Dana CraciunescuDana CraciunescuPrincipal BankerPrincipal Banker

EBRD Municipal and EBRD Municipal and Environmental Infrastructure Environmental Infrastructure

TeamTeamBucharestBucharest

29 September 200429 September 2004

EBRD Lending to the Water Sector in Romania

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EBRD: Financing Water ProjectsEBRD: Financing Water Projects

Introduction to EBRD

Water infrastructure needs and challenges

EBRD investments in Romania

Outlook

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EBRD Water and Municipal Environmental Financing:

0

150

300

450

600

750

900

1050

1200

1350

1500

1650

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

€mln

Introduction to EBRD Introduction to EBRD

International financial institution founded in 1991, owned by 62 national and supranational shareholders, including EU

Promotes market-based economies in 27 countries in Central & Eastern Europe and the former Soviet Union

Provides finance to public and private sectors

Total commitments of €21.3 Bln Commenced lending in water

sector in 1995 with commitments of over €1.2 bln.

Key facts about EBRD

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EBRD ApproachEBRD Approach Commercial Structure

- loan size/structure linked to capacity to repay.

- tariff increases assessed to keep within affordability

- covenants to improve financial/operational performance

Financial Discipline

- increased local level financial and managerial autonomy and control

- access to political EU/ISPA and other grant financing

Political Commitment

- municipal guarantee/support agreement

- project support agreement with central government

Objective is an independent and sustainable water business

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Water Sector: Challenges and NeedsWater Sector: Challenges and Needs

Lack of investment in water supply and wastewater treatment threatens:

- poor quality of service (leaking pipes, inefficient equipment, groundwater pollution undrinkable water)

-decline in environmental and health standards

Water Companies have a weak financial position:

- insufficient due to low tariffs

- collection is weak impacting cash flow

- inadequate metering and IT systems impact financial and operational management

- affordability issues

Commercial banks reluctant to make long term loans available for investment

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EBRD's Experience in RomaniaEBRD's Experience in Romania (Portfolio of € 256.2million) (Portfolio of € 256.2million)

One of first countries in which EBRD lent money to restructure water sector

Strong commitment from central government to decentralise finances to provide greater fiscal autonomy at the local level

Water services are in the jurisdiction of counties and municipalities

Services characterised by poor quality drinking water, high ground water pollution, large water losses

Approximately 60% of households connected to water in cities versus 10% in rural areas

ISPA and EU are key players in the water sector

Tariffs set at local level, but approved by national regulator

Trend away from sovereign loans toward non-sovereign and private sector

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EBRD's Experience in RomaniaEBRD's Experience in Romania

Municipal Utilities Development Programme (MUDP) 1 (1995) and MUDP 2 (1997)

two sovereign-guaranteed loans totalling USD 28 mln and USD 75 mln, providing funds for critical investments in 15 cities

investment in priority areas coupled by strong TC component to improve financial and operational performance of the utilities

metering and tariff increases have resulted in lower water volumes

in more successful projects, political will to support tariff increases, cost reductions and improved collections, resulting in improved finances of the water companies

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MUDP CitiesMUDP Cities

KEY

MUDP I

MUDP II

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EBRD Experience in RomaniaEBRD Experience in Romania

Municipal Enrivonmental Loan Facility (MELF) €110 million

MELF loans provide co-financing for ISPA projects on a non-sovereign basis

EBRD willingness to lend is based on cash flow of water company coupled with municipal guarantees

Most loans are to existing MUDP clients, with a demonstrated track record coupled with the political will to reform

MELF clients include water utilities in Constanta, Brasov, Iasi, Arad, Timisoara,Tg Mures,Oradea, Sibiu, with loan under preparation for Bacau

Apa Nova

€55.4 million loan to finance the water treatment plan for a water concession with Veolia (formerly Vivendi Environment) as operator for the city of Bucharest

DEG as a co-financier

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OUTLOOK - RomaniaOUTLOOK - Romania

Significant investment needs

Metering and tariff increases are resulting in rationalisation of water to EU levels

Optimistic for water investment, due to EU Accession and availability of ISPA grant funding

Growing interest in privatisations and public private partnerships

Growing interest of commercial banks to lend under EBRD's umbrella

SAMTID - Government initiative to consolidate and regionalise services of water operators to create financial strong water operators, sovereign financing involving EU, EBRD and EIB

Institutional capacity to implement projects is growing

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OpportunitiesOpportunities Technical cooperation assignments

Investment opportunities

Equipment sales

→ As water projects are categorised as public sector, EBRD’s public procurement rules apply – open tender

→ To be eligible for EBRD and ISPA financing, tender to award concession needs to be competitive

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MEI team ContactsMEI team ContactsRomania

Susan GoeranssonTel: +44 20 7338 7940Fax: +44 20 7338 6964e-mail:

goeranss@ebrd.com

Dana CraciunescuTel: +40 1 202 71 00Fax: +40 1 202 71 10e-mail:craciund@ebrd.com

www.ebrd.com