National%20financing%20tools%20for%20local%20environmental%20infrastructure

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National financing tools for local
environmental infrastructure

Emil Savov Deputy Executive Director National
Association of Municipalities in Bulgaria
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Enterprise for environmental management

• Created in 2002 by the state
• Assists local governments, hospitals, utility
  companies, business
• Provides grants and interest-free loans
• Priority areas
• - water management
• - waste management
• - biodiversity and ecosystems preservation

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Enterprise for environmental management

• Total revenue in 2010 EUR 43 million
• Revenue structure
• Nationally imposed eco fees on envelopes,
  tires, batteries, cars, used motor oil etc.
• Fines defined in 8 laws on water, protected
  areas, waste management, subsurface resources
  etc.
• State grant

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Enterprise for environmental management

• In 2010 PUDOS provided
• EUR 36 mil as grants for investment projects
• EUR 1.1 mil as interest-free loans
• Intervention areas
• Water and sewer management
• Waste management
• Air monitoring an management
• Biodiversity
• Public awareness

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EU membership challenges

• Available EU resources for municipal investments
  
• EUR 3.2 billion for the period 2007-2013
• National and sub-national co-funding 15-20 of
  project costs
• Municipal co-financing needs - matching funds
  required at the municipal level is estimated on
  the order of about EUR 130-150 million per year,
  which is twice the level of the total municipal
  investments in 2006

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Creating a Matching Fund for EU Investment Grants

• Key issues to be considered
• How much of municipalitys own source revenues
  should be able to contribute?
• How much debt the municipality should be able to
  raise?
• How much the project can produce in direct cost
  recovery through user charges?
• Impact of the fiscal decentralization policy

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Funding needs

• Available funding for municipal investments under
  the three Operational programs (2007-13) EUR
  3.2 billion/EUR 460 million per year
• Municipal funding needs 36 or EUR 1 152
  million (co-funding, bridge financing VAT)
  both from own-source revenue and borrowing

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• Number of local governments 264
• Size of average municipality 30 000 citizens
  (largest 1.2 million smallest 1 440)
• The total municipal Net Operating Surplus is
  concentrated in 28 of the local governments
• 40 local governments can borrow freely at the
  credit market (in 2008, before the world economic
  crisis)
• FLAG lends to municipalities having limited
  creditworthiness or small size which prevents the
  access to the credit market

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Municipal projects characteristics

• Energy efficiency in public buildings schools,
  social care homes, libraries etc.
• Water and sewer systems upgrade
• Waste water treatment plants
• Regional garbage collection and disposal systems
• Renewal of cities open spaces parks, civic
  centers etc.

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Fund for Local Governments and Authorities - FLAG

• FLAG was established by the Government in 2007
  as a commercial joint-stock company/non-banking
  financial institution registered at the Bulgarian
  National Bank
• The fund represents a financial instrument of
  the central government policy for local and
  regional development.
• Objective - to provide financial assistance to
  municipalities in the process of developing and
  implementing viable investment projects funded by
  the EU Structural Funds, Cohesion Fund, and
  European Agriculture Fund for Rural Development

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Fund for Local Governments and Authorities
- FLAG Funding sourcesIn EUR million
Source Amount
Equity 30
EBRD Loan 70
Total 100
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Fund for Local Governments and Authorities -
FLAG

• Types of loans
• Project development (small loans of EUR 50,000
  500,000 for project preparation feasibility
  studies, technical design, etc.)
• Bridge financing fills the gap between payments
  to construction/suppliers until the reimbursement
  of the costs from EU Fund Authority and
• Municipal co-financing (5-50 of the
  investment, depending on the co-financing
  requirement) as well as financing ineligible
  costs such as VAT.

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Fund for Local Governments and Authorities - FLAG

• Partnerships
• Managing Bank - assists FLAG in the lending
  process
• Managing Authorities of OP overall supervision
  of the municipal investment projects for
  compliance with the financial, procurement and
  monitoring rules
• EBRD provides long-term financing for FLAGs
  lending process assists the development and
  implementation of FLAGs policies.

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Lending process
Project development
Investment project

Municipal Council The municipal council approves
the borrowing by setting the loan upper limit,
interest rate and fees, type of currency,
maturity and repayment schedule/sources. The
mayor submits the loan application form to FLAG
through the Managing bank.
Managing Bank Assesses the application form and
the supporting documents. The bank assesses the
credit history of the borrower, its financial
situation for the last three years and its
creditworthiness related to the project to be
financed. As a result the bank develops a
proposal for approval/rejection of the loan
application and sets a proposed risk component.
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Lending process - 2
Managing Bank
FLAG Assesses the loan application according
eligibility vis-à-vis the respective Operational
Program, project costs analysis and the project
management capacity. The Board of Directors
approves the loan and its terms.
Loan Agreement A tri-party loan agreement is
signed (between FLAG, the Managing Bank and the
borrower).
Monitoring The Managing bank monitors the
execution of the loan. FLAG and the Managing
bank oversee the procurement process and the
project implementation.
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Fund for Local Governments and Authorities - FLAG

• Main Results
• The lending process started in January 2009
• Loan contracts 170 contracts for EUR 90 million,
  supporting the implementation of municipal
  investments projects of EUR 250 million
• Average loan size EUR 0.5 million
• Average maturity 13 months

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Fund for Local Governments and Authorities -
FLAG

• Offsetting the borrowing costs
• Objective to offset the borrowing costs of
  resource-poor municipalities
• Source earmarked transfer from state budget for
  2009-2011
• Amount EUR 2 million per year
• Access criteria based on 3 indicators net
  operating surplus available local resources for
  debt repayment per capita and share of municipal
  own revenues in the municipal budget
• Offsetting levels 0-90 of the borrowing costs

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Contacts

• Address 23 Golash Str.
• 1111 Sofia, Bulgaria
• Tel. [phone]
• Fax [phone]
• www.namrb.org

NATIONAL ASSOCIATION OF MUNICIPALITIES IN THE
REPUBLIC OF BULGARIA