EBRD rolls out new Russian energy efficiency lending initiative

By Richard Wallis

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The European Bank for Reconstruction and Development has launched a new $300 million programme to boost energy savings in Russia with an initial transaction providing a long-term loan of up to $60 million to Promsvyazbank for on-lending to private clients for energy efficiency projects.

The five-year loan to one of Russia’s leading private banks is the first under a new framework approved by the EBRD Board of Directors six weeks ago, known as the Russian Sustainable Energy and Carbon Finance Facility.

The new facility provides a total of $300 million for on-lending, particularly to the larger corporate clients of banks participating in the scheme, and will target projects based on a more rational use of energy in Russia, the EBRD’s largest country of operation. Sub-borrowers will be able to take out loans of up to $6.5 million or the equivalent in roubles.

This loan rolls out a lending programme which not only gives Russian banks access to long-term funding but also, uniquely, combines this with the technical expertise needed to structure energy efficiency projects and support their application for carbon financing, said the EBRD’s Business Group Director for Financial Institutions, Nick Tesseyman.

The current crisis has helped put energy efficiency at the top of the economic agenda in Russia as companies strive to cut costs in a country where energy waste is widespread in industry. A market survey commissioned by the EBRD in 2007 concluded that, at current energy prices, Russian industry had the scope to cut energy consumption by around 30 percent by investing in energy efficiency measures that pay back within 1 to 5 years.

The EBRD’s region of operations includes countries that are among the most energy intensive economies in the world. Russia’s energy intensity is about three times that of the United Kingdom, India or Japan.

The EBRD was the first international financial institution to establish a specialised energy efficiency team in 1994 and has accumulated valuable expertise in innovative energy efficiency and climate change mitigation financing.

In May 2006 the Bank launched its Sustainable Energy Initiative (SEI) with a particular focus on energy efficiency. Since then, the EBRD had by the end of 2008 provided €2.7 billion (the equivalent of $3.8 billion) specifically for energy efficiency investments in 166 projects in 24 of its countries of operation. This EBRD financing translates into a total project value of €14 billion (the equivalent of nearly $20 billion).

During the same period, EBRD energy efficiency-related investments in Russia amounted to €755.2 million (the equivalent of over $1 billion). The total project value of the Bank’s energy efficiency projects in Russia so far, including the part not funded by the EBRD, is €3.7 billion (the equivalent of nearly $5.2 billion).

The new facility for Russian banks replicates similar EBRD initiatives already in place in other of the Bank’s countries of operation in Eastern Europe, the Western Balkans, Central Asia and the Caucasus.

This new facility is supported by a technical cooperation programme, the first phase of which is grant-funded by the EBRD Shareholder Special Fund.

Participating banks and sub-borrowers can benefit from free-of-charge assistance to identify profitable energy saving measures and quantify the associated benefits, including any reduction in greenhouse gas emissions that may qualify for carbon credits under the Kyoto Protocol’s Joint Implementation mechanism.

Promsvyazbank, established in 1995, ranks as Russia’s second private domestically-owned bank as measured by total assets. The bank, a long-standing EBRD client, has nearly one million retail clients and the number of corporate clients exceeds 80,000.

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