Annual Report 2007 English2 2007 IN NUMBERS 1 Commitments signify EBRD financing committed under...

ANNUAL REPORT 2007REVIEW

The EBRD, owned by 61 countries and two intergovernmental institutions, aims to foster the transition from centrally planned to market economies in 29 countries from central Europe to central Asia.

The EBRD invests in virtually every kind of enterprise and financial institution, mainly in the form of loans and equity. Investments are designed to advance the transition to market economies and to set the highest standards of corporate governance. We do not finance projects that can be funded on equivalent terms by the private sector. In support of our investment activities, the EBRD conducts policy dialogue with national and local authorities to develop the rule of law and democracy.

Transmittal letter to Governors

London, 5 March 2008

InaccordancewithArticle35oftheAgreementEstablishingtheBankandSection11ofitsBy-Laws,theenclosedAnnualReportoftheBankfor2007issubmittedbytheBoardofDirectorstotheBoardofGovernors.

TheAnnualReportincludestheapprovedandauditedfinancialstatementsrequiredtobesubmittedunderArticle27oftheAgreementandSection13oftheBy-Laws.ItalsocontainsaseparatestatementontheSpecialFundsresources,inaccordancewithArticle10oftheAgreementEstablishingtheBank,andcoverstheenvironmentalimpactoftheBank’soperations,asrequiredunderArticle35oftheAgreement.

President JeanLemierre

Director Alternate Director LászlóAndor PavelŠtĕpánekTerenceBrown WalterCernoiaAlaindeCointet FrancisMougenezAnneCounihan IbKatznelsonStefanosVavalidis JoãoCravinhoSvenHegelund BaldurPéturssonOleHovland JariGustafssonAndréJuneau JudithStGeorgeTaeHwanKim PeterReithElenaKotova –VassiliLelakis CaroleGarnierKazimierzMarcinkiewicz KalinMitrevKazuyaMurakami HiroyukiKubotaKurtBayer HedvaBerIgorPodoliev VirginiaGheorghiuEnzoQuattrociocche UgoAstutoGonzaloRamos DavidMartínezHornillosSimonRay JonathanOckendenManuelSager TuranÖzJoachimSchwarzer RainaldRoeschJean-LouisSix IrenaSodinMarkSullivan –JanWillemvandenWallBake HansSprokkreeff

Contents2007 in numbers 2EBRD commitments 2007 4President’s message 601 Overview 802 Reform 20 Democraticreform 22 Economicreform 22 Legalreform 23 Environmentalandsocialreform 25 Integrity 26 Goodgovernanceandtransparency 2603 Financial sector 28 Bankingsector 31 Tradefinance 33 Equityfunds 33 Otherfinancialservices 3304 Financing for small business 34 Microandsmallbusinessfinancing 36 Supportforsmallandmedium-sizedenterprises 3705 Energy 40 Powersector 42 Sustainableenergy 44 Naturalresources 4506 Infrastructure 46 Municipalandenvironmentalinfrastructure 48 Transport 4907 Corporate sector 52 Agribusiness 54 Manufacturing 54 Propertyandtourism 56 Telecommunicationsandnewmedia 5708 Donor-funded activities and official co-financing 58 Activitiesin2007 60 Buildingstrongerbusinesses 6309 Nuclear safety 6410 Evaluating EBRD activities 6611 Procurement 7412 Organisation and staffing 76 Humanresources 76 EBRDManagement 78 EBRDGovernorsandAlternateGovernors 80 EBRDDirectorsandAlternateDirectors 8113 Projects signed in 2007 82Further information 96

TheEBRD’sAnnualReport2007comprisestwoseparatecompanionvolumes:theReviewandtheFinancialStatements(includingthefinancialresultscommentary).TheCD-ROMaccompanyingthispublicationcontainsthecompleteReview(inafullysearchableformat),theFinancialStatementsandacompletelistofallprojectssignedbytheBanksince1991.

BothvolumesarepublishedinEnglish,French,GermanandRussian.

CopiesareavailablefreeofchargefromtheEBRD’sPublicationsDesk:OneExchangeSquare,LondonEC2A2JN,UnitedKingdom.Tel:+442073387553Fax:+442073386102Email:[email protected]

2

2007 IN NUMBERS

1 CommitmentssignifyEBRDfinancingcommittedundersignedagreements.

EBRD commitments 2003-071

€billionGross annual disbursements 2003-07€billion

% change since 2006

n Advanced 1 -22

n Early intermediate 2 +16

n Russia +23

1 Croatia,CzechRepublic,Estonia,Hungary,Latvia,Lithuania,Poland,SlovakRepublic,Slovenia.

2 Albania,Armenia,Azerbaijan,Belarus,BosniaandHerzegovina,Bulgaria,FYRMacedonia,Georgia,Kazakhstan,KyrgyzRepublic,Moldova,Mongolia,Montenegro,Romania,Serbia,Tajikistan,Turkmenistan,Ukraine,Uzbekistan.

EBRD commitments by stage of transition in 2007

03

3.7

04

4.1

05

4.3

06

4.9

07

5.6

03

2.3

04

3.7

05

2.3

06

3.8

07

4.1

Annual commitments 2003-07

Cumulative 2007 2006 2005 2004 2003 1991-2007

Numberofprojects1 353 301 276 265 222 2,596

consisting of:

– standalone projects 187 167 156 141 129 1,575

– investments under frameworks 166 134 120 124 93 1,021

EBRDcommitments(€million)2 5,583 4,936 4,277 4,133 3,721 36,938

Resourcesmobilised(€million)2 8,617 7,645 5,846 8,835 5,456 80,506

Totalprojectvalue(€million)2 13,809 12,014 9,784 12,968 8,946 116,919

1 Anoperationthatisnotlinkedtoaframeworkandinvolvesonlyoneclientisreferredtoasastandaloneproject.Operationsextendedtoanumberofclients(forexample,creditlinestobanks)haveaframework,whichrepresentstheoverallamountapprovedbytheBoard.Investmentsunderframeworksrepresentthecommitmenttoindividualclients.

2 Thecalculationof“Resourcesmobilised”and“Totalprojectvalue”hasbeenrefinedtoexcludeamountsrelatingtofacilitieswheretheoriginalcommitmentwasmadeinapreviousyeartoensurethefinanceiscountedonlyonce;“EBRDcommitments”includeincrementalEBRDfinanceonexistingoperations.

Financial results 2003-07

(€million) 2007 2006 2005 2004 2003

Operatingincome 1,934 2,667 1,544 659 538

Expenses,depreciationandamortisation (251) (225) (219) (190) (198)

Operatingprofitbeforeprovisions 1,683 2,442 1,325 469 340

Provisionsforimpairmentofloaninvestments 201 (53) 197 (76) (7)

Netprofitfortheyear 1,884 2,389 1,522 393 333

Reservesandretainedearnings 8,676 6,974 4,684 1,718 952

Provisionsforimpairmentofloaninvestments(cumulative) 124 341 323 508 465

Totalreservesandprovisions 8,800 7,315 5,007 2,226 1,417

10%49%

41%

EuropeanBankforReconstructionandDevelopment 3

EBRD commitments by sector 2006-07€million(%change)

% change since 2006

n Corporate sector 1 +28

n Infrastructure 2 +11

n Energy 3 +53

n Financial sector 4 -4

1 Corporatesectorcomprisesagribusiness,manufacturing,propertyandtourismandtelecommunicationsandnewmedia.

2 Infrastructurecomprisesmunicipalinfrastructureandtransport.

3 Energycomprisesnaturalresourcesandthepowersector.

4 Financialsectorincludesinvestmentsinmicro,smallandmedium-sizedenterprisesviafinancialintermediaries.

Financial institutions

EBRD commitments by sector in 2007

% change since 2006

n Central Asia +115

n Central Europe and the Baltic states -22

n Western CIS and the Caucasus -1

n Russia +23

n South-eastern Europe -5

EBRD commitments by region in 2007

Bank equity (-63%)

Bank lending (+0.6%)

Equity funds (+100%)

Non-bank financial institutions (-8%)

Small business finance (-25%)

1,084.7

0707

120.2

06

321.5

06

1,078.8

07

400.0

06

199.6

07

307.2

06

333.6

07

206.0

06

274.3

Corporate sector

Agribusiness (+21%)

Manufacturing (+18%)

Property and tourism (+113%)

Telecommunications and new media (-13%)

841.9

0707

517.0

06

426.2

06

714.7

07

426.6

06

200.3

07

129.4

06

149.3

Energy

Natural resources (+1,701%)

Power and energy (+3%)

402.2

0707

212.5

11.806 06

389.8

Infrastructure

Municipal infrastructure (+3%)

Transport (+17%)

617.9

0707

317.7

06

307.1

06

529.2

11%

10%

20%

41%

18%

34%

17%11%

38%

Note:Financingforregionalprojectshasbeenallocatedtotherelevantcountries.▲or▼signifieschangeupordownsince2006.

4

CzechRepublic

Estonia

Hungary

Latvia

Lithuania

Poland

Bulgaria

CroatiaRomania

Russia

Armenia Azerbaijan

Belarus

Georgia

Moldova

Ukraine Kazakhstan

Mongolia

Turkmenistan

Uzbekistan

SlovakRepublic

BosniaandHerzegovina

FYRMacedonia

Tajikistan

KyrgyzRepublic

Slovenia

Montenegro

Albania

Serbia

EBRD COMMITMENTS 2007South-eastern Europe

€millionAlbania 45.1▼BosniaandHerzegovina 156.4▲Bulgaria 203.0▲FYRMacedonia 26.2▼Montenegro 17.5▲Romania 336.4▲Serbia 215.6▼

Western CIS and the Caucasus

€millionArmenia 77.8▲Azerbaijan 122.0▼Belarus 45.8▲Georgia 192.0▲Moldova 35.6▲Ukraine 646.8▼

Central Europe and the Baltic states

€millionCroatia 152.6▼CzechRepublic 39.8▼Estonia 11.0▲Hungary 38.7▼Latvia 18.1▲Lithuania 37.5▲Poland 160.5▼SlovakRepublic 74.3▲Slovenia 13.0▲


Number of projects

353

CzechRepublic

Estonia

Hungary

Latvia

Lithuania

Poland

Bulgaria

CroatiaRomania

Russia

Armenia Azerbaijan

Belarus

Georgia

Moldova

Ukraine Kazakhstan

Mongolia

Turkmenistan

Uzbekistan

SlovakRepublic

BosniaandHerzegovina

FYRMacedonia

Tajikistan

KyrgyzRepublic

Slovenia

Montenegro

Albania

Serbia

Russia

€billionRussia 2.3▲

Central Asia

€millionKazakhstan 531.6▲KyrgyzRepublic 11.7▼Mongolia 33.6▲Tajikistan 26.2▲Turkmenistan 2.6▲Uzbekistan 14.7 ▲

EBRD commitments

€5,583 million

Resources mobilised

€8,617 million

Total project value

€13,809 million

6

PRESIDENT’S MESSAGE

The EBRD has a great, and much appreciated, future as a strong, efficient and successful institution.

Theyear2007isinmanywaysametaphorfortheEBRDasaninstitution.Thiswasayearofexcellenceofprojects,innovativeapproachesandstrongresults–andayearthatfinishedbydemonstratingalltoographicallywhytheBankisneeded.

InkeepingwiththeBank’sfive-yearstrategyforuseofresources,investmentincentralEuropewaslimitedandtherewasincreasedemphasisonsouth-easternEurope,theCaucasus,CentralAsia,andonRussiawheresome40percentoftheannualbusinessvolumewasinvested,particularlyintheRussianregions.

TheCzechRepublicbecamethefirsttograduateasacountryofoperationsoftheEBRD.Thatendeditsrelationshipasaninvesteecountry,buttheCzechRepublicremainsfirmlycommittedtoafuturewiththeBankasbothadonorandaninvestor,asCzechcompaniesseektoinvestalongsidetheBankincountriesfurthereast.SevenothercentralEuropeancountrieswillfollowsuitoverthenextfewyears,releasingresourcesfortheEBRDtodevotetothe21countrieswhereaccesstocapitalmarketsremainsdifficultandtheBank’sexperiencebringsmuchvalue.

In2007,thenotableaddedvaluewasininvestmentsthatreflectedashiftbacktowardsmanufacturingandsupportfortherealeconomy.Thereweremoreinvestmentsintheformofequity,wheretheBankacceptsproportionatelyhigherrisksbutcontributesmoreasashareholder.

Therewasgrowingactivitythroughthearrayofprogrammesforsmallerbusinesses,especiallyintheWesternBalkansandthepoorercountriesacrosstheregion.InpartnershipwiththeEuropeanInvestmentBank,weputnewimpetusintoaddressingthemassiveinfrastructureneedsoftheregion.AndnewformsofinvestmentinenvironmentalupgradesandindustrialhealthandsafetywilladdtotheBank’salreadystrongreputationinsupportingsustainabledevelopment.

Highervolume,profits,andmoreprojectsthatfosteredmoretransitionthaneverbeforeinthehistoryoftheEBRDbeliethelessmeasurablevalueoftheBank.MuchoftheBank’scontributionliesinitsdeepknowledgeoftheregionwhereweinvest,ofthepeopleandthecompanies,ofthepoliciesandthelegalstructures,theinvestmentenvironmentandtheculture.MycolleaguesandIdevoteagreatdealofenergytotalkingtopoliticalandbusinessleadersabouteverythingfrombankingsupervisiontomunicipalplanning.

Thatkindofdialoguehasspurredanacceleratinguptakeofinvestmentsinenergyefficiency,whichonlyafewyearsagowasavirtuallyneglectedopportunityforsavingsaswellascontributiontoenergysecurityandlimitingclimatechange.Energyefficiencyinvestmentsarenowthriving,asmoreandmorecompaniesunderstandtheenormousbottom-linebenefitsofsavingenergyandprotectingtheenvironment.


JeanLemierrePresident

ThroughlongandcarefuldiscussionswithcounterpartsinRussia,Ukraine,Romaniaandothercountries,theBankhashelpedtodevelopcapitalmarketsbyestablishingtransparentbenchmarksforlendingandopeninglonger-termfinancingfortherealeconomy.

MuchofmydialoguewithleadersreflectswhattheEBRDhaslearnedbyconductingsurveysofthepeopleoftheregiontotrytounderstandtheirperceptionsofhowtransitionhashelpedthemorfailedthem.AspirationsandfrustrationsofaveragepeoplecanhelptheEBRDtounderstandtheenvironmentwherewework,andhelppolicy-makersandentrepreneurstoplantheirfuture.

Acrosstheregion,peoplesharethewishforbetterhealthandeducation,lesscorruptionandgreaterprosperity.Transitionformostcountriesmeansdevelopingamiddleclass.Itmeanseconomieswell-endowedwithasoundandincreasinglysophisticatedbankingsystem,diversifiedindustriesthatdrawonthetraditionalengineeringandscientificstrengthoftheregion,andproductsandservicesthatserveconsumerswell.

For17years,theEBRDhashelpedcountriestorealisethoseaspirations.Forthepasteightyears,IhavehadthehonourofleadingtheBankasitemergedfromthesetbacksofthe1998financialcrisisanddeliveredsupportandprojectstoaregionthatwasdevastatedbyfinancialturmoiljustasfledglingmarketeconomiesanddemocraciesweretakinghold.

TheEBRDremainedcommittedtoitsclientsanditscountriesthroughthosedifficultyearsandhasgoneontodeliverexponentialincreasesintransitionimpact,volumeandprofitseversince.As2007closed,newtroublewasloomingintheglobalfinancialsystem.Thiswillnodoubtpresentnewchallengesfortheregionin2008,andserveasanunsettlingreminderofjusthowmuchtheEBRDisneeded.Onceagain,theexpertanddedicatedstaffoftheBankwillhavetofindnewwaystoadapttonewneeds.

Ihavenodoubttheywilldoit.SupportedbyaBoardwithdeepunderstandingoftheimportanceoftheBank,theEBRDhasagreat,andmuchappreciated,futureasastrong,efficientandsuccessfulinstitutiondedicatedtoinvestinginthefutureofthepeoplefromcentralEuropetocentralAsia.

IleavetheEBRDwithconfidenceandheartfeltbestwishesfortheEBRD,itsstaffanditsfutureleadership.Andwithgreataffectionandhopesforaregionthatisdefiningandachievingtransitionfortheworld.

01OVERVIEWEBRD investments rose in 2007 and, in line with the Bank’s strategy of moving operations further south and east, activities were focused on countries at the early and intermediate stages of transition. A new Environmental Policy is being proposed to reflect the Bank’s increased focus on the social aspects of its projects, particularly health and safety. Sustainable development across all EBRD projects continues to be fundamental.

8

10 Overview

Countriesinthetransitionregioncontinued to prosper in 2007,recordinganaveragegrowthrateof7percent–thefastestsincethetransitionprocessbegan.Thisisbeingdrivenbystrongdomesticconsumptionaspeoplebecomemoreprosperousonthebackoffallingunemploymentandpovertylevels.Foreigndirectinvestmentalsoreacheditshighestlevelsincetransitionbeganat€52billion,comparedwith€34billionin2006.Oilandgaspricesremainedhighandsoexportgrowthintheresource-richcountriesremainedstrong.

Atthesametime,economiesinthetransitionregionshowedsignsofoverheatingbywayofrisinginflationandexternalimbalances.Inflationarypressuresincreasedsignificantlytowardstheendof2007undertheinfluenceofrisingfoodandenergyprices,andtighterbudgetarycontrolshavesofarbeenunabletoeasethesepressures.Inaddition,theglobalfinancialturmoilthatbeganinAugust2007mayleadtohigherfundingcosts,creditconstraintsandgreaterriskaversiononthesideofinternationalinvestorsandcouldaffectfinancialsectorsthroughoutthetransitionregion.Bytheendof2007,theimpactontheregionhadbeenlimited,althoughsomebankswerefeelingtheeffectsoftighterliquiditypositions.However,prospectsforgrowthin2008havedimmedsomewhatrelativetothepreviousyearasaresultofthedeteriorationintheglobaleconomicenvironment.

Progressineconomicreformin2007wasgenerallysteady,albeitslowerthanatthebeginningofthedecadeassomecountriesshowsignsofreformfatigue.South-easternEuropemadethemostheadway,althoughtherewaslimitedprogresselsewhere.Amoredetailedassessmentofeconomicreformcanbefoundonpage22.

CoupledwithsteadyreformwasanincreaseinEBRDcommitments.In2007theBankinvested€5.6billioninprojectsinthecountriesinwhichitoperates–fromcentralEuropetocentralAsia.ThisistheBank’shighest level of investmentandisa€0.7billionincreaseon2006.EBRDfinancingwasspreadacross353projects,asignificantriseonthe301thatweresignedin2006.Overhalfofthesewereprojectsinthe“verysmall”rangeof€5millionorless,whichisa32percentincreaseon2006.ThisreflectstheBank’sincreasingfocusoncountriesfurthersouthandeastwheretransitiontowardsamarketeconomyislessadvancedandprojectstendtobesmaller.

Theshareofnewprojectsratedas“Good”or“Excellent”intermsoftheirpotentialimpactonthetransitionprocesstotalledalmost90percent.ForeveryeuroinvestedbytheEBRD,afurther1.7wereraisedfromothersourcestoco-financetheBank’sprojects.

Equityinvestmentsincreasedin2007byasubstantial42percentfrom64in2006to91in2007,whileequityvolumewentupby68percentfrom€1billionin2006to€1.7billionin2007.Reflectingahigheraveragesizeofindividualinvestment,theequityshareoftheBank’sannualbusinessvolumeincreasedfrom20percentin2006to30percentin2007.Bytakingequityinacompany,theEBRDcanuseitspositionontheboardofdirectorstoencourageimprovementsincorporategovernanceandsoundbusinessstandards.

Asignificantcontributiontothe2007businessvolumewasfromtheTradeFacilitationProgramme,whichpromotesforeigntradebetweenthecountriesinwhichtheBankoperates(seepage33).Tradefinanceissuedin2007totalled€777million,a10percentincreaseonthe2006amountof€707million.

Theprivatesectorshareofannualbusinessvolumeincreasedto86percentin2007from80percentin2006.EBRDfinancingwasspreadacrossvarioussectors.Mostofitwasdirectedtowardsthefinancialsector(38percent)tosupportinstitutionswithinandoutsidethebankingsector,aswellaslocalenterprises,includingsmallbusinesses.Thecorporatesectorattracted34percentofcommitmentstosupportprojectsinagribusiness,manufacturing,propertyandtourism,andtelecomsandnewmedia.TheremainderofEBRDfinancingwenttoinfrastructure(17percent)andtheenergysector(11percent).Drivenbyactiveportfoliomanagementandthecompositionoftheannualbusinessvolume,disbursementsoffundingtoreachEBRDclientstotalled€4.1billionin2007,anincreaseof9percentonthe2006levelof€3.8billion.DisbursementstookplaceacrossallthecountriesinwhichtheBankinvests.

Realisedprofitafterprovisionsfellslightlyto€1.1billionin2007fromthe€1.6billionreportedin2006.Realisedequitygainswere€0.6billion,comparedwith€1.3billionin2006.Netprofit,includingunrealisedequitygains,droppedto€1.9billionfrom€2.4billionin2006asequitymarketsintheBank’sregionsoften,followingthetrendoftheUnitedStatesandwesternEurope.

Intermsofgeographicalspread,mostoftheEBRD’sfinancingwenttotheearlyandintermediatetransitioncountries.Investmentinsouth-easternEurope,theCaucasus,CentralAsiaandcountriesonthewesternfringeoftheformerSovietUnionreached€2.7billionin2007,whichrepresents49percentoftheBank’sannualbusinessvolume.TheBankfocusedparticularlyonthecountriesinCentralAsia,doublingitscommitmentstherein2007to€0.6billion.IntheadvancedtransitioncountriesofcentralEurope,EBRDcommitmentsfellto€0.5billionfrom€0.7billionin2006.

In2007,theBankinvested€5.6billioninprojectsinthecountriesinwhichitoperates,fromcentralEuropetocentralAsia.


Whenpeoplearefacedwithdailyinterruptionstotheirwatersupplytheytendtofillbaths,bucketsandbasinsasquicklyastheycantogetenoughfordrinking,cleaning,cookingandbathingforthenext24hours.Thisbehaviour,ofcourse,onlyexacerbatestheproblemandstrainsthesystemevenfurther.

InmanycountriesinwhichtheEBRDoperates,theoldinfrastructurehasbeenleftinplacetoolonganddesperatelyneedsupdatingtomeettheneedsoftheincreasinglywealthypopulation.ThereforetheEBRDhasinvestedupto€105millionfora10percentstakeinVeoliaVoda,withtheaimofboostingtheroleoftheprivatesectorintheprovisionofwaterandwaste-waterservices,withparticularemphasisonRussiaandUkraine.

ThefundswillbeusedbyVeoliaVodatocontinueitsexpansionintheBank’scountriesofoperations.VeoliaVodaistheholdingcompanyforFrenchcompanyVeoliaWater’scentralandeasternEuropeanactivitiesandithasalreadymadesuccessfulentriesintothemarketsoftheCzechRepublic,Hungary,PolandandtheSlovakRepublic.

VeoliaVodahasbeenverysuccessfulinnurturinglocaltalentandithasaround10,000employeesinHungary,Poland,theSlovakRepublic,withthebulkofitsworkforce(6,000)intheCzechRepublic.WiththeexceptionoftwoFrenchcitizens,alltheseemployeesarelocal.VeoliaVodahasbeenabletodevelopandgroomlocalexpertisetobecomegroupleadersinareasofwaste-watertreatmentsuchas

“sludgevalorisation.”Aswellassupportingbetterqualitywaterandwaste-waterservices,Veoliabrings,ofcourse,acommitmenttotransparencyandgoodcorporategovernance.

ThedevelopmentofasustainableinfrastructureiscrucialforthesuccessfultransformationofeconomiesintheEBRDregion.Improvingthesupplyofwaterandreducingthedangerofpollutionandsicknessbyraisingthequalityofwaste-watertreatmentmakesarealdifferencetothequalityofpeople’slives.

AlsokeytothewayVeoliaworksistheconservationandprotectionofthequalityofwaterasanaturalresource.Waterisconservedbyaddressingwaterleakagesandothertechniquesthataimtominimise

thestressonthewaterintake.Moreeffectivewaste-watertreatmentprotectsgroundwaterandsurroundingbodiesofwaterfrompollution.

AntoineFrérot,ChiefExecutiveOfficerofVeoliaWatersaid:“ThispartnershipunderlinesVeolia’scommitmenttoworkinginclosecooperationwithauthoritiesincentralandeasternEurope,andourdevelopmentinthisregionwillbefurtherenhancedthroughtheEBRD’ssupport.Ourlong-standingexpertisewillcontributenotonlytoprovidingcommunitieswithefficientwaterandwaste-waterservices,butalsototheprotectionofnaturalwaterresourceswhichisofmajorimportancetothisregion.”

CasestudyBuildingpartnershipsinthewatersector

12 Overview

Kalugawasnotalwaysbooming.Asrecentlyasthe1990sthetownwasstrugglingastheregion’sheavyindustryfailedtoadjusttothemarketeconomy.Thousandsofresidentsmovedthe160kilometrestoMoscow,butnowtheyarelikelytoreturn.

OneofthereasonsisKaluga’snewVolkswagenfactory.ThefoundationstonewaslaidinOctober2006andthefirstcarsrolledofftheassemblylineinNovember2007.ThefactoryismostlyfinancedbyanEBRDinitiativethat,with11otherbanks,raisedtheroubleequivalentof€750million,theBank’sbiggestroubleinvestmentintheautomotivesectortodate.

ItisKalugawhereVolkswagen’sforayintotheRussianautomarketistobeginandwherethecompanywillproduceupto150,000carsayearby2009.

“Volkswagenisamagnet,”saysDeputyMayorVadimVitkov.“Oncethey’rehere,manymorewillcome.”Thatwasthemessageherepeatedlydrovehometoanyonewaryoftheinvestment.

Othercarmakers,suchasPSA-Group,VolvoandRenaultTruck,arealsopreparingoperationsinKaluga.DuringthefirstphaseofproductionatKaluga,Volkswagencarswillbeassembledon

site,therebyavoidingtheheavydutiesonimportingcompletedvehicles;startingin2009,carswillalsobemanufacturedatthefactory.

Volkswagenwasestablishedin1937andhasbuiltupaninternationalreputationforreliabilityandeco-friendliness.Itnowhas47productionplantsin12countriesworldwide,andisthelargestcarmanufacturerinEurope.In2006thecompanysold5.7millioncarsworldwide,anditisworkinghardtobecomeRussia’scarofchoice.ThefirstofVolkswagen’sŠkodaOctaviasandVWPassatsarealreadyrollingoutofthefactory.Soon,theJetta,theŠkodaFabiaandanewmodeldesignedforfuturemarketswillenterproduction.

ThenewfactoryiscreatingmassivejobopportunitiesinallsectorsaroundKaluga,butthelanguagebarrierisachallenge.

“Wedon’thaveenoughpeoplewhospeakEnglishandGerman,”saysVitkov.Sothecityisplanningtobuildaneducationcentre.Furthermore,cityleadersareconcernedthatthearea’sgastronomyisn’tuptoEuropeanstandardssothelocalgovernmentisencouragingnewrestaurantstoopenthatserveEuropeancuisine.Kalugahasalsostartedaresidentialbuildingprogrammetotacklethehousingshortage.

“Wehavetobecomeabiggerplayerinthishugemarket,”remarksDietmarKorzekwa,VolkswagenGroup’srepresentativeforRussia.HeforeseesdramaticgrowthintheRussianautomobilemarketincomingyears.“Thepopulationisunder-motorised,”heobserves.WhileGermanyhas500carsforevery1,000people,Russiahasonly190.InRussiatodaythereare2.33millionvehiclessoldannually.By2010,thatnumberwillbe3million.“Conservativelyspeaking,”saysKorzekwa.

Volkswagenseesgreatestgrowthforitsvehiclesinthe€7,000to€18,000pricerange,particularlywithvehiclesforthedomesticmarketthatwillcompetedirectlywiththeLada,Russia’sbest-knownpassengercarbrand,Korzekwaexplains.

TheVolkswagenprojectrepresentsthethirdEBRDinvestmentinagreenfieldcarproductionplantinRussiaoverthepastsixyears.ThetwoearlierprojectswereGM-AvtoVazinTogliattiandToyotainStPetersburg.

CasestudyRussia’sautomotiveindustrymovesahead


TheMemorandumofUnderstanding(MoU)signedin2006bytheEBRD,EuropeanCommissionandEuropeanInvestmentBankhasbolsteredthestrongrelationshipbetweenthesethreeorganisations.TheMoUfacilitatesthejointfinancingofprojectsinRussia,easternEurope,thesouthernCaucasusandCentralAsiaandhasledtothedevelopmentofprojectssuchastheupgradingofMoldovanroads(seepage51)andapipelineofprojectscoveringenergy,transportandenvironmentalinfrastructure.Inaddition,tofurtherreinforcetheircooperationintheenergysector,theEBRDandEuropeanCommissionsignedanotherMoUin2007,focusingonenergysecurity,energyefficiencyandnucleardecommissioning.

Investments in Russia increased in 2007toreach€2.3billion.Thiscovers83projectsandamountsto42percentoftheBank’sannualcommitments(comparedwith38percentin2006).ThenewinvestmentsbringtheBank’stotalportfolioinRussiato€5.7billion.

TheBankfocusedonprovidingfinanceoutsidethemajorcities,devotingmorethan90percentofitsnewbusinesstotheRussianregions,acommitmentunderlinedbytheBank’s2007AnnualMeetingbeingheldinKazan.Topromoteeconomicdiversity,activitieswerespreadacrossthecorporatesector(33percent),infrastructureandenergy(28percent),financialinstitutions(19percent),micro,smallandmedium-sizedenterprises(10percent)andtheTradeFacilitationProgramme(10percent).

TheshareofequityinvestmentsinRussiareached37percent.ImportantequityinvestmentsincludedTranscontainer,asubsidiaryoftheRussianrailways,aspartoftheprivatisationoftherailsector,andTGK-9,aregionalelectricalpowerproducer(seepage43).TheBankalsomadeitslargestroubleloanintheautomotivesectortoVolkswageninKaluga,togetherwithinternationalbanks.

AspartoftheEBRD’sstrategytopromoteenergyefficiencyacrossallsectors,alandmarkprojectwas€150million,long-termenergyefficiencyloantoSeverstal,asteelproducerinthenorth-westofRussia(seepage44).Afurther€150millionwassyndicatedtoprivatebanks.ItisthelargestenergyefficiencyprojectundertakeninRussiaandwillhelpthecountry’sleadingsteelmakertoreduceitsannualprimaryenergyconsumptionby5-10percent.

ItwasalsoagoodyearforEBRDinvestmentsintheWestern Balkans.TheBankcommitted€461millionandsigned38projects.Disbursementswerehigh,exceeding€330million,andthehighbusinessvolumewasachievedthroughalargenumberofinvestmentsinverysmallprojects(thoseof€5millionandless),anincreaseinequityinvestmentsandagreaterinvolvementwithlocalenterprises.

Afteroneyearofoperations,themulti-donorWesternBalkansFundiswell-establishedasasignificantinstrumentforfundingprojectsintheWesternBalkans(seepage61).DonorfundingisanintegralpartofEBRDinvestmentasitbringsadditionalfinance,preparesthewayforEBRDprojectsandallowsclientstobenefitfromexpertadvice.Pledgeshavereachedmorethan€20million,ofwhichabout€4.5millionhasbeenapprovedformorethan25projectsinAlbania,BosniaandHerzegovina,FYRMacedonia,MontenegroandSerbia(includingKosovo).Fundingisfocusedoninfrastructuredevelopment,accesstofinanceforsmallbusinesses,institutionalreformandcross-bordercooperation.

CrucialsupporttotheEBRDinitiativesintheWesternBalkanscomesfromtheEuropeanUnionthroughtheEuropeanAgencyforReconstruction(EAR).ThissupporthasbeenprovidedmainlyintheformofTCfunds.

Donor-fundedactivitiesalsoincludetheItalian-sponsoredWesternBalkansLocalEnterpriseFacility,whichprovidesequity,risk-sharingandfinancingtolocalenterprises.ThroughthisFacilitytheEBRDsignedsevenprojectsin2007,bringingthetotalnumbersignedto10.TheFacilitynowhas€65millionforequityinvestmentsintheregion,€25millionofwhichhasalreadybeeninvested.

Significantprojectsintheregionin2007includedtheBelgradeHighwayandBypassproject,supportedbyEBRDanddonorfundingtoimprovethetrafficflowintheSerbiancapital,anda€15millionloantotheMontenegrinnationalrailinfrastructurecompanytoimprovethesafetyandefficiencyofthecountry’srailsystem.

Investments in railway infrastructure and rolling stock were made across the region in 2007.

The EBRD held its 2007 Annual Meeting in Kazan, Russia, underlining its commitment to developing the Russian regions.

14 Overview

TheincreasingmomentumundertheEarly Transition Countries (ETC) InitiativereflectstheBank’scommitmenttosupportingsomeofthepoorestcountrieswhereitoperates.Asaresultoftheinitiative,in2007theBankmorethanquintupledthenumberofprojectssignedannuallyintheETCs,comparedtolevelsachievedbeforethelaunchoftheinitiativein2004.AspartoftheinitiativetheBankwasalsoabletokick-startitsactivitiesinitsnewestcountryofoperations,Mongolia,in2007,signingsixnewprojects.TheETCsincludeArmenia,Azerbaijan,Georgia,theKyrgyzRepublic,Moldova,Mongolia(sinceNovember2006),TajikistanandUzbekistan.

TheEBRDsigned105projectsintheETCsin2007.Thiscompareswith80(excludingoilandgasdeals)in2006,61in2005,32in2004and18in2003(beforethelaunchoftheinitiative).Thevalueofnewsigningsalsorosesubstantiallyin2007:€416millionin2007comparedto€290millionin2006,€250millionin2005,€92millionin2004and€53millionin2003.Inaddition,theBankhasincreasinglysupportedimportandexporttradewiththesecountriesthroughitsTradeFacilitationProgramme,achievingend-of-yearcommitmentsin2007ofanother€93million.

Tobesuccessful,theETCInitiativedependsonthreeelements:theBank’sreadinesstotakeonahigherlevelofriskinETCprojectswhilerespectingsoundbankingprinciples;supportfromthedonorcommunity;anddedicatingmoreresourcestotheinitiativethroughstaffatHeadquartersandintheBank’slocaloffices.Forexample,in2007theEBRDcompletedthetransformationoftheTbilisiresidentofficeintoaregionalhubforactivitiesintheCaucasusandMoldova,decentralisingactivitiesandallowingtheBanktoplacemoresectorspecialistsinthefield.

Undertheinitiative,theEBRDmakesuseofafullrangeofproductstosupportlocalbusinesses.ThisincludesaDirectInvestmentFacilitytofundequityinvestmentsinmedium-sizedenterprises,aDirectLendingFacilityandtheMedium-sizedCo-financingFacilitywithlocalbanks,whichprovidesloansdirectlytomedium-sizedenterprises.In2007theseproductsaccountedforathirdofallsignedoperationsintheETCs,ofwhichhalfwereintheagribusinesssector.Substantialefforthasalsogoneintoexpandingworkwithfinancialinstitutions,includinglendingtomicrobusinesses.

Aspartofthiseffort,thenew€24millionTajikAgriculturalFinanceFacility,thefirstofitskindintheEBRDregion,isagoodexampleofhowtheETCInitiativeisextendingtheBank’sreachbyprovidinginnovativeformsoffinancingandshowingitsreadinesstotakeonrisk.ThisfacilityaimstosupporttherestructuringanddiversificationoftheTajikagriculturalsector,includingthecottonsector,byfundingloanstosmall,familyandindividualprivatefarms,reachingborrowerswhowouldnotnormallyhaveaccesstofinance.Therewasalsoconsiderableactivityintheenergy,municipalandtransportsectorsin2007.

TheBankisalsodedicatingagreaterefforttoinstitutionbuildingandpolicydialogue.InthisrespecttheBankbeganrollingoutanewinitiativetosupportdiscussionsbetweenlocalenterprisesandnationalauthoritiesthroughinvestmentcouncilsintheETCs.

AnincreaseinEBRDsigningsin2007wasaccompaniedbysubstantialdonor-fundedcommitments,whichtotalledaround€24.9million.About51percentofthishasbeenprovidedthroughtheETCMulti-DonorFundlaunchedinNovember2004,whichoffersgrantfinancinginsupportofEBRDprojects.Inaddition,in2007thefirstgrantco-financingfundedunderaDutchcontributiontotheETCFundwassignedforaTajikroadmaintenanceproject.

AtitsthreeAssembliesin2007theETCFundapprovedawidevarietyofgrant-fundedprojectsaimedatencouragingthedevelopmentoftheprivatesectoracrosstheETCs.Theseincludedsupportformicrofinanceprogrammes,thedevelopmentofsmallmunicipalprojectsandthefinancingofenvironmentalinitiatives.Italsoapprovedfundingforenergyefficiencyandrenewableenergyprojects.Bytheendof2007,theFundhadapprovedfundingforalmost114grant-fundedprojectstotallingaround€39.3million.

Thegraduation of the Czech Republicfromnewoperationswasanotabledevelopmentin2007thatrecognisedthecountry’sprogressinachievingtransitiontoafullmarketeconomyanddemocracy.Thismeansthat,asoftheendof2007,theBanknolongermakesinvestmentsintheCzechRepublic,whichbecomesthefirstofeightnewEUmemberstograduate,consistentwiththestrategicdirectionoftheBank.TheBankwillcontinuetomonitoritsportfolioofprojectsintheCzechRepublicandworkcloselywithCzechenterprisesinvestingincountriesfurthereast.InviewofthereductioninbusinessvolumeincentralEurope,theEBRDhasconsolidateditsofficesintheBalticStates.BusinessfromtheRigaandTallinnofficeshasbeentransferredtothehubofficeinVilnius.

Elsewhere,theEBRDopenednewoffices.InJune2007theEBRDestablisheditspresenceinMontenegrobyopeninganofficeinPodgorica.Montenegrobecameanindependentcountryon3June2006andwassubsequentlyacceptedasacountryofoperationsandashareholderoftheBank.Lookingto2008theEBRDplanstoopentwoofficesinRussia:inKrasnoyarskandRostov-on-Don.ThiswillhelptheBanktoincreaseitsinvestmentoutsidethemajorcitiesinRussia.

Toincreasetheresourcesavailabletoclients,theEBRDoftenturnstotheprivatesector,mostlycommercialbanks,tosupportitsownfinancing.TheopportunitiesfortheEBRDtosyndicate loanstothesebankscontinuedtobeplentifulin2007.Inthefirsthalfoftheyearthiswasdrivenmainlybyhighliquidityinthebanklendingmarket.However,thesecondhalfoftheyearbroughtamuchtougherenvironmentasmarketliquiditytighteneddramaticallyinthewakeoftheUSsub-primemortgagecrisis.

TheEBRDestablisheditspresenceinMontenegrobyopeninganofficeinPodgorica.


InthevillageofMakramintheKanibadamDistrictofSughdProvince,Tajikistan,28womenfromthe“Dousty”collectivefarmhavejusttakentheirfirststepstowardseconomicindependence.Theyhaveappliedforlandownershipcertificatesaspartofanewlandreformprocessaimedatgreaterautonomyforfarmersandincreasedcropdiversity.

Withfinancialassistanceandfarmbusinessmanagementskillsprovidedthroughaground-breakingEBRDproject,thewomenwillbeabletomakeinformeddecisionsthataffecttheirlives.Sanavbar,oneofthe28womenapplyingforthelandcertificates,saysthatwhenshehasherownfarm,shewillgrowmorethanjustcottonandapricots.Sheplanstoexpandandincludepotatoesandtomatoes.

“IwillbeindependentandchoosewhatharvestIwantandIcanpassthelandontomychildren,”shesaid.

TheEBRDproject–theTajikAgriculturalFinanceFramework–isanewinitiativesetupin2007tosupporttherestructuringanddiversificationofTajikistan’sagriculturalindustry,includingthecottonsector,byfundingloansto

small,familyandindividualprivatefarms.TheEBRDisproviding€24millioninnewloanstoTajikbanks,whichwillbeusedtosupportagriculturewithwide-reachingtrainingschemesandsmallloansforfarmingbasicslikeseedsandfertilisers.Thebroadaimsaretoboostcropdiversificationandecologicallyfriendlyfarmingandtolimittheuseofchildlabour.

Thecottonharvest,whichsupports75percentoftheTajikpopulation,thatis7.1millionpeople,hasfallenfrom1milliontonnesayearbeforethebreak-upoftheSovietUniontoonly450,000tonnesin2006.TheEBRDschemewillprovidealternativeaccesstofinanceforfarmerspreviouslytiedtocotton,therebysupportingthe“freedomtofarm”concept.

Althoughtheeconomyishighlydependentoncottonanddemandforothercropsismostlylimitedtolocalconsumption,thereis,forexample,alargenewtomatopasteplantincentralTajikistanthatneedsatleast33,000tonnesoftomatoesayear.Inaddition,exportopportunitiesfordriedonionshaveinspiredmanyfarmerstogrowonionsaspartoftheircroprotation.

Manyofthefarmersreceivingloansunderthefacilitywillneverhavereceivedaloanbeforeandmanyofthem,likeSanavbar,willbewomen.ThesewillbethefirstsyndicatedloansinTajikistan.MurodaliAlimardon,GovernoroftheNationalBankofTajikistan,said“thisisaverysignificantmomentforTajikistan,becausenotonlyarethesethefirstsyndicatedloansinthecountrybutthetechnicalassistanceprovidedalongsidethisfinancewillhelpourcommercialbankstoprovidearealalternativetoTajikfarmersandwillsupportourgovernment’snewfreedomtofarmpolicy”.

Agroinvestbank,TSOBandBankEskhata,thethreepartnersunderthenewfacility,havealreadyworkedcloselywiththeEBRDundertheTajikMicroandSmallEnterpriseFinanceFrameworklaunchedinlate2003,andtodatehavedispersedover€80millioninsmallloans.

CasestudyEmpoweringTajikfarmers

16 Overview

Despitethis,theBankcontinuedtosuccessfullysyndicateloans,demonstratingthevaluethemarketattachestoEBRD-financedprojects.In2007theEBRDraised€3.2billioninco-financingfromtheprivatesector,predominantlycommercialbanks,forprojectsin14oftheBank’scountriesofoperations.Thisrepresentsa27percentincreaseinvolumeon2006,andisinpartexplainedbytheBank’sownincreasedlevelofcommitmentsin2007.

Thelargercountriesintheregioncontinuedtoattractthelargestvolumesofsyndicatedloans:Russianborrowersattracted€1.4billionandUkraineattracted€416million.Inallofitssyndicatedlendingactivities,theBankcontinuedtoraiseco-financingacrossarangeofmanufacturingandservicesectors,thushelpingtostrengthentheeconomybeyondoilandgasandothercommodities.

LendinginlocalcurrencyispartoftheBank’smandatetostimulatethedevelopmentofcapitalmarkets,andmobilisinglong-termRussianroublefinancewasaparticularfocusin2007.Significantprojectsincludeda4.3billionrouble(approximately€115million)loantoGuardianRussia,aglassmanufacturer,thatwassyndicatedtofivebanks,anda26billionrouble(€750million)loantoVolkswagenRusthatwassyndicatedto11bankstofinancetheconstructionofacarplant(seepage12),makingVolkswagenoneofthelargestforeigndirectinvestorsoutsideRussia’soilandgassector.Thistransactionisthelargestroublesyndicatedloanclosedinthemarketbyanyinstitutiontodate.

TheBankactivelysoughttoattractlenderstomunicipalprojectsandin2007syndicatedforthefirsttimeloansforaninfrastructureprojectinthecityofKiev(seepage50).

In2007theEBRDalsosuccessfullymobilisedlonger-termdebttofinancialinstitutions.InRussia,syndicatedloanswereprovidedtoAbsolutBank,MDMBank,NBDBank,Promsvyazbank,URSABankandVTB24.InUkraine,syndicatedloanswereprovidedtoForumBankandKreditprombank.Toassistthepoorercountriesofoperations,theEBRDalsomobilisedco-financingforbanksinArmenia,Azerbaijan,GeorgiaandTajikistan.

Bytheendof2007theBankwasaheadofscheduleinachievingitsobjectivesundertheSustainable Energy Initiative(SEI).SinceitslaunchinMay2006,theBankhasinvested€1.7billioninsustainableenergy,exceedingtheoriginalthree-yeartargetof€1.5billioninlessthantwoyears.In2007alone,theEBRDprovided€934millionforsustainableenergyinvestmentsacross51projects,withatotalvalueof€3.4billion.

ThescalingupofsustainableenergyinvestmentswasbasedonactivityacrossallSEIareas.Aboutone-thirdofSEIfinancingin2007wasforindustrialenergyefficiency,involving15projects.Thenumberoffinancingfacilitiessupportingsustainableenergyprojectsincreasedto13,withEBRDfinancingofover€130million.TheBankalsoinvested€276millionacrosssevenenergy-savingprojectsinpowergeneration,whilefourrenewableenergyprojectswerefinancedfor€66million.EBRDfinancingformunicipalinfrastructureprojects,suchasdistrictheating,reached€143millionandinvolved12projects.

TheSEIhasreceivedstrongdonorsupport.Therearenow15bilateralcontributorsandfourmultilateraldonorswhohavesofarcontributed€38millionintechnicalassistancefundingand€58millionforinvestmentgrants,withmostofthelattercomingfromtheEuropeanUnion.Donorfundingisusedtoraiseawarenessofthepositivereturnsoninvestmentfromenergyefficiencymeasuresandtoassistinthepreparationandimplementationofcomplexprojects.

Thepaceofdonor-fundedcommitmentsacceleratedsharplyin2007,withcommitmentsfortechnicalcooperation(TC),suchasconsultantstohelpprepareprojects,reaching€26.3millionin97assignmentscomparedto€7millionin33assignmentsin2006.

Buildingonthedevelopmentofpolicydialogueandoperationalactivityduring2007,theEBRDwillcontinuetoexpandtherangeofitssustainableenergyactivities,supportinganincreasingcontributiontoenergyefficiencyandcarbonemissionreductioninitsregionofoperations.

WithintheEBRD’sfoundingagreementisacommitmenttointegratesoundandsustainabledevelopmentinallitsoperations.Forallitsprojects,theBankassessestheenvironmental,health,safety,socialandlabourimpactoftheseinvestments.TheBankincludesrigorousrequirementsinallEBRDinvestmentsandfinancesmanyprojectsthataredesignedtoimproveenvironmental,health,safety,socialandlabourconditionsinthecountrieswheretheEBRDinvests.

TheEBRDundertakesanenvironmentalappraisalbeforeinvestinginanyprojectsothatitcandeterminewhatactiontheclientneedstotaketocomplywiththeBank’sEnvironmentalPolicy.Theserequirementsbecomebindingwhentheprojectissigned.In2007theEBRDprovidedfinancingof€329milliontocoverenvironmentalrequirementsforprojectsinthemanufacturing,heavyindustryandagribusinesssectorsalone.

The Bank assesses the environmental, health, safety, social and labour impacts of all its investments.

Syndicated loans amounting to nearly €100 million were provided to Ukraine’s Forum Bank for mortgage and SME lending.


In2007,EBRDprojectswithastrongenvironmentalcomponentincludeda€30.5millionloantoCleanGlobeInternationalforoilspillprotection,an€8millionprojecttoprovidepotablewaterfromLakeSkadartothemunicipalitiesalongtheMontenegrincoastanda€25millioninvestmentinafunddedicatedtoinvestinginrenewableenergyandenergyefficiencyprojectsincentralandsouth-easternEurope.Intotal,theBankinvestedjustover€1billioninmunicipalinfrastructure,energyefficiencyandclean-upoperationsin2007.

TheEBRDalsopaysparticularattentiontogreenhousegasemissionsandallprojectslikelytoinvolvesignificantenergyuseandgreenhousegasesareevaluated.WhenassessingtheemissionsimpactofprojectssignedbytheBankin2007,theEBRDfoundthatitsincreasedfocusonenergyefficiency,asrequiredbytherecentlyrevisedEnergyPolicyandimplementedthroughtheSEI,hasresultedinsignificantenergysavings.

TheassessmentfoundthatifthecurrentproductionlevelfromtheseprojectsweremaintainedafterEBRDinvestment,overallenergysavingswouldapproach100,000terajoules(TJ)–whichisroughlyequivalenttotheenergysupplyofAlbania–andcarbondioxide(CO2)emissionswouldfallbymorethan6milliontonnes(annualCO2emissionsfromfuelcombustioninAlbaniaarealmost5milliontonnes).

Manyprojectssignedin2007supportedtherefurbishmentandreplacementofproductionfacilities.Thishasincreasedproductioncapacityandenergyefficiency,whichmeansoutputwillrise.ForoneRussianpowergenerationproject,productionwillincreasebutthefacilitywilluseonlyone-fifthofthecurrentrateoffuelperunitofelectricity.EnergyefficiencyinvestmentsataRussiansteelcomplexwillreducecarbonemissionsbyover1milliontonnesofCO2.

OvertheEBRD’sprojectportfolioasawhole,thisincreasedproductionisnotexpectedtoleadtohigherCO2emissionsoverallandwillinfactintroduceenergysavingsofaround14,000TJ.AlargepartofthisoutputwillgotowardsmeetingtheincreaseddemandforgoodsandservicesintheEBRDregionasstandardsoflivingrise.However,somewillinevitablydisplacelessefficientproductionelsewhere,leadingtoclosuresandadditionalsavingsinenergyandCO2emissions.

ByreducingCO2emissions,projectscangeneratecarboncredits,whichcanthenbesoldtogovernmentsandcompaniestohelpthemachievetheirgreenhousegasemissionreductiontargetsundertheKyotoProtocol.TheMultilateralCarbonCreditFund,setupbytheEBRDandtheEuropeanInvestmentBank(EIB)in2006,isakeyinstrumentinthisandsuppliescarboncreditstocountriesfromcentralEuropetocentralAsia(seepage45).

Continued investment in energy efficiency measures is helping to reduce wastage in the EBRD’s countries of operations.

Sustainable Energy Initiative

€1.7 billion in two years

Early transition country projects

105 signed in 2007

Western Balkans

€461 million committed

18 Overview

HealthandsafetyhasalwaysbeenafeatureoftheEBRD’senvironmentalpolicy,andbecauseofthenumberandseverityofaccidentsthatstillblightindustryinmanyofthecountrieswheretheEBRDisactive,theissuecontinuestohavehighpriority.Inmininginparticular,accidentandfatalityratesremainunacceptablyhigh.

ThecrucialneedforEBRDinvestmentinthisareawasmostrecentlyhighlightedbythetragedyatArcelorMittal’sAbaiskayamineinKazakhstaninJanuary2008.Thirtyminerswerekilledwhenanexplosionstruckthemine,whichisoneofseveralattachedtothecompany’sTemirtausteelplant.Itisthethirdsuchaccidentattheminecomplexinfouryears.

InJuly2007theEBRDandArcelorMittalsigneda€68millionloanaimedatimprovinghealthandsafetypracticesinthenumerouscoalminesitoperatesaroundthecityofKaraganda,whichsupplythecompany’ssteelplantin

nearbyTemirtau.TheplantwasamongtheformerSovietUnion’slargeststeelmillsandisnowthecentralAsiancountry’sonlysteelproducer.

TheEBRDfundsarepartofa€340millionspendingprogrammetosupportthecompany’splanstomoderniseitsminesandbringtheminlinewithinternationalbestpracticeintermsofhealthandsafetystandards.ArcelorMittalTemirtauwillmodernisegasmonitoringandmanagementsystems,upgradeelectricalanddegassingandventilationequipment,andenhancethepreventionofcoalfacecollapses.Stafftrainingwillbeanotherkeyfeatureoftheproject.

ThefirstphaseoftheEBRDinvestmentprogrammeisnearcompletionandhasresulted,amongotherthings,inthereplacementofelectricalstarters,transformersandswitchesintwominestoreducetheriskofsparkstriggeringmethaneexplosions.

LakshmiMittal,thefounderandchiefexecutiveofArcelorMittalsaid:“Thesafetyofourworkersisournumberonepriorityandtherehasbeensignificantcapitalexpenditure,achangeinoperatingpracticesandachangeinmanagementtoimprovehealthandsafetyatourminesinKazakhstan.”

TheprojectwithArcelorMittalwasthefirstinawiderEBRDinitiativetosupportimprovementstoenvironmental,healthandsafetypracticesinminesintheBank’scountriesofoperations.TheBankhasalsodevelopedatechnicalcooperationprojecttoworkwiththeminingauthoritiesinKazakhstanonsafety,whichisbeingsupportedbytheJapanesegovernment,andwillbeundertakenin2008.

CasestudyFocusingonhealthandsafety


TheBanktakestheissueofhealthandsafetyextremelyseriously.FatalaccidentsinindustryinmanyofthecountrieswheretheBankoperatesarenotuncommon,particularlyinmining.Kazakhstan,RussiaandUkrainehaveallsufferedseriousaccidents,whichhighlightstheneedforincreasedinvestmentinhealthandsafety,andtheEBRDisworkinghardtoimprovethestandardsinthisareaacrossallitsprojectsinallsectors.Forexample,inMay2007theEBRDandtheMongoliangovernmentlaunchedatrainingprogrammeforMongolia’sminingindustry,withaparticularemphasisonworkerhealthandsafety.

TheEBRDcontinuedtofocusonaddressingthesocialimpactsofprojectsin2007.Thisincludedmonitoringresettlementandlabour-relatedissuesontheBaku-Tbilisi-Ceyanpipeline,whichispartly-financedbytheEBRDandtransportsoilproducedintheCaspianregiontotheMediterranean.InAzerbaijantheBankworkedwiththeStateOilCompany(SOCAR)toimprovethelivingconditionsofinternallydisplacedpeoplewhohadbeenresettledasaresultoftheEBRD-fundedShahDenizproject.InSerbiatheEBRDandtheEIBarefundingprojectstoupgradetheBelgradehighwayandGazelabridge.TheBankhasbeenworkingwiththeEIBandthecityofBelgradetohelpresettleacommunityofover1,000Romacurrentlylivingunderthebridgetoanalternativesitewithmuchbetterconditions.

TheEBRDcontinuedtoworkcloselywithotherinternationalbodies,suchastheGlobalEnvironmentFacility(GEF),totackleglobalenvironmentalissues,suchaswaterpollution,climatechangeandbiodiversity.TheEBRDandGEFco-fundedanenvironmentalcreditfacilityinSloveniathataimstoreducepollutionenteringtheDanubeRiverBasin.Allofthe€30milliontheBankcommittedhasbeendisbursedtothefourlocalparticipatingbanksforon-lendingtolocalbusinessesandsmallmunicipalitiesthatinvestinpollution-reductionprojects.

ToassistthedevelopmentofnewGEFprojects,theEBRDstartedworkin2007withaconsultantonalong-termbasis.Anumberofwaysoftacklingclimatechangehavebeenformulated,oneofwhichwassubmittedtotheGEFSecretariatasaprojectproposal.TheBankisalsoexploringotherareasinwhichtodevelopprojects,eitheraloneorinpartnershipwithotherGEFagencies.

TheProjectPreparationCommittee(PPC)identifiedandchannelleddonorfundingforenvironmentalinvestmentprojects,suchaswaste-watertreatment,energyefficiencyandbiodiversity.FundsfromtheEuropeanUnionledtothesigningofa€14.6millionprojectinArmeniatoimprovewaste-watertreatmentaroundLakeSevan,animportantenvironmentalandculturalresource.Inaddition,projectfinancingworkshopstohelpmunicipalitiesdevelopviableenvironmentalprojectsweredeliveredinArmenia,FYRMacedoniaandUkraine.AttheEnvironmentforEuropeMinisterialConferenceinOctober2007theministersendorsedtheBank’sdecisiontoincorporatethePPCasaunitwithintheEBRDtoidentifyenvironmentally-orientedprojectsthattheBankcouldpotentiallyfinance.

Anotherdonor-fundedinitiativehostedbytheEBRDistheNorthernDimensionEnvironmentalPartnership(NDEP),whichfostersstrongerenvironmentalcooperationintheNorthernDimensionArea,tothenorth-westofRussiainparticular.ItbringstogethertheexpertiseandresourcesoftheEuropeanUnion,11donorgovernments,includingRussia,andinternationalfinancialinstitutionssuchastheEBRD,theEIB,theNordicInvestmentBankandtheWorldBank,inordertoimplementitspipelineofprojects.

Attheendof2007,fundspledgedandcontributedtotheNDEPFundtotalled€243million,ofwhichalmost€150millionisearmarkedfornuclearsafetyprojects(seepage65).Over€90millionoftheremainingfundsarecommittedforenvironmentalinvestments,notablyinStPetersburgandKaliningrad,thataimtoreducethedirectdischargesofuntreatedwastewaterintotheBalticSea.

TheBanktakestheissueofhealthandsafetyveryseriously.Inmining,inparticular,accidentandfatalityratesremainunacceptablyhigh.


02REFORMPromoting democratic, economic, legal, environmental and social reform is an integral part of the EBRD’s activities. Through policy dialogue at all levels the Bank focuses on encouraging democratic practices, improving the investment climate, fighting corruption and ensuring the positive environmental and social impacts of all its projects.

22 Reform

Democratic reform

FosteringtransitiontoopenmarketeconomieswithinademocraticframeworkisattheheartoftheEBRD’smandateandisenshrinedinArticle1oftheAgreementEstablishingtheBank.MostcountrieswheretheEBRDoperatescontinuetobefullycommittedtoandapplyingtheprinciplesofdemocracy,pluralismandmarketeconomics.TheresultsoftheEBRD/WorldBankLife in Transition Survey,carriedoutacrosstheBank’scountriesofoperationsinSeptember2006,supportsthis(seealsopage23).Peopleintheregionoverwhelminglypreferademocraticsystemofgovernancetoallothersandalthoughtherehasbeenahighdegreeofpoliticalvolatilityinmuchoftheregion,people’sbeliefindemocracyremains.

Forsomecountries,particularlythoseinsouth-easternEurope,theobjectiveoffurtherintegrationwiththeEuropeanUnioncontinuestoserveasadrivingforcefordemocraticreform.Inthepastyear,BosniaandHerzegovina,MontenegroandSerbiahavesignedorinitialledaStabilisationandAssociationAgreementwiththeEuropeanUnion,whichwillanchorfurtherdemocraticandmarketreform.OtheragreementspromotingdemocraticreformarebeingimplementedundertheEU’sEuropeanNeighbourhoodPolicy(ENP),whichcoversArmenia,Azerbaijan,Belarus,Georgia,MoldovaandUkraine.Allofthesecountries(withtheexceptionofBelarus)haveagreedENPActionPlanswithdemocraticreformcomponents.ReformeffortsinRussiaareconductedthroughaparallelprocess,theEU-RussiaStrategicPartnership,anditssupportingPartnershipandCooperationAgreement.

Moregenerally,thesteadydevelopmentofcivilsocietyandprogressinconductingfreeandfairelectionshasstrengthenedpoliticalaccountabilityinmanycountriesacrossthetransitionregion,includingArmenia,GeorgiaandUkraine.

However,thepersistentlackofprogressinbuildingamulti-partydemocracyinanumberofcountriescontinuedtocauseconcernin2007.TheEBRDhasexpressedconcernabouttheslowpaceofdemocraticandeconomicreforminitsmostrecentstrategiesforBelarus,TurkmenistanandUzbekistan.BothBelarusandTurkmenistancontinuetooperateunderscenario-basedstrategiesthatidentifycertainbenchmarksforprogressinpoliticalandeconomicreform.ThemostrecentstrategyforUzbekistanalsocontainspoliticalandeconomicbenchmarks.ThelatestassessmentsbytheBankforthesethreecountriesnotelittleevidenceofimprovementintheauthorities’commitmenttotheprinciplesofArticle1.

InthecaseofBelarus,despitesomewelcomegesturesfromtheauthorities,therehasbeenlittleevidenceofthesubstantialprogressinthesought-afterdemocraticreforms.InthecaseofTurkmenistan,followingthedeathofPresidentNiyazovinDecember2006,thenewleadershipembarkedonmeasurestoreversesomeofthesocialandeconomicpoliciesofthepreviousregimeandhasundertakenstepstowardsendingthecountry’sinternationalisolation.However,itisnotclearhowfar-reachingtheinitiatedreformsare.Similarly,theBankcontinuestohaveconcernsboutthecontinuinglackofprogressinUzbekistantowardsreachingthepoliticalandeconomicbenchmarkssetoutinthestrategy.

Consequently,theEBRDwillcontinuetoexcludeanyfundingofpublicsectorprojectsinthesecountries,focusingexclusivelyonfinancingprivatesectorprojects,providedthatitcanbedemonstratedthattheproposedinvestmentsarenoteffectivelycontrolledbythestateorstateentitiesandthatgovernmentofficialswillnotpersonallybenefitfinanciallyfromsuchinvestments.TheEBRDdoes,however,aimtomaintainadialoguewithgovernmentandnon-governmentalorganisationsinallthreecountriesonwaysofimprovingtheinvestmentclimateforprivateentrepreneurs,withthehopeofencouragingstrongerpoliticalandeconomicreform.Ifsufficientprogressinpoliticalandeconomicreformisachieved,theEBRDwouldreviewabroaderrangeofactivitiesinBelarus,TurkmenistanandUzbekistan.

Economic reform

Eachcountry’scommitmenttoeconomicreformiscrucialfortheEBRD’sabilitytoadvancethetransitionprocessandpromoteprivatesectordevelopment.During2007,theBank’sOfficeoftheChiefEconomist(OCE)continuedtomonitorprogressinallofthecountrieswheretheEBRDoperates.

Thepaceofeconomicreformvariedsignificantlyacrosstheregionduring2007.South-easternEuroperecordedthemostprogress,withtwocountries–BulgariaandRomania–joiningtheEuropeanUnionon1January2007andCroatiaprogressinginitsnegotiationswiththeEuropeanUnionontheacquis communautaire,thebodyofEuropeanlawthatallmembersmustadopt.Aspreviouslynoted,BosniaandHerzegovina,MontenegroandSerbiaalsoprogressedwithintheEU’sStabilisationandAssociationprocess.

The EBRD/World Bank Life in Transition Survey showed that people are committed to democracy going forward.

The objective of further integration with the EU is a significant driving force for democratic reform.


Elsewhere,therewereadvancesinprivatesectordevelopmentincountrieswithstrongpro-marketsupport,mostnotablyinMongolia.InseveralCIScountries,includingUkraine,marketdevelopmentsandexternaleconomicfactorstriggeredanumberofreformsinthefinancialsector.However,morelimitedreformwasrecordedincountriesthatbenefitedfromhighoilandgasprices.ThiswasalsothecaseincentraleasternEuropeandtheBalticstateswheretransitionhasgonefurthest.Adetailedassessmentofeachcountry’sprogress,acrossawiderangeofareas,waspublishedintheBank’sTransition Report 2007.

Thisyear’sreportalsoincludesananalysisoftheEBRD/WorldBankLife in Transition Survey.Theanalysisexploreshowtransitionhasaffectedlivingstandardsandmeasuresoflifesatisfactionacrossandwithincountries,identifyingthegroupsthathavebenefitedorsufferedmostfromtheprocess.Thereportlooksatpeople’sattitudestodemocracyandthemarketeconomyandhowtheseattitudeshavebeenshapedbyindividualexperiencesinthelabourmarket.Italsoexaminesthestateofpublicservicesandthepotentialforgreaterinvolvementoftheprivatesector.

TheBank’sanalysisshowsthat,althoughpeoplearenowgenerallycommittedtodemocracyandthemarketeconomy,manyaredissatisfiedwithlifeandbelievethateconomicconditionswerebetterbeforetransitionbeganthannow.Thereisstillsomeoppositiontoreformand,therefore,policy-makersthroughouttheregionfaceamajortasknotonlyinadvancingreformstoachievethestandardsofmarketeconomiesbutalsoinconvincingpeopleofthebenefitsoftransition.

UnderlyingalloftheBank’sworkisacommitmenttoincreasingtheimpactofitsprojectsontransition.Thisinvolvesassessing,priortoBoardapproval,thepotentialimpactoftheseprojectsandtheirriskoffailureaswellasmonitoringprogressinachievingeachproject’sobjectivesagainstasetofconcretebenchmarksoncetheprojectisunderway.Lessonslearnedduringmonitoringaretakenintoaccountwhenstructuringfutureprojects.Outof185projectsindividuallyratedbyOCEandsignedin2007,165(89percent)wereratedbytheOCEashaving“Good”or“Excellent”transitionimpactpotential.

ThenatureoftheBank’sinvolvementcanbeenhancedwhenthereisclientcommitmenttoreforms.In2007theBanktookanactiveroleindesigningincentivesforprivatesectorcompaniesinvolvedinmunicipalprojectsinRussiaandhelpedtoresolveregulatorydisputesinvolvingpublicutilitiesthathavereceivedEBRDfinancinginanumberofcountries,includingBulgaria,Moldova,RomaniaandtheSlovakRepublic.TheBankalsoworkedonimplementingtheSustainableEnergyInitiativeinKazakhstan,wherethegovernmentintendstocombineambitiousreformswithEBRDinvestmenttoimproveenergyefficiencyanddeveloprenewableenergyprojects.

Legal reform

TheEBRD’sLegalTransitionProgramme(LTP)aimstoimprovethebusinessenvironmentintransitioncountriesbyenhancingtheirlegislativeframeworkandlegalinstitutions.TheLTPhastraditionallybeenfundedprincipallybydonorsbutin2007certainLTPactivitieswereintegratedintotheBank’soverallbudget,ensuringsustainablefinancing.

Mortgagelawwasasignificantareaofactivityin2007.Areportproducedin2007,Mortgages in transition economies: the legal framework for mortgages and mortgage securities,aimstoidentifywhatreformisneededtoachieveanefficientlegalframeworkformortgages.InpreparationforthispublicationtheEBRDconductedasurveyofmortgagelawsin17transitioncountriesthatalreadyhaveanactivemortgagefinancemarketorthatareactivelydevelopingsuchamarket.Thereportadvocatesalegalframeworkforanefficientmortgagemarketthatbenefitsbothborrowersandlenders.Thereportisexpectedtoplayanimportantroleinenhancingmortgagelegislationintheregion.

TheEBRDalsoembarkedonaprojecttoissuestandardsforcorporategovernanceinbanksineasternEurope,theCaucasusandCentralAsia.ThisinitiativeisbeingdevelopedincollaborationwiththeOrganisationforEconomicCo-operationandDevelopment(OECD).Aworkinggroupcomprisingrepresentativesfromtherelevantcountriesbegandraftingthestandardsin2007andthefinalversionoftheprinciplesisexpectedinmid-2008.

Aspartofitsongoingassessmentoflegaltransition,theBankpublishedinits2007Transition Reporttheresultsofasurveymeasuringtheeffectivenessofsecuritiesmarketslegislation.Thesurveyconcludedthatthequalityoflegislationhadimprovedsignificantlyinrecentyearsbutitconfirmedtheneedtostrengthenenforcementmechanisms,particularlyinCIScountries.

Buildingonthesuccessin2006oftrainingcoursesheldforjudgesintheKyrgyzRepublic,fourmoreseminarstookplacein2007coveringvariousaspectsofcommerciallaw.Moreover,juniorKyrgyzjudgestookpartinaninternshipinthecommercialcourtsofKazakhstanandanewcommerciallawlibrarywasopenedinBishkek.

AnotherfocusofLTPactivitywastheareaofinsolvency.Forexample,theBankprovidedtechnicalsupporttoSerbia’sBankruptcySupervisoryAgencyfortheregulationofbankruptcyadministrators(seepage24).InRussia,theLTPhasinitiatedaprojecttoassisttheMinistryofEconomicDevelopmentandTradeintheregulationofinsolvencyadministrators.

Althoughpeoplearenowgenerallycommittedtodemocracyandthemarketeconomy,manyaredissatisfiedwithlifeandbelievethateconomicconditionswerebetterbeforetransitionbegan.

24 Reform

BeforetheimplementationofSerbia’srelativelynewinsolvencylegislationitwasnotuncommonforinsolvencytobemisused:abusinesswouldberunintothegroundintentionally,strippeditofitsassetsandthecreditorsleftwithnothing.Oftentheremainingassetsofabankruptbusinessendedupslippingthrougheveryone’sfingersbecauseofinefficientinsolvencyproceduresandpoorly-trainedamateursattheadministrativehelm.

NowSerbiahastheenormousadvantageofhavingabankruptcylawthathasbeenindevelopmentsince2000andthatincorporatesmanyofthebestbitsofotherinsolvencysystemsaroundtheworld.However,makinggooduseofthatlegislationisstillaworkinprogress.

Itisclearlyanimportantpartofanytransitiontoafully-fledgedmarketeconomythatgoodinsolvencylawsareinplaceandareproperlyadheredtoandsupportedbysoundregulations.Anypotentialinvestorwilllooktothestrengthandefficiencyoftheinsolvencyandrestructuringenvironmentofacountrybeforetakingthedecisiontoinvestmoney.

Afteradoptingthenewlawin2005,theSerbiangovernmentcreatedtheSerbianBankruptcySupervisoryAgency(BSA)tooverseethecountry’sinsolvencysystem.InthesameyeartheEBRDundertookaprojectprovidingtechnicalassistanceentitled“InsolvencyRegulatorCapacity-BuildinginSerbiaandSouthEasternEurope”.TheSwissStateSecretariatforEconomicAffairs(SECO)donatedjustover€300,000totheproject,althoughitwasnotinvolvedintheimplementation.

Theprojectbeganwithatwo-foldobjective–toimprovetheskillsoftheBSAandtodevelopEBRDPrinciplesofInsolvencyOfficeHoldersbasedoninternationalbestpractice.Theseadministratorsareappointedfromtheprivatesectortoadministeranyinsolvency–heorshewillcollectandtakepossessionofthedebtor’sassets,considertheclaimsofthecreditorsandadmitorrejectthoseclaims,administerthepossibledisposaloftheassetsandpaymentofcreditorsorrecoverthedebtsowedtotheinsolventbusiness.

Aspartofthisprocess,theEBRDhelpedorganisearoundtablediscussiononthesupervisionofinsolvencyadministrators.

TheEBRDshareditsviewsonbestwaystoimprovetheSerbianinsolvencyregimeandtoimplementthenewlaw,aswellasbestinternationalpracticeonsupervision,licensingandtrainingofinsolvencyadministrators.TheroundtablewasattendedbyrepresentativesfromtheSupremeCourtofSerbia,theHighCommercialCourt,commercialcourts,theBSA,insolvencyadministratorsandrepresentativesofinternationalinstitutionsinvolvedinbankruptcyregimeimprovementinitiatives.

“Theroundtablecontributedtoabetterunderstandingofthewaysinwhichourcurrentbankruptcysystemcanbeenhancedandmademoreefficient,”saysVesnaGaćeša,DirectorofBSA,andformerbankruptcyadministrator.

SerbiaremainsanexcellentexampleofcollaborationbetweeninternationalinstitutionssuchastheEBRD,theWorldBank,theUnitedStatesAgencyforInternationalDevelopment(USAID)andGesellschaftfürTechnischeZusammernarbeit(GTZ),eachofwhichisactivelyfocusingeffortsondevelopingtheexistinginsolvencysysteminthecountry.

CasestudyAtransparentbankruptcysystemforSerbia


TelecomswasanotherareaofattentionandtheBankworkedextensivelyinimplementingregulationandhelpingtoincreasetheskillsofthetelecomsregulatorsinKazakhstan,theKyrgyzRepublic,MongoliaandMontenegro,wheretheBankbeganimplementingitsfirstlegalreformproject.Inaddition,theBank’srecommendationsfortelecomssectorreforminKosovowereapprovedforimplementationinJune2007.

InadditiontoitsLTPactivities,theEBRDseekstoimprovethelegalandregulatoryenvironmentdirectlyaffectingtheBank’scapitalmarketoperationsinthecountrieswhereitinvests.ThisobjectiveiscloselyconnectedwiththeBank’sownlocalcurrencyfundingandlendingoperationsintheregion.In2007thefocusoftheseendeavourswasonKazakhstan,RussiaandUkraine.

InJune2007theBankorganised,incooperationwiththeInternationalSwapsandDerivativesAssociation(ISDA),aconferenceinMoscowonthedevelopmentofthederivativesmarketinRussia.Marketparticipants,regulatorsandlawyersdiscussedwaystoadvancethelocalregulatoryregimeandpractice.TheBankalsoobservedand,whereappropriate,commentedonanumberoflegislativeinitiatives,suchasaddressingweaknessesinthecurrentframeworkforsecuritisationtransactionsintheRussianmarket.

InKazakhstanandUkrainetheEBRDworkedcloselywiththeNationalBankofKazakhstanandtheNationalBankofUkraine,aswellaswithcommercialbanks,tocreatethenewmoneymarketindices“KazPrime”and“KievPrime”.Inaddition,theBankissupportingthedevelopmentofsuchindicesinBulgariaandRomania.TheEBRDexpectsthattheseindiceswillbecomeimportantbuildingblocksforthedevelopmentofthefinancialmarketsinthesecountriesbyincreasingmarketliquidityandbypavingthewayfortheissuanceoffloatingratebondsandloansinlocalcurrency.Robustmoneymarketindicesarealsoapreconditionforthedevelopmentofvariousderivativeinstrumentsinlocalcurrency.

Environmental and social reform

SincetheestablishmentoftheEBRD’sEnvironmentalPolicyin2003,environmentalandsocialissuesinthecountrieswheretheBankoperateshavechanged.Attentionisfocusingincreasinglyonenergyefficiencyandrenewableenergy.AstheEBRD’sactivitiesmovefurthersouthandeast,includingtosomeofthepoorercountriesoftheBank’soperations,socialissues,suchaslabourstandards,theeffectofEBRDprojectsonindigenouspeople,resettlementandgenderequalityareincreasinglyimportantandakeycomponentofsustainabledevelopment.

In2007,goodprogresswasmadeinrevisingtheBank’sEnvironmentalPolicy,whichisproposedtoberenamedtheEnvironmentalandSocialPolicytoreflectthesocialimpactoftheBank’sactivities.TheproposeddraftpolicyoutlinestheBank’soverallrequirementsandcommitmentsandissupportedby10performancerequirementsthataimtoprovideagreaterdegreeofclarityforclientsandtheBank.Guidancenotesexplainingthepolicyandperformancerequirementswillbedevelopedoncethenewpolicyisapproved.

Consultationbeganin2006withexpertworkinggroupsmeetingtodiscusschangesinrequirementsofinternationalfinancialinstitutions(IFIs),labourissues,publichealthandtheimpactofEBRDprojectsonindigenouspeople.Thisworkcontinuedin2007withthepublicationontheBank’swebsiteofanissuespaperinEnglishandRussian.Thisissuespapergaveanoutlineofthekeytopicstobeconsideredinthenewpolicy,suchasdefiningprojectboundariesandclarifyingresponsibilityfordisclosureandpublicconsultation.

KeytopicswerealsodiscussedattheNGOprogrammeattheBank’sannualmeetinginKazan(Russia)inMay2007.TheBankwasencouragedtoengagewithallaffectedgroupsandtoconsidertheimpactofEBRDprojectsonlocalcommunities.Inaddition,theBankheldmeetingswithindigenouspeopleinMurmansk,north-westRussia,PetropavlovskandKamchatskiyinRussia’sFarEastanditisplanningathirdmeetinginIrkutsk,Siberia,for2008.TheEBRDalsoconsultedonthepolicyreviewwithbanksandIFIs,theWorldHealthOrganization,theInternationalLabourOrganization,theEBRD’sEnvironmentalAdvisoryCouncilandtheEuropeanUnion.AsurveywasalsocarriedouttoseekinputfromEBRDclients.

FollowingthereleaseofadraftpolicyontheEBRDwebsiteinEnglishandRussian,aseriesofpublicconsultationworkshopswilltakeplacetodiscussthenewpolicy.Consultationsarecurrentlyplannedforsixlocations:Bishkek,Belgrade,Budapest,London,MoscowandTbilisi.Oncethenewpolicyhasbeenapproved,itwillbepostedontheEBRDwebsiteinEnglishandRussianlaterin2008.

Genderequalityisakeyelementofsustainabledevelopment,andin2007theBanklookedathowtogainabetterunderstandingofwhereissuesrelatingtogenderequalityoccurredintheBank’scountriesofoperations.Followingtherecommendationsofanindependentstudyin2006thatwasfundedbytheUKDepartmentforInternationalDevelopmentandtheCanadianInternationalDevelopmentAgency,theBanksetupaninter-departmentalworkinggrouptoidentifyinvestmentprojectsthatwouldcontributetogenderequality.Thegroupisalsolookingatintroducingotherinitiativestopromotegoodpracticeamongclients,suchasaguidancenoteonfamily-friendlyworkingpractices,whichwillbefinalisedin2008.

26 Reform

Integrity

TheEBRDiscommittedtotransparencyandaccountabilityinallitsoperations.OneofthekeywaysofachievingthisisthroughtheEBRD’sChiefComplianceOffice(CCO).TheCCOadvisesonthesuitabilityofprospectiveclients,investigatesallegationsoffraud,corruptionandmisconductandhandlescomplaintsfromgroupsadverselyaffectedbyEBRDprojects.SuchproceduresnotonlyprotecttheBank’sinvestmentbuttheyalsorequireprospectiveclients,throughlegallyenforceablecovenants,toadheretoacceptablebusinessandgovernancestandards.TheEBRDconsidersthateffectiveintegrityduediligenceandthefightagainstfraudandcorruptionisanessentialfeatureofsuccessfultransitionwithineachcountryofoperations.

In2007theCCOprovidedadviceonapproximately240projects,asignificantincreaseonthe160projectsin2005and2006.ThisincreasereflectsthefactthatastheBankshiftsitsoperationssouthandeastthebusinessenvironmentisbecomingmoredifficultandintegrityconcernsaremorefrequent.

TheEBRDensuredthatthedefinitionsoffraudulentandcorruptpracticesagreedbytheIFIAntiCorruptionTaskForcewereincorporatedincontractssignedbytheBankin2007.TheEBRDisnowconsideringintroducingsanctions,suchasbeingplacedonalistofineligibleentities,forfraudulentandcorruptpracticesatanystageoftheprojectcycle.

TheCCOamendedtheBank’sintegrityduediligenceguidelinesin2007torequireenhancedduediligenceandprojectmonitoringforprojectsinvolvingcertaincategoriesofpeoplesuchaspoliticallyexposedpersons,andforprojectsthatrequirethegovernmenttoissuelicencesandpermits,forexampleprojectsintheoilsector.

TheEBRDhostedfiveanti-moneylaunderingtrainingprogrammesin2007,withthehelpoffundingfromSwitzerlandandtheEuropeanUnion.Since2005over600individualsfrom350financialinstitutionsin16oftheBank’scountriesofoperationshavebenefitedfromtheprogramme.

InJune2007,theEBRDhostedtheFourthConferenceofPrincipalsofIndependentAccountabilityMechanismsinIFIsandRelatedInstitutions.Thisexplored,amongotherthings,howtomanageexpectationsofaccountabilitymechanismsandwhattheycandeliver.

TobolstertheBank’ssupportforstandard-setters,suchastheFinancialActionTaskForceonMoneyLaundering,andtounderscoretheimportanceofanti-corruptionreformsin

theBank’scountriesofoperations,theCCOcontinueditsparticipationinTransparencyInternational’sSteeringGrouponBusinessPrinciplesforCounteringBribery,andtomaintaincloserelationswiththeOECDandCouncilofEurope.

FollowingtheadoptionofthenewCodeofConductforEBRDstaffin2006,theCCOcontinuedtoprovideadviceontheCode’sapplication,anditinvestigatedthreeincidentsofsuspectedmisconduct.During2007,theCCOprovidedintegritytrainingto361staffmembersunderitsIntegrity Matters!programme.Italsodeliveredcoursesto28bankersabouttheirobligationsanddutiesasnomineedirectorsonthesupervisoryboardsofcompaniesthathavereceivedequityinvestmentsfromtheBank.Ithasalsoprovidedtrainingto135staffaboutanti-moneylaundering,counteringthefinancingofterrorismandintegrityduediligence.

Inearly2008,theEBRDwillissueitssecondAnti-CorruptionReport.ItalsointendstoadoptanAnti-CorruptionPolicy,whichwillbringtogetherthevariousmeasurestheBankusestomakesureitsfundsarenotillegitimatelydivertedfromtheirintendedpurpose.

Good governance and transparency

TheEBRDstrivestoinstilgoodgovernanceandsoundbusinesspracticesinallareasofitswork.AcornerstoneofthisendeavouristheBank’sPublicInformationPolicy(PIP),whichpromotesdisclosureandtransparencyasafundamentalbusinessprincipleinthecompaniesinwhichitinvests.TheBankcontinuestobeguidedbytheunderlyingpresumptionthat,wheneverpossible,informationconcerningtheBank’sactivitieswillbemadeavailabletothepublicunlessthereisacompellingreasonotherwise.OpennesshelpstopromotetheBank’simpactontransitioninthecountriesinwhichitinvestsandhelpstoimprovethestabilityandefficiencyofmarkets.

In2007theEBRDbeganareviewofthePIP.Thisisnormallydoneeverythreeyears,withthenextreviewduein2009.However,itwasbroughtforwardtocoincidewiththerevisionofthe2003EnvironmentalPolicy,whichisbeingmodifiedtoreflecttheBank’sincreasedfocusonthesocialimpactofitsprojects(seepage25).ThesetwopoliciesarecloselyrelatedasthePIPcross-referstothe(current)2003EnvironmentalPolicyregardingrequirementsrelatedtodisclosureofenvironmentalandsocialinformation.However,theBankisnowlookingtorevisethePIPsoitcoverstheBank’sdisclosurerequirementsandincludesmoreclarityonconfidentiality.

The Bank maintains a good level of dialogue with interested NGOs, including a full programme of discussions at the Annual Meeting.

The EBRD’s Transition Report is published annually and charts economic progress across 29 countries.


Runningparallelwiththesetwoexercises,in2007theBankinitiatedareviewofitsProcurementPoliciesandRules(PP&R),asetofstandardsthatmustbeadheredtobyanyoneprovidingtheEBRDwithgoodsorservices.Althoughperiodicallymodifiedsincetheiradoptionin1992,thePP&Rhavenotbeensubjecttoacomprehensivereview,andastheneedsoftheBankanditsclientsandsuppliersevolvethesechangesneedtobereflectedinthePP&R.

InvitationsforthepublictocommentonallthreereviewswerepostedontheBank’swebsitein2007.ForthePIPandtheEnvironmentalandSocialPolicy,theseinvitationstocommentformedthebasisforadetailedprogrammeofpublicconsultationaimedatgivingthoseinvestingintheBankthebestopportunitiestoparticipateinthepolicydevelopmentprocess.Itisanticipatedthatallthreepolicieswillbeapprovedin2008.

Aswellasprovidinginformationtothepublic,theBankalsoseeksfeedbackonitsprojects.ThroughtheIndependentRecourseMechanism(IRM),localgroupsthatmaybeadverselyaffectedbyaBankprojectcanraisecomplaintsorgrievanceswiththeBank.

In2007theEBRDreceivedfournewIRMcomplaintsandcontinuedtoprocessacomplaintthathadbeenreceivedthepreviousyear.Twoofthenewcomplaintsweredeemed“manifestlyineligible”forregistrationundertheIRM.TheothertwowerefoundtocomplywiththeIRMandweredulyregisteredforfurtherprocess.TheIRMwillbereviewedin2008.

A sound legal system is the basis of a functioning economy.

Anti-money laundering programmes

600 people trained

03FINANCIAL SECTORThe EBRD plays a vital role in building a competitive, diversified and sustainable financial sector, which is a key part of transition to a market economy. The Bank provides a wide range of financial products designed to support all types of financial services businesses across the countries in which it operates.

28

30 Financialsector

Activityinthefinancialsectorcontinuedtobestrongin2007,generatingan11percentgrowthrateintheportfolio,whichreached€6.7billion.With181newprojectsigningsofover€2billionbytheendof2007thefinancialsectorrepresented34percentoftheBank’stotalbusinessportfolio.

TheEBRDoffersarangeoffinancialinstrumentsthataretailor-madetosupporteachproject’sobjectives.Byprovidingequityinvestmenttobanks,fundsornon-bankfinancialinstitutionssuchasinsuranceandpensioncompanies,theBankisinjectingcapitalforrestructuringandprivatisations,promotinginstitutionbuildingandhelpingtodeveloptheequityindustry.Equityinvestmentsaccountedfornearlyone-thirdoftheBank’sinvestmentinthefinancialsectorin2007,withequityfundsinparticularhavingastrongyear.

TheBankprovidesavarietyofdebtproducts–forexamplestraightseniorloans,loansinlocalcurrency,syndicatedloansandlong-termmortgagefinancing.Byprovidingcreditlinesforon-lendingtobanks,theEBRDcantargetspecificareassuchassmallandmedium-sizedenterprises(SMEs),localmunicipalitiesandenergyefficiency.TheBankalsoassistsimportandexporttradeinthetransitionregionbyprovidingtradeguaranteesandshort-termloansviatheTradeFacilitationProgramme(seepage33).Throughdebtfinancingtolocalbanks,theEBRDincreaseslendingtoprivateenterprisesandstrengthenslocalinstitutions.In2007newbusinessreachedover€1billion.

Debtproductsarealsoavailabletonon-bankfinancialinstitutionssuchasleasingandconsumerfinancecompanies.TheBankhasrecentlybeeninvolvedwithsecuritisationtransactionsinvolvingthesaleofpoolsoffinancialassetssuchasmortgages,andthisishelpingtostimulatethelocalcapitalmarkets.Newbusinesstonon-bankfinancialinstitutionswasover€300millionin2007.Chart1showsnewbusinessfortheEBRDinthefinancialsectorin2007,byproduct.

InlinewiththeEBRD’soverallstrategy,newbusinessinfinancialservicesisincreasinglybeingundertakenincountriesinthesouthandeastoftheregion.NearlyhalfofnewbusinessvolumewasachievedoutsidecentralEuropeandRussia,withparticulargrowthinKazakhstanandUkraine.Over45percentofprojectssignedwereinCentralAsia,westernCISandtheCaucasus.Russiaremainedasignificantareafornewprojects,accountingfor42percentofnewbusinessvolumeand21percentofprojects.AlthoughnewbusinessshiftedawayfromcentralEuropeancountriessuchastheCzechRepublic,Hungaryand

Poland,thisregioncontinuestobeanimportantelementinthefinancialsectorportfolio,constituting28percentoftheportfolio,€1.9billion.

In2007theBanksigned57newprojectsforatotalof€140millioninthecountriesattheearlieststagesoftransitiontoamarketeconomy.Byprovidingfinancethroughlocalfinancialintermediaries,theEBRDgivesmicro,smallandmedium-sizedenterprises(MSMEs)accesstomuch-neededfinancethatwillnurturetheprivatesector.Theseprojectsareoftensupportedbytechnicalassistancethat,throughtrainingandconsultancyservices,enhancestheskillsofthoseworkinginthefinancialsector.TheTradeFacilitationProgrammeisalsoveryactiveinthisregion(seepage33).

AsthegeographicspreadoftheBank’sportfolioevolves,sodoestheclientbaseandrangeoffinancialproductsoffered.TheEBRDprovidesproductstoitsclientsthataredesignedtomeettheirneedsaswellasaddressingtheconstantlychangingchallengesofthetransitionprocess.Forexample,manyoftheBank’sclientshaveindicatedastrongfinancingneedforfundingthatdoesnotleadtosubstantialforeignexchangerisk.Inresponse,theEBRDinvestedover€48millioninTheCurrencyExchangeFundin2007.ThroughthefundtheBankofferssyntheticlocalcurrencyloanstoborrowersinthesmallerandlessdevelopedfinancialmarkets,suchasintheETCsandWesternBalkans(theseloansare“synthetic”astheycontainamechanismthathedgesagainstforeignexchangeriskbutsettleinhardcurrency,asopposedtobeingloansthataredeliverableinlocalcurrency).Reducingtheforeignexchangeriskmismatchbetweenassetsandliabilitiescanimprovethecreditriskofthoseclients.Inaddition,theBankissupportingthedevelopmentofmoneymarketindicesinseveraltransitioncountries,whichwillhelptobuildvibrantfinancialmarketsbyincreasingliquidityandpavingthewayfortheissuanceoffloating-ratebondsandloansinlocalcurrency.

TheBankisalsoengagedinpolicydialoguewithgovernmentsandregulatorsonawiderangeofissues,includingsupportingthedevelopmentofefficientremittancechannels,throughwhichworkerslivingabroadcansendmoneyhome,andinvolvementintheimplementationofBaselII.Bysupportingkeylegislation(suchasinsurancelegislationandregulationandlocalsecuritisationlegislation),theBankisabletoenhancethefinancialsectorinfrastructureandbroadentheproductsavailabletothemarket.

Chart 1 New business in the financial sector, by product (2007)

Trade�nance

Equityfunds

Micro�nance Syndicatedloans

Bankequity

Energyef�ciency

Pension andinsurance(equity)

SME Leasing Securitisationand capital

markets

Other debt Mortgage

25%

19%

10% 10%

6% 6% 6% 6%4%

3% 3%2%


AspartofthetransitionprocesstheEBRDplaysakeyroleinpromotinginstitutionbuilding,integrityandgoodcorporategovernanceinthecountriesinwhichitoperates.Thisisimportantacrossallindustriesbutforahealthyfinancialsectortoflourish,thetrustandconfidenceofmarketparticipantsiscrucial,andthereforeessentialfortransition.

Banking sector

In2007theEBRDcommitted€95milliontosixnewequityinvestmentsinArmenia,KazakhstanandRussia.TheEBRDalsoprovidedongoingfinancialsupporttoexistingclientsbyparticipatinginthecapitalincreasesof11otherbanksacrosstheregion.Mostoftheseinvestmentsweremadetolocalbanksthatdonothaveastrategicinvestor.

TheEBRDcurrentlyhasinvestmentsofover€980millionin49bankscovering22countries.Byparticipatinginthesupervisoryboardsoftheseinstitutions,theEBRDhastheopportunitytoimprovecorporategovernance,promotetransparencyandaccountability,assistinstitutionaldevelopmentandhelpmanagementandshareholdersrealisethepotentialofthesebanks.

LendingtobankscontinuedtobeakeybusinessareafortheEBRDin2007.TheBanksigned66projectstotalling€566million,whichwerespreadacross15countries.Asareflectionofthegeographicshiftofbusiness,33ofthesewereincountriesonthefringesoftheformerSovietUnion,suchasArmenia,Azerbaijan,Belarus,Georgia,MoldovaandUkraine.

Thedevelopmentofnewprogrammesfocusingonhighpriorityareas,suchassustainableenergy,hasalsoimprovedthediversificationoftheEBRD’sportfolioandbroadenedtheavailabilityoffinancetothelocaleconomy.

TheBankisplacingparticularimportanceonthepromotionofsustainableenergyacrossitscountriesofoperations.TherearenowEBRDfinancingframeworkstacklingtheseissuescoveringBulgaria,Georgia,Romania,SlovakRepublicandUkraine.TheseframeworksenabletheEBRDtoprovidecreditlinestoparticipatingbankswhichthenon-lendtoindustrialand/orresidentialcustomersforsustainableenergyinvestments.Thesefacilitiesareusuallysupportedbygrantsfromdonorsfortechnicalassistanceand,insomecases,incentives.In2007theEBRDsigned13energyefficiency-relatedprojectstotalling€136million.Similarprojectswillbedevelopedin2008inArmenia,KazakhstanandRussia.

TheEBRDhasimprovedtheabilityoflocalbankstoworkwithmedium-sizedandlargercompaniesbyexpandingtheMedium-sizedLoanCo-financingFacility(MCFF).Underthisfacility,theEBRDparticipatesinsub-loanstolargercompanies,therebyovercomingtheconstraintsfacedbybanksinlendinglargesumstoasingleborrowerbecauseofriskandexposurelimits.In2007theEBRDsignedfourprojectsundertheMCFFinArmeniaandAzerbaijan.

Asfinancialmarketsbroadenanddeepen,awiderrangeoffinancialinstrumentsisbeingofferedinmanycountries.Forexample,mortgagelendinghasbecomeanimportantgrowthareainmanytransitioncountries.In2007theBanksignedninemortgageprojectstotalling€47millionwithbanksinGeorgia,Kazakhstan,theKyrgyzRepublic,Russia,SerbiaandUkraine.Theseprojectsprovidethefoundationsfortheclientbankstousetheirgrowingmortgageportfoliosassupportforsubsequentsecuritiesissues.Inthisway,additionalfundsformortgagelendingcanberaisedtoallowpeopletoowntheirownhomesandanewassetclassbecomesavailableinthecapitalmarkets.TheBankisalsocommittedtohelpingcountriesdevelopefficientmortgagesystems(seepage23).

TheBankhasalsopromotedsyndicatedlendingtransactionsforbanksinthecountrieswhereitoperates.In2007,nineEBRDprojectsinsupportofthebankingsectorinvolvedthesyndicationofpartoftheloanstocommercialbanks.Theseprojectscombined€237millionofEBRDfinancingwithatotalof€530millionofsyndicatedfinancing.ThebanksbenefitingfromtheseloanswereinArmenia,Azerbaijan,Kazakhstan,RussiaandUkraine.Throughtheseoperations,theEBRDhasbeenabletoextendloanmaturitiesandintroducenewbankstothesyndicatedloansmarket,suchasArmeconombankinArmenia.Bysyndicatingtransactions,theEBRDcannotonlyincreaseresourcesavailabletoclientsindifficultinvestmentclimates,butfinancialinstitutionsarealsoabletoattractinternationallyreputablebanksasco-lendersthatmightprovidefurthersupportinthefuture.

Speciallydesignedframeworkshavebeendevelopedtotargetcountriesattheearlystagesoftransition,suchastheKyrgyzFinancialSectorFramework.Theseprovideready-madefinancepackagesthatarealsobackedupbytechnicalcooperationfunds.TheframeworksallowtheBanktorespondquicklyandflexiblytoclientneeds.

Loans to local and regional banks such as UkrEximBank allow the EBRD to reach small and medium-sized businesses across its region.

The TFP stimulates import and export trade by guaranteeing trade transactions.

32 Financialsector

IskenderovShahinisanAzerbaijanibusinessmanwhocastshisnetwide.Heproducespomegranatejuice,runsapoultryfarm,makesflourandownsachainoffuelstations.HeisalsooneofmanyAzeriswhohavemadeuseofthesmallandmedium-sizedloansprovidedbyUnibank,Azerbaijan’sleadingprivateindependentcommercialbank.Heborrowed€102,000toinstallfreezersatthepoultryplantandtoimportRussianbottlesforthejuicebusiness.

UnibankhasbeenabletohelplocalbusinessesthiswaythankstosupportfromtheEBRD.Thissupportcontinuedin2007bywayofa€24millionloantopromotefurthercompetitioninthecountry’sbankingsector,wherestate-ownedbanksoncevirtuallymonopolisedthemarket.

TheEBRDloan,whichwasincreasedto€24millionfrom€20milliontomeetmarketdemand,willsendastrongpositivesignaltotheAzeribankingsector(whichgrewby75percentin2006)andhelptoattractmoreforeigninvestmentandnewlocalcustomersbyenabling

Unibanktoofferadiverseproductrange,regionalrepresentationand,perhapsmostimportantly,astrongserviceculture.

Unibankintendstoexpanditsbranchesfromfive–threeinBakuandoneeachinGanjainthewestandSumgaitinthenorth-east–to21by2009.Itwillcontinuetomakesmallandmedium-sizedloanstolocalbusinessesandindividualsandtowidenitscooperationwithinternationalfinancialinstitutions(IFIs).Itwillalsocontinuetoleadthemarketwithitsrangeofproducts,includingcreditanddebitcardsandelectronicbanking.

Atpresent,UnibankistheonlyAzeribanktobeamemberoftheAmericanChamberofCommerceand,withthehelpofEBRDtechnicalassistance,theBoardofDirectorshasadoptedregulationstobringthebankintolinewithinternationalstandards.

TheEBRDhasalonghistorywithUnibankandhashelpedbuildthebank’sreputationasaninnovatorinthelocalbankingsector,bringingitupfrombeingthesixthlargestAzeribankin2003to

oneofthelargesttoday.Thiswasdonewithequityanddebtfundingaswellastechnicalassistanceprogrammes.TheEBRDisa15percentshareholderinUnibank.

“Theassetandcreditportfolioofthebankhasdoubledthisyear,whilecustomerdepositshavemorethantrebledandnetprofitshavegrown2.4times,”saysFaigHuseynov,ChairmanoftheExecutiveBoard.“ThisimpressivegrowthresultedinUnibank’sbecomingoneofthetopthreebiggestcommercialbanksinAzerbaijan.”

“HavingbeenthefirstAzeriprivatebanktoattractasyndicatedloanfromanIFIinApril2005,”hewenton,“UnibankisdelightedtocontinueitsdevelopmentbysigningalreadyitsthirdloanagreementwiththeEBRD.ThissignifiesthesolidtrustoftheinternationalbankingcommunityinUnibank.”

CasestudyBackingacommercialbank


Trade finance

TheEBRD’sTradeFacilitationProgramme(TFP)stimulatesimportandexporttradebyguaranteeingtradetransactions.Italsoprovidesshort-termloanstoselectedbanksandfactoringcompaniesforon-lendingtolocalexporters,importersanddistributors.

In2007theEBRDfinanced1,056tradetransactionstotalling€777millionundertheTFP.Mostofthesetransactionssupportedsmallbusiness,withabout40percentofalldealsunder€100,000.

Byencouraginganincreaseintrade,theTFPhelpstonotonlycreatejobsbutalsotoimprovecooperationandunderstandingbetweencountries.SinceagrowingnumberoftransactionssupportedbytheTFPinvolvetradedealsbetweentheEBRD’scountriesofoperations,theprogrammeisalsosupportingtherestorationoftraditionaltradelinksthatmayhaveremaineddormantforsometime.

TherehasbeensteadygrowthinthenumberoftransactionsintheEBRDregionsincetheprogrammebeganin1999.In2007theTFPfinanced259intra-regionaltransactions.TheseincludedtheexportofgrainandfoodproductsfromHungary,Kazakhstan,Romania,RussiaandUkrainetoArmenia,Georgia,FYRMacedonia,MoldovaandTajikistanortheexportofmachineryandequipmentfromEstonia,theSlovakRepublicandPolandtoAzerbaijan,Belarus,BosniaandHerzegovina,Georgia,RussiaandUzbekistan.OthertransactionsincludedtheexportofpharmaceuticalsfromCroatiaandRussiatoTajikistanandtheexportofcosmeticsfromBulgariatoFYRMacedonia.

Withtheissuanceofa€105,000letterofcreditbyTojiksodirotbankofTajikistantoFortisBank,theTFPhaspassedamilestonebyfinancingits6,000thtransaction.TheletterofcreditcoveredtheimportofjuicesandnectarsmadeinRussiatoTajikistan.

Theprogrammecurrentlyhas115issuingbanksintheEBRD’sregionandover640confirmingbanksallovertheworld.NewTFPfacilitiesweresignedin2007with15financialinstitutionsinnineoftheBank’scountriesofoperations,includingthefirstfacilitiesforthedevelopmentoffactoringservicesinRomaniaandRussia.

TheTFPplaysaparticularlyimportantroleintheearlytransitioncountries,stimulatingmarketactivitybyusingastreamlinedapproachtofinancingalargenumberofsmallprojects.In2007,theEBRDfinanced436foreigntradetransactionsinthesecountries.

Equity funds

ByinvestinginequityfundstheEBRDishelpingnotonlytodevelopastrongprivateequityindustry,butalsotoraisecorporategovernancestandardsinthecompaniesreceivinginvestmentandtopromoteanentrepreneurialculture.TheBankprimarilysupportsprivatee

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