European Commission urges cities to apply directly for funds

The European Commission brought cities and the private sector together in Eindhoven this week to spark a series of new smart city projects but finance was the key topic of debate.

“We will bring new financial mechanisms to give cities direct access to investment,” said Violeta Bulc, European Commissioner for Transport at the opening of the 2016 General Assembly of the European Innovation Partnership on Smart Cities and Communities (EIP-SCC) in Eindhoven. The EIP-SCC is jointly organised by DG CONNECT, DG ENERGY and DG MOVE (the EC’s departments for technology, energy and mobility). It aims to bring private sector companies and cities to work on smart city projects.

Cities Today spoke to Axel Volkery, DG MOVE Policy Officer at the European Commission, to expand on Bulc’s statement and explain how the EC aims to solve the funding problem.

“We want the biggest possible pipeline of projects,” explained Volkery. “This is why we are doing this innovation partnership because it helps us push companies and cities together.”

He said that just in the morning session he had witnessed the genesis of four or five concrete projects in his urban mobility breakout session. An executive from French industrial company Bouyges (whose deputy CEO sits on the EIP-SCC high level group) commented about another four partnerships his session initiated.

Volkery’s boss, Magda Kopczynska, Director at DG MOVE, closed the day saying that the aim is to see 100 cities engaged in concrete projects with 100 companies supporting them. However, the main theme of the day’s plenary sessions was finance.

The big financing instruments at a European level are Horizon 2020 for research and innovations, the Connecting Europe Facility (CEF) for infrastructure deployment and the structural investment funds.

“They have set budgets. We will continue funding with grants through Horizon2020. What is becoming available in addition are different supporting tools,” added Volkery.

Foremost among these is EIB Elena, which is a technical assistance facility. This supports cities to write bankable projects that can leverage public private financing afterwards.

Previously EIB Elena was only available for energy efficiency projects. But for the first time, Elena is being made available explicitly for transport and mobility projects.

“We are finalising the words on the dedication agreement with the European Investment Bank (EIB) but the funds are there and people can apply,” said Volkery. “We know that a lot of cities do not have the facilities to think about external financing. So with this facility we give them the ability to do that.”

Volkery provided an example. If a city won a €2 million Elena grant from the EIB, it would support the financial planning process that leads to an investment proposal. This requires the sort of financial expertise not normally found in the public sector. The Elena funds would allow a city to recruit in-house expertise or hire a consultancy or investment bank to map out a funding proposal.

Private or public banks or the cities themselves could then pick this up. The small print requires cities to leverage a follow-up investment of 20 times the initial loan for energy projects and 10 times the amount for transport projects.

“The other discussion that we had here today is to make a switch in financing city actions from grants through the EU or through their own balance sheets towards using normal loans from the EIB or financing instruments that we have specifically for the fields of energy and transport.”

This echoes the words of Pim Van Ballekom, EIB Vice President, who said earlier in the day: “We are trying to get a shift from grants and subsidies to loans and guarantees. However, to go from grants and subsidies to loans and guarantees you need a totally different mindset. It is about public private partnerships and it is about yield for the private sector.”

There are other concrete financing opportunities beyond Horizon2020 or CEF funds. In particular, there is around €16 billion allocated solely for urban mobility and transport projects in the structural investment funds.

“That is under shared management,” continued Volkery. “The member states need to agree with their regions and their cities which projects they are going to use it for. “It’s co-financing. Part of it is financed by the structural investment fund and part of it is financed by the member state.”

“Financing is not a problem is you have a good business case,” said Pauline Bieringa, Managing Director Public Finance at BNG Bank, during the final panel of the day. “There is money available. The main stumbling block is politicians’ fear of failure. We need citizens to realise that some projects will fail and that is okay.”

Co-panellist Marianne Haug, a former Director at the World Bank, agreed: “You won’t finance all the demonstrations, which means it has to be done by concessions.”

That is why Horizon 2020 exists. But this meeting was all about what happens next and the financial instruments needed to upscale from pilot project to full-scale rollout. The EC hopes EIB Elena will help out.