The UNDP/GEF Energy Efficiency Financing Team

The UNDP/GEFEnergy Efficiency Financing Team Stefania Racolta Head of Banking Relations UNDP/GEF UNOPS Project Office 45 Washington Street Bucharest, Romania www.energie.undp.ro

I will present four themes today… The UNDP/GEF Energy Efficiency Project Results so far Banks’ perspective on Energy Efficiency Financing Lessons learned

So, let’s begin! The UNDP/GEF Energy Efficiency Project in Romania Results so far Bank’s perspective on Energy Efficiency Financing Lessons learned

Four partners - ARCE, UNOPS, UNDP & GEF… ARCE - Governmental partner UNOPS - Executing agency UNDP - Implementing agency GEF - Main financier ($2 million) Officially launched the EE Financing Project in 2003 EE Financing Team was fully operational by January 2004 Expected life-time of the project October 2006 * Re-launch of an earlier initiative that had stalled in 2001 and was re-designed in 2002

Overall approach…we are a catalyst We make small investments from the GEF grant… …to leverage large investments in energy efficiency by third parties

We offer three basic services… 1. Technical Assistance (T.A.) - Typically a Feasibility Study by specialist consultants - Private sector and public sector are eligible 2. Direct Contributions (D.C.) - Equipment grant - maximum $50,000 or 20% of an investment - Only for public sector 3. “Deal building” - Bringing energy efficiency investors and financiers together - Advising on the range of commercial financing options that are available in Romania.

… based on Agreements-in-Principle If…UNDP/GEF funds T.A. (usually a Feasibility Study) Then…Project Developer will carry out the EE project; and Financier will make investment funds available; 2. If…UNDP/GEF agrees to make a D.C. (equipment grant) * Then… Project Developer will invest in an EE project; and Financier will make investment funds available;

And this simple formula WORKS!

I will present four themes today… The UNDP/GEF Energy Efficiency Project in Romania Results so far Lessons learned Bank’s perspective on Energy Efficiency Financing

Key financial results We have leveraged over $25 million of definite* investment so far… Public sector/definite $ 7,935,143 Private sector/definite $ 17,537,500 Total/definite $ 25,472,643 … expect another $7 million to result from work-in-progress… Public sector/possible $ 3,322,000 Private sector/possible $ 3,650,000 Total/possible $ 6,972,000 … and have a large and growing pipeline of potential investments (230 project proposals) * ‘Definite’ means a financing or works contract is now signed or awarded, or investment is under-way or complete.

Municipalities are investing in buildings, heating, water and lighting Public Sector – Definite* - $7.8 Million UNDP/GEF Town/description Investment Main source of financing DC Panaci/ kindergarten $21,000 Governmental financing DC Tg Jiu/ controls $132,143 Grant financing DC Radauti/ meters $175,000 Bank loan (BCR) DC Cluj/ controls $187,000 Supplier credit TA/DC Tarnaveni/ buildings $400,000 Bank loan (BCR) TA/DC Sighisoara/ schools $300,000 Municipal financing TA/DC Alba Iulia/ schools $620,000 Municipal financing

Municipalities are investing in buildings, heating, water and lighting Public Sector – Definite* - $7.8 Million UNDP/GEF Town/description Investment Main source of financing DC Iasi/ districtheating $1,300,000 FREE loan (World Bank/GEF) TA Vatra Dornei/ water $3,200,000 EIB, EU, Government. DC Cluj/ burners&automation $600,000 Supplier credit TA/DC Satu Mare/ schools $150,000 Municipal financing TA/DC Tulcea/ district heating $800,000 Municipal financing TA/DC Focsani/ pumps $100,000 Supplier credit

Municipalities are investing in buildings, heating, water and lighting Public Sector – Possible* - $3.5 Million UNDP/GEF Town/description Estimated Investment TA Rosu/ water pumps $150,000 TA (DC) Orastie/ lighting/schools $350,000 TA (DC) Brad/ water pumps $1,300,000 TA (DC) Vaslui Solesti/ water $500,000 TA (DC) Valea lui Mihai/ lighting $150,000 TA (DC) Salonta/ lighting $350,000

Companies are lowering heat, hot water, steam and power costs, often using renewable fuels or CHP Private Sector – Definite* - $17.5 Million UNDP/GEF Company/description Investment Main source of financing TA Nord Simex/ wood waste $600,000 Bank Financing (BRD) TA Ulerom/ sunflower husks $560,000 FREE loan (World Bank/GEF) TA Iridex/ hospital waste $1,377,500 Leasing (Piraeus) TA Sicomed/ CHP $2,000,000 BOOT - RAEF/RIEEC TA Barlad/Rulmenti/ CHP $13,000,000 Bank Financing (BCR)

Companies are lowering heat, hot water, steam and power costs, often using renewable fuels or CHP Private Sector – Possible - $3.6 Million UNDP/GEF Company/description Estimated Investment TA Bucharest/Isovolta/ steam generation $700,000 TA Victoria/Viromet/ secondary steam to power $300,000 TA Ploiesti/Timken/ CHP $2,000,000 TA Dej/Samus Mex/ wood-waste $350,000 TA Matex/textiles/ steam/compressors/boilers $300,000

I will present four themes today… The UNDP/GEF Energy Efficiency Project in Romania Results so far Banks’ perspective on Energy Efficiency Financing Lessons learned

Lack of INTERNAL EXPERTISE to evaluate EE projects Lack of FAMILIARITY with EE business specificity Banks’ perception on EE lending = ‘Risky business’ Lack of dedicated LOAN PRODUCTS EE field not seen as a TARGET MARKET Lack of AWARENESS about the EE market PROSPECTIVES

Banks’ involvement in financing EE • There is a certain ‘appetite’ for EE loans although EE is not a targeted business • General financing terms and conditions become more and more accessible • Clear preference for lending to private companies • Increasing interest in lending to public sector • No interest or low interest in lending to block associations (housing cooperatives)

+ risk margin (0.5-5%) corporate clients Typical lending conditions Amount: 80% from the investment (without VAT!) Tenure: 3 - 7 years; 10 - 25 years (public sector) Grace: 3-12 months Interest: LIBOR 3M(3.5%) or EURIBOR 3M (2.1%) BUBOR 3M (9.8%) PRIME (BASE) RATE (ROL 14%, $ 8%, € 7%) Collateral: mortgage, equipment pledge, assignment of receivables… Cover Ratio: 120% of principal + first year interest + risk margin (0-3%) SME’s

Typical approach Banks will finance the company not the project Lending decision will rely on the assessment of the client’s creditworthiness and transactional behavior ‘Repayment from savings cash-flow’ concept less used in credit analysis Accounting system does not allow for energy savings ‘intercept’

Who breaks the ice? • 46 Agreements-in-Principle in place • Romanian Commercial Bank • Romanian Development Bank Groupe SG • Banca Transilvania • Raiffeisen Bank Romania • Bancpost • SanPaolo Imi Bank • Romanian Fund for Energy Efficiency (WB/GEF) • Romanian Industrial Energy Efficiency Company (EBRD)

I will present four themes today… The UNDP/GEF Energy Efficiency Project in Romania Results so far Bank’s perspective on Energy Efficiency Financing Lessons learned

Lessons learned… ‘Tips and tricks’ from the UNDP/GEF Team How to recognise an EE idea that is likely to become an investment How to get banks to make energy efficiency loans How to identify a suitable financier

How to recognise an energy efficiency idea that is likely to become an investment An enthusiastic, empowered decision-maker! - Managing Director… with the support of the Board; or - Mayor… with the support of the local council This is why of the many investment proposals that we find… - 75% are technically robust - 50% are financially viable - Only 10 - 15% involve stakeholders who are committed

How to get banks to make energy efficiency loans Financiers feel comfortable if they understand the investment - So get a outline financier on board from Day 1 - We insist that the investor finds a commercial financier to sign an Agreement-in-Principle… before we invest in a study We involve the financier of all steps towards investment - Invitation to comment on ToRs for Feasibility Studies - Invitation to help evaluate offers, copies of interim reports These actions help keep the project ‘live’ in the bank’s loan pipeline

How to identify a suitable financier We provide the following advice to investors… 1. If you have a good relationship with your bank… use it! 2. We advise on financing options that are available in Romania – local banks, international banks, leasing companies, ESCOs, supplier credit 3. If the investor has no preferred financier, we introduce our ‘sister’ GEF project – the FREE www.free.org.ro

Idea …project …financing …investment If you have an EE Project Idea we’ll help turn it into an EE Investment

How can we help? IF the idea is technically viable the company is creditworthy the manager/mayor is really committed to invest UNDP/GEF will finance the studies to support the investment put you in touch with various financiers on RO market provide assistance to prepare the bankable documentation for public sector – also offer an equipment grant

Final message – Work with us! Time is running up –project closure in 1 year Target on municipal investments achieved Grants for equipment already fully committed Strong focus on PRIVATE sector investments Funds for technical assistance still available We welcome new project proposals!

The UNDP/GEFEnergy Efficiency Financing Teamin Romania Stefania Racolta Head of Banking Relations UNDP/GEF www.energie.undp.ro UNOPS Project Office 45 Washington Street Bucharest, Romania

The UNDP/GEF Energy Efficiency Financing Team