PROJECT IDENTIFICATION FORM (PIF)
PROJECT TYPE: Full-Sized Project
THE GEF TRUST FUND
Submission Date: 18 January 2008
Re-submission Date: 21 February 2008
PART I: PROJECT IDENTIFICATION
GEFSEC PROJECT ID1: 3596
INDICATIVE CALENDAR
GEF AGENCY PROJECT ID:
Milestones
Expected Dates
COUNTRY(IES): Russian Federation
Work Program (for FSP)
April 2008
PROJECT TITLE: Improving Efficiency in Public Buildings in CEO Endorsement/Approval
November 2008
the Russian Federation
GEF Agency Approval
December 2008
GEF AGENCY(IES): EBRD
Implementation Start
January 2009
OTHER EXECUTING PARTNER(S):
Mid-term Review (if planned)
July 2011
GEF FOCAL AREA (S): Climate Change
Implementation Completion
January 2014
GEF-4 STRATEGIC PROGRAM(S): CC-SP1-Building EE
NAME OF PARENT PROGRAM/UMBRELLA PROJECT:
Umbrella Programme for Promoting Energy Efficient Technologies and Practices in the Russian Buildings Sector
A. PROJECT FRAMEWORK (Expand table as necessary)
Project Objective: The proposed EBRD-GEF project is designed to reduce greenhouse gas emissions in Russia by improving efficient use of energy in Public
Buildings such as kindergartens, schools, hospitals, and public offices. By combining technical assistance with financing, the EBRD aims to help local authorities
overcome common obstacles to financing energy efficiency (EE) improvements such as allocation of resources for energy audits and project preparation, tendering
procedures, and management of larger-scale programs that may need additional dedicated resources. Investment barriers will be addressed through credit for
municipal EE investments and the introduction of the sale of receivables (forfaiting) as a means of EE financing.
Project
Components
Expected
Outcomes
Expected Outputs
Indicative GEF Financing*
($)
1. Project
identification
TA
2. Investment TA
support
1
Projects are
identified and
effectively
designed
* Identification of municipal
facilities suitable for
investments
* Energy audits for selected
facilities
* Identification and
prioritisation of investments
for selected facilities
Projects are
* Tendering and Project Unit in
implemented operation in participating
cost effectively municipalities to be supported
and
by consultants funded by
transparently, further technical assistance or
with
from proceeds of the loan,
significant
which would be responsible for
demonstration tender preparation, tender
value
awards, and project monitoring
Project ID number will be assigned initially by GEFSEC.
PIF Template, August 30, 2007
%
Indicative Co-financing*
($)
Total ($)
%
425,000
46% of
component
(5% of GEF
financing)
500,000
54% of
component
(1% of cofinancing)
925,000
935,000
76% of
component
(10% of GEF
financing)
300,000
24% of
component
(0% of cofinancing)
1,235,000
1
3. Financing
Facilitation
Investment
Growth in
* EBRD finance to cover
energy
capital costs and
efficient public implementation expenses of the
buildings,
Tendering and Project Unit all
through
on the basis of debt service
establishment being fully offset by anticipated
of sustainable energy savings.
financing
* Dedicated financial
mechanisms mechanism with local capacity
to support the sale of
receivables (forfaiting).
4. Project
management
7,500,000
11% of
component
(81% of GEF
financing)
61,000,000
89% of
component
(97% of cofinancing)
68,500,000
350,000
28% of
component
(4% of GEF
financing)
900,000
72% of
component
(1% of cofinancing)
1,250,000
9,210,000
Total project
costs
62,700,000
71,910,000
* List the $ by project components. The percentage is the share of GEF and Co-financing respectively to the total amount for the component.
** TA = Technical Assistance; STA = Scientific & technical analysis.
B. INDICATIVE FINANCING PLAN SUMMARY FOR THE PROJECT ($)
Project
Preparation*
Project
GEF
215,000
9,210,000
Co-financing
200,000
415,000
62,700,000
71,910,000
Total
Agency Fee
Total
942,500
10,367,500
942,500
62,900,000
73,267,500
* Please include the previously approved PDFs and planned request for new PPG, if any. Indicate the amount already approved as
footnote here and if the GEF funding is from GEF-3.
C. INDICATIVE CO-FINANCING FOR THE PROJECT (including project preparation amount) BY SOURCE and
BY NAME (in parenthesis) if available, ($)
Sources of Co-financing
Project Government Contribution
EBRD
EBRD
EBRD (PPG)
Total co-financing
Type of Co-financing
Unknown at this stage
Loans
Unknown at this stage
In Kind
Amount
200,000
62,000,000
500,000
200,000
62,900,000
D. GEF RESOURCES REQUESTED BY FOCAL AREA(S), AGENCY (IES) SHARE AND COUNTRY(IES)*
N/A
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PART II: PROJECT JUSTIFICATION
A. STATE THE ISSUE, HOW THE PROJECT SEEKS TO ADDRESS IT, AND THE EXPECTED GLOBAL ENVIRONMENTAL
BENEFITS TO BE DELIVERED:
As the cost of electricity and gas rises, regional governments in Russia currently face steadily increasing energy bills for heating and
lighting public facilities such as schools, kindergartens, hospitals and roads. The problem is exacerbated because most buildings are
very inefficient. They lack control systems to regulate heat, their boilers are old and inefficient, and they are poorly insulated and
have cold and draughty windows. As well as costing a great deal to keep warm, these buildings are also uncomfortable and may be
impossible to keep at a reasonable temperature in cold weather. This is a particular problem for vulnerable groups such as the elderly,
sick or very young, all of which rely on public institutions to care for them. In other areas, the cost of energy is an increasing burden,
for example street lighting where older fixtures consume much more energy than modern systems.
The EBRD is prioritising projects that will improve energy efficiency and believes that there is great potential in the Russian public
sector. Investments in energy efficiency can be financed entirely on the basis of the saved energy, and capital costs can be recovered
in just a few years. After that, the municipality enjoys a permanent reduction in energy costs, and the population benefits from the
improved comfort in the renovated buildings. This affect can be dramatic: in kindergartens the EBRD is helping to finance in
Bulgaria, renovated buildings have been overwhelmed by parents wanting their children to move from the older buildings which are
draughty and cold, and energy bills have been reduced by around 40%. Other UNDP-GEF projects have demonstrated savings of at
least 30% in municipal buildings in Russia (UNDP-GEF: “Cost Effective Energy Efficiency Measures in the Russian Educational
Sector,” 2002-2006).
Specific measures that can be implemented include:
 Installation of building-level heat exchangers;
 Building control systems to regulate heat and lighting needs according to demand and ambient conditions;
 High quality double-glazing and building insulation to reduce thermal losses;
 Replacing or modernizing of autonomous heat boilers; and
 Up-grading lighting infrastructure - both in buildings and street lighting - with longer life energy efficient fixtures.
Despite the significant potential for savings and the relatively straightforward nature of technical solutions, the UNDP-GEF project
and bilateral technical assistance projects implemented in Russia over the past decade have all faced the following significant
challenges: lack of incentives for municipal authorities to take risks associated with investments in efficiency, the uncertainty of using
legal mechanisms for targeted savings projects, and the efforts required to set up such mechanisms. Legislative and policy changes in
the budgetary code and awareness raising have been identified as essential activities to overcome barriers. These barriers are now
being addressed, with legislation at the Federal level currently at an advanced stage of government approval which allows (and
clarifies) mechanisms for municipalities to establish Public-Private Partnerships, work through ESCOs and give municipal bodies the
right to retain and use savings from investments. While pilot projects to alter municipal finance and budgeting practices have been
successful and this has laid the foundations for the current policy and legislative changes, they have not replicated to the full extent
possible because of the underlying lack of affordable, longer-term finance for the large investments that can generate true benefits in
municipal infrastructure, energy efficiency, and greenhouse gas emission reductions. This project will capitalize on these new policy
and legislatives developments by addressing these other barriers.
In many local authorities, energy saving measures are being addressed gradually through on-going maintenance and capital
refurbishment programmes. However, these can take many years to complete. In addition, capital funds are usually limited, so
higher-cost measures such as boiler refurbishment or replacement are often postponed in favour of continued maintenance of old and
inefficient facilities, even though in the long run this practice is much more expensive. Moreover, local authorities usually do not
have the dedicated resources required to prepare and implement a comprehensive energy efficiency programme, so many
opportunities are often overlooked.
Through this GEF project the EBRD will offer comprehensive assistance to local authorities in order to identify and implement energy
saving opportunities including:
(i)
technical assistance to help conduct energy audits, identify the measures that need implementing and calculate the
benefits, prepare tender packages for modernisation programmes and monitor implementation; and
(ii)
financing to cover the investment needs based on the pay-back from saved energy - in this way financing should be at
least “budget neutral” with repayment being offset by the reduction in energy costs.
By combining technical assistance with financing, the EBRD aims to help local authorities overcome common obstacles to financing
energy efficiency improvements such as allocation of resources for energy audits and project preparation and managing larger scale
programmes which may need additional dedicated resources.
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This project would include:
 Technical assistance for project identification, conducting energy audits and identifying the required investments
 Establishing a Tendering and Project Unit within participating municipalities, supported by consultants funded by further
technical assistance or from proceeds of the loan, which would be responsible for tender preparation, tender awards and
project monitoring
 EBRD finance to cover capital costs and implementation expenses of the Tendering and Project Unit all on the basis of debt
service being fully offset by anticipated energy savings. Terms of finance would be determined based on the situation of
individual municipalities but priced according to market rates with tenor of 5 to 10 years including grace period covering
project implementation phase
 Establishment of a dedicated financial mechanism and local capacity for the sale of receivables (forfaiting) that transfers the
credit risk and asset to a third (financial) party for investments activities in the mid-term
Initially, the financing would involve direct municipal finance but the project would lay the ground for the establishment of a
financing vehicle to purchase receivables from engineering firms offering service or performance contracting for energy saving
projects in municipal buildings. This vehicle will become viable through the proposed GEF project that will establish the underlying
approaches and benefits and build capacities in the public sector for such an approach.
The forfaiting mechanism would enable local authorities to prepare and award Energy Performance Contracts (EPC) for up-grading
public buildings to improve energy efficiency and comfort levels. The key characteristics of the facility and support programme are as
follows:

The financing facility will be structured as a fund financed by an EBRD loan, commercial bank finance, GEF (and potentially
other) grant support, and possibly finance from the participating local authority(ies) (the Fund). The Fund will purchase EPC
contracts from engineering companies (i.e. ESCOs) once the construction work has been completed and the anticipated energy
savings have been confirmed. The ESCO will be required to finance the initial construction work but this will only require short
term funding which is generally available from local banks. Once the work is completed and the Fund has bought the EPC
contract it will be able to repay this finance or re-finance it in order to undertake new ESCO projects. The Fund will use the
receivable due under the EPC contract to repay its debt from the EBRD and other lenders.
The size of the Fund will depend on the extent of work to be undertaken in respect of the participating local authorities and the
level of financing available from the various sources. This will be determined during the PPG.

The EPC contract structure will be prepared by legal and commercial experts and working closely with local authorities and
engineering companies in Russia. Once the standard form has been developed this can be used, or adapted, for any ESCO activity
under the programme. By using a standardised contract all parties will be familiar with the terms and conditions and their
respective obligations, so the scope for disputes and misunderstandings will be greatly reduced.

The preparation of EPC tenders will be undertaken with the support of the tendering and project unit to help local authorities
undertake the preparation work and conduct of tenders. This assistance will involve initial scoping of building stock and
definition of requirements, initial energy audits to assess energy baselines and anticipated savings, preparation of tender
documents according to the standard EPC format, conduct and award of tenders and monitoring of contracted ESCOs during the
implementation of the EPC - both during construction and the life of the contract to ensure savings continue to be achieved.
The business process / steps are given in the diagram below:
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Project Preparation
including
* Preliminary research
* Assistance to client in
defining the project
Municipalities
* Public procurement process
(tender, proposals,
contracting)
Project Implementation
including
Investment Repayment
Stage
* Conducing energy audit
* Preparation of technical
designs of agreed measures
* Implementation
* Monitoring of results from EE
measures – regular checks
and annual savings estimates
Forfaiting Fund
* Purchase of receivables from
engineering company
* Outside valuation of the
contract
* Discounting the value of the
contract
* Sale of receivables to the
Forfaiting Fund
Private companies
* Direct negotiation (signing)
* Project performs: receive
payments from beneficiary
* Project under-performs:
compensation to beneficiaries
paid by engineering company
* Beneficiary doesn’t pay:
contract reverted to
engineering company
B. DESCRIBE THE CONSISTENCY OF THE PROJECT WITH NATIONAL PRIORITIES/PLANS:
The project is highly relevant to the major priorities of the 2003 Energy Strategy of the Russian Federation for the period up to 2010.
The significant potential for both energy and budgetary savings in public building energy efficiency (The Russian Federal, Regional,
and Local Governments spent approximately USD 10 billion on energy in 2005, with an estimated potential saving of 30-40%), means
that efficiency in this sector is important. This strategy includes:
 The reduction of specific costs for generation and use of energy resources be means of rational use, application of energy
saving technologies and equipment, losses reduction;
 The improvement of financial sustainability and efficiency of the use of a energy sector potential, increase of the labour
productivity.
 Maximally efficient use of natural fuel-energy resources and energy sector potential for economic growth and improvement
of the quality of living of citizens.
 Benchmarking of budgetary organisations
C. DESCRIBE THE CONSISTENCY OF THE PROJECT WITH GEF STRATEGIES AND STRATEGIC PROGRAMS:
This project has a clear fit with the GEF focal area strategy of energy efficient buildings, because it approaches the market for
municipal buildings at a point where the entire market can develop on a lower “carbon trajectory” than it would otherwise, avoiding
substantial emissions.
D. OUTLINE THE COORDINATION WITH OTHER RELATED INITIATIVES:
This project will build on initiatives by UNDP-GEF (Energy Efficiency in the Russian Education Sector) through which financing
from NEFCO (Norway) was facilitated for the establishment of energy efficiency centers in the Northwest region. NEFCO has
additional experience in concrete energy efficiency projects implemented mainly in the municipal sector. Co-ordination with the
USAID activities in Federal Energy Management (efficient federal energy buildings), regulations and institutional support to enhance
efficiency in budget-funded buildings including pilot projects.
In addition, the proposed project will serve as a component in the Umbrella Programme for Promoting Energy Efficient Technologies
and Practices in the Russian Buildings Sector. This project will use the Umbrella Programme to coordinate efforts, avoid duplication
of effort, and disseminate findings, best practice, and lessons learned.
EBRD is also submitting a project addressing the special needs of the housing sector - “Improving Urban Housing Efficiency in the
Russian Federation”. We are submitting two different but aligned projects because 1) the financing products to meet the needs of
clients are very different, with one requiring co-operation with the Federal Housing Fund, and the other using a forfeiting mechanism
to support performance contracting, 2) barriers to be addressed, and approaches to address them are different, and 3) the residential5
PIF Template, August 30, 2007
buildings project focuses on the Khanty-Mansi autonomous okrug and nearby regions whereas the public sector project has a wider
geographic scope.
Further co-ordination of the EBRD’s activities with those of others will be explored as part of the PPG activities.
E. DISCUSS THE VALUE-ADDED OF GEF INVOLVEMENT IN THE PROJECT DEMONSTRATED THROUGH INCREMENTAL
REASONING :
While there has been significant progress over the past 10 years in the development of building codes in Russia, the process of
implementing efficiency improvements in the public sector is slow. According to the codes, the required level for the year 2000 is
approximately equivalent to the level of requirements in countries such as Sweden and Canada. Both codes (federal and regional)
provided for a reduction of energy consumption of approximately 40%. At this point, energy consumption design methods and the
Energy Passport are introduced in Code of Practice (SP 23-101-2000 “Designing thermal performance of buildings”) at the Federal
level. Performance standards developed in the Model Standards were transferred to the new Building Codes “Buildings Thermal
Performance” (SNiP 23-02-2003) adopted in 2003. Building codes in Russia are legally binding documents for all entities, no matter
what their legal structure or ownership form, public or private status. Thus, while policies are largely in place, finance and institutional
barriers impede investments in energy saving in public buildings. These barriers will be addressed by this project.
F. INDICATE RISKS, INCLUDING CLIMATE CHANGE RISKS, THAT MIGHT PREVENT THE PROJECT OBJECTIVE(S) FROM
BEING ACHIEVED, AND IF POSSIBLE INCLUDING RISK MEASURES THAT WILL BE TAKEN:
Risk
Low government commitment
to energy efficiency
Poor performance of efficient
construction
designs/technologies
Financial risk
Implementation Risk
Mitigation approach
This is a low risk. The federal government has taken significant steps to provide a policy and
regulatory framework for buildings efficiency.
Low. Technologies to be used are available and proven. The barriers to market entry lie elsewhere.
This risk will be mitigated by conditionalities of the EBRD loan and a loan guarantee provided by
the regional government of the autonomous okrug. Exchange risk will be explored and a risk
management strategy prepared as part of the process of developing the full project.
EBRD has already conducted an extensive survey of lessons learned from its own municipal
infrastructure portfolio in Russia. The risk will be mitigated by close cooperation with in-country
partners in participating municipalities and with professional organizations in the areas of energy
efficiency and efficient buildings. A thorough stakeholder consultation process will be conducted
in the context of finalizing the scope of the project during the implementation of the PPG
G. DESCRIBE, IF POSSIBLE, THE EXPECTED COST-EFFECTIVENESS OF THE PROJECT:
Based on experience of investments from other similar investments of 72 million USD energy savings of 3500 GW per year could be
feasible with emission reductions of up to 800,000 tonnes CO 2eq per annum. Over a 15 year investment period this would translate into
12 million tonnes of CO2eq. Detailed estimations of cost effectiveness (and emission reductions per USD spent) will we determined
during PPG execution.
H. JUSTIFY THE COMPARATIVE ADVANTAGE OF GEF AGENCY:
The EBRD has a long-term experience in working with public bodies in Russia, and significant regional experience in Municipal
Finance and the Construction sector. EBRD has mainstreamed energy efficiency activities across all investment operations. Energy
efficiency is the cornerstone of the EBRD’s Sustainable Energy Initiative, launched in 2006. It aims to double EBRD investments in
sustainable energy to €1.5 billion in the period 2006-2008. Priorities in Russia include:
 Investing and promoting best practice in energy intensive sectors (steel, pulp and paper, cement, chemicals, etc.), particularly
through greater use of donor-funded energy audits, project implementation support and energy management training for
clients;
 Providing credit lines to local banks to on-lend for energy efficiency projects in SME and the public sector. The credit lines
are supported by free energy audits and other technical assistance for the borrowers. Developing other financing mechanisms
such as ESCOs;
 Supporting municipal improvements, particularly in district heating, public buildings and residential sector. EBRD provides
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PIF Template, August 30, 2007


financing for municipal companies, municipalities (city and regional budgets), private operators in the municipal sector,
including PPPs. EBRD provides donor-funded support for project preparation;
Supporting upgrades in the electricity and natural resources sectors (power generation, gas flaring reduction, etc.) and
promoting renewable energy projects;
Assisting EBRD clients in monetisation of greenhouse gas emission reductions arising from energy efficiency projects
financed by the Bank. This includes providing full-cycle project preparation support and organising carbon credit transactions
via the EBRD-EIB Multilateral Carbon Credit Fund.
PART III: APPROVAL/ENDORSEMENT BY GEF OPERATIONAL FOCAL POINT(S) AND GEF
AGENCY(IES)
A. RECORD OF ENDORSEMENT OF GEF OPERATIONAL FOCAL POINT (S) ON BEHALF OF THE GOVERNMENT(S):
(Please attach the country endorsement letter(s) or regional endorsement letter(s) with this template).
Igor I. Maydanov
GEF National Focal Point in Russia
Ministry of Natural Resources of the Russian
Federation
Date: 14 January, 2008
B. GEF AGENCY(IES) CERTIFICATION
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