A EUR 172 million "Urban Development Fund" financial instrument: a new way of financing development projects of public sector entities
The Ministry of Regional Development and EU Funds has developed, in partnership with the Croatian Bank for Reconstruction and Development (hereinafter: HBOR), the Urban Development Fund financial instrument (hereinafter: UDF FI) to be implemented by HBOR through direct financing.
A total of EUR 172 million will be available to borrowers, of which 50% from the funds of the European Regional Development Fund and 50% from the funds of HBOR.
UDF FI is intended for public sector entities: local or regional government units (LRGUs), i.e. municipalities, cities, counties, companies, institutions and agencies or other legal entities owned or majority-owned by LRGUs and/or the Republic of Croatia for financing investments in public and business infrastructure enriched with social and commercial content.
A new element in the 2021-2027 period relates to the possibility of combining financial instruments with grants in the form of a write-off of part of the principal, whereby up to a half of a loan can be converted into a grant awarded under much simpler rules.
The Urban Development Fund introduces new features compared to the previous financial instruments that were available to public sector entities for favourable long-term investment loans at low, subsidised interest rates in the 2014-2020 programme period.
The main feature of the Urban Development Fund is the combination of a loan and a grant under one and the same financial instrument that has been introduced for the first time and the creation of the possibility to write-off a part of the loan principal, up to a maximum of 50% of the loan amount, in other words, to convert a part of the loan principal into a grant in the case of the achievement of target indicators in terms of sustainability, aesthetics and inclusion. Besides, this financial instrument makes it possible to use EU funds to enrich public infrastructure projects with commercial content, which will generate revenues necessary for the return of the investment through the realisation of sufficient income from the collection of fees for the services rendered.
Under this instrument, public sector entities will be offered loans of up to EUR 10 million at a favourable interest rate, since a 0 percent interest rate is charged on the part of the loan allocated from the European Regional Development Fund. Furthermore, additional benefit of these loans is the exemption from paying loan application processing fee.
To continue the implementation of financial instruments in the new programme period, HBOR and the Ministry of Regional Development and EU Funds signed a 250 million Finance Agreement for the implementation of the "Loans for Energy Efficiency of Entrepreneurs" financial instrument, which would enable entrepreneurs in the manufacturing industry and the commercial and service sectors to access loans at favourable interest rates with a possibility of partial write-off of loan principal. This financial instrument will be implemented through commercial banks to be selected by HBOR through a public procurement procedure, and the start of the implementation is planned to take place in the first half of 2025.
In addition, under the 2021-2027 Competitiveness and Cohesion Programme, HBOR has been entrusted with the management of EUR 133.2 million for financial instruments earmarked for investing in sustainable tourism and production modernisation, the implementation of which is expected to take place in the second half of 2024.
Financial instruments have proven to be a resource-efficient way of using EU funds, and it is expected that financial instruments will have an even more significant role in the future as they can achieve the greatest possible effectiveness and efficiency of the available EU budget.
The complete wording of the Urban Development Fund loan programme can be found here.
The Ministry of Regional Development and EU Funds has developed, in partnership with the Croatian Bank for Reconstruction and Development (hereinafter: HBOR), the Urban Development Fund financial instrument (hereinafter: UDF FI) to be implemented by HBOR through direct financing.
A total of EUR 172 million will be available to borrowers, of which 50% from the funds of the European Regional Development Fund and 50% from the funds of HBOR.
UDF FI is intended for public sector entities: local or regional government units (LRGUs), i.e. municipalities, cities, counties, companies, institutions and agencies or other legal entities owned or majority-owned by LRGUs and/or the Republic of Croatia for financing investments in public and business infrastructure enriched with social and commercial content.
Key Features of Urban Development Fund
Financial instruments with a grant component represent a new way of using European Union funds in the new 2021-2027 programme period.A new element in the 2021-2027 period relates to the possibility of combining financial instruments with grants in the form of a write-off of part of the principal, whereby up to a half of a loan can be converted into a grant awarded under much simpler rules.
The Urban Development Fund introduces new features compared to the previous financial instruments that were available to public sector entities for favourable long-term investment loans at low, subsidised interest rates in the 2014-2020 programme period.
The main feature of the Urban Development Fund is the combination of a loan and a grant under one and the same financial instrument that has been introduced for the first time and the creation of the possibility to write-off a part of the loan principal, up to a maximum of 50% of the loan amount, in other words, to convert a part of the loan principal into a grant in the case of the achievement of target indicators in terms of sustainability, aesthetics and inclusion. Besides, this financial instrument makes it possible to use EU funds to enrich public infrastructure projects with commercial content, which will generate revenues necessary for the return of the investment through the realisation of sufficient income from the collection of fees for the services rendered.
Under this instrument, public sector entities will be offered loans of up to EUR 10 million at a favourable interest rate, since a 0 percent interest rate is charged on the part of the loan allocated from the European Regional Development Fund. Furthermore, additional benefit of these loans is the exemption from paying loan application processing fee.
New Programme Period, New Financial Instruments
Financial instruments proved to be an effective way of using the financial resources available to the Republic of Croatia from the European Structural and Investment Funds during the 2014-2020 programme period. In the previous EU programme period, HBOR successfully implemented five financial instruments with a total allocation of EUR 323 million and supported over 530 projects.To continue the implementation of financial instruments in the new programme period, HBOR and the Ministry of Regional Development and EU Funds signed a 250 million Finance Agreement for the implementation of the "Loans for Energy Efficiency of Entrepreneurs" financial instrument, which would enable entrepreneurs in the manufacturing industry and the commercial and service sectors to access loans at favourable interest rates with a possibility of partial write-off of loan principal. This financial instrument will be implemented through commercial banks to be selected by HBOR through a public procurement procedure, and the start of the implementation is planned to take place in the first half of 2025.
In addition, under the 2021-2027 Competitiveness and Cohesion Programme, HBOR has been entrusted with the management of EUR 133.2 million for financial instruments earmarked for investing in sustainable tourism and production modernisation, the implementation of which is expected to take place in the second half of 2024.
Financial instruments have proven to be a resource-efficient way of using EU funds, and it is expected that financial instruments will have an even more significant role in the future as they can achieve the greatest possible effectiveness and efficiency of the available EU budget.
The complete wording of the Urban Development Fund loan programme can be found here.
This document has been prepared with the support of the European Union. The views expressed in the document do not reflect the official opinion of the European Union.