Theme 1: Integrated Urban Land Management

Theme 1: Integrated Urban Land Management

Removing Institutional Barriers To Brownfields Redevelopment in Croatia

Irena Dokic Spatial Economics Department, Institute of Economics Zagreb, Trg J.F.Kennedy-a 7, 10000 Zagreb, Croatia,

Theme 1: Integrated Urban Land Management

Introduction

The Republic of Croatia was until 1991 a former Yugoslav country. The war, coupled with the problems of transition and poor management caused the bankruptcy of many state owned firms. Many of them are vacant, underused and deteriorated and their presence has various adverse effects not only on the environment, but also on the economic and social health of the region. Those sites described as derelict, abandoned or underused and where a real or perceived problem of contamination exists, are called brownfields (EU CLARINET Report 2001). The term “brownfields” was initially introduced in a general sense to describe sites which had been previously in use, to contrast them with “greenfield” land which had not been previously used for development. In Croatia there are many sites identified as brownfields. In addition, inthe Croatian context, the term brownfields also refers to the sites (land and buildings) previously used by the Ministry of Defence, but left vacant and lacking a clear policy on their future use. Beside the mentioned reasons for brownfields to evolve, the creation of brownfields in Croatia is further enhanced by the long-lasting liquidation procedure that impedes brownfields redevelopment and brings multiple losses to the local government.

Experience from developed countries indicates that the problem of brownfields is usually complex and integrated interventions by multiple actors are required to come up with a satisfactory solution. The mechanisms to redevelop brownfields usually refer to different policies and programmes formulated either at national or at lower levels, or establishment of authorities that are in charge of brownfields redevelopment as another option.

In this paper, the problem of brownfields in Croatia is addressed and the stakeholders in charge of brownfields at a national level are analysed. In the end conclusions and recommendations are listed to serve as a starting point for the formulation of a framework necessary to solve the brownfields redevelopment problem in Croatia. As the list of recommendations due to time constraints and lack of experience in the field is not completed yet further research is necessary to capture all the relevant issues and generate complete, comprehensive and most of all an applicable and feasible solution.

Thestakeholders and their roles in brownfields redevelopment

The majority of stakeholders are identified at a national level and a great part of power is concentrated at the same level. The stakeholders are listed as follows:

Croatian Privatization Fund (hereinafter CPF)

Croatian Chamber of Economy (hereinafter CCE)
Croatian Bank for Reconstruction and Development (hereinafter CBRD)
Ministry of Economy (hereinafter ME)
Government's Office for State Property (hereinafter GOSP)
Ministry of Defence (hereinafter MD)
Agency for Export and Investment Promotion (hereinafter AEIP)

Since complete research is made on the case of the Town of Samobor, as a self-government unit and Zagreb county, as a referring county, this will be used as a reference point for other regional and local self-government units.

The lowest level of decision-making process where the community has the possibility to participate is through the Local CommunityBoard.The Act on Units of Local Government and Self-government, Article 57 (Official Gazette, no. 33/2001) defines the local community board as a form of a direct citizen's participation in a decision making process regarding local issues especially those directly affecting people’s lives and work on a daily basis. A local community board is established by the constitution of a local government and could be established either for one or more smaller interlinked neighbourhoods, or for a part of a bigger neighbourhood, or a city that in regards to the other parts creates a separate whole. (Službene vijesti Grada Samobora, br.4 2002)

The term brownfields is still unrecognized in the Croatian context but the first consideration is usually related to privatisation of state-owned firms. Further onthe term applies to the sites owned by the Ministry of Defencesince these sites also contain un(der)used building(s) and land, that are due to lack of adequate management, subject to further deterioration. A clear meaning of brownfields is necessary because of its impact on the formulation of measures that should be undertaken to redevelop a site. Each identified stakeholder has a certain power in its own domain. The activities of the Croatian Chamber of Economy are directed to the strengthening of cooperation at international level, promoting Croatia as an attractive soil to invest but with no elaborated particular measures for investment in brownfields. Despite the fact that the Croatian Chamber of Economy actually has the power to change and amend the laws, acts and regulations, specific ones aiming at brownfields do not still appear on the horizon. As noticed through discussions with the representatives of all the listed institutions, the main reason for that is on one hand low awareness of the problems that usually come along with the brownfields and a prevailing misperception of a space as an unlimited resource. On the other hand, there is a low-skill capacity to formulate the measures, let alone the legal framework, necessary for successful brownfields redevelopment. A common vision on abetter approach tothe problem of brownfields, identified at all levels,has to start with changes in the Bankruptcy Act and Act on Liquidators. The implementation of the activities of a Commercial Court regarding bankruptcy is directly influenced by these two acts and the fact that the majority of brownfields refers to the former state-owned firms. In order to switch those sites (buildings and land) into marketable products, some essential changes in these Acts should be undertaken. At the same time, at the county and local level, different units of self-government should prepare the package of measures aimed at brownfields. Thisprimarily refers to those measures related to tax-abatement, promotion of brownfields as equally interesting entities as greenfields eg. removing the stigma of brownfields as less valuable plots of land. Paralelly, a community affected by the brownfields effects, should prepare its vision of how the affected site should look in the future, and in cooperation with the local government tailor the one which fits best in the overall context. Once the necessary environment is prepared, motivated investors will tap the breeding soil to invest and utilize their financial power in combination with the supportive administration at the local level. It is necessary to understand that a brownfields redevelopment is neither a pure top down nor a bottom up process but the combination of both andprimarily depends on good coordination between the different levels that according to the analysis is still missing.

The perception of negative effects exists, and the range of effects encompasses social and environmental as well as spatial and financial ones. So far, the magnitude of the effects on the local government and local community (Case of the Factory of Kristal, Samobor) is neither recognised nor measured and there is not enough willingness and financial justification to undertake the analysis of the effects.

A transition period brought to Croatia many changes. These changes resulted in a bankruptcy of many state-owned firms. Today a property owned by the State spreads over different Ministries, Government Offices, Institutions and Funds, established by the Government or Ministries of the Republic of Croatia. One of the Funds (Croatian Privatisation Fund) that owns over 1000 companies (with different amount of shares) is in charge of management of such properties. One of the models to manage the sites identified as brownfields (owned by the Stateregardless of the quantity of shares) suggests that the State, either directly or indirectly through its institutions, should establish a unique place in charge of continuous systematic listing that will comprise all the information about the entity.This model applies partially and for that purposethe Croatian Privatisation Fundhas been established, whereas the Property sector carries out the operations of listing the properties of the Fund and collects accompanying information. In reality the list owned by the Fund has not been completed yet and consequently the Fund does not have a complete insight in all the entities determined as brownfields, thus the formulation of the policy is deficient.

To carry out the operations,the Croatian Privatisation Fund applies three relevant acts:

Transformation Act, (Official Gazette of the Republic of Croatia/, no. 19/91, 83/92, 84/92, 94/93, 2/94, 9/95, 21/96and 118/99) that establishes the basis for the implementation of the transformation of ownership of enterprises, meaning that its objective is to find owners for socially-owned enterprises;

Investment Incentives Act, (Official Gazette of the Republic of Croatia/, no. 73/00) that regulates incentives for the investments of domestic and foreign legal or natural persons with the objective of stimulating economic growth and;

The Bankruptcy Act, (Official Gazette of the Republic of Croatia/, no. 44/96, 29/99and 129/00) theobjective of which is to strengthen the position of creditors (distrait claimants) in bankruptcy proceedings and considerably simplify bankruptcy proceedings in general.

As one of the obstacles to resolve the problem of brownfields is bankruptcy, the Bankruptcy Act was analysed and one of the conclusions is that the Act itself regulates the course of bankruptcy procedures and the legal consequences of their initiation and implementation. In general, the procedure of bankruptcy takes too long, Commercial courts are overwhelmed with cases of bankruptcy whereas there is no supportive administrative base to finalize the procedure within shorter period than that currently existing. Theyear of bankruptcy determines which institution is going to be in charge of it. The Commercial Court and the Croatian Privatisation Fund share the cases which further impedes successful finalization of procedures. Local government, as a lower level of decision making process, does not have any influence on speeding up procedure, as concluded upon responses. But at the same time the local government has enough room to articulate the plans, programmes or projects on how to develop the affected area and through strengthening its lobbying position put more effort intohastening the procedure. It is possible to conclude that since there is no unique place where the cases are listed nor a unanimous definition over what a brownfield is, it is difficult to manage, harmonise and coordinate the procedures over so many cases.

As far as land use policy is concerned, at the local level (in the Town of Samobor) the policy is not formulated yet which means that they still lack the mechanisms to use it more efficiently. The first problem is related to the new entrepreneurial zone. The zone is a part of a greenfield area and it is foreseenfor the new investors and entrepreneurs as well as for some services of public interest (central bus station). As analysis shows, the policy of land use was not comprehensive from the beginning. In comparisonto other local self-government units and according to the successfulness of similar zones, the process of preparation of a zone faced certain problems. Firstly, the area that was intended for greenfield was not in the ownership of the Town. Therefore, the Town had to carry out the operation of acquisition of land. Instead of purchasing the land as a agricultural land, with a much lower price, the Town faced the first problem and that is price setting for land. The lack of formal mechanisms to set the price of land, enabled owners of land throughinformal waysto get the information on future plans for a new zone, which automatically caused an increase in the price of landbefore the land had been purchased by the Town. Lack of price ceiling for the plot of land brought the first difficulty to policy makers in the Town. The amount foreseen to purchase the same parcel of land exceeded the planned budget and thus impeded further development of the zone.

Secondly, the Town of Samobor was offered by the investor, considerably higher price per m² of land intended to develop retail activity. The investor’s estimation exceeded the one based on land surveyor’s assessment thatled to distortion in the land market. The result reflected an increase in the price of a plot of land for the rest of the adjacent parcels that were on sale.A large number of owners (consolidation of land has not been done yet) impedes the process of land purchase and at the same time the Town has already started equipping part of a zone. Disagreement among the politicians was the main cause for not following the right procedural sequence. It should have taken the reverse direction asfollows. The majority of the land in Samobor is privately owned and is in many small pieces.The Town should have bought firstly those plots of land that are defined for the new zone in the current spatial plan. After purchasing all the necessary land (as agricultural land), the next step is the consolidation of the land into larger pieces. This would reduce the cost of administration and management. Furthermore, the availability of land in larger plot sizes would increase its attractiveness to investors who purchase it through tenders. Currently, next to the new zone, are the sites previously determined by the respondents as brownfield sites. All the respondents agreed that the brownfield sites should have been also taken into consideration and prepared for the investments either firstly or contemporarily with a new zone. Those sites already have an infrastructure, while in the new zone this does not exist. The new zone should be equipped with an infrastructure, which requires financial means. At the same time the Town invests in that new zone which is generally considered as a positive trend, but it is contradictory to build the new infrastructure by taking loans and paying them off through the future periods while existing onesare left unused.

The third problem is related to the problem of permits necessary to implement the spatial plans. To be able to build in Croatia there are two permits required. The first one is the location permit and is issued at the county level. The location permit is a prerequisite for a building permit that is issued by the local government. Even though the local government prepares and adopts spatial plans (the general urban plan andspecific detailed plans) it is contradictory that location permits are issued at the county level, that is actually not involved in the preparation of spatial plans at the local level. Multi-level administration slows down the process and frequently deters those interested in starting up some business activity. On top of this, the inspection of the implementation of spatial plans and legal use of permits is at the national level. Three levels of government are involved in a way but still lack coordination among them for spatial plans to be fully and appropriately implemented.

Lastbut not least, all transactions in the Croatian land market are usually delayed due to poor cadastre and outdated land books. The price set in the market is determined by a land surveyor’s assessment, based on the property price fluctuation within the period of a single year. Under the assumption (in the Croatian context) that there is demand for a plot of a land the size of 100 ha which is then offered at the market, the first problem that often appears is that one part of the plot is physically and legally available, while the other part is only physically so. Physically and legally available parcels can be sold easily. Legally available means that there are two parties involved: a seller and a buyer and it is possible to make a sale contract. On the other hand legally unavailable parcels cannot be sold due to a large number of undetectable owners thus the main prerequisite (two parties involved) is not fulfilled. Even if one of the owners is detected, he/she cannot sell a parcel on that plot of land because each parcel represents an ideal part of a plot that is again subject to a land surveyor’s assessment. In the end, one part (physically and legally available) of a starting plot becomes subject to market transactions while the remaining one is blocked to sale. Since the demand remains the same and supply considerably decreases, naturally the price exceeds its real level what brings a distortion in the Croatian land market.

Conclusion

A great part of reforms in Croatia started in the field of privatisation of state owned firms. After many of them, with the switch to a market economy, went bankrupt their destiny has been left pretty much undetermined. During the wartime, problems of such firms were accumulating. Those firms that announced opening bankruptcy before Croatia proclaimed its independence are registered at the Commercial Court and some of them are still subject to legal procedures, while on the other hand the greater part of them has been transferred to the Croatian Privatisation Fund that is responsible for their future. By that time many of the firms have already been used for a number of years, additionally poorly maintained they have started to deteriorate and have been slowly turning into so-called brownfields. During the research the institutions that are in charge of brownfields’ redevelopment have been identified as well as their potential role in this respect. The basic problem in the Croatian context is a lack of a systematic approach to brownfields redevelopment and closely related to that is the lack of co-ordination between the levels of Government. Since there is little initiation at the national level, enhanced with a lack of urban economists in Croatia, the result is ever lasting bankruptcy procedures with no legal sanctions for its non-execution. The role of the Croatian Privatisation Fund is rather reactive than proactive, which means that the destiny of many sites is left to a very open end without any particular time constraints. For a systematic approach and comprehensive solutions, the necessary base that is needed is a quality database that has not been created yet. Once the required data are collected and analyzed, particularly in terms of acts, regulations and decisions that directly or indirectly address brownfields, it will bepossible to start tailoring a framework for brownfields redevelopment.