This summer was hot in the Croatian city of Split. Adding to the rising temperatures and usual tourist buzz was a heated political debate over a EUR 150 million framework loan approved by the European Investment Bank (EIB), the biggest loan to date for Split.
Saša Jovanović, Campaign leader - Cities for people | 29 November 2023
Photo: CEE Bankwatch Network
Following the EIB’s approval of the loan in June, Split’s City Council met in July to decide whether to support the loan agreement. The arrangement was given the green light in one vote, which puts under the spotlight further actions to implement the planned projects (starting with the signature project – the Žnjan beach). It also sets the scene for two other Croatian cities, Zagreb and Dubrovnik, to follow in Split’s footsteps and pursue EIB’s framework loans.
The role of public finance
Public finance plays a crucial role in helping cities transform to meet the needs of the growing urban population and bridge the gap between the existing and needed urban infrastructure. However, filling the infrastructure gap shouldn’t be measured only by the quantity, but also by the quality and effectiveness of the investments. From the qualitative perspective, urban infrastructure should be seen as a tool for minimising the social gap, improving the well-being of all people, especially those who face barriers to access to urban infrastructure and services. To justify the use of public funds, urban infrastructure upgrades should lead towards providing equal and safe access to services and equal protection from the risks for all citizens, while prioritising the most vulnerable ones, such as people with disabilities, the elderly and women with children.
Both development banks as providers of financial resources, and municipalities as beneficiaries, are accountable to the citizens for the results of public investments. Therefore, public participation should start at the investment planning phase and continue throughout project implementation and evaluation. Although international finance institutions acknowledge these principles, they often transfer the full responsibility for informing and consulting the public to their clients – national and local institutions or project implementing companies.
Framework loan: a “mix and match” finance opportunity
Framework loans are not a new financial product of the European Investment Bank. They’ve been on offer for over two decades. However, due to the urgency of climate action and pressing rates of urbanisation, they are being increasingly pursued by cities needing to overcome the lack of finance possibilities.
This type of loan provides additional flexibility – it can be used to finance multiple projects, usually belonging to the same mid-term investment plan, provided that they satisfy the Bank’s selection criteria. Furthermore, projects being presented and planned at the time of loan approval can relatively easily be replaced at some point by other projects that meet the same criteria.
Unfortunately, the projects tend to range from those that are undoubtedly socially beneficial, such as new kindergartens, to those that set the ground for commercial activities with potentially negative socio-economic implications, such as land, property and services price increases, which push local residents out of city centres. Split, like many other tourist cities, is facing a significant decline in residential property in central areas. Citizens are rightly concerned that public investment in urban infrastructure is creating the conditions for private profit-making developments catering to short-term visitors, rather than improving the livelihoods of long-time residents, all while being paid back out of their pockets.
Lack of information leaves room for manipulation
We could say that framework loans are a perfect fit for municipalities. How favourable they are for the citizens depends on the level of transparency and meaningful public participation, which is in most cases unsatisfactory. In the case of Split, the public has not been presented with any project-specific details, except for a joint, rather generic, data sheet published by the Bank. Furthermore, no documents confirming the feasibility of the proposed projects and sufficient capacity level of the implementing organisations have been presented to the public in Split. Such documents would not only serve as a means of control over public spending, but also as a prerequisite for citizens’ support and ownership.
The debate over the EIB’s framework loan to Split showcases what happens when the public is not properly informed and consulted in the process. The loan to be paid off by taxpayers turns into an arena for the battle of political opponents in a never-ending campaign. Both the overly enthusiastic statements of the mayor and the overly negative statements of the opposition have been unconvincing, while the detailed results of the due diligence performed by the EIB remain unavailable.
The City of Split has published a list of projects to be financed from the first tranche of the loan, dominated by energy efficiency improvements and newly built public buildings. On the opposite end of the commercial value spectrum, is the development of Žnjan beach: a project that has been around for years, never lacking in high ambitions and controversy. The ruling party claims that it will put an end to the past misuse of this valuable public coastal land, turning it into “the best beach in Croatia”, while their opponents question the feasibility and readiness of the project.
Answering the right questions
What both groups fail to address are the growing concerns of citizens over how such investments affect their livelihoods. People want to know how this loan will help them cope with the climate change that affects the Mediterranean region severely. And even more, how is it going to help them cope with the cost-of-living crisis further deepened by Split’s ambition to grow tourism?
The fact that the Žnjan project introduces new green areas doesn’t really address the climate resilience concerns of many. The fact that the beach will offer new recreational areas doesn’t tackle the affordability problems of Split’s residents either. And the political debate surrounding the case makes them wonder if they need Žnjan to be developed at all, especially if they are the ones paying for it.
News about all tender proposals for the execution of works on Žnjan significantly surpassing the budget, and the urgency of delivering the project by the next tourist season, just add fuel to the fire… But the debate still doesn’t provide answers to the existential concerns of Split’s inhabitants.
It is yet to be seen how the EUR 150 million loan for Split is going to unfold. Will the project list remain unchanged? And if it gets changed, how are Split residents going to learn about it? Will smaller, less commercially viable projects fall victim to the future “best beach in Croatia”? One thing is certain – the citizens are about to be burdened with paying the loan off, but they may not necessarily be the ones to benefit from it the most.
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