, the IUDP deals with the demand for the development of sport infrastructure which is

also in compliance with the city’s strategic plan. One of the activities addressed in the strategic plan is the

construction or eventual reconstruction of the swimming pool (in a priority section of strategic plan

named People)

The added value for the city is obvious – the current swimming pool is technically inadequate, water

attractions are missing completely. The city of 60 000 people does not have a swimming pool for the

winter months at all, and in the summer months, the demand for a quality swimming pool is not fulfilled.



1. Create a detailed financial analysis of the project, primarily its revenue and cost structure

2. Initiate the selection process of potential operator / strategic partner, possible form of cooperation

through PPP project

3. Increase overall effectiveness of the project

4. Evaluate the possibility of co-financing by a private sector

In case the effectiveness of the project is increased and sufficient guaranties for cost and revenues are

provided (for example by engaging a partner with experience in construction and operation of similar

facilities), we presume that the project shall be suitable for financing with JESSICA instruments.

Note: Information regarding estimated revenues and portion of the cost were not supported by other

documents at the time of completion of this study and are based on our gross estimates.



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K3. Project “Ostrava”, Industrial Zone Hrušov


The locality „Hrušov“ is situated in close proximity to highway D47. It is a devastated area of overall land

size of 35 hectares. The current premises are practically uninhabited and comprise only people at the

bottom of the social scale. The premises create a strong social brownfield. Approximately 50% of the area

is owned by the city of Ostrava, 26% is owned by a private investor and remaining 24% is owned by the

government of the Czech Republic and other private entities. Currently, the acquisitions of land plots are

in progress in order to maximize the unification of the area.

Thanks to its proximity to highway D47, the location should be attractive for the placement of industrial

(production, research and development, logistic) facilities and gradually enable the relocation of existing

industrial facilities from the city center to the main transportation arteries. At this point, the locality is

significantly devastated by previous activities, and for its future utilization it is necessary to unify it (based

on the ownership or interest), recondition it and equip it with proper infrastructure.

The city of Ostrava and the main private investor signed The Memorandum of Joint Approach to Area

Development, while they remain communicating in respect to the option of joint PPP project. The city of

Ostrava is already, together with a private investor, involved in project ACT4PPP (Transitional Action for



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Public Private Partnership). The goal of this project is the creation of PPP cooperation model (for

revitalization of this locality) linked to financing from European Union funds.

Goal:

The goal of the private investor and the city of Ostrava within the Hrušov locality is to create a modern

industrial zone that will offer plots for industrial use and will enable the regeneration of devastated area,

while contributions to the IUDP (see further text) are also closely monitored. The goal of investors is the

unification of the area of an industrial zone, investments in infrastructure and the consecutive sale of land

plots to private investors (for example for manufacturing, logistic, administrative, research and

development activities).

We expect the division of this project into at least two stages, while the second stage of investment

should follow speedy completion/sale of the first stage. First stage should involve the regeneration of

more than 15 hectares of land and its execution is expected to take place in 2012 and 2013.

K3.2. Financial analysis of the project

Basic project data of this project, including projected cash-flow, are listed in the Appendix 3 – Financial

analysis of project Ostrava, Industrial Zone Hrušov.

K3.3. Description of proposed JESSICA financial investment into the project

The city and the private investor, based on their coordinated approach, would invest their own land into

this project (by creation of purpose-based company) valued at approximately 40 million CZK, while the

overall investment into the infrastructure is estimated at approximately 67 million CZK, which could be

executed by using JESSICA instruments. In this case, we assume the capital entry into the company

through UDF share and the entry into the project by equity investment.

Basic project data

Plots Previous use Plot size Value of plots

before

revitalization

Infrastructure

development cost,

other costs

Market value of

plots

A Land owned by the city of Ostrava

100 000 m2

25 000 000 CZK 42 000 000 CZK 85 000 000 CZK

B Land owned by private investor

50 000 m2 12 500 000 CZK 21 000 000 CZK 42 500 000 CZK



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C Land owned by the city and private investor (land for infrastructure)

10 000 m2 2 500 000 CZK 4 200 000 CZK - CZK

SUM

CZK

40 000 000 CZK 67 200 000 CZK 127 500 000 CZK

SUM EUR

1 538 462 EUR 2 584 615 EUR 4 903 846 EUR

Financing by means of JESSICA instrument

As mentioned above, the assumption is that the JESSICA instruments will finance the cost of infrastructure

development of the first stage area of approximately 15 hectares, including the financing of other project

associated costs. The overall investment should reach the level of 67.2 million CZK. The value of the land

contributed to the project by the city and private investor is approximately 40 million CZK. Projected sale

price of land plots is estimated at minimum of 850 CZK/m2, which puts the total price at 127.5 million

CZK.

Basic conditions and data of financing are listed below:

Costs

City of Ostrava’s own invested resources (land) 24% 26 250 000 CZK

Private investor’s own invested resources(land) 13% 13 750 000 CZK

Invested resources UDF (infrastructure cost, other costs) 63% 67 200 000 CZK

Total estimated project cost 100% 107 200 000 CZK

Revenues

Total estimated sale price of plots 127 500 000 CZK

Gross profit from sale of plots 20 300 000 CZK

Net (after tax) profit 17 371 000 CZK

Yield rate 18,9%

IRR 12,2%

The execution of this project will allow the sale of land owned by private investor(s) and the city that are

otherwise unmarketable. The value of the land will increase and all investors will profit from it. The

project estimates a gross profit at approximately 20.3 million CZK. The revitalized area will create an

opportunity for consecutive investments valued at approximately 1 billon CZK. Besides the economic

benefits, the project has also other significant non-economic benefits described below.



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Investment in the infrastructure and regeneration of land is difficult to finance from commercial

resources at present. Due to the policies of commercial banks affected by the global economic crisis, it is

practically impossible to obtain project financing from commercial resources. Despite the fact that the

final yield rate is relatively attractive, most of investors from the private sector require a significantly

higher investment appreciation. The city and private investor, despite the fact that they are the owners of

land in question, would have to finance the project from their own resources or sell the land in its current

condition. A private investor will always preferentially invest into projects with higher appreciation, but

simultaneously is not willing to sell the land for the very low price that would be currently offered by

buyers. The city of Ostrava would have to finance the project from its own budget, but at this time is

forced to concentrate on more needed investments within the city. Due to the above mentioned reasons,

it is impossible to expect that the regeneration of the area will be executed in the coming years, if the

resources provided from the JESSICA instruments were not available.

Advantages and disadvantages of financed project from the UDF /HF viewpoint:

+ higher proportion of own resources (approximately 40%)

+ relatively low level of risk

+ relatively short investment return period

+ financial leverage of private sector is utilized

+ consecutive investments in the amount of approximately 1 billion CZK

+ significant benefit in regeneration of brownfield in developing section of the city

+ regeneration of the area is one of key goals set in IDUP

+ significant socio-economic benefits

+ relocation of industrial activities and related traffic to the suburbs of the city

- inability to utilize commercial financing

- current market conditions affected by global financial crisis

Project risks

As main potential risks of the project we identify:

- completion of sales of plots within the horizon of the project (5 years)

- competition from „dumping priced localities“ in the Czech Republic and Poland

Potential risks of the project are, in our view, relatively low, however, we have to state that the main risk

of the project could be the issue of selling plots within the period of 5 years. Currently, the city of Ostrava

is greatly affected by the global economic crisis and the process of arrival of new investors is influenced

by the competition of „cheaper localities“ in western Czech Republic (mainly due to the oversupply of

rentable space in the area) and the same applies in connection with the less expensive Polish real estate



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market. We expect, however, that from the long term point of view, these differences will be gradually

eliminated and Ostrava, thanks to an available and relatively inexpensive work force, will stimulate the

interest of investors.

K3.4. Analysis of socio-economic benefits and risks, compliance of the project with IUDP

Creation of new and attractive localities for future investors in the traditionally industrial Ostrava region is

considered a key factor. Due to the current location of available areas in the city, the locality near

highway D47 appears to be significantly advantageous. Continuous road construction provides

comfortable access to this zone and reduces the traffic burden from the city center. Rerouting of road

traffic from the city center is a significant factor in the evaluation process of similar projects. In a relatively

short period of time, the quality of life in the area should improve.


The IUDP „Pole of Development“, we analyzed, fulfills goals form several areas outlined in the Strategic

Plan of Development of Ostrava. Primarily, the following goals are emphasized:

� Area development – the goal is to sustainably reinforce the metropolitan function of the city

� Economic development – the goal is to create conditions for dynamic development of local economy in

key sectors and offer quality health, social and educational services

� Transportation and technical infrastructure - the goal is to ensure conditions for the development of

intelligent transportation systems, parking and overall decrease of traffic

� Environment – the goal is to decrease negative impact of traffic

IUDP „Pole of Development“ is, in its part of economic development, primarily focused on the solution of

issues of investment preparation of the area for business, science, research, development, innovations

and construction of business related facilities.

Based on the IUDP and our recommendation in the Inception Report, due to a generally low number of

entrepreneurial subjects in relation to the number of inhabitants, we insist that some projects should be

directed towards the preparation of industrial zones, where small and mid-size companies involved in

production or services would be concentrated (car services, small workshops, research and development,

etc.) Based on its disposition, the project should utilize a relatively large section of reconditioned area.

The utilization of brownfields outside of the city center should have the leverage effect of redirecting

traffic to routes with higher capacities and enable a decrease of the traffic burden in the city center with

a partial effect on the issue of the insufficient number of parking places in the city center.



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1. Contractual agreement between the city of Ostrava and the private investor concerning a joint

coordinated approach

2. Preparation of detailed financial analysis of the project (feasibility study)

3. Addressing the issue of ownership fragmentation by securing remaining land plots (for example by

signing preliminary purchase contracts)

4. Initiation of work on project documentation to build infrastructure, including required permits from

local authorities (Environmental Impact Assessment (EIA), zoning permits, etc.)

Out of the steps that are required to allow for the eventual financing from JESSICA resources, we consider

as most crucial the creation of a model for cooperation between the private investor and the city of

Ostrava and also undertaking the steps towards further preparation of the area. Unsecured minority land

plots should be ideally secured in this phase (for example by signing preliminary purchase contracts) to

ensure the option of their future acquisition. In respect to the HF plan to invest the resources in 2011 and

2012, it is necessary to prepare a detailed feasibility study of the project, including the related detailed

financial analysis. Before the next evaluation, the clear appropriation of land plots, the method of

infrastructure development, including roads and other revitalization plans should be obvious from the

feasibility study or from related documents. In respect to the time demand on the EIA process and in the

obtaining of zoning permits for infrastructure development, we also recommend immediate initiation of

this work.



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List of Appendixes:

Appendix 1 – Financial analysis of Project “Havířov”

Appendix 2 – Financial analysis of Project “Opava”, Sport and Recreation Zone

Appendix 3 – Financial analysis of Project “Ostrava”, Industrial Zone Hrušov



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FINAL REPORT May 2010

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Appendix 1, Financial analysis of Project “Havířov”

Basic characteristics of the project

Building

Previous use

Future use

Floor sqm total

Year of comp-letion

Value before

reconstruction

Costs for

reconstruction

Value + costs

Annual rent

Yield

Note Above

ground Under ground

sqm/ floor

A Machine shop Tennis hall 1 0 1500 1500 9 300 000 CZK 6 750 000 CZK 16 050 000 CZK 1 260 000 CZK 7,9% listed building

B Lamp room Squash hall 3 1 1350 3000 17 700 000 CZK 12 600 000 CZK 30 300 000 CZK 2 520 000 CZK 8,3% listed building

C Combine harvester workshop

Restaurant, bowling 1 0 520 520 3 068 000 CZK 2 288 000 CZK 5 356 000 CZK 374 400 CZK 7,0% listed building

F Administration building Library + AB 3 1 1185 3300 17 820 000 CZK 16 170 000 CZK 33 990 000 CZK 2 772 000 CZK 8,2% reconstruction

G Administration and cloakroom AB + fitness centre 3 1 908 3800 1985 20 520 000 CZK 22 420 000 CZK 42 940 000 CZK 3 648 000 CZK 8,5% reconstruction

H Chain cloakroom Havířov cultural centre 3 1 1470 2800 15 120 000 CZK 13 720 000 CZK 28 840 000 CZK 2 688 000 CZK 9,3%

reconstruction difficult

SUM CZK 14920 83 528 000 CZK 73 948 000 CZK

157 476 000

CZK 13 262 400 CZK 8,4%

SUM EUR € 3 212 615 € 2 844 154 € 510 092



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Appendix 1, Financial analysis of Project “Havířov” Project Summary

Current market value of real estate owned by a private investor 83 528 000 CZK

Costs for reconstruction 73 948 000 CZK

Current value including costs for reconstruction 157 476 000 CZK

Anticipated annual yield from rent 13 262 400 CZK

Project yield 8,4%

Standard required commercial project yield 12,5%

Market yield value or real estate after reconstruction 106 099 200 CZK

Standard value financeable by commercial bank (70% of the market value, possible costs) 74 269 440 CZK

Cost gap - 83 206 560 CZK

Level of loan 73 948 000 CZK

Repayment period 15

Interest rate 4,60%

Annual loan instalment - 6 933 000 CZK


IRR 3,18%



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Appendix 1, Financial analysis of Project “Havířov” Cash flow prediction

Costs 73 948 000 CZK


Interest rate 4,60%

Repayment period 15

Annual instalment -6 933 000 CZK

Rent 13 262 400 CZK

Year Yield from rent Loan instalment Repayment of the

principal

Interest Gross income Balance Depreciations Tax Net income

1 13 262 400 CZK -6 933 000 CZK -3 531 392 CZK -3 401 608 CZK 6 329 400 CZK 6 329 400 CZK -2 464 933 CZK -1 479 172 CZK 4 850 228 CZK












13 16 819 930 CZK -6 933 000 CZK -6 057 956 CZK -875 044 CZK 9 886 930 CZK 104 567 428 CZK -2 464 933 CZK -2 695 991 CZK 7 190 939 CZK



229 352 213 CZK -103 995 001 CZK -73 948 000 CZK -30 047 001 CZK 125 357 212 CZK -36 974 000 CZK -32 466 242 CZK 92 890 969 CZK



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Appendix 2, Financial analysis of Project “Opava“, Sport and Recreation Zone


Project Summary

Costs

Own resources of the City of Opava invested (land, project preparation) 12% 37 000 000 Kč

Total anticipated project costs 88% 280 000 000 Kč

Total project value 317 000 000 Kč

Yields

Total anticipated average project incomes 20 942 328 Kč

Total anticipated average project costs - 5 235 582 Kč

Anticipated annual income from the project 15 706 746 Kč

Financing

Level of the loan 280 000 000 Kč

Repayment period 20

Interest rate 2,80%

Annual loan instalment - 18 474 115 Kč

Value of real estate after 20 years 238 000 000 Kč

IRR 1,08%



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Appendix 2, Financial analysis of Project “Opava”, Sport and Recreation Zone

Cash flow prediction

Costs 280 000 000 CZK


Interest rate 2,80%

Repayment period 20

Annual instalment -18 474 115 CZK

Project income 24 220 000 CZK

Year Project Income Operating costs Loan installment Repayment of the

principal

Interest Gross income Balance Depreciations Tax Net profit

1 24 220 000 CZK -6 055 000 CZK -18 474 115 CZK -10 634 115 CZK -7 840 000 CZK -309 115 CZK -309 115 CZK -9 333 333 CZK 198 333 CZK -110 781 CZK

2 24 704 400 CZK -6 176 100 CZK -18 474 115 CZK -10 931 870 CZK -7 542 245 CZK 54 185 CZK -254 930 CZK -9 333 333 CZK 330 544 CZK 384 730 CZK

3 25 198 488 CZK -6 299 622 CZK -18 474 115 CZK -11 237 962 CZK -7 236 152 CZK 424 751 CZK 169 822 CZK -9 333 333 CZK 465 876 CZK 890 627 CZK

4 25 702 458 CZK -6 425 614 CZK -18 474 115 CZK -11 552 625 CZK -6 921 489 CZK 802 728 CZK 972 550 CZK -9 333 333 CZK 604 404 CZK 1 407 133 CZK

5 26 216 507 CZK -6 554 127 CZK -18 474 115 CZK -11 876 099 CZK -6 598 016 CZK 1 188 265 CZK 2 160 815 CZK -9 333 333 CZK 746 206 CZK 1 934 472 CZK

6 26 740 837 CZK -6 685 209 CZK -18 474 115 CZK -12 208 630 CZK -6 265 485 CZK 1 581 513 CZK 3 742 328 CZK -9 333 333 CZK 891 362 CZK 2 472 875 CZK

7 27 275 654 CZK -6 818 913 CZK -18 474 115 CZK -12 550 471 CZK -5 923 644 CZK 1 982 626 CZK 5 724 954 CZK -9 333 333 CZK 1 039 953 CZK 3 022 578 CZK












19 34 592 124 CZK -8 648 031 CZK -18 474 115 CZK -17 481 448 CZK -992 667 CZK 7 469 978 CZK 63 890 566 CZK -9 333 333 CZK 3 123 619 CZK 10 593 597 CZK

20 35 283 967 CZK -8 820 992 CZK -18 474 115 CZK -17 970 929 CZK -503 186 CZK 7 988 860 CZK 71 879 426 CZK -9 333 333 CZK 3 325 291 CZK 11 314 151 CZK

588 482 297 -147 120 574 -369 482 297 -280 000 000 -89 482 297 71 879 426 -186 666 667 33 042 552 104 921 978



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Appendix 3, Finanacial analysis of Project “Ostrava“, Industrial Zone Hrušov


Plots of land Previous use Area of the

plots of land

Value of the plots

of land before

revitalisation

Costs for

construction of the

infrastructure,

other costs

Sale price of plots

of land

Gross profit from

sale after

investment into

the infrastructure

A Plots owned by the City of Ostrava

100 000 m2 25 000 000 CZK 42 000 000 CZK 85 000 000 CZK 18 000 000 CZK

B Plots owned by a private investor

50 000 m2 12 500 000 CZK 21 000 000 CZK 42 500 000 CZK 9 000 000 CZK

C Plots owned by the city and a private investor (plots for the infrastructure)

10 000 m2 2 500 000 CZK 4 200 000 CZK 0 CZK -6 700 000 CZK

SUM Kč 40 000 000 CZK 67 200 000 CZK 127 500 000 CZK 20 300 000 CZK

SUM EUR 1 538 462 EUR 2 584 615 EUR 4 903 846 EUR 780 769 EUR



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Appendix 3, Financial analysis of Project “Ostrava“, Industrial Zone Hrušov

Project Summary

Costs

Own resources of the City of Ostrava invested (plot of land) 24% 26 250 000 Kč

Own resources of the private investor invested (plot of land) 13% 13 750 000 Kč

Own resources of UDF invested (costs for the infrastructure, other costs) 63% 67 200 000 Kč

Total anticipated project costs 107 200 000 Kč

Yields

Total anticipated sale price of the plots of land 127 500 000 Kč

Gross profit for the project from sale of plots of land 20 300 000 Kč

Net profit after tax 17 371 000 Kč

Rate of return 18,9%

IRR 12,2%



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Appendix 3, Financial analysis of Project “Ostrava”, Industrial Zone Hrušov

Cash flow prediction

Costs for the infrastructure 67 200 000 CZK

Value of the plots of land before investment 40 000 000 CZK

Value of the plots of land after investment 127 500 000 CZK Yield from investment and sale of plots of land 87 500 000 CZK

Year Sale Yield from sale Costs Gross profit Depreciations

for the

infrastructure

Tax base Tax

(profit, transfer)

Net profit

1 10% 8 750 000 CZK -60 480 000 CZK -51 730 000 CZK -2 240 000 CZK -53 970 000 CZK -120 000 CZK -51 850 000 CZK

2 20% 17 500 000 CZK -1 680 000 CZK 15 820 000 CZK -2 240 000 CZK -40 390 000 CZK -240 000 CZK 15 580 000 CZK



5 25% 21 875 000 CZK -1 680 000 CZK 20 195 000 CZK -2 240 000 CZK 9 100 000 CZK -2 029 000 CZK 18 166 000 CZK

87 500 000 CZK -67 200 000 CZK 20 300 000 CZK -11 200 000 CZK -2 929 000 CZK 17 371 000 CZK

Documents

SUPPLEMENTARY STUDY - European Investment Bank...JOINT EUROPEAN SUPPORT FOR SUSTAINABLE INVESTMENT IN CITY AREAS Implementation of the JESSICA financial instrument in Moravia-Silesia