REGULATION No 347/2000 for the Institute of Regional Development

The Institute of Regional Development is an independent institution owned by the state of Iceland and subject to the supreme authority of the Minister of Industry.

The purpose of the Institute is to work toward the strengthening of regional and economic development in Iceland in rural areas. In order to promote growth, innovation, and changes in the economy, the Institute, among other things, provides loans and counselling, finances and organises projects, and promotes effective industrial counselling. The Institute makes proposals and plans, based on data collection and research, to encourage regional development.

The Annual Meeting of the Institute of Regional Development shall be held before 1 July each year. The Board of Directors of the Institute shall decide the date and venue of the Meeting and its agenda. The Annual Meeting shall address topics regarding projects and prospects in regional development, and the operation of the Institute.
The Annual Meeting shall be attended by the Minister of Industry, and members of the Board of Directors and the Institute's Management. Furthermore, representatives of industrial development associations and municipalities, Members of Parliament, representatives of other institutions and parties engaged in economic and regional development schemes, the media and other parties concerned shall be invited to attend.

The Board of Directors of the Institute of Regional Development shall formulate the Institute's policy and ensure its implementation. The Chairman of the Board shall convene meetings.
The Board of Directors may assign to a Loan Committee, under the direction of the Director of the Institute, the task of making decisions regarding individual loans granted in accordance with rules established by the Board of Directors. These rules shall, among other things, state the objectives of financing loans, credit term policies, the maximum loan amount allowed, and the amount of risk contribution for individual companies. They shall furthermore describe the arrangements and organisation of the Loan Committee, the criteria applied in decision making, the processing of applications, and the dissemination of information to applicants and response time. The rules shall also stipulate that the Board of Directors shall receive information on a regular basis for its monitoring activities.
In making its decisions, the Institute of Regional Development shall ensure equality among parties in comparable positions. Particular care shall be taken to ensure that assistance granted by the Institute to companies and individuals causes minimum disruption to competition among companies outside the greater Reykjavík area.

The Minister of Industry shall appoint the Director of the Institute of Regional Development for a term of five years, following submission of a recommendation from the Board of Directors. The Head of the Business Department shall act as the Director's alternate. The Director shall be in charge of executive management and daily operations of the Institute, and shall in the course of his work observe the policy and directions issued by the Board of Directors. The Director shall submit proposals regarding organisation and policy to the Board of Directors. He shall also act as Chairman of the Loan Committee. In other respects not provided for in the Act on the Institute of Regional Development and this Regulation, the tasks of the Director shall be governed by legislation governing lending institutions other than commercial banks and savings banks.

The operations of the Institute of Regional Development shall, in addition to the Director's Office, be divided into the following fields:
1. Company Department, whose tasks shall include the processing of loan applications, counselling, granting of loans, funding of projects, research and development projects regarding companies and the economy.
2. Development Department, which shall be responsible for co-operation with employment development agencies and institutions, data gathering and processing of information. Supervision of assessments, research and other development work shall also be the responsibility of this Deparment.
3. Legal Department, responsible, among other things, for legal tasks, collection, and supervision of documentation.
4. Operation Department, responsible, among other things, for the operation of the Institute, accounting, collection of loans, and the formulation of operational and payment plans.

At the beginning of each year, the Board of Directors of the Institute of Regional Development shall draw up a plan for the Institute's operations during that year. This plan shall consist of two parts: Work Plan and Lending Operations. The latter shall pay the operating costs of the Institute attributable to its activities. The plans shall be presented to the Minister of Industry no later than 15 February each year.
The Work Plan shall review the projects that the Board of Directors wishes the Institute to participate in but are not included among its normal projects. It shall also include an operations plan for aspects other than Loan Operations. The disposal of budgetary contributions and other revenue for operating expenses, participation in costs incurred by the operations of industrial development associations, project funding and acquisition of shares shall also be described.
The Loan Operations plan shall state the loan policy for the current year, and include an operating plan and budget for Loan Operations. The plan shall, among other things, contain an itemisation of necessary contributions to provisions for credit lossis in respect of normal loans and venture capital loans. Venture capital loans shall mean loans that entail more risk than their interest spread can cover.
The plan on project funding shall describe the projects in which the Institute intends to engage during the year, and their objectives. The contribution of the Institute to individual projects and the contribution of partners shall also be described.

Among the Institute of Regional Development's goals is increased diversification of the economy outside the greater Reykjavík area and its adaptation to altered circumstances. This is achieved through strengthening research and development work and increasing the use of information technology in the operation of enterprises.
The Institute of Regional Development enters into agreements with industrial development associations, institutions, municipalities, independent counsellors, and other parties, to provide industrial counselling in specific fields, industrial sectors, or geographical areas. The Institute shall furthermore work towards strengthening co-operation and co-ordination in the field of industrial development.
The Institute shall provide industrial development associations with professional assistance in industrial development and innovation, disseminate information, assist in continuing education, co-ordination of the operations of the industrial development associations and strengthening of co-operation among them. The Institute shall establish connections with organisations engaged in industrial or regional development work, organise co-operation projects and assist in the search for partners regarding specialised issues.

The Institute of Regional Development shall co-operate with industrial development associations, municipalities, public institutions and other parties in order to strengthen community infrastructure. This includes education and cultural activities, transportation, environmental issues and services.
The Institute may participate in drafting regional plans in accordance with the Planning and Building Act.
The Institute shall participate in co-operative groups and assist with problem analysis of rural areas with serious problems of employment and population imbalances.

The Institute of Regional Development gathers data and conducts research, and monitors economic and regional development and its principal contributing factors, as well as results obtained by public support actions in the field of economic and regional development in Iceland as well as in other countries where circumstances are similar. The Institute may participate in international research projects and enter into agreements with universities, research institutions and other parties concerned with research in this field.
The Institute shall assesse the effects of legislation and other governmental actions on regional development. It shall furthermore submit comments and issue reports and proposals for the Althing, ministries, institutions, municipalities and other parites within the Institute's field of operation.

The Institute of Regional Development works towards forming co-operative networks and may participate in and organise local and foreign co-operative projects in the field of communal and occupational affairs. The Institute assists industrial development associations and other co-operative parties in preparing and procuring projects of this kind.

The Minister of Industry shall submit to Parliament a proposal for a parliamentary resolution regarding a strategic regional development plan for a four year period . The plan shall describe the objectives and policy of the government with regard to regional development, plans for action in the field of employment, public services etc. It shall state the manner in which individual actions shall be funded, the time when they shall be executed, and who shall be responsible for carrying them out.
The regional development plan shall describe the current situation and future prospects in regional development and the progress of the development plan currently in effect.
The Minister of Industry shall work on the regional development plan in co-operation with the Institute of Regional Development and seek expert counselling from the Institute regarding research and appraisals in preparation of the plan. While preparing the plan, the Minister shall consult with other ministries, municipalities and other parties as may be required.
The regional development plan shall be reviewed every two years.
The Institute of Regional Development shall monitor the implementation of those aspects of the strategic regional development plan that are assigned to the Institute by the Minister.

The Institute of Regional Development contributes funds to industrial development and innovation projects. The Board of Directors of the Institute decides which projects shall receive funding and seeks partners for them. When reviewing individual projects the Board of Directors may, along with any co-operating parties, appoint project committees that shall act in a consulting capacity. The Institute may also assign to industrial development associations the task of allocating funds to individual projects.

The Institute of Regional Development provides loans and guarantees. The Board of Directors Institute may assign to the Director of the Institute the task of deciding individual loans in accordance with the rules established by the Board of Directors. Loan terms shall be decided by the Board of Directors. The term of any individual loan shall not exceed 25 years.
The objective of providing loans is to ensure that companies and individuals operating businesses outside the greater Reykjavík area have access to long-term loans on the most favourable terms available, and to encourage the growth of progressive companies, industrial innovation and rural settlement.
The financial objective of loan operations is to preserve the real-term value of the Institute's equity.

When assessing applications, the operations and operational prospects of the enterprise in question shall be considered, as must its financial standing, the experience and knowledge of its spokesmen, the security offered in exchange for the loan, innovation value, competitive views, and the effect on rural economic development. Furthermore, co-operation with other loan institutions shall be emphasised and such institutions shall be encouraged to grant loans to companies outside the greater Reykjavík area. Each loan granted shall be classified in a risk category on the basis of the relevant company's operational prospects, its financial standing, and the security provided.
Loan applications shall be submitted on application forms provided by the Institute and industrial development associations.

Loans, once granted, may not conceded. However, exceptions may be made in particular circumstances, e.g. when loans are not properly secured or when it is in the Institute's claims collection interests. The opinion of the National Audit Bureau shall be sought before individual loans are conceded.

The Institute of Regional Development may finance projects, provide loans and guarantees outside the greater Reykjavík area, i.e. not in the following municipalities: the town of Hafnarfjörður, Garðabær town, the community of Bessastaðir, the town of Kópavogur, the town of Seltjarnarnes, the city of Reykjavík, and the town of Mosfellsbær.
The financing and lending activities of the Institute shall be governed by the provisions of the EEA Agreement, cf. Act no. 2/1993.
Aidwhich comes under item c of Paragraph 3 of Article 61 of the EEA Agreement shall not exceed the equivalent of 17%, with due consideration to income tax, of the original starting costs of the business premises or alterations thereof. In addition, small and medium sized enterprises may be granted aid corresponding to a maximum of10% of the same cost factors, cf. definition 10.2 of the guidelines of the EFTA Surveillance Authority regarding state aid, published in an EEA-supplement to the Official Journal of the European Communities. The aforesaid percentages are maximum guidelines for all public financial assistance to the same project.
In calculating and assessing aid, the return obtained under normal market conditions shall be used as guideline.

The Institute of Regional Development may, in accordance with its role, support the establishment of new enterprises as decided by the Board of Directors. Account shall be taken of regional development plans when making such decisions.
The Institute may support the establishment of a new enterprise by providing preparatory assistance and counselling , as well as providing guarantees and providing investment capital. In general, financial assistance shall not involve direct participation by the Institute in business operation. However, the Institute may participate in a company to the maximum extent of providing 30% of the company's share capital, if it is the opinion of the Institute's Board of Directors that there are good reasons for doing so. The Institute of Regional Development may nonetheless participate in organisations at any time by providing share capital or make other initial capital contributions as owner, provided that the organisation in question is a holding company, an investment company, or a development association, including industrial development associations.
Notwithstanding the provisions of Paragraph 2, the Institute of Regional Development may at all times defend its claims by converting enforced claims into shares. The Institute may also convert enforced claims into shares when this is considered the most efficient method of preserving the collection interests of the Institute.

Shares owned by the Institute of Regional Development must be offered for sale on the general market, and, as a general rule shares must be advertised for sale at least once a year. Shares may also be offered for sale in a registered stock market.
The provisions of this Article do not apply to the Institute's shares in holding companies, investment companies, and development associations, including industrial development associations. The Institute's Board of Directors may sell the Institute's shares in such organisations.

With reference to the role of the Institute of Regional Development, the Board of Directors is authorised to decide that the Institute shall participate in holding companies, investment companies, and development associations by acquiring up to 40% of the shares in any given company . The conditions for such ownership are that at least 10% of a company' shares shall be owned by professional investors, privately owned companies, and individuals. The Institute shall also co-operate with investment funds and lending institutions, as appropriate at each time, with regard to assistance for projects that come within the scope of the Institute's objectives.

The Minister of Industry shall deliver an annual report to Parliament regarding the activities of the Institute of Regional Development and the progress of the regional development plan.

The revenue of the Institute of Regional Development consists of contributions from the State Treasury and capital gains.

To finance its operations, the Institute of Regional Development may borrow funds, within the limits established by the national budget, from parties in Iceland or abroad, in its own name or through the mediation of third parties.

Members of the Board of Directors and all employees of the Institute of Regional Development are bound by confidentiality regarding any information that may come to their attention and should remain confidential according to law, the instructions of superiors, or the nature of the information concerned. The obligation of confidentiality shall remain in force after an employee has ceased work for the Institute.

A Board Member shall not be involved in deliberations on the affairs of a company in which he is a Board Member or employee. He shall also withdraw if he is financially dependent on a company to any substantial extent, due to ownership, commercial interests or other reasons. The same applies to the participation of a Board Member in the processing of a case involving parties that are personally connected to him to such an extent as to compromise his impartiality. A Board Member shall, upon entering into that capacity, submit a list of the companies to which he believes he has connections to such an extent that he cannot participate in deliberations on their affairs. He shall also inform the Board of Directors of any changes which may occur in this respect.

This Regulation is established in accordance with the authorisation provided by Act no. 106/1999 on the Institute of Regional Development, and with reference to Article 61 of the EEA Agreement, cf. Paragraph 1 of Article 2 of Act no. 2/1993, regarding the validity of the Agreement in Iceland.
This Regulation shall enter into effect upon publication.