USAID and Kazkommertsbank. Promote Energy Efficiency Projects in Kazakhstan
The United States Agency for International Development (USAID) and Kazkommertsbank JSC (KKB) entered into an agreement on September 29, 2004 to establish a loan portfolio for the express purpose of supporting energy efficiency projects in Kazakhstan. Under the terms of agreement with Kazkommertsbank, USAID will provide a 50% guarantee to a loan portfolio totaling $15 million over a seven-year period, reducing risk to KKB and perhaps making it more likely for the energy company to get a loan from the bank on more mutually beneficial terms and conditions. The maximum loan amount per project is $3 million.
USAID Development Credit Authority Programs
The guarantee agreement was signed as part of USAID's Development Credit Authority (DCA) program. The DCA is a tool used by USAID to provide partial credit guarantees for private sector investments in strategically important for a country’s sectors to reduce the risk associated with lending to new sectors or in sectors that are limited by risk or burdensome collateral requirements. These guarantees help stimulate development by increasing the flow of credit to areas and activities that need it most. The programs mobilize local private capital by establishing risk-sharing relationships with private financial institutions throughout the world.
From 1999 to 2003, USAID missions’ use of the DCA has grown substantially. A total of 77 guarantees have been made in 30 countries. The amount of credit made available to private enterprises through the DCA program is $595.7 million with USAID guaranteeing $241.6 million of this amount. The areas in which these programs have been extended include: education and health; energy; environment; water; agriculture; microfinance; Small and Medium Enterprise Development; Infrastructure Development; and housing.
DCA in Kazakhstan
Kazakhstan is rich in natural resources, including coal, oil and natural gas. The energy intensity of the country (a measure of energy efficiency), is roughly twice to three times that of industrialized Western countries, which can partially be due to structural differences in economic activity. However, huge inefficiencies exist in energy production and use.
At the National Council of Energy Specialists Conference in 2004, attended by the Ministry of Energy and Mineral Resources, national electric grid operator KEGOC, the Agency for the Regulation of Natural Monopolies, US Agency for International Development, European Bank for Reconstruction and Development, and various energy companies, specialists noted that the energy sector still needs significant financing for technical refurbishment and improvements. In particular, the availability of funding for renewable resource and energy efficiency projects is hindered by the following factors:
· Lack of loans with amortization longer than 18 months;
· High real rates of interest;
· Requirements for collateral up to 100 percent of exposure on loan principal; and,
· A general reluctance to finance energy efficiency and renewable energy projects for the reason of inadequately developed legal and regulatory framework for such projects (current low tariffs, etc.).
In the energy efficiency area, the USAID funded Central Asia Natural Resources Management Program (NRMP) has demonstrated models of energy saving technologies in residential and public buildings in Kazakhstan and Kyrgyzstan from 2000 to 2004. Energy savings from these models varied from 25 to 30% indicating a great need for improvement in preventing energy losses in such buildings. In its work with Regional Electric Companies, NRMP has observed a serious need for distribution system upgrades both in metering (e.g., installation within RECs of remote control, and telemetering systems (ASKUE)) and in infrastructure improvements, such as electronic meter installation at the border between the REC and KEGOC or power stations, as well as energy efficient voltage and current transformers and higher accuracy meters.
The overall objectives of the DCA activity are to make medium-term credit available for qualified energy projects and create a flow of bankable transactions in energy efficiency, renewable resource, and electric distribution upgrade projects.
This partnership is the second DCA project issued by USAID in Kazakhstan. The first DCA was established in 2003 with Lariba Bank and supported the creation of a bank-issued mortgage-backed security that was sold as an investment instrument to pension funds.
Qualifying Projects and Borrowers
The loans supported under the DCA will make financing available to qualified borrowers for projects in the following areas:
· Energy efficiency in all types of buildings, through weatherization, efficient heating and air conditioning and lighting systems, and switching to cleaner and/or more cost-effective fuels.
· Heating systems, boilers, heat exchangers, refrigeration, heat pumps, and cogeneration projects, such as capturing useful waste heat from thermal equipment.
· Other renewable energy technologies.
· Electricity and natural gas metering improvements.
· Electricity distribution efficiency, such as high efficiency transformers in substations.
· Purchase of energy efficient equipment.
· Gasification (natural gas supply).
Other types of projects will be considered provided they involve energy efficiency principles and concepts.
Borrowers who would be eligible to participate in this program include non sovereign enterprises, both public and private; municipal entities; and non governmental organizations (NGOs) established under the laws of Kazakhstan. The entity should be interested in activities in the energy sector with projects involving energy efficiency as listed above. All borrowers must meet the financial criteria set forth by KKB within the framework of the DCA loan portfolio. USAID’s principle guarantee for this program is made to KKB directly and not to individual borrowers.
NRMP’s Role and Benefits to the Borrowers
USAID has designated the Natural Resources Management Program (NRMP) to facilitate and provide technical assistance to this DCA program. NRMP is working closely with both KKB and the borrowers to ensure that the type of projects being considered meet the proper criteria to be included into the DCA loan portfolio. In addition, NRMP will provide technical assistance to the borrower in determining the project viability, preparing the project business plan in order to make application to the bank, and, if needed, in the implementation of the energy efficiency technology. NRMP will also monitor the progress of the program for USAID’s purposes.
Borrowers interested in utilizing this program will have the opportunity to work with NRMP both in the preparation of the credit application and in the technical aspect of the project, as mentioned above. In addition, provided they meet the credit requirements of KKB, the borrowers will have access to funding of energy efficiency projects that may not be available otherwise or at much harsher terms, such as higher interest rates or shorter terms.
Interested parties should contact David Barker or Zukhra Abdrakhmanova at
NRMP: tel: +7 (3272) 501074, (nrmp_kz@nrmp.kz, www.nrmp.uz).
The views expressed herein are the author's own view and do not necessarily reflect those of the author's employer or especially those of the United States Agency for International Development or the United States Government.
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