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State aid: Commission clears investment fund to support urban regeneration in Northwest England
The European Commission has cleared, under EU state aid rules, an investment fund that will support sustainable urban regeneration in the Northwest region of England, a common interest objective promoted by the EU cohesion policy through the Joint European Support for Sustainable Investment in City Areas initiative (JESSICA).
With this first decision, the Commission has clarified the guiding principles for the assessment of similar support measures that several Member States are currently envisaging.
JESSICA is a new financial instrument created by the European Commission in cooperation with the European Investment Bank (EIB). In the context of this initiative, the Northwest Regional Development Agency (NWDA) has established and notified to the Commission the Northwest Urban Investment Fund (NWUIF), a £100 million Holding Fund which will be managed by the EIB. The NWUIF will receive £50 million funding from the European Regional Development Fund (ERDF) and the equivalent match funding of £50 million from the NWDA.
The fund will provide debt and equity investment to promoters and other private investors with a view to fostering urban regeneration projects and unlocking sustainable development in the Northwest’s urban areas. The Commission has considered that aid granted pursuant to this initiative in the form of sub-commercial loans and equity capital is compatible with Article 107(3)(c) TFEU as it allows tackling urban regeneration market failures identified in preparatory studies.
The NWUIF will target regeneration projects with a financial viability gap that would not be undertaken by the market on its own. Private investors will finance at least 50% of each project costs, thus creating a leverage effect. Moreover, each project must have a business plan to ensure the repayment of the public investment. Incentives for private investors will be limited to the minimum necessary to trigger urban projects and may not exceed a so-called Fair Rate of Return, established through a competitive process or, where it is not possible, by an independent expert. Professional and independent fund managers will ensure prudent investment decisions and the financial sustainability of the funds.
The funding mechanism
The NWUIF will operate as a Holding Fund deploying resources via investment intermediaries, so-called Urban Development Funds (UDFs). The selected UDFs (Merseyside UDF, managed by Igloo Regeneration Limited, and Evergreen UDF, managed by CB Richard Ellis) will provide sub-commercial loans and equity to urban regeneration projects that form part of integrated sustainable urban development plans. Each UDF will have to invest its resources until the end of 2015.
The non-confidential versions of the decision will be made available under case number SA.32835 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News