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04.05.2012
We Start a New Business Competitiveness Program
Terry McCallion, Director of the EBRD Energy Efficiency and Climate Change Team
AUTHOR: Lyudmila Zlateva

What are the most important characteristics of the starting financing opportunity, which EBRD presented in Sofia on April 25?

- The financing facility launched today is the first EBRD co-financing instrument alongside EU Structural Funds targeting sustainable energy investments in the SME sector. The programme is very much like a "one-stop-shop" combining commercial financing, grants and the technical capacity for implementation.

Unlike traditional grant schemes, this programme also facilitates SMEs access to loan financing. The loan financing is provided by the EBRD through local partner banks and for the initial phase the EBRD has selected six banks. These are: Allianz Bank, DSK Bank, MKB Unionbank, ProCredit Bank, Raiffeisenbank and Unicredit Bulbank.
 
It is key to involve these partner banks in the programme. Besides the obvious funding role, the participating banks also have the responsibility to perform a financial eligibility check of applicants. Moreover, we intend that this facility will become sustainable over time as banks learn more about financing sustainable energy projects and start scaling up their energy efficiency business. 

Another important aspect is that this programme was designed to be simple, fast and efficient. First of all, SMEs will benefit from streamlined application procedures for straightforward investments comprising of technologies listed in the pre-approved List of Eligible Materials and Equipment. Second, SMEs will be able to benefit from advice and support from certified energy auditors that will undertake a technical evaluation role.

Designed to help Bulgarian SMEs reduce their energy consumption and carbon foot print, this programme is also expected to have an important demonstration effect: that is the use of highly efficient technologies as a means of improving competitiveness.


Who will be the main beneficiaries from this credit line and what should they do in order to get financing?

- SMEs in Bulgaria ensure 62% of value added to the economy and accounted for 99.7% of the total number of enterprises (as per 2009 statistics).

This is an incredibly important programme dedicated exclusively to SMEs and designed to get SMEs access to finance to help SMEs reduce their energy bills and increase their competitiveness in the market.

In order to be eligible under the Programme SMEs should secure at least 80% of the total project costs upfront. This could be achieved either through getting a loan from a participating bank, using own funds, or a combination of both.

The financial eligibility check ensures that successful applicants can actually mobilise the necessary financing resources for implementing the project shortly after the final grant approval and decreases the risk that projects cannot be implemented due to a lack of funding.

Applicants are free to decide which of the participating banks to contact in order to obtain the financial eligibility check and financing in case they do not have sufficient own fund to implement the project. Each participating bank has detailed knowledge of the programme and can assist in identifying the optimal investment size of projects which fit the financial capability of the applicant.


Is there enough project readiness from the side of the beneficiaries and would you offer them some technical support during the process of application?

- With energy prices soaring and fuel dependency high, making energy efficiency improvements is the most effective way to mitigate climate change and strengthen the country’s economic competitiveness and energy security.

When you maximise energy efficiency, you open up a window of business opportunity. This saves energy, saves costs and improves the overall profitability of businesses. Despite this, the relatively limited volume of investments we see in the market would indicate that there still exist some market barriers.

Low awareness in many SMEs about the need and benefits of energy efficiency and information gaps about technical options combined with weak in-house capacity to develop bankable energy efficiency projects seem to be the most important barriers preventing investments to take place at scale.

This Programme will address some of the barriers by offering SMEs the access to specialised technical assistance. The preparation of technical studies supporting the investments will be entrusted to local energy auditors. The cost of the energy audits will be reimbursable under the grant scheme up to a certain cap.

Auditors can also provide guidance to the SMEs on identifying eligible projects and can help the SMEs to prepare project proposals before they are submitted to the partner banks. 

The banks themselves are also expected to play a leading role in advising and supporting the SMEs in coordination with the energy auditors.


What would be the overall effect of the program in terms of energy saved, emissions prevented, and general improvement of the Bulgarian companies' sustainability?

- The EBRD facility is estimated to support a portfolio of investments that cumulatively could lead to energy savings of 300,000 MWh per annum and carbon emissions reduction of 200,000 tons CO2 equivalent per annum. This is equivalent to taking 100,000 cars off the streets of Sofia. These assumptions are based on results achieved under similar facilities in Bulgaria and other countries using a conservative scenario.


What will be the next programs, financed by the EBRD in Bulgaria and when do you expect to open them?

- Despite continuous decrease in energy intensity during the last ten years, the Bulgarian economy still has one of the highest energy intensities in Europe. Bulgaria is highly dependant on fuel imports which creates huge pressure from energy security point of view.

The EBRD intends to continue to invest and support the country’s goals in the area of energy efficiency enhancement to address high energy intensity, including through the use of innovative products, such as ESCO funds.

Also, residential energy efficiency is high on the priority list and proof of that the Bank has just recently launched a new Residential Energy Efficiency Credit Line programme that will offer private households and housing cooperatives a combination of loans, grants and technical assistance to support them invest in the thermal rehabilitation of their buildings. For more information check the programme website: www.reecl.org.


In terms of energy efficiency, what else could be done on national level in Bulgaria and in the region of Southeast Europe in order to diminish the effect of increasing energy prices and energy import dependence?

- Energy efficiency should be pursued in all sectors. In this regard the Bank will continue its support to the Bulgarian economy by combining funding and Technical Assistance and will work with the private sector and commercial banks to overcome barriers to investment.

EBRD will also pursue an active policy dialogue with the Government and the Regulator trying to address gaps in the legislative and regulatory framework for sustainable energy investments, including housing laws and building standards as well as renewable heat.

Even at current energy prices investments in energy efficiency are feasible and as well as contributing to improved SME competitiveness and reduced greenhouse gas emissions, energy efficiency is also a key way to improve energy security and reduce dependency on external energy sources.

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Terry McCallion is the Director of the EBRD Energy Efficiency and Climate Change Team in the Banking Department, based in London.  He previously was a banker in the EBRD’s Financial Institutions Team working on transactions with banks, insurance companies and mortgage finance clients.

Prior to joining the EBRD, Terry was Finance Manager at MMT, an environmental technology business in the United States. He started his career as an engineer in the oil and gas business with Bechtel before attending business school and moving into banking and finance. He has B.Sc. in Chemical Engineering from Queens University and an MBA from Columbia Business School.


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