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PROJECT INFORMATION DOCUMENT (PID)
CONCEPT STAGE
Report No.: AB5032
Project Name
Region
Sector
Project ID
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Implementing Agency
Environment Category
Date PID Prepared
Estimated Date of
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Estimated Date of Board
Approval
I.
Energy Efficiency for Industrial Enterprises
EUROPE AND CENTRAL ASIA
District heating and energy efficiency services (100%)
P118737
GOVERNMENT OF UZBEKISTAN
Ministry of Economy
[ ] A [ ] B [ ] C [ X] FI [ ] TBD (to be determined)
September 24, 2009
February 8, 2010
May 27, 2010
Key development issues and rationale for Bank involvement
Uzbekistan has a fast growing economy and is a major producer and exporter of natural gas to
Russia and Europe. With more than 12 GW of installed power generation capacity, Uzbekistan is
the second largest producer of electricity in the central Asia region. At the same time, the country
has one of the most energy intensive industries worldwide and is a major greenhouse gas emitter.
One of the key contributing factors is inefficiency of energy usage by the industrial enterprises
(IE) that operate old and outdated equipment and machinery.
According to the latest WDI data (table below), Uzbekistan uses three times as much energy to
add a unit of GDP as compared to the average of ECA countries and nearly double as compared
to neighboring Kazakhstan. Further, the country emits much more CO2 per unit of GDP which
makes it the 35th largest carbon dioxide emitter worldwide. In total, Uzbekistan emitted 200
million tons of CO2 which is estimated to double over the next decade as the economy grows.
Uzbekistan
ECA
Kazakhstan
Russia
Germany
GDP per Unit of Energy Use
(2005 PPP $ per kg of oil
equivalent)
1.2
3.5
2.4
2.7
7.6
CO2 emissions per unit of GDP
(kg/2005 PPP $)
2.1
0.7
1.4
0.9
0.3
Source: World Development Indicators (WDI), 2009
Most of the energy consumed (in the form of electric power, natural gas and/or steam) to sustain
their industrial processes is highly subsidized and is used for operating outdated machinery,
equipment and furnaces that need replacement or retrofitting. A typical industrial plant pays
approximately US$35-551 per thousand cubic meter (tcm) of natural gas when the country
receives US$240-3002 by exporting the same quantity. There is a substantial upside potential for
additional government revenues by exporting energy savings and the government has further
encouraged EE investments by indicating that gas prices would be increased by 50 % for IEs in
case they don’t shift to more efficient technologies.
There is wide consensus within Government and industry that the potential for energy savings
through implementation of EE measures in IEs in Uzbekistan is substantial. Typical energy
intensive industries include brick manufacturers, large poultry and livestock farms, food and
dairy processing industries, cement industries, cotton and textile industries. The share of energy
consumption in total production costs can reach up to 40 percent for cement and brick factories
and 15 percent for textile and wool industries. EE investments will make IEs more competitive
by reducing overall production costs.
Recognizing this, the Government of Uzbekistan (GoU) has declared improving energy
efficiency (EE) of IEs as one of its key priorities and has passed several relevant decrees. The
aim of these decrees is to improve productivity and reduce production costs through EE
investments which will reduce GHG emissions, make Uzbek industry more competitive in
international markets and free up energy savings (ie, natural gas and electricity) for exports.
Uzbekistan has a relatively large number of banks that provide loans for certain types of IEs but
long-term funds tend to be scarce and relatively expensive. However, they are not offering
energy efficiency financing as a specific product line since they associate such funding with
higher transactional costs as a result of their lack of experience with EE/Renewable Energy
technologies and market opportunities, and the need for a more specialized approach. In the
context of global financial crisis, the situation has further deteriorated with regards to access of
long term funding at reasonable terms and conditions.
The GoU has requested an IDA allocation of US25 million for a financial intermediary (FI)
credit line to enable implementation of the measures undertaken by the Govt. in improving EE
and cost reduction of IEs. GoU has also requested that this pilot project be developed speedily.
If implemented successfully, the GoU indicated that the pilot project should be scaled up to
include more Banks and enable a larger credit line for EE investments.
II.
Proposed Project Development Objectives
The pilot project objective is to improve energy efficiency in industrial enterprises by designing
and establishing a financing mechanism for energy saving investments.
III.
Preliminary Project Description
Based on the initial discussions held with the GoU, it is envisaged that the World Bank would
provide a credit line to a select few FIs (via Ministry of Finance) to on-lend to Industrial
Enterprises to promote EE investments. The project does not envisage any restrictions on the
1
The cost varies with type of industries. As an example, the supply of gas to brick kilns is currently at a lower cost
compared to most other industries.
2
The price of gas export to Russia is higher than exports to Tajikistan and Kyrgyzstan.
type of IEs that will be eligible to apply for funds. However, it seems that brick producers, food
processors, livestock and poultry farms among others will be the core applicants. The project
could also cover supporting replacement of conventional energy sources with renewable
technologies.
The use of financial intermediaries to promote private sector development and address financing
and other barriers to energy efficiency is an approach which has been successfully applied by the
World Bank group in other client countries. This approach has not yet been used in Uzbekistan
and it would seem suitable to initiate the development of energy efficiency financing business
lines by local banks.
The proposed project will have two components:

EE Credit Line– In the pilot project, up to three banks will be selected as FIs. Ministry
of Economy indicated that Uzpromstroi Bank, Asaka Bank and National Bank of
Uzbekistan (NBU) should be considered. Only Uzpromstroi Bank was previously
appraised under the Rural Enterprise Support Project (RESP I & II) and confirmed of
having a good track record in corporate lending. Asaka Bank and NBU will have to be
appraised to confirm eligibility as part of project implementation. We propose to start the
pilot with the banks whose eligibility is established by appraisal. The remaining, if any,
would join when their eligibility is established.
A wide range of EE investments will be eligible for financing from the credit line,
including replacement of machinery, furnaces and equipment. The maximum refinancing
of the loan size per IE is proposed to be capped (say US$2 million) to ensure funds under
the pilot will be spread widely. The credit line proceeds would be made available in two
currencies, UZ Som and US Dollar. This is particularly relevant as specialized
replacement equipment may have to be procured from outside Uzbekistan. The credit line
could also be available for leasing transactions of some equipment.
FIs will be responsible for identifying prospective borrowers, have full autonomy in subproject approval and determination of lending terms (such as the interest rate and
repayment and grace periods) and will bear the lending risks. The intended IE
beneficiaries are those with a commercially viable and bankable business proposal,
adequate collateral, satisfactory rates of return and demonstrated repayment capacity. A
Refinancing Agreement (RA) could be signed between Ministry of Finance (MoF) that
specifies detailed eligibility criteria for sub-borrowers, terms and conditions for
borrowing the credit proceeds. Further the RA will specify on-lending rates from MoF to
FIs as well as foreign currency risk and related matters.

Capacity and Institutional Development – Banks in Uzbekistan have wide experience
in lending to IEs but lack expertise on how to deal with specific EE credit lines. A
training program will be designed for FIs that will cover appraisal, risk assessment and
monitoring of EE investment projects for IEs. In addition, training on environmental
awareness and environmental impact assessment will be provided to IEs and FIs. A more
detailed capacity and institutional development program will be discussed and prepared
as part of project preparation. A suitable communication campaign for awareness of the
EE fund shall also be designed and launched during project implementation.
IV.
Safeguard policies that might apply
OP 8.30 – Financial Intermediary Lending
OP 4.01 – Environmental Assessment
Other safeguard requirements to be determined
V. Tentative financing
Source:
BORROWER/RECIPIENT
International Development Association (IDA)
Total
VI.
Contact point
Contact: Mr Franz Gerner
Title: Senior Energy Economist
Tel: (202) 473-5019
Email: [email protected]
($m.)
0
25
25