EBRD Donor Report 2008

Real people & real change

What’s inside Donor-funded activities and official co-financing 06 Regional activities 16 Key programmes and sectors 32 EBRD Donor Report 2008

What’s inside

03 Looking forward, the Bank will seek additional ways to increase its contribution towards meeting the needs of the region.

11 EBRD Donor Report 2008 What’s inside | 01

A wood carving from eastern Europe.

Message from the President 03 2007 highlights and our countries of operations 04 30

Part 01 Donor-funded activities and official co-financing 06 Donor funding 08 Official co-financing 10 Activities in 2007 11 Sustainability 13 Investment impact 14 Donor visibility 15

Part 02 Regional activities 16 Early transition countries 18 Western Balkans 21 Russia 24 Ukraine 26 Belarus, Kazakhstan and Turkmenistan 28 EU member states and candidate countries 30

Part 03 Key programmes and sectors 32 Micro, small and medium-sized enterprise lending 34 Trade Facilitation Programme 36 TAM and BAS Programme 37 Sustainable Energy Initiative 38 Legal Transition Programme 40 Municipal and environmental infrastructure 41 Transport 43

Annex 1 44 Annex 2 46 Abbreviations and glossary 47 Contributors’ credits 48

20 02 EBRD Donor Report 2008

A decorated plate from south-eastern Europe. EBRD Donor Report 2008 Message from the President | 03

Message from the President Making progress together

Over the past year we have shifted our The year 2007 was marked by a significant Looking forward, the Bank will seek additional attention increasingly to the needs of increase in the volume of technical ways to increase its contribution towards the poorer countries in the EBRD region. cooperation (TC) support from donors meeting the needs of the region. The Annual Our partnership arrangements with donors for projects in poorer countries, covering Meeting in Kiev in May 2008 is an excellent are focusing on the challenges these such sectors as municipal infrastructure, opportunity to forge new partnerships with countries face, across a wide range of TurnAround Management (TAM) and donors and other IFIs to address even more sectors and initiatives. But our collaboration Business Advisory Services (BAS) assistance forcefully the barriers and constraints that with donors also continues in central Europe to small businesses, micro-lending and affect countries’ enterprises and people’s and Russia, particularly in more targeted energy efficiency. Importantly, the TC lives. This underlines the importance of interventions, such as the environment programme provides expertise and knowledge good coordination, and we remain mindful and sustainable energy. transfer that acts as a catalyst for enabling of our signed commitments to the Paris Inadequate infrastructure, slow business investments to go forward and creating a Declaration on Aid Effectiveness for and employment growth and, in many better environment for business growth. assistance to poor countries. communities, extreme poverty are among At the Bank we are grateful for the After an important year for the EBRD the acute challenges facing countries willingness of donors to coordinate and donors in 2007, the management, Board eligible for Official Development Assistance, their work with us. Notable multi-donor and donors of the Bank look forward to such as Belarus, Moldova and Ukraine, initiatives such as the Northern Dimension working together and making further progress as well as others in the Caucasus, Central Environmental Partnership, the Early in the coming year. Asia and the Western Balkans. The EBRD Transition Countries Fund and the Western and its donors can do much to improve Balkans Fund have helped us bring greater people’s lives in these countries, and strategic focus to the Bank’s work, and we need to continue working closely complement the assistance provided together to bring about sustainable growth through bilateral donor programmes. and development. Sustainable development will be a priority area in coming years – can our countries of operations adjust to its challenges? The outlook is positive. Two years ago, the EBRD launched the Sustainable Energy Initiative to harness donor support for Jean Lemierre improved energy efficiency and increased President, European Bank for access to renewable energy. This initiative Reconstruction and Development has already achieved considerable success. But energy is just one of the issues that challenge sustainable growth. Reliable access to clean water to meet residential, commercial, industrial and agricultural needs is a growing concern. So, too, are questions facing governments and businesses about how best to adapt to climate change, and how to overcome the constraints to agriculture and food production. During the past year the EBRD has been able to contribute more from its own resources to complement the funds provided by donors. We now contribute to certain costs that were previously funded by donors, including overheads of the Project Preparation Committee, TAM and BAS headquarters costs, and parts of the work undertaken through the Legal Transition Programme and the EBRD’s Office of the Chief Economist.

04 | 2007 highlights and our countries of operations EBRD Donor Report 2008 EBRD Donor Report 2008

2007 highlights and our countries of operations Early transition Western Balkans Russia, Belarus, EU member states countries 09 Albania Kazakhstan, and Croatia 01 Armenia 10 Bosnia and Turkmenistan 19 Bulgaria 02 Azerbaijan Herzegovina and Ukraine 20 Croatia Making a real difference 03 Georgia 11 FYR Macedonia 14 Russia 21 Czech Republic 04 Kyrgyz Republic 12 Montenegro 15 Belarus 22 Estonia in 29 countries 05 Moldova 13 Serbia 16 Kazakhstan 23 Hungary 06 Mongolia 17 Turkmenistan 24 Latvia 07 Tajikistan 18 Ukraine 25 Lithuania 08 Uzbekistan 26 Poland 27 Romania 28 Slovak Republic 29 Slovenia

43% 43 per cent of TC funds in 2007 were for sustainable development projects see page 13 60% 60 per cent of TC funds in 2007 were committed in ODA countries see page 11

14 3.1m 22 3.1 million loans have been made to micro and small enterprises since 1994 see page 34 24

25

15 899 In 2007, 899 businesses were helped by the TAM and BAS Programme 26 see page 37

21 16 28 18 05 23 29 27 06 20

10 13 19 03 08 12 11 04 09 01 02 50% 17 On average, 50 per cent of loans to individual entrepreneurs in the ETCs go to women 07 see page 18 EBRD Donor Report 2008

01 Donor-funded activities and official co-financing | 07

Part 01 Donor-funded activities and official co-financing

Donor funds are crucial to advancing transition in the EBRD’s countries of operations. Deployed in combination with the Bank’s human expertise and investment capital resources, these funds have a major impact on the development of the private sector and provision of basic infrastructure services. They also play a critical role in the transfer of skills and the strengthening of regulatory, financial and other institutions.

The EBRD’s assistance programmes provide individual entrepreneurs and firms with access to otherwise scarce finance. 08 | Donor-funded activities and official co-financing EBRD Donor Report 2008 €1.27bn Since 1991, donor funding for the EBRD’s TC grants has grown steadily, reaching a cumulative total of €1.27 billion by the end of 2007.

Chart 1 Flow of donor funds to Donor allocated EBRD projects and EBRD sign agreement

Funds are transferred from donor to EBRD

Projects for donor support are Donor funding identified Funding arrangements range from agreements with single donors for specific projects to programme-wide arrangements EBRD EBRD involving multiple contributors. Hungary allocates allocates TC joined the EBRD donor community in 2007, non-TC funding funding to an bringing the number of active donor (grants) to individual individual project countries to 29. projects such as the (such as an energy The EBRD uses donor funds to provide financing of works audit of a factory) or to assistance through: and equipment a framework facility •­ technical cooperation (TC) (such as an SME •­ investment grants credit line) •­ performance fees •­ risk-sharing facilities.

These instruments help the Bank to address the range of challenges facing transition countries. They harness finance for a variety of programmes promoting, for example, small business growth, improved employment opportunities, better access to services such as clean water and drainage, lower industrial energy use, trade expansion or more efficient transport systems. They may also be targeted at priority EBRD objectives, such as sustainable energy. Chart 1 shows the basic flow of donor funds to allocated EBRD projects. EBRD Donor Report 2008 Donor-funded activities and official co-financing | 09

A traditional hat from the Kyrgyz Republic.

Technical cooperation Rapid growth in TC activity and expenditure TC assistance (delivered through during the 1990s was targeted mainly Transition challenges programmes detailed in Part 3 of this at projects in central Europe and Russia. Donor support for EBRD projects aims Report) includes: Since 2000, TC assistance has been focused to address the key barriers to transition. ­ consultancy services for feasibility on Ukraine and the less advanced countries • While the nature of the challenges studies as part of project preparation of the Western Balkans and the early varies from country to country, there ­ procurement assistance during transition countries (ETCs), where • are several areas that are expected project implementation transition challenges remain significant. to be prominent in the coming year. •­ the development of management skills ­ legal advice to improve legislation and Investment grants •  ­Provision of basic infrastructure corporate governance and to promote the Investment grants offer an alternative services. Across the transition region, development of the regulatory framework. source of funding for projects for which the removal of infrastructure bottlenecks there may be constraints on the use of remains a priority at both local and Since 1991, donor funding for the EBRD’s loan financing. Such grants, although used national level and there is scope TC grants has grown steadily, reaching a relatively infrequently by the EBRD, can for more private sector provision of cumulative total of €1.27 billion by the end be particularly important in implementing infrastructure services. In the Western of 2007 (see Chart 2). The largest contributor infrastructure and energy projects in poorer Balkans, for instance, transport and has been the European Union, working countries and regions with limited finances power infrastructure is a priority for through the European Commission and the and in heavily indebted countries subject achieving regional economic integration European Agency for Reconstruction (EAR). to borrowing constraints. and network connections with the Other significant providers have been Italy European Union. (including contributions through the Central European Initiative – CEI), Japan and the ­Energy efficiency. More efficient use United States. of energy resources is vital in order

to improve competitiveness, with large potential economic gains in countries such as Russia and Ukraine. Looming power shortages in the Western Balkans add to pressures for more efficient Chart 2 energy use. Technical cooperation ­Water and sustainable development. Cumulative agreements, commitments and disbursements, 1991–2007 Concerns are growing over the adequacy of water quality and supply to support growth, especially in the residential, commercial, industrial and agricultural sectors. Broader sustainability issues relating to climate change and the promotion of sustainable agricultural development will be important areas for the Bank and donors in the coming year.

­Business growth. For business to continue growing and employment opportunities to increase, further policy and regulatory reform and the transfer of skills are needed. In addition, initiatives to further extend the availability of finance to smaller businesses are necessary. These measures are key elements of strategies that support employment growth in poorer countries, such as the early transition countries, and help countries to diversify their economic base.

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 Agreements – not committed Committed – not disbursed Disbursements 10 | Donor-funded activities and official co-financing EBRD Donor Report 2008

A traditional wall tile from Bosnia and Herzegovina.

Performance fees Risk-sharing facilities Official co-financing This category of grants represents incentive Grant support to risk-sharing facilities payments made to financial institutions underpins the work of the EBRD’s Trade In 2007 co-financing of EBRD investment under finance facilities supported by Facilitation Programme (TFP – see also projects by official partner agencies – the European Union and other donors. page 36), which promotes trade in the public sector institutions – amounted Performance fees are aimed at promoting Bank’s countries of operations. Donor to €996 million. Contributions were the extension of loans to particular groups contributions for risk-sharing support distributed as follows: of borrowers or types of activity that are provide guarantees to international banks •­ guarantees by international financial likely to achieve the priority objectives and factoring companies. For example, the institutions (IFIs) and export credit designated by the Bank and donors. governments of Austria, Germany (through agencies (totalling €335 million) – The main focus has been on Kreditanstalt für Wiederaufbau – KfW), provided mainly by the European programmes providing finance for small the Netherlands, Norway, Switzerland and Investment Bank (EIB) and Finland, and medium-sized enterprises (SMEs), Taipei China have supported TFP operations Germany and Japan municipal governments (for environmental in the Western Balkans and Central Asia. •­ IFI and parallel loans from other infrastructure), and borrowers undertaking Examples of other risk-sharing facilities organisations (€264 million) – deriving energy efficiency improvements as part are the Serbia and Montenegro Risk- mostly from the EIB International of the Sustainable Energy Initiative (SEI – Sharing Facility, supported by Italy; the Finance Corporation (IFC) and Japan see page 38). Examples of targeted funding Romania Micro Credit Facility (see also •­ investment grants (€283 million) – facilities include the Kozloduy International page 34), which provides start-up loans provided to projects in 2007, by Decommissioning Support Fund (KIDS) for micro businesses with finance from the Russian government (€222 million in Bulgaria and the Bohunice International the EU Phare Programme and the for an air transport project in Russia), Decommissioning Support Fund (BIDS) in Romanian government; and the Central as well as by the BIDS, the European the Slovak Republic, focusing on nuclear Asia Risk-Sharing Special Fund, which Union and KIDS funds decommissioning and energy efficiency. supports access to finance for micro and •­ risk participations (€89 million) – small enterprises in the Kyrgyz Republic, provided by the Deutsche Entwicklungs Tajikistan, Turkmenistan and Uzbekistan. Gesellschaft (DEG), Netherlands Development Finance Company (FMO) and a number of EBRD-managed special funds •­ equity (€24 million) – invested by the DEG, IFC and two official Nordic investment agencies.

The main beneficiaries of official co-financing were investment projects in Poland (€284 million), Russia Chart 3 (€264 million), Ukraine (€147 million), Technical cooperation and Serbia (€86.7 million). Official Commitments 2000–07 co-financing has also been used at the regional level (€117.7 million), as well as among the more advanced countries of Bulgaria, Romania and the Slovak Republic (€33.3 million). Co-financing was provided for projects in three ETCs (Azerbaijan, Georgia and Moldova – totalling €32.4 million) and in four Western Balkan states (Albania, Bosnia and Herzegovina, the Former Yugoslav Republic (FYR) of Macedonia and Montenegro – totalling €30.1 million).

00 01 02 03 04 05 06 07 EBRD Donor Report 2008 Donor-funded activities and official co-financing | 11 €283m €89m Investment grants provided to projects in 2007. Risk participations provided by the Deutsche Entwicklungs Gesellschaft, Netherlands Development Finance Company and a number of EBRD-managed special funds.

The transition process is far from complete. Much work is still needed to bring economic and political stability to the region.

During the year the EBRD signed grant agreements with donors totalling What our donors say €89.9 million for TC and official co-financing Thomas Wieser activities. This figure comprised new Ministry of Finance, Austria, and Inaugural Chair of the Assembly of Contributors of the Western agreements worth €52.2 million and Balkans Fund, 2006-07 replenishments of existing funds to the value of €37.7 million. As in previous years, the largest contribution was provided by the European Union (€33 million), while an increasing proportion (€26 million) was channelled through multi-donor funds. Additional grants were mobilised for specific investment projects. Total funding committed for new TC projects amounted to €98.2 million in 2007, representing an increase of almost a third above the level registered in 2006 (see Chart 3). This reflected Activities in 2007 increased EBRD activities in the ETCs and Western Balkans, which received There was a significant increase in donor- €25 million and €20 million respectively. funded EBRD activities in 2007. Official At the same time, technical cooperation co-financing with the EIB and other IFIs has commitments for Ukraine reached continued to reinforce the Bank’s investments €7.8 million in 2007 (compared to across its countries of operations. €6.6 million in 2006). As in previous years, the majority of funding provided by donors was used by the Bank for TC activities, preparing the way for future projects and improving the investment climate. Priority sectors in 2007 included micro and small business development, sustainable energy and energy efficiency, infrastructure services and improving the institutional framework.

12 | Donor-funded activities and official co-financing EBRD Donor Report 2008 €10 m An NDEP grant agreement for €10 million was signed in Kaliningrad in September 2007 between the EBRD and the water utility in Kaliningrad.

Financing a wide TC assistance to the new EU member The Northern Dimension Environmental states amounted to €17 million, focusing Partnership (NDEP – page 25) was range of investments on providing finance for micro, small and established in 2002 to address environmental in the Western Balkans medium-sized enterprises (MSMEs) and problems in the Northern Dimension Area, for sustainable energy facilities. In Russia, particularly in north-west Russia. Its Support is key for sustainable €18 million of funding supported small Fund, managed by the EBRD, provides development and business development and infrastructure grant co-financing to key investments in and environmental projects. In Belarus, environmental and nuclear safety projects stability in the Kazakhstan, Turkmenistan and Ukraine, in the area. An NDEP grant agreement for region. We are €13 million was dedicated to providing €10 million was signed in Kaliningrad in assistance to SME, microfinance, September 2007 between the EBRD and pleased to develop infrastructure and sustainable the water utility in Kaliningrad (see case an Infrastructure energy projects. study on page 25). This grant will help to The EBRD continued to scale up its finance the construction and rehabilitation Projects Facility with investment in the SEI (see pages 13 and 38), of waste-water facilities. the EIB, the EBRD including the setting up of several dedicated In addition to TC funding provided by donor funds. donor governments, public sector institutions and the Council of The Early Transition Countries (ETC) work alongside the EBRD to provide official Europe Development Fund (see page 18) continued to coordinate co-financing for investment projects. This donor assistance to the Bank’s poorest amounted to €996 million in 2007, mainly Bank to facilitate countries of operations. Cumulative in the form of loans, grants and other these investments. pledges to the Fund – which is untied provisions for SME support and development, (meaning that money can be used without municipal and environmental infrastructure any restriction as to the nationality of the (MEI) projects, energy efficiency initiatives firm or experts contracted in a particular and transport modernisation. It included project) – reached €44.3 million for technical €61.3 million in investment grants assistance by the end of 2007. mainly to projects in central Europe, and The multilateral Western Balkans Fund €12.6 million in grants for three infrastructure (see page 23) has established itself projects in Albania, Georgia and Serbia. as a major regional vehicle for These grants were provided TC funding and investment by the European Union co-financing. In 2007 Hungary and by the US Millennium joined the fund as the Challenge Corporation. 15th contributor, and total Grant support (from What our donors say Dirk Meganck pledges reached more the European Directorate-General for Enlargement, than €20 million (including Union and two European Commission a €2 million contribution decommissioning for investment co-financing support funds – grants). Meanwhile, the BIDS and Western Balkans Local KIDS) totalling Enterprise Facility that €48.7 million provides equity, risk-sharing was also provided and debt financing to local for Energy Efficiency enterprises (see page 23) Finance Facilities was replenished in 2007 (EEFFs – see page by Italy with a further 30) in central €7 million towards Europe. co-financing investment and TC funding.

EBRD Donor Report 2008 Donor-funded activities and official co-financing | 13

A decorative coin from the Caucasus.

Water The Bank is working closely with donors to support sustainable access to clean water supplies and waste-water treatment services. Thirteen projects for the upgrading of water and waste-water infrastructure were signed in 2007, with a total value of €220 million. Two of these were in smaller, poorer transition countries, and were consequently structured with regard to affordability constraints as well as the need to make the investments sustainable in the longer term. Water infrastructure investments in 2007 supported projects in Armenia, Bosnia and Herzegovina, Bulgaria, Croatia, Latvia, Romania and Russia, employing TC resources for project preparation and implementation with donor support. Together with the World Bank, the EBRD Sustainability Sustainable Energy Initiative also financed a major regional water One of the most important and enduring supply project in Montenegro’s coastal The EBRD has been working with donors challenges for the countries of central and cities, where the country’s tourism sector on initiatives to address constraints to eastern Europe and the Commonwealth is centred. sustainable growth in member countries. of Independent States is to improve their A dedicated team has, since late 2007, inefficient use of energy, which is a legacy been promoting sustainability across the of the former command economy of the Bank’s operations and developing new Soviet era. Such inefficiency undermines lines of business that deliver environmental the competitiveness of enterprises and and social benefits. economies, threatens energy security As part of this work, the EBRD will hold and contributes disproportionately to periodic environment and sustainability carbon emissions. discussions with donors and other agencies, In May 2006 the EBRD launched the the first of which is planned for the Bank’s SEI in response both to the specific energy Annual Meeting in Kiev in May 2008. transition needs in the Bank’s countries of operations and to the growing pressure in international forums for increased investment in tackling global climate change. For detailed information about the SEI, see page 38. 14 | Donor-funded activities and official co-financing EBRD Donor Report 2008 €804m From 1991 to 2007 the Bank’s TC commitments that directly supported investments totalled €804 million.

Climate change Biodiversity Investment impact Adapting to climate change is an emerging Biodiversity management is another area of concern in the Bank’s countries of important issue in the transition process. A key objective of donor-funded TC is to operations as they address the consequences Companies and investors may be exposed leverage capital investment through EBRD of increased pressure on water supplies, to public outcry if their operations have an projects. From 1991 to 2007 the Bank’s more frequent flooding, changes in adverse impact on ecosystems. Furthermore, TC commitments that directly supported agricultural cropping patterns and shifts there is a growing interest in biodiversity investments totalled €804 million. in seasonal energy requirements. The EBRD initiatives that create business opportunities These funds have helped leverage is exploring ways to help countries plan for while protecting the integrity and diversity investments (both signed and pipelined) such change by encouraging them to take of natural habitats. of €44 billion, with a leveraging effect of these issues into account in their investment The Bank, in cooperation with the 55:1. In other words, €1 of TC supported decision-making and project operation. IFC and the United Kingdom, has provided €55 of investment. To this end, the Bank is hosting a workshop support for private sector involvement in Of all the investment projects signed in 2008 for IFIs and leading environmental biodiversity conservation around the Kumtor by the EBRD in 2007, 24 per cent by agencies in the European region. Gold Mine in the Kyrgyz Republic. In late volume were supported by TC. The largest 2007 the Bank, with funds from the European number of TC-supported projects was in Union, launched a programme to identify the Western Balkans. and support pro-biodiversity SMEs operating in the steppe regions of Kazakhstan, Moldova, Russia and Ukraine. EBRD Donor Report 2008 Donor-funded activities and official co-financing | 15

A traditional men’s hat from Uzbekistan.

Donor visibility initiatives in 2007 As a donor, we are outlined below. encourage the Bank •­ Booklets on EBRD-donor cooperation (11 of which have now been made to undertake further available) and investors’ factsheets, with up-to-date information on the donor initiatives aimed at countries and the projects they support. improving the living •­ Country and sector pages on the EBRD’s web site (see www.ebrd.com/country/ standards of people index.htm), updated to include case in ODA countries. studies, audio slideshows and projects implemented under partnership arrangements with donors and official co-financers. • Two web-based slideshows, entitled “EBRD and Donors: Building foundations” and “Early Transition Countries Fund: Fostering the future”, launched at the Bank’s 2007 Annual Donor Meeting in Kazan, Russia. •­ Feature stories on donor-funded projects in the EBRD’s countries of operations, What our donors say posted on the Bank’s web site (see www. László Andor ebrd.com/new/stories/2007/index.htm) Board Director for Hungary, the Czech Republic, Donor visibility and published in the staff magazine. the Slovak Republic and Croatia, EBRD Selected stories were also included The EBRD promotes awareness and in an EBRD publication, People and recognition of the role played by donors projects 2008. in its operations through a variety of •­ Press releases on donor-supported means: media releases, the Bank’s web projects (see www.ebrd.com/new/ site, Blueprint (the staff magazine), donor pressrel/2007/index.htm) and feature publications, videos and posters. The aim stories distributed to donors, external of this work is to inform target audiences partners and the media in the Bank’s in donor and beneficiary countries. countries of operations. The material was Decision-makers in the international also used by the Bank’s Resident Offices community are also made aware of the to highlight donors at the local level. role that donors are playing.

Of all the investment projects signed by the EBRD in 2007, 24 per cent by volume were supported by TC. The largest number of TC-supported projects was in the Western Balkans. 16 | Regional activities

Part 02 Regional activities

In 2007, donor support increased in the ETCs and the Western Balkans, which received €25 million and €20 million respectively. TC commitments for Ukraine reached €7.8 million. In Russia €18 million was provided while the EU member states received €17 million.

In Russia, the EU has focused its financing on the Russian Regional Bank Framework, which specifically aims to strengthen banks based outside the traditional financial centres of Moscow and St Petersburg. 02 18 | Regional activities EBRD Donor Report 2008 €44.3m 23% In the ETC Fund, pledges had more than tripled from Since its establishment in 2004, the ETC Fund has €14.7 million in 2004 to €44.3 million for technical been the main vehicle for channelling donor funding assistance. An additional €5 million grant for investment for technical assistance to the ETCs, providing co-financing was provided by the Netherlands. €38.7 million (23 per cent) of total TC donor funding to the ETCs.

Early transition countries Moreover, in many ETCs national debt infrastructure interventions, institution is high and under IMF programmes these building and efforts to improve the Despite their accelerating growth, the countries cannot take on new sovereign investment climate. These can play ETCs lag behind the rest of the Bank’s borrowing obligations that are not on a a pivotal role in unlocking the economic countries of operations in their transition concessionary basis (that is, do not involve potential in the ETCs and providing to market economies. Large sections of their an element of grant funding). Therefore, longer-term sustainable solutions populations still live below the poverty line. concessionary finance is critical to the to alleviating poverty. The pace of economic development has been implementation of many key infrastructure The untied, multi-donor ETC Fund was hindered by a variety of factors, such as: and energy projects. established with the aim of improving the •­ the slow reform of key institutions In 2007, projects in the ETCs received overall coordination and efficiency of TC •­ weak governance and regulatory €25 million in donor support (see Chart 4, support and grant co-financing from the frameworks which illustrates levels of donor support donor community. The Development •­ low levels of financial intermediation, across all EBRD countries of operations). Assistance Committee of the Organisation with fewer banks ready to on-lend to for Economic Cooperation and Development local enterprises ETC Initiative and Fund (OECD) has confirmed the official development •­ a difficult business climate, together In order to increase the EBRD’s reach assistance (ODA) status of the ETC Fund, with competition from more attractive and impact in these countries and to which means that support provided through destinations for foreign direct investment coordinate donor support and Bank the Fund can be counted against each •­ small domestic markets, coupled with assistance to maximum effect, the donor’s ODA target. limited access to world markets Early Transition Countries Initiative was Contributing countries to the Fund are •­ underdeveloped local infrastructure. launched in April 2004. The Initiative Canada, Finland, Ireland, Japan, Luxembourg, focuses on supporting the development the Netherlands, Norway, Spain, Sweden, of the private sector, selected priority Switzerland, Taipei China and the United Kingdom. In the ETC Fund, pledges had more than tripled from €14.7 million in 2004 to €44.3 million for technical assistance. An additional €5 million grant for investment co-financing was provided Chart 4 by the Netherlands. Technical cooperation Since its establishment in 2004, the Commitments by region, 2007 ETC Fund has been the main vehicle for channelling donor funding for technical assistance to the ETCs, providing €38.7 million (23 per cent) of total TC donor funding to the ETCs. The balance has come mainly from bilateral donors, with a small contribution from the Mongolia Cooperation fund (another multi-donor fund that was established to support Mongolia before it became one of the Bank’s countries of operations). In 2007 Georgia was the largest beneficiary country of technical assistance from the ETC Fund and from bilateral donors, followed by Armenia and Tajikistan. Assisted projects in Georgia included improvements to municipal and environmental infrastructure (covering water services and public transport) and credit-line support for the promotion of energy efficiency. Investment advisory councils are being launched in Armenia, the Kyrgyz Republic, Mongolia and Tajikistan to strengthen public-private sector dialogue on improving the investment climate. Western Balkans EU member states ETCs Regional (other) Belarus, Kazakhstan, Turkmenistan and Ukraine Russia Note: Regional (other) funding refers to projects that were undertaken in two or more countries. EBRD Donor Report 2008 Regional activities | 19

Case study Improving road communications in Tajikistan

Road transport is crucial to the economic However, with support from IFIs Spain welcomes the and social development of Tajikistan. (including the Asian Development Bank) It is the dominant mode of freight and and bilateral donors, the Tajik authorities EBRD providing more passenger carriage in a country with only are investing around €340 million in road of its own resources limited rail infrastructure (serving mainly rehabilitation and construction across the international traffic) and aviation services country. The EBRD has meanwhile approved and, along with constrained by cost and capacity. a €2.7 million loan for the procurement donors, responding of essential road maintenance equipment Despite its importance, more than 70 (front-end loaders, graders, mobile to the needs of the per cent of the national road network aggregate crushing plants and asphalt region. We look is considered to be in poor structural plants, and snow removal machines), condition, and travel conditions may be coupled with an investment grant forward to the Bank further disrupted by adverse weather and channelled through the ETC Fund and contributing more in difficult terrain. The deficiencies of the backed by a special contribution from national network mainly reflect the lack the Netherlands government. 2008 and continuing of investment in the decade following its work with the independence. A shortage of funds also Technical assistance funding of €500,000 meant that there was no renovation or from the ETC Fund supports project ETC Fund. replacement of inefficient or outdated implementation and the preparation of road maintenance equipment. a road maintenance management plan.

What our donors say Gonzalo Ramos Board Director for Spain and Mexico, EBRD, and Chair, ETC Fund Committee 20 | Regional activities EBRD Donor Report 2008 € 11. 3 m 23 Investment grants totalling €11.3 million since Since the ETC Initiative was introduced, 23 new equity 2006 have been provided in the ETCs by the Swedish investments in local enterprises have been arranged International Development Cooperation Agency, along under the Direct Investment Facility. with the US Millennium Challenge Corporation and the European Union.

Bilateral donors •­ The Direct Investment Facility (DIF) Grant co-financing Support to the ETC countries is also provided provides equity-type investments of up Co-financing in the form of investment grants by bilateral donors. Major bilateral donors to €6 million in local private enterprises. is often imperative for ETC infrastructure in 2007 were: It has concentrated to date on the more projects, principally to address affordability •­ Canada – supporting water and public developed markets of Georgia and issues. Grants may provide interim finance transport development and an energy Armenia, but is being made available while utility tariff adjustments are being efficiency credit line in Georgia, and micro progressively in Azerbaijan, the Kyrgyz phased in, help address environmental lending in Armenia Republic, Moldova and Mongolia. or other project considerations, or offset •­ Japan – supporting the Business Advisory •­ The Direct Lending Facility (DLF) provides borrowing constraints imposed by the IMF. Services (BAS) Programme (see page 37) direct loans of up to €4 million to For example, the ETC Fund is providing in Uzbekistan, as well as TurnAround enterprises in those countries where technical assistance to improve the water Management (TAM – see page 37) and the local banking sector cannot make supply systems in the cities of Poti and micro lending projects in several countries equivalent provision, principally the Kutaisi in Georgia, for which the EBRD is •­ Sweden – aiding water infrastructure Central Asian ETCs. providing loans of €2.5 million and €3 million, projects in Georgia and Tajikistan •­ The Medium-sized Co-financing Facility respectively. In addition, investment grants •­ Switzerland – furthering the BAS (MCFF) provides co-financing alongside totalling €11.3 million since 2006 have Programme and credit facilities in the local banks to enterprises whose been provided in the ETCs by the Swedish Kyrgyz Republic, as well as mortgage requirements exceed what the International Development Cooperation law development in Moldova local banks can themselves provide Agency, along with the US Millennium •­ United States – backing credit facilities because of regulatory constraints Challenge Corporation and the in the Kyrgyz Republic, micro lending in or their own risk diversification policies. European Union. Armenia, the Tajik Agricultural Finance The MCFF has to date concentrated The ETC Fund has also approved Facility (TAFF – see page 35), and the on Armenia, Azerbaijan, Georgia, the €1.4 million for a road maintenance project BAS Programme in Armenia. Kyrgyz Republic and Moldova. in Tajikistan (see case study on page 19).

In 2007 Korea, which Since the ETC Initiative was introduced, has become a new donor 23 new equity investments to the EBRD’s Technical in local enterprises have Cooperation Funds been arranged under programme, the DIF, 27 loan approved its first transactions with project providing private enterprises implementation have been signed support to the under the DLF, and Kyrgyz Multi-Bank 17 MCFF facilities and Non-Bank have been signed Financial Institutions with 13 banks in Facility. Armenia, Azerbaijan, Georgia, the Kyrgyz Financial instruments Republic and A set of instruments Moldova, providing has been developed 33 loans to private with local banks in the enterprises. ETCs to provide direct financing to medium- sized enterprises that are either too small to qualify for direct lending from the Bank or too large for micro lending facilities. EBRD Donor Report 2008 Regional activities | 21

Case study The Central European Initiative

The Central European Initiative (CEI) was Sharing ideas set up in 1989 as an intergovernmental In November 2007 a major CEI economic forum for political, economic and cultural forum was held in Sofia, Bulgaria. cooperation between its 18 member The focus was how to better mobilise states. It aims to help transition countries resources for the common good, move closer to the European Union. concentrating particularly on the reforms and investments needed to promote Funding further development and economic In 1992 the Italian government signed growth in the Western Balkans. The forum an agreement with the EBRD on the attracted over 1,850 delegates from 48 establishment of a CEI Trust Fund to aid countries, and included representation economic and social transition in central from public and private bodies, IFIs and and eastern Europe. Managed by the CEI other international organisations. Project Secretariat (CEI PS) at the EBRD, the Fund has received a total contribution Practical help of around €28 million since its foundation. In the context of the EBRD’s efforts to In December 2007 a replenishment was expand credit lines to small businesses granted by Italy, amounting to a further through local commercial banks, the Western Balkans €6 million for 2008 –10. CEI has been approached to help the Minsk Transit Bank (MTB) in Belarus Transition is less advanced in the Western Through the Fund, the CEI promotes to strengthen its credit appraisal and Balkans than in the neighbouring countries and funds TC projects alongside EBRD approval processes for SME loans. that have become new EU members. investments in, for example, energy This will support the provision of loans Nevertheless, significant changes have efficiency, municipal and environmental to small and medium borrowers and been taking place in the region. Montenegro infrastructure, transport, financial consolidate the EBRD’s presence in has continued its post-independence institutions and SMEs, with an emphasis the micro-credit market in Belarus. reform process, pursuing its commitment on establishing institutional support. Most importantly, it will improve corporate to a liberal trade regime and further governance practices and technical strengthening its competition policy. Technical cooperation takes the form of skills in banking operations, and promote Bosnia and Herzegovina has undertaken grant assistance for specific components private sector enterprises in the country’s some larger-scale privatisations, including of a project (such as preparatory studies, capital and the regions. in the oil and telecommunications sectors, sector and environmental engineering, and has improved its competition policy. management training and pre-loan audits). In Albania, FYR Macedonia and Serbia, The CEI PS has assumed an increasing competition policy has been similarly role in regional development through strengthened and its enforcement made the leverage achieved by its projects – more effective. each €1 granted by the CEI has, to date, generated €128 of investment. Donor input In 2007 donor-funded projects in the Western Balkans increased markedly to €20.4 million from €15.3 million in 2006. Major donors included: •­ Austria, Canada and the Central European Initiative (see case study), which have funded assignments in the region’s municipal service, railway infrastructure and energy sectors, respectively •­ the EAR, Japan and the multilateral Western Balkans Fund, providing funding for the TAM Programme in support of the EBRD’s commitment to SME development •­ the Netherlands, which has expanded its backing to the BAS Programme in Montenegro and Serbia (including Kosovo) •­ Spain, providing support for an institution- building assignment in a major domestic bank in Serbia. 22 | Regional activities EBRD Donor Report 2008

Case study Supporting micro enterprises in Bosnia and Herzegovina

We are committed to The EBRD approved a loan of €4 million With a portfolio of exclusively business in early 2007 to Mikrokreditna Organizacija clients, Sunrise is playing a crucial role advancing transition Sunrise, one of the largest non-bank in helping to develop new entrepreneurial and reducing poverty microfinance institutions in Bosnia and skills in the private sector beyond major Herzegovina, to enable owners of micro towns and cities. It is an important in the Western Balkans and small enterprises to gain better access institution, assisting urban and rural by helping the EBRD to finance so they can expand and build entrepreneurs with access to finance, their businesses. and its business plan to transform into to implement well a countrywide commercial microfinance coordinated projects The loan, to be used by Sunrise to on-lend company has been welcomed by the EBRD. finance to entrepreneurs, falls under the that reflect transition €75 million EBRD’s Micro, Small and Sunrise was established in 1996 and EU accession Medium-sized Enterprises Finance as a non-governmental organisation. Framework for the Western Balkans and In December 2000 it was registered priorities. Croatia, which was established in 2006 as a microfinance institution licensed to facilitate access to finance for smaller to provide financial support to micro business clients. entrepreneurs. Throughout its network of six branches and 37 offices, it serves The loan is complemented by an estimated more than 15,000 clients across the €300,000 in technical assistance from Federation of BiH, Republika Srpska the Western Balkans Fund. The donor and District Brˇcko, both in urban and funds will help Sunrise’s transformation rural areas. from a non-profit-making to a profit-making business in the commercial sector, reflecting new BiH legislation on micro- credit organisations. General manager What our donors say Mirsad Milavic´ stressed that the loan Diane Brooks supports Sunrise’s further development Balkans Programme Manager, Department for International Development, United Kingdom by strengthening its operational practices and financial potential. EBRD Donor Report 2008 Regional activities | 23

A brass plate from south-eastern Europe.

The Fund focuses on: The Czech Republic •­ improving access to, and delivery of, affordable basic services, such as water, is determined to work electricity, transport and communications with the EBRD and •­ promoting a sound environment for private sector development, with effective other donors to the legal and regulatory frameworks and Western Balkans transparent accounting and corporate governance practices Fund to enhance the •­ encouraging MSMEs by strengthening region’s sustainable access to finance and advice and supporting the creation of new businesses, development. During especially by women entrepreneurs our EU Presidency •­ strengthening financial institutions in 2009 we will push •­ promoting sustainable environmental standards the Western Balkans •­ extending innovative and inclusive initiatives to harness the potential to the forefront of Western Balkans Fund of the wider community. the EU’s priorities. The untied, multi-donor Western Balkans Fund was set up in November 2006 to Other facilities mobilise additional grant funding for the The Western Balkans Local Enterprise countries of the region and to strengthen Facility (LEF) was established in 2006 the coordination of EBRD-donor assistance. as a €32 million investment channel, to It was inaugurated with initial pledges which Italy initially contributed €12 million. amounting to €13.7 million. Contributing The aim has been to provide mainly loan countries to the Fund are Austria, Canada, and equity financing to promising SMEs the Czech Republic, Finland, Hungary, in the region. Ireland, Luxembourg, the Netherlands, In October 2007 Italy replenished Norway, Poland, the Slovak Republic, Slovenia, the Facility with a further contribution of Spain, Sweden and the United Kingdom. €7 million (including co-investment financing What our donors say The participation of the Czech Republic, and TC funding) and the overall amount Ivana Vlkova Poland, the Slovak Republic and Slovenia of the Facility now stands at €65 million. Head of the Development Cooperation and Foreign (from 2006) and Hungary (from 2007) has By the end of the year five SME Protocol Unit,