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Financing Mechanisms for National Co-financing in caseof EU grants
The Hungarian case
Ambrovics Andrea
Head of MA for Environmental and Energy OP
National Development Agency
Ankara, 4th March 2008
What types of the programmes do we manage?
Environmental and Transport Programmes
1. ISPA/Cohesion Fund – 2000-2006 period –budget:1 billion EURs
2. Environment and Energy OP – 2007-2013-budget: 4.2 billion EURs
Short characteristics of ISPA/CF - environment
• 3 main areas – waste management, waste watertreatment, drinking water quality improvement
• 23 major projects• Beneficiaries: municipality, consortium of
municipalities, association of municipalities• Mainly devoted to bigger municipalities• Main feature of financing: 50% EU grant, 30-45%
Hungarian state co-financing, 5-10% of ownresources
• Additional funding available for municipalities: own resource fund distributed by Ministry ofRegional Develepment – cancelled in 2007
Short characteristics of ISPA/CF - environment
• The biggest problem so far for ISPA/CF is not the provisionof own resource, but financing of non-eligible cost includedin the project; financing of costs that could not be foreseen
• Also problems with financing of project preparation
• EBRD/EIB loans (state and Budapest) and commercial bank loans used for own resource
• Project poorly elaborated, the real negligance of theimportance of CBA (real co-financing rate, fee policy-operational cost and structure-sustainability questions
• Involvement of future operator into project preparation andfinancing worked until accession – problems withnegligance of competition
• Situation after accession
New programming period/changes
• Hungary and the Maastrich criteria• National co-financing rate (85%-15%)• fields of financing:
waste management (max.70%)Waste water treatment (max.85%)Drinking water quality (max.90%)Recultivation (max. 100%)Flood management (max. 100%)Energy efficiency and renewable energy (10-50%)
Common features
• The majority of them are revenue generatingprojects, the financing rate should be calculatedaccording the CBA guidelines
• Strong emphasize on operation (legal provisions), fee policy and affordability (rentability)
• The majority of them related public utilityservices – task of municipalities
Two stages application process – possibility ofproject elaboration financing
Strict requirements in the call for proposal (proofof resources and operational structure)
What can be own resource?• cash• separated funds for the purpose of project
implementation• co-financing of water corporations• Loan and bond issue• Involvement of private capital
Consequences of involvement of loan, bond
• CBA – two cash-flows• Fee• Legal restrictions for municipalities(who is credit-worthy)• Increasing state debt
Consequences of involvement of privatecapital
• Involvement of professional investor (owner ofthe common utility operation right)
• Payment for the transfer of the right• Pro and contra for each type of transfer
management of propertypublic procurement (special attention toappointment)concession
• Human capacity at municipalities to managecomplex financing mechanisms
• Lack of real competition, what will forcemunicipalities to boost competition?
Special financing mechanisms for energy projects
• ESCO financingMain fields and features
• One stop shop system for project elaboration, evalutation and financing
Suggested by EBRD, special Hungarianadoption
Solution?
The best solution we have found so far is:
• Project planning with the involvement of thebeneficiary, banks and professional investorsunder a light supervision of the institutionalsystem
• Joint financing and risk sharing
