ENERGY EFFICIENCY INVESTMENTS
Guide to investments in municipal energy efficiency
projects
TABLE OF CONTENTS
Introduction
Part One
ENERGY EFFICIENCY PROJECTS IN MUNICIPALITIES
Types of projects
Projects in buildings
Projects in street lighting systems
Projects in district heating systems
Business Plan
The borrower
Information about the project
Environmental benefits
Profitability of the measures and the project
Project costs
Project financing
Cash Flow analysis
Sensitivity and risk analysis
Layout and presentation of the Business Plan
Implementation of the projects
Bank crediting of the project
Selection of executing agency
Project management
Building and installation works
Supervision and testing
Commissioning into regular operation
Training of personnel
Part Two
MECHANISMS FOR FINANCING OF ENERGY EFFICIENCY PROJECTS
Incentive financial mechanisms
Market-based financing mechanisms
Financing through a bank loan
Financing through a bonds loan
Third party financing
Leasing purchases
Energy services companies (ESCOs)
Performance contracting
Shared savings contract
Contract for debt repayment from achieved savings
Contract for heating supply
Commercial credit
Financing through holding shares in the property
Financing by the power supply utility
Mechanisms based on trading in reduced carbon emissions
Financing by the World Bank Prototype Carbon Fund
Financing through JI projects
Use of concession contracts in energy efficiency projects
Joint ventures with the private sector
Selection of financing scheme
Part Three
ENERGY EFFICIENCY FUNDS AND PROGRAMMES
National funds
Enterprise for Management of Environmental Protection Activities
National Trust EcoFund
Fund for Decommissioning of Capacities at Kozloduy NPP
Programmes of the European Commission
ISPA Programme
SAPARD Programme
Programmes of The Netherlands’ Government
Programme for Economic Co-operation
Programme for Support of the Process of Social Transformation in the Countries of
Central and Eastern Europe
Environment for Europe Fund of the British Government
Programme of the Government of Japan
Export-Import Bank of the United States
REFERENCES
Foreword
This Guide to Investments has been worked out in the framework of the project
“Energy Efficiency Strategy to Mitigate GHG Emissions. Energy Efficiency
Demonstration Zone in the City of Gabrovo, Republic of Bulgaria”, financed by the
Global Environmental Facility through the United Nations Development
Programme. It is designated for decision-makers and experts from the municipal
administrations, who are responsible for the implementation of energy efficiency
programmes and projects
The information and recommendations published in this Guide are based on the
practice in Bulgarian municipalities and the experience of the developed countries.
The materials have been selected and processed by EnEffect.
Introduction
When deciding to implement a project it is important to select and combine the financial,
technical and organisational factors related to its implementation in a way that can ensure
least-cost on the required investments and can facilitate project implementation. Parallel to it,
however, when deciding on the application of a specific financing mechanism, it is important to
evaluate not only its specific characteristics but also our preparedness to make it work.
This Guide has been worked out in the framework of the project “Energy Efficiency Strategy to
Mitigate GHG Emissions. Energy Efficiency Demonstration Zone in the City of Gabrovo, Republic
of Bulgaria”, financed by the Global Environmental Facility through the United Nations
Development Programme. The objective of the Guide is to present in a synthesised manner the
major knowledge needed by the officers from municipal administrations and the management
bodies of municipal companies when making investment decisions. The Guide can be used in
the preparation of documentation for elaboration of business plans, in the evaluation of a given
investment project and for checking already developed business plans as regards their
completeness and the correctness of the assumptions and calculations
Energy efficiency projects depend on the interaction of a multitude of factors, among which the
technical possibility of achieving substantial energy savings is just one of the required
conditions. It has been found out, that in the majority of cases the selection of an appropriate
financing mechanism is a matter of key importance for the success of the projects. The
financing mechanisms and schemes, which are most frequently used in energy efficiency
projects, are presented in the Guide in terms of their advantages and limitations. Information is
provided also about local and international funds and programmes that grant financing for
feasibility studies, design and investment costs for projects in the field of energy efficiency
Part One
ENERGY EFFICIENCY PROJECTS IN
MUNICIPALITIES
This part deals with the main types of energy efficiency projects in Bulgarian
municipalities and presents some characteristic examples from the national
practice. The structure of a Business Plan and the requirements with respect to the
presentation of the information in it are illustrated. Review is made of the major
issues related to the organisation of project implementation
Types of projects
Energy efficiency projects in municipalities might be oriented towards reconstruction of the
energy systems in three main groups of sites – buildings, district heating and street lighting.
The reiterative nature of a number of measures and technical solutions in the projects in
buildings and street lighting systems provides an opportunity for their packaging (grouping) for
simultaneous implementation. This approach facilitates procurement of bank financing and
negotiation of better price levels for supply of materials and equipment for their
implementation
Awareness of which are the main types of energy efficiency projects in municipalities
permits to make relatively accurate presumptions about the volume of required
investments and the estimated savings to be achieved. Depending on the sites in
which they will be implemented, we distinguish the following most common types of
energy efficiency projects in municipalities:

Projects in municipal buildings: administrative buildings, schools, kindergartens, hospitals
and social care establishments;

Projects in street lighting systems;

Projects in district heating systems.
Projects in buildings
The most common types of measures envisaged in projects in municipal buildings comprise
measures on the in-house space heating and lighting systems and on the building envelope
(insulation and weather-stripping of doors and windows). Depending on the technical specifics
of the measures and the manner of operation of the buildings, the projects vary within broad
limits in respect to both the costs of the applied measures and the profitability of the projects.
In the process of elaboration of a given project it is recommended to select such measures,
whose combined action will produce sufficient amount of savings to ensure repayment of
investments within about five years. This recommendable limit has been determined by the
circumstance that long-term bank crediting in Bulgaria is generally lent for a payoff period not
longer than five years. In addition, it should be remembered that despite the long life cycle of
energy efficiency projects (10-15 years), the real revenue from them, measured through the
purchasing power parity (discounting of the project revenue), diminishes significantly with the
advance of the period of operation.
The requirements with respect to the comfort of habitation rank the first in the case of
implementation of energy efficiency projects in municipal buildings (schools and hospitals)
because of their specific public functions. The aim is that the measures envisaged in the
project should ensure corresponding to the modern standards parameters of lighting and
space heating and at the same time produce real energy savings. The implementation of this
task frequently stumbles upon the problem caused by the unsatisfactory hygiene parameters in
these buildings prior to project implementation, and respectively the low baseline of energy
consumption in them. The substance of the problem is that in practice part of the funds saved
as a result of energy savings is spent for upgrading of the hygiene-related indicators for heating
and lighting of the premises to their norm values and hence the direct economic effect from the
project is diminished.
Box 1
DEMONSTRATION PROJECT IN THE OTETZ PAISSIY SCHOOL IN GABROVO
The Otetz Paissiy School in Gabrovo (built in 1983) is attended by about 1000
pupils, studying in two shifts – from 7 a.m. till 7 p.m. The number of teaching and
auxiliary personnel is 120 people. The building, which consists of 7 sections, is
connected to Toplofikatsiya (District Heating) Gabrovo SPSCo. Heat is supplied via
three indirect substations, each of which is equipped with a heat meter, however
there are no instruments for automatic regulation and control of heat supply. Heat
supply is irregular and the indoor temperature in the premises is significantly lower
than the approved norm requirements. The window franmes in the school are
wooden, two-wing type. The design solution of artificial lighting comprises
luminaries with 2 fluorescent 89 W tubes each. More than 60% of the light sources
envisaged in the project design are not operating or are missing; the installed
plastic light dispersing units diminish the coefficient of efficiency of the luminaries
by more than 40%.
The normalised energy consumption1, which is used as the basis for determination
of the savings achieved from project implementation, is 1 698 MWh/year for heat
supplied by the TPP and 206 MWh/year for electricity. The project envisages
implementation of three packages of energy conservation measures: 1) repair and
restoration of windows (frames), weather-stripping and replacement of two of the
entrance doors to the building by new ones with thermal insulation; 2) automation
of the three indirect substations to ensure automatic control of heating and
optimum use of heat depending on the outdoor atmospheric conditions and the
occupants’ preferences; 3) replacement of the existing 543 fluorescent light
sources (2 x 80 W) by energy efficient ones (1 x 58 W). The investments for project
implementation are USD 46 700 and the annual savings – USD 15 210. The
Payback Period of the project is 2,7 years at 31% Internal Rate of Return.
It is recommended to combine the implementation of the energy efficiency measures in
buildings with the current repair works for maintenance purposes. In this way it is possible to
diminish the project costs, to facilitate the implementation of the building and installation
works and to rationalise the entire process.
Table 1 presents several energy efficiency projects in school buildings, developed in the
framework of the training programme for municipal experts. The applied energy efficiency
measures and the major technical and economic indicators of the projects are illustrated. For
1 Normalised consumption is energy consumption, which might be realised provided the installed capacity in the
building is used in a way which contributes to maintaining the mandatory norms for lighting and space heating of
the premises.
the sake of comparison the relative indicators “investment per 1m2 heated area” and
“investment per occupant” have been introduced. These indicators might be used also for
orientation and comparison in the case of determining the approximate volume of investment
requirements for other projects, although this should be resorted to with great care at full
awareness that this method is very inaccurate and conventional.
Table 1. Energy efficiency projects in municipal buildings – major technical and
economic indicators
Municipality
Gabrovo
Otetz Paissiy
School
Unit
Occupants
– pupils
and staff
Heated
area
(m2)
Payback Investment Investment
period
per
per heated
Investment Net savings
SPB
occupant
area
(BGN)
(BGN)
(years) BGN/capita BGN/m2
Total
Weather-stripping of
windows
Automation of three
substations
Fluorescent lamps
Water-saving shower
faucets
Reflector screen
1 120
8 754
109 308
38 084
2,9
97,60
12,49
1 120
8 754
70 090
25 684
2,7
62.58
8,01
1 120
1 120
8 754
8 754
11 298
27 200
7 994
3 900
1,4
7,0
10,09
24,29
1,29
3,11
1 120
1 120
8 754
8 754
120
600
266
240
0,5
2,5
0,11
0,54
0,01
0,07
Total
Storage heaters
Weather-stripping of
windows
False ceiling
Fluorescent lamps
177
133
1 295
1 295
28 150
2 500
9 095
7 123
3,1
0,4
159,04
18,80
21,74
1,93
133
133
133
1 295
1 295
1 295
2 500
16 000
7 150
13 727
34 706
3 351
0,2
0,5
2,1
18,80
120,30
53,76
1,93
12,36
5,52
Total
Fuel shift from
naphtha to propanebutane
Boiler replacement,
automation
Weather-stripping of
windows
Reflector screen
Thermostatic valves
693
4 776
77 814
59 563
1,3
112,29
16,29
600
4 776
34 200
39 970
0,9
57,00
7,16
600
4776
16 800
12 371
1,4
28,00
3,52
600
600
600
4776
4776
4776
17 064
2 250
7 500
6 014
653
1 856
2,8
3,4
4,0
28,44
3,75
12,50
3,57
0,47
1,57
Secondary School Total
Boiler replacement,
automation
Weather-stripping of
windows
Thermostatic valves
Fluorescent lamps
1 444
5 149,5
80 505
32 099
2,5
55,75
15,63
1 290
5 149,5
36 000
17 331
2,1
27,91
6,99
1 290
1 290
1 290
5 149,5
5 149,5
5 149,5
5 340
3 799
19 910
2 705
4 648
2 283
2,0
0,8
8,7
4,14
2,94
15,43
1,04
0,74
3,87
Bourgas
Otetz Paissiy
school for
handicapped
children
Omurtag
Academician D.
Yordanov Junior
High School
Yambol
V.Levski
Roof insulation
1 290
5 149,5
15 456
5 132
3,0
11,98
3,00
Total
Boiler replacement,
automation
Weather-stripping of
windows
Reflector screen
Thermostatic valves
1 178
5 097
124 638
24 081
5,2
105,80
24,45
1 178
5 097
26 500
10 003
2,6
22,50
5,20
1 178
1 178
1 178
5 097
5 097
5 097
33 528
2 400
14 400
10 738
678
2 662
3,1
3,5
5,4
28,46
2,04
12,22
6,58
0,47
2,83
Total
Boiler replacement,
automation
Weather-stripping of
windows
Thermostatic valves
1 500
6 834
47 810
23 620
2,0
31,87
7,00
1 500
6 834
28 500
14 300
2,0
19,00
4,17
1 500
1 500
6 834
6 834
14 750
4 560
6 730
2 590
2,2
1,8
9,83
3,04
2,16
0,67
Total
Weather-stripping of
windows
Reflector screen
Thermostatic valves
Automation of the
boiler
140
1 880
29 166
8 253
3,5
208,33
15,51
140
140
140
1 880
1 880
1 880
5 524
839
4 687
1 420
244
1 309
3,9
3,4
3,6
39,46
5,99
33,48
2,94
0,45
2,49
140
1 880
18 116
5 280
3,4
129,40
9,64
Total
Automation of the
substation
Weather-stripping of
windows
Thermostatic valves
Fluorescent lamps
146
1 645
14 388
4 018
3,6
98,55
8,75
146
1 645
2 500
1 184
2,1
17,12
1,52
146
146
146
1645
1645
1645
4 992
2 726
4 170
1 284
652
898
3,9
4,2
4,6
34,19
18,67
28,56
3,03
1,66
2,53
144
795
10 640
3 088
3,4
73,89
13,38
144
795
2 600
551
4,7
18,06
3,27
144
795
1 800
1 240
1,5
12,50
2,26
144
795
6 240
1 297
4,8
43,33
7,85
Karlovo
Hristo Prodanov
School
Kazanlak
Antim I School
Kindergartens
Varna
Mecho Puh
Kindergarten
Sliven
Papazian
Kindergarten
Dobrich
Kindergarten No.
10
Total
Weather-stripping of
windows
Domestic hot water
preheating by a
boiler
Automation of a gasfired boiler 120 kW
Projects in street lighting systems
Energy efficiency projects in street lighting systems rank a priority for local authorities, since in
the majority of Bulgarian cities these systems are in a poor technical state, while the costs for
their electricity consumption are quite high – both because of the low efficiency of the systems
and because of the increase of energy prices as a consequence of their liberalisation. An evergrowing number of municipalities invest in renewal of their street lighting systems despite the
controversial regulatory framework concerning ownership on street lighting. The motivation is
most commonly related to improvement of the quality of this public service, however at the
same time the projects for reconstruction of street lighting systems feature also excellent
economic indicators. Thanks to the savings of electricity (and electricity bills), the projects are
paid back within a period of 2-3 years, while at the same time significantly higher indicators for
lighting quality level are achieved. The technical solution is often related to the application of a
set of measures, comprising replacement of the existing high-pressure mercury incandescent
lamps by more efficient high-pressure sodium lamps and introduction of a centralised system
for lighting control, which eliminates untimely or erroneous switching on of street lighting.
Irrespective of the existing special price rate for electricity for street lighting, the costs could be
reduced further through the application of multi-rate (two- and three-rate) metering of
electricity consumption. Its introduction wherever it is non-existent is an important measure for
improvement of the economic parameters of the projects.
Box 2
RECONSTRUCTION OF THE STREET LIGHTING IN GABROVO
The project was realised as a demonstration project – its objective was along with
the improvement of the energy efficiency of the street lighting system in Gabrovo to
test in practice certain technical schemes and financing mechanisms and their
applicability in operations for renewal of street lighting. The technical solution
envisaged the application of the following measures: replacement of the existing
high-pressure mercury incandescent lamps by energy efficient high-pressure
sodium lamps and fluorescent lamps (respectively, replacement of the luminaires
and re-design of the upper carrying portion of the lighting columns – the fork
pieces); installation of a modern centralised system for control of street lighting
switching ON and OFF at night and semi-night duty along the city main roads and
arteries. A total of BGN 1 073 386 was invested for the full implementation of the
project. Annual electricity savings to the amount of 5 729 MWh were achieved as a
result of the application of the energy efficiency measures. The annual cost savings
amount to about BGN 619 056. The Payback Period of the project is 1,7 years at
38% Internal Rate of Return.
According to the legislation in force till 2003 the street lighting systems were owned by the
electricity distribution companies. The maintenance and repair costs were paid from the
budget of these companies (“Annual repair activities” Item), while the costs for electricity
consumed were paid from the budget of the municipalities.
With the approval of the new Energy Act (SG Vol. 107/9 December 2003) municipalities have
already become owners of the facilities for outdoor artificial lighting of streets, public squares,
parks, gardens and other real estates, which have the status of public municipal property.
According to the dispositions of the law within two years of its enforcement the ownership
rights on all facilities for outdoor artificial public lighting in population centres, which are
presently included in the material assets of energy enterprises, should be transferred free-ofcharge to the municipalities. On the other hand, the Energy Efficiency Act (SG Vol. 18/ 5 March
2004) obliges the mayors to ensure construction, operation, maintenance and development of
the networks and facilities for outdoor public lighting on the area of the municipalities for real
estates, which are public municipal property. The funding for these activities (after the transfer
onto municipalities of the ownership rights on street lighting systems) should be provided by
the municipal budgets.
Projects in district heating systems
Under the conditions prevailing in Bulgaria the involvement of municipalities in the
management and development of the systems for centralised district heating in population
centres will be necessary and useful for the future development of this public service. What is
more, the urgent realisation of this involvement is of vital importance for the very existence of
the district heating systems. The strategy for development of district heating during the period
2000 – 2005 (approved by virtue of Decision No. 582 of 23 August 2000 of the Council of
Ministers) envisages "negotiation of the mode of sharing the financial burden with the
municipalities in the cities, in which district heating companies were in operation in 2001" as
an important element of the indispensable restructuring. The strategy takes account also of the
recommendations of the World Bank "to launch a procedure on privatisation and/or transfer
onto municipalities of the ownership rights on district heating systems, for which state support
has been suspended prior to 2004". Despite the provisions of these documents and although
from a historical point of view municipalities have made significant investments in the
development of the district heating networks in the population centres, all district heating
companies, with the exception of Toplofikatsiya (District Heating) Sofia, continue to be fully
state-owned.
The implemented demonstration project for energy efficiency rehabilitation of the district
heating system in Gabrovo has demonstrated that although the restructuring of ownership has
not been completed, the local authority and the district heating company can cooperate and
coordinate their efforts for upgrading of the district heating system within the framework of
their respective power of authority as owners of different elements of the system.
Box 3
RECONSTRUCTION OF TOPLOFIKATSIYA-GABROVO
The project for reconstruction of Toplofikatsiya (District Heating) Gabrovo consists
of three investment packages: "Buildings", "Substations" and "Heat
Transportation Network".
The investment package "Buildings" envisages installation of heat allocators and
thermostatic radiator valves (TRVs) and introduction of the "Heat Accounting"
service. The implementation of this portion of the project was assisted by the target
credit line to the amount of about USD 120 thousand, allocated by the World Bank
to Toplofikatsiya-Gabrovo for the supply of 204 heat meters and 3 terminals for
automatic collection of the readings of the heat meters. Toplofikatsiya-Gabrovo
SPSCo provided its subscribers the opportunity to purchase TRVs of Bulgarian
make and from import at preferential prices. At the proposal of EnEffect a targeted
incentive scheme was applied, which allowed any subscriber, who had purchased
at least one TRV from the district heating company to obtain free-of-charge one
more, including installation. By May 2003 a total of 9 021 TRVs were installed,
which makes about 40% of the required quantity.
In the framework of the second package 9 existing direct substations were
replaced by new indirect units, and 12 of the existing indirect substations were
reconstructed.
In the framework of the investment package "Heat Transportation Networks"
Toplofikatsiya-Gabrovo invested in and implemented the most urgent works
related to improvement of the network performance.
For implementation of the full set of measures envisaged by the project it was
relied mainly on funding allocated by Toplofikatsiya-Gabrovo, the owner of the
system. The investments amounted to a total of USD 431 900 and the annual cost
savings amounted to USD 370 543. The Payback Period is 1,2 years at 86%
Internal Rate of Return.
As a result of project implementation, realised thanks to the joint efforts of ToplofikatsiyaGabrovo, which performed the necessary investments in measures on the heat transportation
network, and of the local authority, which applied the measures for energy efficiency
improvement in buildings, the performance quality level and the efficiency of the district
heating system as a whole had been significantly improved.
The energy efficiency projects in district heating companies will help put a stop to the ebb of
consumers from the residential and industrial sectors, as well as to the resultant increase of
indirect costs in the price per unit of generated energy. This development would contribute to
the stabilisation of the prices of heat and to making the centralised district heating service
affordable for all end-users.
Business Plan
The aim of the Business Plan is to present the project in a systematised manner, to
demonstrate what we shall gain if we make the proposed investment, what additional financing
will be needed and what are the probable risks related to project implementation. The Business
Plan should convince the financing institution that the project is profitable, that there is
available organisational and financial preparedness for its implementation and that it is
feasible to allocate the requested financing. For this reason the Business Plan is developed and
presented in a format, which can attract the interest of the financing institutions.
The majority of the information needed for the compilation of the Business Plan is provided by
the worked out feasibility study. It comprises preliminary technical and economic analysis, risk
analysis and analysis of the environmental impact of the project. The volume and structure of
the Business Plan depend on the scope and characteristics of the concrete project. There are,
however, several major sections, which are permanently present in every business plan.
The Business Plan begins with a brief summary (2-3 pages maximum), which is often called
Executive Summary. It gives and idea about the contents of the entire Business Plan, the main
technical and economic indicators of the project and the available and required funding. The
substantial part of the Business Plan contains several standard sections.
The Borrower
In the event of municipal energy efficiency projects the borrower may be the municipality itself
or some of its companies, registered under the Law on Commerce. Depending on the concrete
case, the following information will be needed:
Table 2. Information about the borrower
Information
Title of the legal entity applying for bank financing
Contact person, authorised to act on behalf of the borrower. It should be indicated
on the front page of the Business Plan and in the Letter of Application to the bank
Official headquarters of the borrower (mailing address and address of the head
office, telephone, fax and e-mail address)
Municipality
Company
Х
Х
Х
Х
Х
Х
Court registration and legal status
Х
Brief description of the borrower’s background
Х
Objectives, tasks, field of activity and strategy for development of the borrower
Х
Organisational structure and management (usually presented by an organisational
flowchart )
Х
Х
Main activities and market presence, major customers and suppliers
Х
Equity stock and major stockholders – is the capital been fully paid, who are the
major owners (names / addresses) and what other business they have
Х
Management – CV data and information about the qualification level of the top
management, number and qualification profile of the employees
Х
Relationships with banks – list of all banks (local and foreign), with which the
borrower has some kind of relations
Х
Х
Balance of accounts for the three preceding years – usually presented as an annex
Х
Х
Information about the project
The filling in of this section is effected on the basis of the results from the performed energy
audit or feasibility study. The information describes the state of the site prior to project start
and the existing problems of energy consumption. Brief description is given of the technical
solutions envisaged by the project and the main technical and economic data about the site are
provided – current and estimated upon implementation of the reconstruction. Information is
provided also about the technical / economic life cycle of the project and the costs related to
the operation and maintenance of the new equipment and the training of the personnel on how
to operate them.
Environmental benefits
Many of the national and international financial institutions require description of the
environmental consequences from the project and a clear justification of its compliance with
the enforced standards and regulations. When financing is sought from environmental funds or
through some of the Kyoto flexible mechanisms it is necessary to provide a more detailed
environmental information, complying with the substantial and formal requirements of the
concrete financing institutions. This information covers the following components:

environmental characteristics of the project at the given point of time;

measures for reduction of the environmental impact;

reduction of emissions – local, regional and global impact;

impact on the environment and human health;

compliance with the environmental regulations.
In addition to the environmental impact of the different measures it is necessary to indicate
also the impact on the indoor climate in the premises. If the implementation of the project
would lead to monetary savings as a result of reduced or avoided environmental charges, these
savings should be included in the calculations about the total profitability of the project. The
different financing institutions have their own requirements, as well as specific procedures for
description and evaluation of the environmental characteristics of the projects.
Table 3. Reduction of emissions
Energy conservation measures
Emission
reductions
CO2
SO2
NOx
CO
VOS
Dust
Reduction total
Profitability of the measures and the project
The profitability of an energy efficiency project is determined by the reduced energy
consumption, the degree of use of natural resources, the reduced environmental charges and
the increase of the revenue (for instance from the sales of energy, finished products, etc.). The
profitability of a project shows whether it is feasible to invest in its implementation.
The following indicators are used to define profitability:

investments total;

net savings;

economic life cycle of the project.
On this basis the following derivative indicators are calculated:

Payback Period;

Net Present Value;

Net Present Value Quotient;

Internal Rate of Return.
When determining the Net Present Value, the Net Present Value Quotient and the Internal Rate
of Return it is necessary to introduce also indicators, which characterise the macro-economic
parameters of the economic environment in the country – the annual inflation rate and the
nominal and real interest rate of trade banks on investment loans.
Table 4. Major indicators for performing a technical and economic analysis of the
measures and projects
Indicator
Common
symbol
Unit
Project-related investment
costs
I0
BGN
Sources of information
Data from performed energy audit
EUR
USD
Current operation and
maintenance costs
O&M
BGN
Data from performed energy audit
EUR
USD
Annual savings in material
expression
S
MWh
Gcal
TOE
Data from performed energy audit
Prices of energy carriers for
the duration of the project
Annual net savings in
monetary expression
Е
В
BGN
Ministry of Energy and Energy Resources
EUR
State Energy Regulation Commission
USD
World Bank studies
BGN
Calculations on the basis of the annual savings
in material expression, the prices of energy
carriers and the current maintenance costs
EUR
USD
Technical/economic life
cycle of the
measures/project
N
Interest rate
nr
years
Passport data of the manufacturer
Market studies for an average operating period
and renewal of production output
%
Bulgarian National Bank
Trade banks
Annual inflation
B
%
Law on the State Budget for the current year
Bulgarian National Bank
The World Bank
The data is quoted in the national currency if the project financing will be provided by local
sources and in convertible currency if the Business Plan will be submitted to international
financing institutions. In the latter case the exchange rate of the national currency at the point
of development of the Business Plan should be quoted. The profitability of the project is
summarised in Table 5.
Table 5. Profitability
Profitability parameters
Investments total
BGN.
Net savings
BGN/year
Payback period
years
Net Present Value
BGN
Net Present Value Quotient
Internal Rate of Return
Assumptions:
%
Economic life cycle
Real interest rate
= years
=%
Box 4
CALCULATION METHODS
for determination of the profitability of the measures and projects
Real interest rate – (r) represents the nominal interest rate, corrected (diminished)
by the impact of inflation (b). The following formula is used for more accurate
calculation of the real interest rate:
nr - b
r = 
1+b
The discount factor (DF) is used to align the future revenue to the purchasing power
of money at the current point of time. Discounting is a mathematical action,
reciprocal to the increase of money deposits at a constant interest rate.
DF = (1 + r)-n
The Payback Period (PB) is the best known and simplified manner of assessment of
profitability. It assumes that the amount of savings will be equal during the years of
project operation or will have insignificant deviations. It can be easily calculated
under the formula:
I0
PB = 
B
I0 - capital expenditure (investments during the Zero-year)
B - net annual savings
The Net Present Value (NPV) shows what amount will be left over after deduction of
the amount of discounted net savings (the Net Cash Flow) for the period of project
duration the initial investment made during the “Zero-year”. If the result is a
positive value the project is profitable and it is worth implementing it. The higher
the Net Present Value, the more profitable the project.
NPV = B1/(1 + r)1 + B2/(1 + r)2 + ……. Bn-1/(1 + r)n-1 +Bn/(1 + r)n - I0
Bn - net savings during the n-year
r
- real interest rate
n - economic life cycle in years
I0 - investment during the Zero-year
This is the formula under which, for instance, a function in Excel operates
In the event of equal annual savings the following formula can be used:
NPV = B .
1  ( 1 + r ) n
 I0
r
The Net Present Value Quotient (NPVQ) is the ratio between the Net Present Value
and the total amount of investments. In its essence the quotient shows what Net
Present Value is achieved by the project per BGN 1 investments. Since the Net
Present Value is always a positive value (the same as the investment amount for
the project), the NPVQ is always greater than 0.
NPV
NPVQ = 
Iо
The Internal Rate of Return (IRR) is the discount rate at which NPV = 0 for the
period of the economic life cycle of the project. In other words, IRR is the discount
rate at which the discounted net revenue from the project is equal to the initial
investment.
NPV = B .
1  ( 1 + r ) n
 I0 = 0
r
IRR is determined through iterations on the basis of changes in the discount rate. It
can be defined also in a graphical manner by using annuity coefficients or through
function in Excel.
The Business Plan takes into account all savings resulting from the project by means of a
format similar to that illustrated in Table 6.
Table 6. Annual net savings
Components of savings
Fuels (naphtha/coal)
Electricity
Raw materials
Environmental charges
Operation and maintenance
Miscellaneous
Net savings total
Savings (BGN/year)
When determining the net savings it is necessary to indicate the unit prices, used in the
calculations of the savings:
Fuels
= BGN yyy/t
Electricity
= BGN 0,хх//kWh
Environmental charges
= BGN ххх/unit
Raw materials
= BGN ххх/t
USD 1
= BGN zzz
It would be appropriate to use a more detailed comparative table about energy consumption
data – current and estimated after implementation of the measures/project. The net savings
achieved as a result of the project are determined as the difference between the consumption
of energy and materials, maintenance and other costs prior to and after project implementation
(Table 7).
Table 7. Annual net savings (quantities in kWh, tons etc.)
Unit
Current state
quantity
Fuels (naphtha,
coal)
Electricity
Raw materials
Environmental
charges
Operation /
maintenance
BGN/t
After application of the new
measure
quantity
BGN/t
Net savings
quantity
BGN/t
etc.
Net savings total
Project costs
The Business Plan contains detailed description and breakdown of costs. This is necessary in
order to make it possible for the financing institutions and potential investors to get a clear idea
about the distribution of the costs by types of activities and time schedule. The budget of the
project should include also a reserve for unforeseen and inappropriate costs. Training,
commissioning into regular operation, import duties and the guaranteed energy savings might
contribute to a considerable extent to the increase of the amount of total project costs and
therefore should not be omitted. If purchase of equipment in foreign currency is envisaged,
provisions should be made for exchange rate fluctuations of the local currency as a separate line
in the budget. The costs should be distributed also in terms of effected actual payments, as
demonstrated in Table 8.
Table 8. Model schedule of investments
Month and year
Activity
01
Design and
planning
Project
management
200
02
03
800
70
200
200
Tenders and
contracts with
subcontractors
04
05
06
07
08
200
200
200
170
200
200
200
Control and
commissioning
Documentation
Training and
other costs,
taxes, V.A.T., etc.
270
12
200
Total BGN
thousands.
400
370
1 800
18
000
36 000
750
750
100
1 000
11
370
18
000
200
1
0
870
Components and
installation works
Total
09
18
300
200
200
70
170
300
330
630
19
250
400
40 590
Project financing
The financing plan should inform the financing institution about the available equity assets, the
volume of required financing, the already procured sources of financing and the preferred
financing scheme.
Table 9. Required financing
Item
BGN
Project costs total / investments
500 000
Available funding:
Equity assets of the borrower (in cash or in kind)
Investors
Donation
Available assets total:
290 000
0
0
290 000
Required funding:
Local bank
International bank
Miscellaneous
Required funding total
210 000
0
0
210 000
Almost all banks put forward requirements about minimum contribution of the project owner.
Under the conditions prevailing in Bulgaria the owner’s contribution should normally be not less
than 30%. Table 10 gives an example about the scheme of project financing.
Table 10. Financing scheme
Type of financing
Funding
(BGN)
Interest
(%)
Period
(years)
Share
(%)
Financing through delivery
debt
Loan
210 000 *
10.0
3
42
Equity assets
290 000 *
58
500 000
100
Donation
Environmental funds
Miscellaneous
Investments total
Cash Flow Analysis
The Cash Flow analysis should cover a reasonable period of time, for instance the economic life
cycle of the investment. It may affect all activities of the municipality/company or only the cash
flow of a specific project. In any individual case the approach depends on the requirements of
the bank, i.e. its desire to assess the municipality/company as a whole or only the project.
To allow the bank to understand how the individual values in the Business Plan have been
defined, it is necessary to indicate all the assumptions on the basis of which the Cash Flow has
been calculated:

the prices of all types of energy saved;

the interest levels of the banks;

the inflation rate;

the prices of equipment;
Depreciation is most often neglected in the process of assessment of the Cash Flow of a
concrete project. In defining the Cash Flow of the company depreciation should be taken into
account in determining the revenue subject to taxation. An investment might lead to
diminishing of the corporate tax, since the paid interest on the loan is deducted from the
revenue for taxation. On the other hand, a profitable investment might increase the rate of profit
and in this way lead to increase of the tax. In working out of the forecasts usually versions with
and without incorporation of the project in the company Cash Flow are requested.
An example about the Cash Flows is presented in Table 11. It illustrates in a simplified form
also the debt servicing in the framework of three years at an annual payoff installment, which
comprises one third of the loan principal and the accumulated interests on the non-paid
portion of the principal for one year at 10% interest rate.
Table 11. Project Cash Flow analysis (in BGN thousands)
Project Cash Flows
0
Net savings
0
Investments
500
Financing:
Loan
Donation
1
2
3
4
5
6
7
8
9
10
150
150
150
150
150
150
150
150
150
150
(91)
(84)
(77)
210
Debt servicing costs
Net Cash Flow
(290)
59
66
73
150
150
150
150
150
150
150
Cumulative Cash
Flow
(290)
(231)
(165)
(92)
242
362
512
662
812
1 112
1 262
Note: For preventing errors negative figures are put in brackets.
If the net savings are expected to increase in conformity with the general inflation rate, there
are grounds to increase their value by the respective percentage for the years covered by the
forecast. In order to determine the present value of the Cash Flow the Net Cash Flow for the
respective year should be discounted by the discounting factor, equal to the real interest rate
and then to recalculate the cumulative Cash Flow.
Risk and sensitivity analysis
It is possible than certain external factors (externalities) might have a negative effect on the
envisaged project costs or the resultant savings, which in turn will reflect on the overall results
from the project. The bank will expect the borrower (the municipality or the municipal company)
to make in the submitted Business Plan an analysis of these risks, the probability of their
emergence and the manner in which it is possible for overcome them or to minimise their
impact on the project. The main risks to be taken into consideration are as follows:

the borrower as a risk factor;

risk of failure to complete the project;

technological risk;

risk related to deliveries;

risk related to the operation;

risk related to obtaining the required endorsements / permits, to the regulatory framework
and environmental risks;

risk related to market penetration and sales.
The risk related to the “sale” of the created product is non-existent in the case of energy
efficiency projects, since in practice the projects aim at reducing production costs. In addition
to the project-related risks, it is necessary to consider also the sensitivity of the financial result
to changes in the parameters of savings or costs. The Cash Flow sensitivity analysis is very
useful for detecting those parameters, whose changes will have the strongest effect on the
project results. Mind, however, not to review all the factors in their pessimistic version, since in
this case even the best project will appear to be a failure. You may select only a few of the most
important parameters of the project and change one or two of them simultaneously. An
example of some parameters that might be used for the sensitivity analysis is given in Table 12
below.
Table 12. Assumptions in the sensitivity analysis
Parameter
Pessimistic
Realistic
Optimistic
Fuel savings
- 25%
0
+ 25 %
Raw materials savings
- 25%
0
+ 25 %
Maintenance costs
+ 33%
0
- 33 %
Debt servicing costs
+5%
0
-5%
Investment volume
+10 %
0
- 10 %
Layout and presentation of the Business Plan
The systematic presentation of the information in the Business Plan is of decisive importance
for convincing the financing institution to grant you the solicited funding for implementation of
the project. The Business Plan serves as a document for establishing the contact and it is
important that the municipality or the municipal company is fully aware of the fact that they
would not have a second chance to create a good impression in the financing institution. Of
course, a good Business Plan would hardly convince the bank to finance a bad project. In any
case, however, the Business Plan should be reasonable in terms of contents and should be
developed in the proper format as required by the bank. Make sure that the document is not too
long. Incorporation of additional information about the project should be done in the annexes
to the Business Plan.
The title page is the one that provides for the first impression. Therefore, special attention
should be paid to its graphic design (it would be good to provide there a photo, presenting the
borrower – for instance the building of the local administration). In the table of contents of the
Business Plan all its sections, including the annexes, should be listed. It is particularly
important to think over and work out with specific care the introductory description of the
project – it should be brief, however containing sufficient information about the substance of
the project, the economic parameters of the submitted Business Plan and the required
financing. This brief presentation will be the visiting card of the entire document.
The submission of the Business Plan to the financing institution should be accompanied by a
specifically elaborated presentation, in the course of which the major project data and the
required funding will be highlighted. A successful recommended approach is that the person,
nominated by the borrower to be the contact person for the future contacts with the bank
makes the presentation of the Business Plan. His / her good knowledge of the peculiarities of
the project might convince the financing institution in the serious intentions for partnership.
Implementation of the projects
Implementation is the most responsible phase of the project, which requires perfect
preparatory work, since the achievement of the financial and organisational projections, laid
down in the Business Plan, depends on it. The implementation should start only when all the
necessary building permits have been obtained, all the contracts with the subcontractors have
been signed and the management of the project has been ensured.
Bank crediting of the project
The first bank transaction of funds required for implementation of the project could be effected
after all preliminary conditions have been fulfilled, i.e. when all projects have been approved
and the necessary building permits have been obtained. The deadline for remittance of the loan
amounts is tied up to the deadline for implementation of the building and installation works. It
should be remembered that:

Interest is paid usually on the debited amounts, most commonly on a monthly, quarterly or
6 months basis at a floating interest rate.

The bank usually charges a debt charge on the non-debited amounts.

The final transfer of the loan amounts, if it is remitted in tranches, usually coincides with
the completion of the building works and the end of the test period;

The debt payoff period also has its specific peculiarities, for instance:

-
the loan payoff begins at the point of full transfer of the loan amount;
-
the maturity of the first installment and the deadline of payoff are specified in the
course of the negotiations with the bank and are reflected in the contract for allocation
of the loan;
-
the repayment of the loan usually cannot be accelerated; the bank can, however, agree
to pre-term payoff under the condition that it will get paid the respective due interest,
i.e. that it shall obtain full market indemnification.
Failure to pay a given installment or interest (without the prior agreement on the part of the
bank) might lead to a request for immediate full repayment of the loan, including the due
interest; the default party is the borrower.
Selection of contractor for implementation of the project
The implementation of the project is the responsibility of the owner of the site – he is obliged to
ensure the overall financing of the project and obtaining of the required permits. He / she is
actively involved in the initial phase and is entirely responsible for the decisions made by
him/her.
Most often the full implementation of the project is assigned to a contractor. For energy
efficiency projects, in which the municipality is the investor, the selection of project contractor
should obligatory be performed through a tender in compliance with the requirements of the
Law on Public Procurement.
It is important that the contractor achieves clear agreement with the subcontractors with
respect to:

the implementation schedule and plans;

the quality standards and control procedures;

consideration for the functions and current activities of the site, as well as its users and
neighbours;

ensuring cleanliness of the site and collection of the waste;

guaranteeing high-quality workmanship – performance of technical and economic control
in compliance with the plans.
Project management
There are different methods for management of the projects and systems for guaranteeing the
quality, which permit to exercise control on the set deadlines and costs. To this end different
forms and schedules are composed (manually or by computer), whereat every project should
contain at least the following:

organisational flowchart of the project;

schedule with intermediate control deadlines for the entire implementation period;

accounting system of the project;

procedures for resolution of disputes under the contract;

drawings and technical specifications related to the project.
A model schedule of project implementation is illustrated in Table 13.
Table 13. Model implementation schedule
Activity
Month
I
Design and
planning
Project
management
Components
Installation
Training
Etc.
II
III
IV
V
VI
VII
VIII
IХ
Х
ХI
ХII
Building and installation works
Building and installation works, which take a long of time, might lead to conflict with the
normal functioning of the site. Therefore, it is particularly important to carefully break down
implementation into separate phases, aligned to the climatic seasons and the natural cycle of
operation of the site.
Control and tests
The project leader and the project team control the quality of input materials and the
implementation of the individual operations and details during the entire period of installation
works and monitor their compliance with the project and the specifications related to it. The
individual components are subject to preliminary testing in the course of their installation and
connection to the mains, water supply and sewerage, the space heating system, etc. The
protocols of the meetings with the utilities on matters related to the project, including the
respective conclusions, agreements reached and set implementation deadlines on every
agenda item serve as memo-notes and represent part of the project documentation.
Commissioning into regular operation
The procedure for commissioning into regular operation should correspond to the specific
legislative requirements and should be described clearly and in ample detail in the contracts
with the subcontractors. The costs to be covered by each of the parties are specified in the
project budget. Any detected deviations from the agreed performance characteristics should be
reflected in the commissioning and acceptance protocol and deadlines should be set for their
repair.
Training of personnel
The training of the personnel, who will be responsible for the operation and maintenance of the
new equipment, shall begin as early as during the building and installation works. In this way
the staff is given an opportunity to get on-the-spot full information about the components and
systems from the suppliers and the installation team.
Part Two
MECHANISMS FOR FINANCING ENERGY
EFFICIENCY PROJECTS
Financial mechanisms have the important task to facilitate the implementation of
energy efficiency projects and to provide the necessary investment assets. They
help achieve higher flexibility and better adaptation to the individual financial
profile of the project owner.
Incentive financial mechanisms
The incentive financial mechanisms are those, which under specific conditions can make
investment funding available at a price below the market one. In the majority of cases their
application means that the cost savings achieved through project implementation remain for
the account of the budget or the financing public fund.
There are different types of incentive financial mechanisms, depending on the tools used –
direct subsidising of investment costs; exemption of projects from inherent costs, such as
interests, customs duties, etc.; provisions for higher revenue from the projects through
purchasing contracts for products or energy at higher preferential prices or through long-term
purchasing contracts, which help eliminate the possible negative impact of the market on the
project.
Incentive financial mechanisms are applied also by a number of international donor
programmes or by virtue of intergovernmental agreements. In the circumstances in Bulgaria an
example for that is the National Trust EcoFund, which finances environmental projects and
energy efficiency projects by allocating grants or loans at subsidised interest rate. The capital
for this fund was collected from a “Debt-against-nature” swap deal between Bulgaria and
Switzerland for investments in environmental protection.
Box 5
NATIONAL TRUST ECOFUND
The National Trust EcoFund is a legal entity set up in compliance with the
agreement between the governments of Bulgaria and Switzerland in 1995 for a
“Debt-against-nature” swap deal. The Fund finances environmental projects,
energy efficiency projects and projects for the use of renewable energy sources,
contributing to reduction of pollution and harmful emissions. It requires working
project documentation and equity participation with applicant’s own funds and/or
means attracted from other sources. The Fund lends:
- up to 30% of the total project costs if the financing is in the form of a grant;
- up to 50% of the total project costs if the financing is in the form of a loan.
Another kind of incentive mechanism for energy efficiency projects in Bulgaria is applied by the
US Agency for International Development (USAID) through its Development Credit Authority
Programme (DCA). USAID makes available to the United Bulgarian Bank (UBB) 50% guarantee
on loans lent by it for energy efficiency projects, thus minimising the credit risk for the bank and
stimulating its preparedness to grant financing for energy efficiency projects. The advantage for
the customer of the bank is that his/her chances to obtain credit for his/her project, although
the terms and conditions of the credit would not be different from the normal bank practices.
Box 6
DEVELOPMENT CREDIT AUTHORITY (DCA)
In the framework of the project “Municipal Energy Efficiency Initiative” USAID
signed at the end of 1999 a contract with the United Bulgarian Bank (UBB) for
extension of credit guarantee (Development Credit Authority) to the amount of 50%
of the unpaid portion of the principal for loans for energy efficiency projects, lent by
the bank to municipalities and private industrial enterprises. Within a period of
less than 2 years this contract has permitted more than 15 municipal energy
efficiency projects to obtain bank financing at relatively favorable terms.
A typical example of an incentive financial mechanism applied by the state is the targeted
financing of energy efficiency projects provided by the Enterprise for Management of
Environmental Protection Activities (the former National Environmental Protection Fund) with
the Ministry of Environment and Waters. This financing is effected in the form of low-interest
loans and subsidies from a specifically set up fund, which is accumulated from the revenue
collected under the provisions of the Environmental Protection Act and allocations from the
state budget.
Box 7
ENTERPRISE FOR MANAGEMENT OF ENVIRONMENTAL PROTECTION ACTIVITIES
The Enterprise for Management of Environmental Protection Activities (the former
National Environmental Protection Fund) was set up in 1992 on the grounds of the
provision of the Environmental Protection Act. It finances environmental projects
by means of grants and preferential loans.
It grants funding for curing of environmental damages inflicted due to
calamities and emergencies;
-
It lend loans at an interest rate from 10% to 50% of the basic interest rate of
the Bulgarian National Bank for environmental sites and environmentally-friendly
equipment;
-
It grants funding for environmental projects of municipalities in regions
declared to be “hot spots”. It lends Zero-interest loans to municipalities and
companies for environmental projects scheduled to be implemented within less
than a year.
-
The Fund for Decommissioning of Capacities at the Kozloduy NPP will also apply an incentive
financial mechanism. It grants targeted funding and financing for technical assistance to
companies implementing energy efficiency projects. The support will be provided in the form of
consultations and grants as incentives for implementation of the project.
Box 8
FUND FOR DECOMMISSIONING OF CAPACITIES AT THE KOZLODUY NPP
The Fund for Decommissioning of Capacities at the Kozloduy NPP was set up for
alleviating the consequences from the decommissioning of part of the nuclear
units at Kozloduy NPP. The credit line to the amount of EUR 50 million for a period
of 5-7 years is allocated by the European Bank for Reconstruction and
Development to four Bulgarian banks: UBB, The Post Bank, Union Bank and
Procredit Bank.
The Fund allocates targeted financing and financing for technical assistance to
companies implementing energy efficiency projects. For a successfully
implemented energy efficiency project the borrowers will receive a grant to the
amount of 7,5% of the loan amount. In the case of projects for renewable energy
sources the grant will be 20%.
The mechanisms for financing energy efficiency projects ultimately play the role of direct or
indirect subsidising of the projects on the part of the state (granting of subsidies, guarantees,
Zero-interest or low-interest credits, partial or full exemption from V.A.T., custom duty
concessions, etc.). This approach of state support has proven its productivity, especially with
respect to activities and projects, which have not yet become a routine practice. Unfortunately,
however, the specific conditions that have emerged in Bulgaria as a result of the introduction of
the Currency Council and the agreements of the government with the IMF, limit the possibilities
for application of mechanisms based on subsidising of the capital costs, as well as taxation
and non-taxation concessions.
Market-based financial mechanisms
The market-based financial mechanisms provide the funding required for investment under
conditions, which are different from the routine bank practice. In this sense they represent an
alternative or supplement to bank financing. The most frequently used market-based financial
mechanisms in energy efficiency projects are third party financing, leasing or merchandise
credit for supply of equipment, as well as other mechanisms, specific for these projects.
Although the market-based mechanisms help achieve combination of several sources of
financing, which individually would not be able to ensure the required financing for the
implementation of the entire project or are not willing to undertake independently the
respective risk.
The selection of a mechanism for financing energy efficiency projects should always comprise a
profound comparative analysis between the options for external financing (under the existing
circumstances and opportunities) and the option to invest entirely equity funds. The second
option is undoubtedly a less expensive one. However, when one should chose in what project to
invest the available funds it is important to study the alternative financing opportunities for
each of the projects under review, since it is always better to implement two projects instead of
one, even if the price is somewhat higher. It is rational to invest only equity funds only if there
are no other opportunities for procurement of financing or simply because the available funds
are sufficient and this presents no problem.
When the energy efficiency projects are financed with equity funds, at first glance it appears
that in this way savings are achieved from unpaid interest. It should, however, be remembered
that this money could have been invested in other projects as well or in less risky modalities,
such as state securities, bonds or fixed-term bank deposits, which can yield revenue. The
energy efficiency projects should be more profitable than the other projects applying for
financing or at least to have higher social significance for the specific point of time.
Financing through a bank loan
Bank loans, lent by the crediting institutions under specific conditions, are the most common
form of financing of investment projects. The interest rate reflects the credit risk of the
municipality, the price of capital, the profit policy of the crediting institution and, of course, the
term of payoff of the loan. The price of this financing, however, should comprise not only the
interest and the bank charges related to the credit, but also the additional costs for
procurement of bank guarantee or submission of collateral in terms of a real estate or
mortgage. The use of mobilities and immobilities as collateral on the solicited credit requires
additional costs for their evaluation and insurance. All these costs should be added to the price
of the credit resource.
Financing through municipal bonds loan
Municipalities might procure loan money also through the issue of municipal bonds. This
manner of procurement of money for investments is not very typical for the conditions in
Bulgaria. The reason is the lack of traditions and a market for municipal bonds. Only relatively
large municipalities may expect successful issue of municipal bonds. So far municipal bonds
have been issued by the following municipalities: Sofia – Euro bonds (1999); Svishtov – bonds
for reconstruction of the water supply system (2000); Varna – bonds for reconstruction of the
street lighting system (2002); and Sliven – bonds for construction of municipal facilities
(2002).
Box 9
EMISSION OF MUNICIPAL BONDS IN VARNA
The first emission of municipal bonds for financing of energy efficiency projects
was realised by the Municipality of Varna at the end of 2002. The municipality
launched also a procedure for obtaining a credit rating by the international credit
agency Moody’s.
The nominal value of the emission of municipal bonds in Varna amounted to EUR 3
million. The condition to evaluate the undertaking as a success was to have sold at
least EUR 2 million of the issued bonds. Repayment of the emission will be
effected in three equal portions during each year. The interest voucher of the
securities has been set at 9%, which ensures high revenue in the case of bonds
denominated in EUR.
The bonds of Varna Municipality were sold on the private market. Invitation for
purchase of bonds was extended to about 50 potential investors, whereby the
administration was released from the obligation to prepare a leaflet for the
securities and its approval by the State Commission on Securities.
The issue of municipal bonds is connected with a number of risks. In the first place, this is
related to the relatively long period of time required for preparation of the emission. During that
period it is necessary to work out a leaflet for the emission, which is subject to endorsement by
the State Commission on Securities, and to select an investment broker. The major risk,
however, is connected with the sale of the emission. If the subscription ends without success to
implement the conditions envisaged in the leaflet, within one month after the closure of the
subscription any collected amounts should be paid back to the persons who have subscribed,
together with the due interests charged by the bank. In this case the issuing office or the
investment broker are obliged to publish in two central dailies invitation to the persons, who
have subscribed for these securities. The conditions and procedures for repayment of the
collected amounts are announced at the locations of subscription. In the event of failure of the
emission the municipality will incur significant losses, since all the costs for preparation of the
emission and payment of the due interests on the subscription will be for its account. In the
event of successful emission the municipality might procure financing, for which it will pay 8,59% revenue on the bonds on an annual basis, while in the case of bank credit it would have to
pay an interest of about 12-14% (Basic Interest Rate + 8-10% – the level at which the current
bank financing for investment purposes is performed).
Under the conditions in the USA the use of municipal bonds has good traditions. Municipalities
there emit long-term debt at the price of about 5,75-7%, whereat the decision, as a rule, is
taken by the constituency through a referendum. The risk related to the issue of the so-called
General Obligation Bonds (GOs) is taken up in full by the issuing party and is reflected directly
in its balance of accounts. The issue of General Obligation Bonds takes relatively long period of
time and is connected with costs for legal and financial services, as well as a charge for the
issue of the bonds.
Energy efficiency projects might be financed also through the issue of Revenue Bonds. These
bonds are connected with the implementation of a specific project. The revenue generated by
them depends on the revenue rate of the project. This type of bonds is most often used for
implementation of relatively large infrastructure projects, which generate their own revenue for
repayment of the bonds. Examples for such projects are, for instance, the projects for
construction of co-generation facilities, which sell energy to large end-users, or water supply
and sewerage projects.
Third Party Financing
In the case of Third Party Financing the investment is made by an external company, which
takes up the entire investment risk and investment costs. This financing mechanism is
particularly suitable for municipal energy efficiency projects, since the debt is not reflected on
the balance of accounts of the municipality. Under this financing mechanism, however, higher
expenditure for interest of the money lent might be expected, since the debt will be present in
the balance of accounts of another company (most often a financing institution or an energy
services company), which will seek compensation for the risk it has undertaken. The interest
rate and the costs for debt servicing are only some of the factors that need to be taken into
account when deciding whether a given financing mechanism is suitable or not. In this specific
case, the higher interest rate is compensated by the opportunity for the municipality not to
register debt liability and not to take up the risk related to project implementation.
Leasing purchases
Leasing is most frequently used for delivery of machines and equipment. The leasing purchase
is flexible and the costs for it are deducted from the revenue subject to taxation. Leasing
installments are equal in amount and have been determined at a fixed interest rate. The leasing
period may be up to 3 years (in some countries up to 12 years), however it is never longer than
the economic life cycle of the equipment. During the leasing period full payment of the assets is
achieved, after which there is an option for transfer of ownership rights and final purchase.
The leasing purchase contract is usually assigned to the conditional purchase contracts and is
finally aimed at transfer of the ownership rights on the assets onto the lessee. Leasing
purchases have, however, higher price, since they contain a risk surcharge in the event that the
asset would not be purchased out. It is namely this clause for a possible resignation from final
purchase that works in favour of the municipalities, since the purchase of the assets is not
reflected as a debt in their balance of accounts. The additional advantages of a leasing
purchase are as follows:

No negative effect on the Cash Flow (the expenditure is deducted from the taxation
revenue);

No need of long period of time for preparation of the transaction, like in the case of issue of
municipal bonds;

Avoidance of budgetary restrictions on capital expenditure;

Leasing installments may be negotiated to be equal to or lower than the savings achieved
by the project.
Leasing purchases have also some important limitations. A general principle for purchase of
equipment under leasing is that it should be easily identifiable by a Series No. or Factory No.,
and it should be mobile, i.e. it should be possible to dismount it and return it to the leasing
company, since it is its property till payment of the last installment.
Box 10
LEASING SCHEMES OF ERATO
ERATO Holding, which is the largest manufacturer of heating boilers and air
conditioning equipment in Bulgaria, offers under leasing its entire product range
through its daughter company “Trakiya Leasing”. This opportunity is available to
practically all clients. Besides sales of equipment, the holding offers under leasing
also constructed space heating and air conditioning systems, as well as the Euroframes with glass packet manufactured and installed by it.
Leasing companies often put forward the requirement for existence a secondary market for that
equipment or a contract with the supplier of the equipment to purchase back the equipment in
case of termination of the leasing contract. With the contracts the lessor undertakes a
significant portion of the transaction-related risk, which reflects on the more expensive price of
leasing deals. Additionally, conditions are put forward concerning the insurance of the property
obtained under leasing, which is for the account of the lessee. Equipment purchased on leasing
often turns out to be more expensive than that purchased by means of a bank loan. The leasing
transaction, however, takes less time and is tied up to fewer formalities. Under leasing it is
possible to acquire machines and equipment without substantial initial payment.
The limitations to the use of leasing financing for energy efficiency projects are most often
connected with the relatively small share of the equipment that is reusable, if necessary. Such
projects are often related to high costs for engineering and installation works. The purchased
equipment is most frequently rigidly fixed to the building or some other production equipment.
For these reasons it is hardly possible to offer it for second-hand sale or leasing at a price close
to the initial one.
Leasing contracts have several modalities. A typical leasing contract is the financial leasing,
which is sometimes called also capital leasing – a conditional purchase contract or a contract
for purchase by installments. Under the financial leasing 100% of the value of the equipment is
paid off together with the respective interest.
The operative leasing has the advantage to shift the risk from the end-user to the leasing
company. This, however, is done for the account of additional price increase for the user. Under
the operative leasing neither the capital assets that are the object of the leasing, not the
liabilities to the lessor, are reflected in the balance of accounts of the user. The leasing
company retains the ownership rights on the equipment. Upon the expiry of the term of the
leasing contract the lessee has the right to acquire ownership rights on the equipment, however
at its real market price (reflecting to a certain extent the depreciation and the real demand for
such products, however without deduction of the leasing installments). The lessor takes up all
the risks related to the secondary leasing of the equipment. This fact limits greatly the range of
equipment that might be subject to operative leasing.
Municipal leasing that can be either capital leasing or operative leasing is typical for project
financing in the USA. Municipal leasing has been singled out as a separate category because of
its lower price, which is the result of the specific taxation treatment of municipalities in the
USA. It is applied for relatively small projects – mainly schools, hospitals and other municipal
sites, whose costs do not exceed USD 1,2 million. Under the conditions of Bulgaria municipal
leasing is not applied as yet.
Energy Services Companies (ESCOs)
For the municipalities, which do not have sufficient amount of equity assets and experts for
performing energy efficiency retrofit of the sites, ESCOs represent an appropriate alternative.
ESCOs are highly specialised companies, which possess good engineering capacity and usually
are backed by a stable financial partner – a bank or some other kind of financing institutions.
They are often subsidiaries and daughter companies of famous manufacturers of energy
efficiency equipment, process management and indoor or public lighting fixtures. ESCOs apply
a financing mechanism based on the principle that the capital costs for project implementation
are paid back from the savings achieved by it. These savings should be sufficient to ensure the
company return of the investment made plus some profit. This mechanism of financing of
energy efficiency projects features the advantage that it releases the project owner from the risk
and the responsibilities related to its implementation. This, of course, is done for the account of
higher investment price, increased by the rate of the costs of the credit risk and the profit for the
company, which has realised the investment.
In the initial phase of the project the ESCO invests its own turnover capital for conducting of an
energy audit and working out of the project design documentation. All these costs are later
included in the price of the project. The risk of possible “non-assignment” makes the cycle of
project development quite expensive and risky for the ESCO.
Box 11
IN ROUSSE BRUNATA BULGARIA ACTS AS AN ESCO
The energy efficiency project in Rousee Municipality envisaged that Brunata
Bulgaria Ltd. should replace the substations and heat transportation pipelines and
introduce management systems. The achieved savings were determined on a
monthly basis and were shared between the company and the municipality at the
ratio 70:30. The project achieved the estimated technical parameters. The
schedule of payments to the company, however, has been violated many a time by
the municipality, which became the reason for the failure to implement the project
in its full scope.
70%
66%
60%
Спестена енергия
50%
45%
50%
40%
37%
38%
40%
27%
31%
30%
20%
ОУ "В. Априлов"
СОУЕЕ "К.К. Философ"
СОУПНЕ "Кл.Охридски"
Община Русе
ОУ "Бр. Миладинови"
СОУ "Възраждане"
ОУ "Т. Кърджиев"
СОУ "Хр. Ботев"
10%
0%
Сгради
.
The energy services companies offer the following advantages:

Technical know-how and introduction of the project by independent experts;

An opportunity for project financing under which the customer invests no equity funds,
therefore he/she might use them for other purposes;

Immediate reduction of energy costs, often coupled with additional benefits;

Ownership rights on the equipment upon expiry of the term of the contract.
The implementation of the project often passes through the following stages:

Approval of the project and signing of the master contract: agreement on the next
steps, the risks and the responsibilities of each of the contracting parties;

Engineering design, in the course of which the technical design is specified as a result
of the preliminary energy audit; preparation of the documentation for the tenders for
selection of subcontractors for the individual phases of construction;

Construction and installation works: the ESCO performs investor’s supervision of the
construction and installation work conducted by the subcontractors;

Acceptance of the project; the customer accepts the applied measures;

Maintenance and monitoring: reporting of the energy savings, on the basis of which the
level of payment is determined.
The monitoring and determining of the results from the implementation of the project are
extremely important, since they help prove that the achieved savings are real and steady. This is
done through comparison of the preliminary baseline consumption of the consumer’s facility,
determined and laid down in the contract, with the energy consumption after project
implementation. The measurements usually comprise direct recording of the energy
consumption in compliance with the agreed procedure.
ESCOs are broadly used in the USA and Western Europe, however they are relatively new for the
countries of Central and Eastern Europe. Despite their undisputable advantages, the number
of operating ESCOs in the CEE countries is still small. They have been developing with the
greatest success in Hungary and Slovakia. The ESCOs operating in Bulgaria and the successful
projects implemented by them are very few. The project implemented by Brunata-Bulgaria Ltd.
under a contract with the Municipality of Rousse is worth specific attention.
Performance contract
There are several major types of contracts for implementation of energy efficiency projects
through energy services companies. The most common financing mechanism used by the
energy services companies is called “Performance Contracting”. This type of contracts is
applied only by ESCOs, however it is worth mentioning that not all ESCOs work on the principle
of guaranteed performance. Under the performance contracts it is not the ESCO, but the enduser (the customer who is the owner of the project) who finances the project and the application
of the energy efficiency measures. To this end it takes a loan from a third party (most frequently
a trade bank) or signs a leasing contract for the equipment. The end-user is the one who takes
up the responsibility to pay off the loan from the achieved savings. Under this scheme the ESCO
takes up the risk to guarantee the results from the implementation of the project. The company
guarantees that the savings will be at least equal to the level of the agreed minimum, which is
usually sufficient to repay the loan. If the minimum is not achieved, the ESCO will pay the
difference to the consumer, and if it is exceeded - the end-user will pay the ESCO a certain
percentage of the achieved additional savings. The end-user can take up the debt liability
because he has the guarantees that the achieved savings will exceed the costs for debt
servicing. The advantage of this mechanism is that the financing party evaluates the credit risk
related not to the ESCO, which might be a relatively small company, but that related to the enduser. The balance of accounts of the ESCO remains impartial with respect to the project-related
debt, which is undoubtedly an advantage for it. This mechanism, under which the end-user
bears the entire burden of soliciting the credit and paying off the debt, is suitable only in the
cases when the user is in a better position to obtain financing as compared to the ESCO.
Shared savings contract
Under this contract the ESCO finances the project by means of either equity funds or a loan
obtained from a third party. In this case the ESCO takes up not only the risk related to the
successful results from the project, but also the risk related to obtaining and repayment of the
credit. The credit is reflected on the balance of accounts of the company. The shared savings
contract is useful when the end-user is not able to obtain loans (or his ability is very limited).
The end-user receives guarantees that his payments to the contractor will never exceed the
savings achieved by the project. The liabilities under the contract are not reflected on his
balance of accounts. Under the shared savings contracts, however, the percentage of the
achieved savings, which go to the ESCO, is higher than that under the performance contracts,
since the energy services company incurs additional expenditures for granting the required
financing and takes up additional risks.
Contract for repayment from the achieved savings
The contract for repayment from the achieved savings, which is also called “Fast pay-out
contract’, is a sub-category of the performance contracts. In this case the debt to the financing
institution is fully paid back from the savings achieved by the project, so that the higher the
savings, the quicker the repayment will be effected. This type of contract as a whole is less risky
than the performance contract – for the end-user its risk profile is approximately the same as
that of the shared savings contract.
“Chauffage” Contract
The “chauffage” contract is a variant of the energy service contract, whose specific
characteristic is that the ESCO sells to the customer a complete set of energy services. It may
offer, for instance, lighting by a specific type of luminaries against a set charge for 100 hours of
service, or heating at specific parameters against a set charge per 1 m3 heated space. In the
majority of cases the contract envisages that the energy costs after the signing of the contract
shall be lower than those prior to the reconstruction. Contracts of this type differ from those
reviewed above in the fact that they are generally long-term ones (for a period of twenty to thirty
years), whereat the modernisation, the replacement and maintenance of the system during the
entire period of validity of the contract are provided for the account of the ESCO. The
“chauffage” contract is particularly convenient when the end-user wishes to get entirely rid from
the responsibility to invest in and service the system. This convenience, however, is paid for by
the higher current expenses and the limited opportunity for impact on the development and
operation of the energy systems.
Commercial credit
Commercial credit is granted by the manufacturer (the seller) of the equipment, who finances
the purchase by postponing the date of payment or permitting payment in installments. The
sellers and distributors of goods and equipment are very often prepared to sell at credit,
whereat the price of the delivery is negotiated as a total, without charging of interest and other
payments. Although in practice these charges are often calculated in the higher selling price,
from the point of view of the consumer this is rather a delayed payment deal. The convenience
of this type of deals consists in the fact that in this case it is possible sometimes to negotiate
better prices for the customer, as well as delayed payment terms at minimum interest of
without interest at all. This mode of financing is, however, characteristic for relatively small
projects.
Financing through property shares
Financing through property shares presumes selling of part of the ownership on the project, i.e.
a respective share of the revenues, which it will produce, against participation in the initial
investment. The biggest problem in applying this financing is to locate investors, who are
prepared to purchase part of the project. Sometimes, financing through property shares is
avoided also because of the unwillingness of the project owner to share its management and
the results achieved by it with another partner.
Financing of energy efficiency projects through shareholding is as yet quite limited. This type of
financing is offered by the private investors and investment funds to newly created enterprises
with a high growth potential, whose shares are not registered at the stock exchange. The aim of
this risk financing is to ensure high return on investments during the back purchase or in the
case of sale of the package of shares at the stock exchange. Despite its limits, financing
through shareholding is penetrating in the field of production of electricity from renewable
energy sources, energy efficiency and manufacture of energy efficient products.
Financing by the electricity distribution company
For us financing of energy efficiency projects by the electricity distribution companies is still
just a theoretical possibility. It is expected, however, that with the liberalisation of the energy
market it will find its proper place and significance. The privatisation of electricity distribution
enterprises and the liberalisation of the energy market will put forward particularly acutely the
issue about the reliability of least-cost supply to end-users. The introduction of Demand-Side
Management (DSM) will provide the energy distribution companies with the following
advantages;

Avoiding of the costs for investments in new generation capacities and transmission
networks;

Combining of energy efficiency with the management of the system load;

Better servicing of consumers, especially those who consume larger quantities of
energy.
Free energy trading will provide an opportunity for every electricity distribution company to
conduct its own policy for market development and retention. For the supplier if may often turn
out cheaper to invest not in the construction of new generation capacities but in measures to
reduce energy consumption, especially that of large consumers. In this way the enterprise will
save the costs for the new capacities, which would have been needed for meeting the higher
demand. The energy distribution enterprise will credit the implementation of energy efficiency
projects at the end-users by tying them up to the requirement for reduced energy consumption
in the future. The energy distribution company can not only grant its customers financing, but
also assist them in improving their energy management by:

Conducting energy audits, making available services related to technologies,
monitoring and verification;

Creating a mechanism for guaranteeing of investments in the event of attraction of
private capital for the reconstruction of the sites;

Granting equipment on leasing directly to the municipalities;

Developing municipal energy efficiency programmes, which permit the achievement of
a certain level of savings.
Mechanisms based on the trade in reduced carbon emissions
Financing of energy efficiency projects against reduced carbon emissions is a potential source
of investment funds for municipalities. This type of deals are based on the commitments
pledged by the parties to the UN Framework Convention on Climate Change (UNFCCC) for
reduction of their GHG emissions. In compliance with the Convention, the industrialised
countries, incorporated in Annex I, should reduce their emissions of greenhouse gases to their
1990 level. This reduction may be achieved also for the account of other countries by using the
flexible mechanisms envisaged in the Kyoto Protocol. Thanks to these mechanisms every
country, for which it is too expensive to reduce the emissions on its own territory, has an
opportunity to invest in their cheaper reduction on the territory of another country. This would
permit to minimise the investment costs and improve the cost effectiveness of the entire
process and at the same time to achieve the global objective – reduction of GHG emissions by
5%. The global emissions trading regime will permit industrialised countries also to buy and
sell emissions credits among themselves.
Financing by the Prototype Carbon Fund of the World Bank
Although the trade in reduced carbon emissions has not officially started yet, there are already
institutions, which seek to purchase reduced GHG emissions. The absence of a holistic world
market does not permit formation of market-based prices of emission reductions. Market
actors, however, are free to negotiate prices, which correspond to the interests of both parties
of a given transaction and make possible its conclusion. Currently, the prices of the Certified
Emission Reduction Units (CERU) on the world market reach up to USD 10 per 1 ton of carbon
dioxide. The Prototype Carbon Fund declares as acceptable prices up to USD 5 for 1 t carbon
dioxide or USD 20 per 1 t of carbon, and as recommended prices for transactions USD 2,5-3,5
per 1 t of carbon dioxide or USD 9-12 per 1 t of carbon.
The Prototype Carbon Fund (PCF) was created in 1999 with a capital stock of USD 145 million.
Initially, it was envisaged that the funds would be invested in 30 projects. The main
shareholders in the Fund are the World Bank, governments (with about USD 10 million) and
companies (with about USD 5 million). The reduced carbon emissions purchased by the PCF
are distributed in compliance with the approved rules among the shareholders.
Concluding deals for sale of reduced GHG emissions to the PCF is related to compliance with
the established procedure, which comprises several steps:
1. Initial project review. The procedure starts with a brief project description, on the basis
of which the PCF evaluates its compliance with the approved criteria and requirements.
2. Sending of a letter of support. The country hosting the project should send a letter of
support of the project.
3. Development of a feasibility study (concept paper) of the project. On the basis of it a
check is performed of the quality of carbon emissions under the existing situation
(baseline) and an assessment is made of the environmental and social aspects of the
project, while in the same time the project risk is assessed.
4. Presentation of the feasibility study (concept paper) to the Board of Directors of the
Fund. If the project is approved, it can proceed to the next step.
5. Development of the full project. The project contains the following components:
a. Determination of the baseline – it is defined as the volume of carbon
emissions provided the project is not implemented;
b. Drafting of a protocol for monitoring and verification, defining the monitoring
procedures (how, when)
These two documents are prepared by the project owner or by consultants, however in
both cases it is necessary to work in close contact with the PCF. The costs for the
preparation of these documents by specialised consultants amount to about USD 2050 thousand.
6. Conducting of an independent evaluation. It is based on the developed working
project, accompanied by the study of the baseline and the protocol for monitoring and
verification. The independent expert checks all plans and assumptions. The main
requirement is to evaluate the preparation of the baseline and to give an opinion
whether it is true and conservative. The other requirement is to check the compliance of
the project with the requirements of the PCF and the UNFCCC2.
7. Negotiations with the project host country and signing of a contract for purchase of
emissions reductions. This document specifies all details, related to the transfer and
payment of the reduced greenhouse gas emissions.
8. Implementation of the project and monitoring of the results. At this stage it is very
important to prove the achievement of the major project parameters and the exact
implementation of the protocol for monitoring and verification.
2 United Nations Framework Convention on Climate Change
9. Verification of the emission reductions by an independent third party. Initially this
verification is performed annually. If the project is developing well and there are no
significant deviations from the major indicators these verifications may be performed
even more rarely. The verifying party prepares a report of the verification, which
provides information about the quantity of reduced emissions and certifies the
achieved reduction. In compliance with the quantity of certified emission reduction
units the PCF pays according to the prices fixed beforehand in the contract for
purchase of emission reduction units.
If the emission reduction units exceed those negotiated with the PCF they remain at the
disposal of the project owner or may be transferred additionally to the PCF. The fund, on its
part, transfers the purchased emissions to its shareholders in compliance with its internal
rules.
The procedure for obtaining of financing from the PCF seems quite complicated and lengthy.
This is due to the peculiar type of goods – carbon emissions reductions, which may be the
object of trade only after the respective certification. This type of financing for energy efficiency
projects in practice is made available after project implementation. Nevertheless, the financing
mechanism of the PCF leads to reduction of the project investment costs and to faster
repayment of the loans obtained through bank or other financing. The availability of a contract
with the PCF might be viewed by the financing bank as an additional project revenue and as a
prerequisite for granting of the solicited financing under more favorable terms and at a lower
bank guarantee.
Financing through JI projects3
The Joint Implementation (JI) mechanism may be applied only among the countries included in
Annex I of the UNFCCC. It permits uniting of the environmental and economic priorities of the
Parties. The so-called parallel approach was adopted in order to facilitate the negotiation of
this kind of deals. Under this approach the host countries of JI projects may follow two
approaches (two paths) depending on the extent to which they comply with the requirements
envisaged in the Kyoto Protocol. In order to follow the first path in the transfer or acquisition of
emission reduction units (ERUs) the respective country should:
1. Be a Party to the Kyoto Protocol.
2. Have determined and registered its emission allowances
3. Have established its national registry.
4. Have established a national system for assessment of GHG emissions.
5. Be conducting annual inventory of its greenhouse gases
6. Submit additional information concerning is emission allowances.
If the country does not comply with some of the above requirements it might participate in JI
projects by following the second path. Presently, no country complies with the requirements for
JI projects under the first path (the above mentioned requirements 4, 5 and 6 are not met yet).
All countries wishing to participate in JI projects should follow the second path, under which
conducting of monitoring and registration of GHG emissions is required.
Financing of energy efficiency projects under the JI mechanisms requires considerable amount
of preparatory work. This is due to the already mentioned circumstance that in the case of
trading of carbon emissions reductions they become a merchandise only after monitoring and
3 Joint Implementation (JI)
verification of their values to the predetermined ones in the study related to the baseline
development. The steps to be followed by a JI project are similar to the steps required for
obtaining financing from the PCF. The participants in the JI project cycle and their engagements
are as follows:
1. Project developing party: formulation of the project parameters.
2. National administration of the financing party: submission of a brief project
description, on the basis of which the authorised institution of the financing party
evaluates the project for compliance with the requirements for this type of projects.
3. Project host country: sending a letter of support for the project.
4. Independent institution, performing review and assessment for compliance with the
requirements for a JI project.
5. JI Supervisory Committee
The project development cycle for JI projects covers the following steps: Проектният цикъл при
разработването на проекти за съвместно изпълнение обхваща следните стъпки:
1. Conceptual draft and formulation of the project parameters.
2. Preparation of a description of the conceptual draft project.
3. Checking for compliance of the project with the requirements of the host country. Sending
of a letter of support.
4. Development of a full project. The project shall contain:
a. Project description;
b. Formulation of its “additionality”, i.e. the qualitatively new parameters and
solutions it proposes as compared to the common practice;
c. Baseline determination: what would happed if the project was not
implemented; defining the volume of carbon emissions;
d. Plan for monitoring and control.
5. Approval of the project by the governments of the host country and the investing country.
6. Approval of the project development document by the independent institution.
7. Submission of the conclusion of the independent institution to the JI Supervisory
Committee.
8. Approval of the project by the JI Supervisory Committee.
9. Registration of the project by the financing country.
10. Registration of the project by the host country.
After project implementation it is necessary to conduct the following steps for it to become an
operative one:
1. The project owner shall conduct monitoring and survey on the achieved parameters. He
prepares a report about the achieved results and submits to the independent institution.
2. The independent institution performs a check and verification of the results.
3. The independent institution prepares a report about the verification of the results, which is
submitted to the JI Supervisory Committee.
4. The JI Supervisory Committee confirms the reduction of GHG emissions.
5. The certified emission reduction units are registered in the national registry of the host
country.
6. The certified emission reduction units are transferred and registered in the national registry
of the project financing party.
Bulgaria, being an Annex I Party, participates in JI projects. Currently, The Netherlands’ Ministry
of Economic Affairs buys GHG emissions reductions achieved as a result of projects for energy
efficiency improvement, the use of renewable energy sources, waste processing and
aforestation. The implementation of projects takes place through participation in Emissions
Reduction Units Tender Procedures (ERUTP).
Denmark also buys Emissions Reduction Units through the Danish Emission Reduction System
Administration (DERSA). This is the institution, which reviews and approves the projects. It is
sufficient for the project owner to fill in a special form for evaluation of the idea – Project Idea
Note (PIN) and to submit it to the DERSA for evaluation of the compliance with the criteria for
such projects. If the project is approved, the developer can proceed with its full elaboration and
legalisation in line with the procedure adopted by the DERSA.
Concession contracts related to energy efficiency projects
Concession contracts as a modality of construction and management of municipal sites have
significant potential, however the legislation in this sphere is new, still in the process of
development and as yet there is no positive practice in this field. Concession contracts may be
used for modernisation and management of existing sites, as well as for construction of new
ones. Particularly suitable for such financing are the new energy capacities for combined heat
and power generation, which can be used for meeting the demand of municipal sites. As a rule,
concession contracts are long-term ones (up to 35 years) and contain clauses providing for
extension of the term of the contract.
The financing mechanism applied for project implementation under a concession contract is
known under the abbreviation ВОТ (build – operate – transfer). Some variants of this financing
mechanism are BOO (“build, own and operate”, i.e. without whatever obligation for transfer),
BOR (“build, own and renewal of concession”), BOOT (“build, own, operate and transfer”), BLT
or BRT (“build, rent or lease and transfer”),
Under the BOT projects a private company obtains a concession to finance, design, construct
and operate a given facility – a power plant, highway, tunnel, water treatment plants, etc. –
instead of the municipality (or the state). Most often, upon expiry of the validity term of the
concession the private company transfers the ownership rights on the site onto the municipality
(the state). The concession validity term is usually determined by the time, during which the
revenue from the operation of the facility can cover the debt of the company and ensure it a
reasonable rate of profit for the invested efforts and the undertaken risk.
As different from the old type of concessions, the modern BOT projects are realised as publicprivate partnerships, financed by the private sector and oriented towards meeting public
demand. BOT projects possess a large potential for technology transfer and construction of
sites at the local level. A correctly designed contract for a BOT project limits private investors to
a reasonable rate of return and acts as a guarantee that the project will serve the public
interests.
Many BOT projects are initiated by the municipality and aim at meeting some of its important
needs, however there are also quite a significant number of cases, when the proposal for a
given BOT project has been formulated by the private sector. When the municipality gets
convinced that the project corresponds to its interests, it can undertake the management of the
feasibility phase. The selection of the concessionaire is performed through collection of bids for
the implementation of a given project. Upon selection of the candidates and signing of a
contract it is possible to proceed with the implementation of the project. The practice in the
developed market economies corroborates the viability of this formula through the large
number of successfully implemented BOT projects.
Joint ventures with the private sector
A specific modality of financing of municipal projects is the participation of the municipality in
joint ventures with the private sector. Under this mechanism for project financing and
implementation public-private partnership is used (the same as under the concessions).
Despite its frequently minority participation, the municipality retains important positions in the
operative management of the joint venture. The legal format of the deal is the registration of a
joint venture, in which the private investor has a majority share. The municipality usually
participates in the capital stock of the joint venture with advanced in-kind contribution in the
form of plots, buildings or facilities. The private sector is the party that provides the actual
financing, organises the implementation of the project and the operation of the new enterprise.
This modality is very appropriate for construction of mini-capacities for heat and power
generation, heat supply and gas transportation networks.
In recent years a number of Bulgarian municipalities created joint ventures with the private
sector for gas distribution in the cities. These projects play a significant role for reduction of
energy consumption in the municipalities and for introduction of innovative, environmentally
sound technologies. The advantages of this financing mechanism are as follows:

the municipality is released from the difficult role of being investor and of having to
provide financing from the budget;

whenever necessary, the private sector procures bank financing and takes up all risks;

the companies possess highly skilled experts, who are not always available in the
municipality;

the municipality most frequently participates with advanced in-kind contribution,
which might not have any significant market value outside of the scope of the project;

the municipality retains important positions in the management of the joint venture.
Some of the limitations in the realisation of such deals is the long time frame needed for final
conclusion of the deals, as well as the requirements of the Law on Public Procurement Orders.
Selection of a financing scheme
What financing schemes and mechanisms will be applied for the municipal energy efficiency
projects depends to a large extent on the equity funds of the respective municipality and its
opportunities to obtain bank credit. All financial mechanisms are oriented to one or another
degree to overcoming of the existing shortage of equity funding and bank crediting for
implementation of the projects. Of course, they have also other significant advantages – some
of them diminish the need of investment of fresh money (third part financing, joint ventures and
concessions), others improve the project Cash Flow by producing additional benefits and
revenues (sales of carbon emissions reductions). The implementation of energy efficiency
projects through ESCOs offers, in addition to financing opportunities, also expertise, which is
particularly needed by the municipalities, which do not possess sufficient experience and
experts. An important condition, which the selected financing mechanism should meet, is that
it should comply with the requirements of the regulatory framework with respect to investment
projects.
When the municipality pays a higher price for its project, it is obligatory that this is done for the
account of minimising of the risk and the efforts related to its implementation. In many cases
the more expensive solutions pay off better in the longer run.
In the first place, it is important to make a clear assessment of the available funds. If the
municipality does not possess equity assets for capital expenditure, it can hardly be able to
obtain a bank loan. If it has no funds for capital expenditure, however it is able to perform
current payments for its energy consumption, it is obvious that it should orient itself to
implementation of the project with the help of an ESCO. When the project has good
environmental indicators and would produce significant reduction of GHG emissions, the
municipality might seek financing under the JI mechanism or some international carbon fund.
Three factors need to be evaluated in the selection of a financing mechanism: the cost of
financing, the need of equity expertise and participation in the implementation of the project,
and the level of risk. These factors in their essence are dynamic in the time. It should be borne
in mind that every financing mechanism has its price, which should be considered as a
significant, although not a decisive factor for its being selected or not. It is much more
important to select a financing mechanism, which is the most appropriate to the developer’s
own financing capacity. The valid principle in all cases, however, is that the savings achieved by
the project should be sufficient to repay the investment made.
Finally, it is important to have the project implemented, even at a higher price, since without it
the municipality would incur higher losses from the growing energy bills and would miss
significant benefits from the improved quality of services.
Table 14 offers a summary of the requirements and parameters of the main types of
mechanisms for financing of energy efficiency projects.
Table 14. Comparative table of the financial mechanisms applied for energy
efficiency projects
Financial
mechanism
Minimum
participation
with equity
assets
Equity assets
100%
Bank loan
20 - 30%
Financing through
property shares
Third Party
Financing
above 50%
0%
Real annual
increase of
costs
7%
7 – 12%
15 – 25%
15 – 20%
Accessibility
for
applicationДо
стъпност за
прилагане
Remarks
Low
The price of the equity resource might be
assumed to be the revenue rate of the
long-term state securities (about 7% per
annum)
High
The price of financing is determined as
the difference between the nominal
interest rate on the credit and the annual
inflation rate
Very low
The price of the credit is determined by
the price at which shares can be bought
back
Very low
The annual costs are determined by the
interest on the allocated funding and the
risk-related surcharges of the financing
party
Energy services
companies
0%
20-25%
Medium
The annual costs are determined by the
interest on the allocated funding and the
company’s expenditure for project
development, implementation and
maintenance
0%
15-20%
Low
The leasing installment contains in itself
the respective portion of the price and the
leasing surcharge.
Financial leasing
Through a Joint
Implementation
contract (JI)
Sale of emissions
to the Carbon
Fund
100%
7 - 12%
Very low
The volume of the allocated funding is
determined by the market price of the
reduced carbon emissions. Through sales
of emissions the costs of the project can
be reduced by 10 – 20%.
Part Three
ENERGY EFFICIENCY FUNDS AND
PROGRAMMES
This part contains information about some of the most typical programmes and
funds, through which financing for energy efficiency projects in municipal sites may
be procured. The quoted reference information is dynamic and therefore it is
subject to validity check and specification of the conditions at the concrete point of
time in every specific case. To this end addresses for direct contacts have been
included as well.
Targeted financing of energy efficiency projects is applied as part of the local and international
policy for promotion of energy conservation. In Bulgaria there exist a number of funds and
programmes, part of the resources of which might be used for financing of investigation and
design activities. Financing of capital costs is as yet limited. Nevertheless, in certain cases
there are opportunities for ensuring financing for part of the investment costs in the form of
interest-free loans and grants.
It is always recommendable to take advantage of the existing opportunities for financing of the
project or some project components at a lower price – through some programme or fund. This
recommendation is particularly valid for the investigation and design phase, when the decision
should be make concerning the further development of the project. It is possible that the
investigation might reveal that at that point of time there are no sufficient conditions for market
realisation of the project and that there is a risk of failure to recover the money invested in its
implementation. The existence of such a risk is a serious motif for seeking financing from local
and international funds and programmes for the investigation and design phase.
National funds
Enterprise for Management of Environmental Protection Activities
(EMEPA)
National Environmental Protection Fund
Objectives:
The loan granting policy of the EMEPA is determined by the priorities of the state environmental
policy. Loans in the sense of the Rules of Procedure governing the activities of the enterprise
are deals related to the allocation of funding as free grants by the EMEPA (Decree No. 319/28
December 2002, SG Vol. 3 of 10 January 2003). Parties to a contract with the EMEPA under
these rules may be:

all entities registered under the Law on Commerce;

all entities registered under the Law on Cooperatives;

municipalities;

private producers;
The projects, together with the application for allocation of interest-free loan, are reviewed and
assessed by the Financing of Environmental Projects and Activities Division of EMEPA in
compliance with the procedure and the Rules of Procedure concerning the structure and
operation of the enterprise. The terms and conditions of allocation of the loan and the
respective relations between the parties are settled in the form of a contract between the
borrower and the EMEPA on the basis of the respected decision approved by the Management
Board of the enterprise.
Preferential terms and conditions provided by the financing sources:
The EMEPA provides its customers the following types of loans:
(a)
depending on the interest rate:
- zero-interest loans;
- loans at an interest rate determined by the Management Board in accordance with
the Rules Concerning the Structure and Activities of the EMEPA;
(b)
depending on the repayment period:
- short-term loans – payoff period below 1 year;
- long-term loans – payoff period from 1 to 5 years;
(c)
depending on the manner of repayment:
- loans, which are paid off in full at maturity;
- loans, which are paid off in installments;
(d)
depending on the nature of the submitted collateral:
- loans against bank guarantees;
- loans against a promissory note endorsed by a bank – only for municipalities.
Priority fields of financing:

for construction of environmental protection sites

for purchase of equipment for environmental protection;

for implementation of environmental protection activities;

for covering 50% of the interest on credits obtained from trade banks for construction
of environmental protection facilities or purchase of equipment for environmental
protection.
The borrower may apply again to a loan from the EMEPA only after full repayment of the debt
under an already allocated loan.
Terms governing the allocation and repayment of loans:
The loan contract should be signed within six months of the date of the Management Board’s
decision to grant the loan. Prior to the signing of the contract the borrower should present
documents proving the submission of collateral about the full amount of the loan – bank
guarantee or a promissory note endorsed by a bank. Either of the documents should be issued
for a period starting with the date of signature of the contract with the EMEPA and expiring at
least two months after the maturity date of the last installment.
A change in the Bank Acc. No. of the borrower is allowed only after a written consent by the
creditor. Allocated loans are remitted in tranches according to a schedule, agreed between the
EMEPA and the borrower, whereby the latter is obliged prior to every forthcoming money
transfer to submit a report about the utilisation of the preceding tranche. The report shall be
accompanied by documentary evidence about actually effected expenditure, signed by the
respective District Environmental Protection Inspectorate. The loan principal shall be paid off in
amounts and within the deadlines set in the repayment schedule agreed between the parties,
which is subject to amendment under the following circumstances:

In the event of changes in the loan terms approved by the Management Board (grace
period, repayment period), the amendment shall be specified in the form of an Annex
upon the respective decision of the Management Board of the EMEPA.

In the event of changes in the amount of the payoff installments at retention of the loan
terms, the amendment shall be specified in the form of an Annex.
A debtor, who has failed to pay two consecutive installments due on the interest and/or the
loan principal, shall be considered to be in default. The interest rates on the loans are
determined by the Management Board of the EMEPA on the basis of the basic interest rate set
by the central bank and in compliance with the Regulation for the Structure and Operation of
EMEPA – up to 30% of the basic interest rate of the Bulgarian National Bank for municipalities
and up to 50% of the basic interest rate of the Bulgarian National Bank for companies. The
interest on loans is payable on a monthly basis, except for the cases when the credit contract
envisages its capitalising at a set procedure.
In the event of delay of the payments the EMEPA sends a written invitation to the debtor for a
voluntary settlement with a specified deadline, informing him that in the case of noncompliance it will undertake actions for forced collection of its amounts receivable in
compliance with the contract and the enforced regulatory acts. When the credit is not serviced
in compliance with the terms of the contract, the EMEPA has the right to request pre-term
repayment of the entire utilised loan, together with the legislatively due interest and the
penalties envisaged in the contract, independent from the agreed amount of the interest rate
on the loan. The EMEPA has the right to request from the borrower to present all accounting and
other evidence documents related to its activity, as well as to perform checks concerning the
targeted use of the allocated loans.
Required documents for application:
Soliciting loan funding from the EMEPA is done on the basis of an application, accompanied by
the following documents:

Declaration by the applicant (Sample 2).

Working project design coordinated in compliance with the requirements of the Law on
Spatial Development of the Territory.

Well-grounded position paper of the District Environmental Protection Inspectorate
concerning the priority ranking of the site, the approved criteria and the mandatory
estimated environmental effect.

Document proving the ownership rights on the plot / building / in-house system /
equipment.

Decision based on conducted Environmental Impact Assessment / Expert’s
assessment (if the site is subject to Environmental Impact Assessment).

Economic justification.

Decision by the Commission for Prevention of Competition.

Document by the servicing bank about its intention to issue a bank guarantee if the
project obtains financing.

Balance sheet and report on the revenue and expenditure of the company by the date
of submission of the application.

Document certifying the company’s (manufacturers’ association) legal status.

Certificate from the taxation authority concerning absence of overdue liabilities.

Certificate from the National Insurance Institute concerning absence of overdue
liabilities to the state for unpaid social insurance.

Document of ownership rights on the land or the right of use.
If appropriate, the EMEPA may require information on the following issues, related to the legal
status of the applicant:

Registered capital, capital paid up till the moment;

Associates, management bodies, decision-making procedures;

Representative bodies/individuals, authority to conclude credit deals (in the case of
collective companies).
(The documentary evidence to the above data is a Certificate for Entry in the Trade
Registry. If the Certificate has been issued more the three months prior to the date of
the application, the EMEPA shall request an updated copy of the document.)

Founding agreement or Statutes (in the case of trade companies).
For contacts:
Executive Director: Ms. Emilia Stoyanova
Address: 67, William Gladstone St., 1000 Sofia, Bulgaria
Tel.: (+359 2) 940 6251
Fax: (+359 2) 987 5361
E-mail: estoyanova@moew.government.bg
National Trust EcoFund
Objectives
Management of funds obtained by virtue of “Debt against Environment” and “Debt against
Nature” deals as well as funds allocated by international, foreign or Bulgarian sources by virtue
of other deals and intended for protection of the environment in the Republic of Bulgaria.
Preferential terms and conditions provided by the financial source:
The Fund finances investment projects for protection of the environment mainly under the form
of grants, zero-interest or low-interest loans.
Priority spheres of financing:
The Fund allocates funds for financing of projects in four priority spheres:
1. Liquidation of past pollution:

Treatment of noxious waste and substances;

Reduction of pollution of drinking water or foodstuffs by heavy metals, toxic organic
compounds or other noxious chemicals;
2. Reduction of air pollution:

Reduction of the quantities of dust and toxic chemical pollutants (sulphur and nitric
oxides, lead, etc.) in the population centres and of the health risk related to their high
concentrations;

Reduction of GHG emissions: carbon dioxide, methane, chlorfluoridcarbons;
3. Protection of water cleanliness:

Municipal and industrial wastewater treatment plants in the water catchment area of
the river Danube region;

Municipal and industrial wastewater treatment plants in the water catchment area of
the Black Sea region;
4. Protection of biodiversity;

Development of the infrastructure in the protected areas with a view to preservation of
protected animal and plant species and their habitats;

Monitoring and inventory of the biodiversity;
Opportunities for financing of energy efficiency projects:
The Fund finances projects for the use of renewable energy sources, contributing to reduction of
pollutions.
Requirements and criteria for allocation of funding from the financial source:

Availability of working documentation, containing modern technical solutions and upto-date prices;

Project financing provided by the applicant’s equity assets or from other sources. The
amount of co-financing is differentiated according to the company, to which funding is
allocated by the Fund.

Data about the minimum capital and operating costs for reduction of a unit of
pollution, proven on the basis of the evaluation of different versions of project
implementation.

Compliance with the environmental standards and norm requirements in force in the
country, proven through positive decisions of the environmental impact assessment of
the project and through other calculations and evidence for achievement of or
compliance with the environmental protection norms.

Evidence concerning the organisational and financial capacity for operation of the site
after project implementation and for attainment of the environmental effects during
the entire period of its service life.

Compliance with the governmental programmes in the field of the national
environmental policy and the priorities of the local government bodies.
Required documents for application:
Application for funding from the Fund is performed under a two-step procedure:
1. Preliminary assessment (submission of a proposal soliciting funding) in terms of
whether the project proposal complies with the Fund’s priorities and the financing
terms and conditions.
2. Selection of projects, which have obtained a positive evaluation.
If the preliminary evaluation is positive, an application for participation in the project selection
is submitted. The application should contain:
(a) Information about the applicant (trade company, budgetary organisation, non-profit
organisation, etc.)

Name, address, legal status;

Major field of activity (applicable for trade companies), objectives (applicable for nonprofit entities), functions (applicable for budgetary organisations);

Major environmental problems of the organisations;

Imposed or expected sanctions and dispositions in connection with violations of the
environmental legislation;

The names of the top managers and their positions;

The project designer, construction contractor (company, organisation), the
person/entity to be responsible for the operation of the site;
(b) Information and data about the project:

Title, designation and territorial scope;

Spheres of impact of the project by environmental components, population coverage
and effects on human health;

Objectives and justification of the feasibility of project implementation, including project
preparedness;

Technical description of the project and assignment note for assistance in the event of
need of technical control in the course of project implementation;

Environmental benefits, including the respective quantitative calculation and
economic justifications;

Schedule for project implementation, quantitative cost assessment, sources of
financing, terms and conditions for loan repayment (when financing is in the form of
credit);

Declaration confirming the authenticity of the information.
For contacts:
Address: 67B, Shipchenski Prohod St., 1517 Sofia, Bulgaria
Tel.: (+359 2) 973 36 37, 973 38 16, 971 22 70
Fax: (+359 2) 973 38 18
E-mail: ecofund@Ind.internet-bg.bg
Fund for Decommissioning of Capacities at the Kozloduy NPP
Objectives:
The Fund for Decommissioning of Capacities at the Kozloduy NPP has been set up for
moderating the consequences from the decommissioning of part of the nuclear capacities at
the Kozloduy NPP. It is also aimed at fostering energy efficiency measures and the use of
renewable energy sources in Bulgaria. Among the donors of the fund are the European Union,
individual European states and Switzerland, which contribute financially on a bilateral basis.
The European Bank for Reconstruction and Development (ERBD) allocates a credit line to
Bulgarian trade banks. EBRD will grant funding to the amount of EUR 50 million for a period of
5-7 years. These loans will be lent to the private sector via local banks. Four banks have been
approved as partners: UBB, the Post Bank, Union Bank and Procredit Bank, with which
cooperation contracts have been signed.
Preferential terms and conditions provided by the financing source:
The Fund allocates targeted financing and financing for technical support to companies in the
form of consultations for raising their energy management capacity and grants as incentives for
project implementation. The borrowers should implemental the project and after its
completion, when the energy savings and environmental benefits are proven, they will receive
free grants as well. For successfully implemented energy efficiency project the grant assistance
allocated by the Fund amounts to 7,5% of the loan amount. For a project involving the use of
renewable energy sources the grant will amount to 20%.
Priorities and conditions offered by the financing source:
The borrowers will be companies from the private sector, above all small and medium-size
enterprises. Larger companies will also have the chance to take advantage of the credit line.
The Bulgarian trade banks, selected to service the credit line, will have to decide to whom to
lend credit and what percentage of the applying projects to finance.
The local banks will set the interest rate depending on the project-related risk and the clientrelated risk. It is envisaged to be competitive to the current financing. The loan repayment
period will range between 3 and 7 years.
Requirements and criteria for allocation of funds by the financial source:
The criteria are related to the requirement for repayment of the investment from the produced
energy savings. This requirement is of key importance.
The concept of utilisation of small, however numerous and accessible power plants will be
applied with respect to the renewable energy sources.
The banks will lend loans on the basis of their applicable in-house procedures. Depending on
the risk, they will also assess how much and what kind of collateral to request.
Other projects for financing energy efficiency in the public sector are also in the process of
elaboration on the part of the EBRD. Demand-side programmes will also be worked out.
A detailed programme for the district heating companies in the country is already available as
well.
For contacts:
UNITED BULGARIAN BANK
Head Office
5, Sveta Sofia St.,
1040 Sofia, Bulgaria
Tel.: (+359 2) 811 + Extension
Fax: (+359 2) 988 08 22,
Telex: 25092
E-mail:info@sof.ubb.bg
www.ubb.bg
SWIFT: UBBSBGSF
POST BANK
Head Office
Bank Code 92099203;
1, Bulgaria Sq., 1414 Sofia, Bulgaria
Fax: (+359 2) 963 04 82
Telex: 22290 bpb bg
Tel.: (+359 2) 963 21 06, 963 21 05;
963 21 04; 963 20 96
E-mail:main@postbank.bg
marketing@postbank.bg
www.postbank.bg
S.W.I.F.T.:BPBIBGSF
PROCREDIT BANK
Head Office
131, Hristo Botev Blvd.
1233 Sofia, Bulgaria
Tel.: (+359 2) 921 71 00
Fax: (+359 2) 921 71 10
E-mail:
contact@procreditbank.com
www.procreditbank.com
Information about ProCredit
Dinamo:
Tel.: (+359 2) 981 26 53,
921 71 11, 958 94 85
Fax: (+359 2) 921 71 10
Information about ProCredit
Business and Development
Tel.: (+359 2) 921 71 22,
921 71 33
Fax: (+359 2) 921 71 10
UNION BANK
Head Office
10-12, Damian Gruev St.
1606 Sofia, Bulgaria
E-mail: mainmail@unionbank.bg
www.unionbank.bg
Telex: 23571; 23570 EAF Code;
99900285
Tel.: (+359 2) 988 46 39
(+359 2) 988 23 74
Fax: (+359 2) 980 20 04
S.W.I.F.T. CBUNBGSF
Division “CREDITING”
Ivo Gudev, Head of Division
(+359 2) 980 23 77
Programmes of the European Commission
ISPA Programme
Objectives:
The ISPA Programme is a tool for implementation of the structural policy of the pre-accession
period and is part of the package for financial assistance provided to the ten Central and
Eastern European countries applying for accession to the EU. ISPA will be operative in the
period 2000-2006.
Preferential terms and conditions provided by the financing source:
ISPA is based on the rules of the Cohesion Fund. This programme provides for evaluation and
financing above all of individual complete projects whose value is above EUR 4 million. It is,
however, also possible to extend financing for a single phase of a project, which is technically
and financially independent, as well as for a group (a package) of projects, bundled by a clear
strategy and forming a unified whole. The funds are provided in the form of grants.
Priority spheres of financing:
The assistance is oriented towards two major groups of measures;

Measures for protection of the environment;

Measures related to the transport infrastructure.
Possibilities for financing of energy efficiency projects:
Generally speaking, the programme might finance energy efficiency projects, which can affect
the environmental parameters.
Requirements and criteria for allocation of funding by the financing source:

Technical and financial independence of the project;

Procured co-financing of the project through a loan lent or planned by the international
financing institutions and confirmed commitment for co-financing by the beneficiary
state;

The project should supplement the existing financial operation and should not repulse
the available financing;

The project should be ready for implementation immediately after the signing of the
financial memorandum;

Special priority is given to projects able to attract maximum supplementary resources
from the international financing institutions, the partner-state and the private sector as
well as facilitating the earlier financing of the additional phases by targeted projects,
which would otherwise not be implemented.
Required documents for application:
The application forms under this programme should contain the following information:

Title of the body responsible for the implementation of the project; project description
and its essence;

Project implementation costs and location, including, if appropriate, relationship and
operative compatibility with measures under similar projects;

Selectivity and objectives (contribution to achievement of the respective objectives in
the Partnership for Accession, branch or integrated plans and programmes, projects of
common interest);

Information about the place and the priority of the project in the framework of the
national Environmental Protection Strategy (for environmental protection projection
projects);

Information about the place and the priority of the project in the framework of the
national Strategy for Development of Transport (for projects in the field of transport);

Schedule for implementation of project activities;

Financial and economic analysis (analysis of costs and benefits, including the direct
and indirect impact on employment, if possible in quantitative expression),
environmental impact assessment and assessment of the impact on environmentally
sensitive zones;

Financial plan, comprising the total amount of the project, the capital expenditure,
current expenses for the entire life cycle, generated revenue, Internal Rate of Return,
sensitivity, information about the economic viability of the project;

Compatibility with the public procurement rules, competition, judicial resolution of
disputes, the EU policy and application of the EU legislation;

Publicity (measures to ensure it);

Planning of project management and monitoring.
For contacts:
Address: 6, Sveta Sofia Sq., 4th Floor, 1000 Sofia, Bulgaria
Tel.: (+359 2) 986 75 80
Fax: (+359 2) 986 28 33
E-mail: ccu@mrrb.government.bg
SAPARD Programme
Objectives:
SAPARD creates the rules for the Agricultural Fund (European Fund for Direction and
Guaranteeing of Agriculture) and the Fishing Tool (Financial instrument for guidance of fishing).
The programme focuses only on measures directly related to achievement of the strategic
objectives and priorities, set in the national Plan for Development of Agriculture and Rural
Areas (2000-2006).
The two primary objectives of the programme are as follows:
1. Development of effective agricultural production and a competitive food-processing
sector through improvement of the market and technological infrastructure and the
strategic investment policy, aimed at reaching the level of European standards.
2. Sustainable development of rural areas in compliance with the best environmentally
sound practices through creation of alternative employment, diversification of the
economic activities and building the necessary infrastructure, which would lead to
improvement of the living conditions and raising the opportunities of the members of
rural communities to find employment and earn income.
Preferential terms and conditions provided by the financial source:
The programme provides grants under the following conditions:
1. Equal participation of the public and the private sectors in project investments (50% of
the total costs each).
2. The programme provides up to 75% of the public investments and the remaining 25%
are financed by the state budget.
3. Private investments are provided by the agricultural producers under various
investment schemes.
Priority spheres of financing:
1. Improvement of the conditions for production, processing and marketing of agricultural
produce, forestry and fishery products, in compliance with the European standards;
development of environmentally friendly agriculture, as well as improvement of the
activities for protection of the environment in agriculture and forestry;
2. Integrated development of rural areas with the aim to preserve and strengthen their
economies and communities and to contribute to curtailing of the process of
depopulation of these areas;
3. Investments in human resources – qualification and training of those employed in
production and processing of agricultural, forestry and fishery products;
4. Technical assistance.
Possibilities for financing of energy efficiency projects:
The programme finances projects for introduction of energy saving technologies and alternative
energy sources in the event of construction of greenhouses, driers, irrigation systems and
products for creation of manufacturing units, production of charcoal and bio-fuel.
Required documents for application:
Candidates for financial support should submit an application, to which the following
documents should be enclosed:
1. Description of the agricultural farm.
2. Copy of the registration card under the procedure laid down in Regulation No. 3 of 29
January 1999.
3. Plan for development of the agricultural farm for the respective period, including an
investment project.
4. Copy of the document for ownership on the agricultural land, of the contract for rental
or another document, permitting the use of the land, wherever such document is
required.
5. Copy of the veterinary medical registration book – passport of the animals (if required).
6. Copy of the document for graduated educational establishment in the subject of
agriculture or declaration of the possession of professional experience, or declaration
about forthcoming acquisition of certificate or diploma prior to payment of the
assistance.
7. Declaration about the equity participation of the candidate or the intention of soliciting
credit from a bank.
8. Letter of intent or copy of contracts for the sale of at least ½ of the respective volume of
production output (if required);
9. At least two bids for equipment to a value amounting to more than the BGN equivalent
of EUR 10 000.
10. Certificate about the suitability of the soil for planting of perennial trees;
11. Decision on the environmental and agricultural impact assessment of the project in
compliance with Regulation No. 1/97 of the Ministry of Environment and Waters (if
required) or position paper on the environmental impact in accordance with Regulation
No. 4/98;
12. Document from the regional veterinary department that the agricultural farm complies
with the requirements of the national legislation (if required).
13. Document from the regional phyto-sanitary inspectorate that the agricultural farm
complies with the requirements of the national legislation (if required).
14. Document from the regional Viticulture and Wine Production Chamber, certifying the
right to uproot existing vineyards and plant new ones.
15. Building permit and technical design project in accordance with the Law on Spatial
Development of the Territory for assistance for construction activities.
16. Registration with the taxation authorities and document from the taxation office,
certifying that the applicant has no unpaid taxes.
17. Declaration that the candidate is not receiving assistance under other programmes for
the same investment.
18. Certificate showing no previous conviction for physical persons and persons authorised
to represent the legal entity.
19. Applying single traders and legal entities should present also a court registration,
certificate for up-to-date status and annual balance of accounts.
For contacts:
Address: 55, Hristo Botev Blvd., 1040 Sofia, Bulgaria
Tel./Fax: (+359 2) 981 94 23
Programmes of the Dutch Government
Programme for economic cooperation
Objectives:
The PSO Programme, which contributes to the development of the trade relations between
Dutch and Bulgarian companies, comprises the following activities:

Technical support, comprising restructuring, training and introduction to the methods
of modern management, marketing and manufacture;

Investments in deliveries and hardware for upgrading of the production process;

Promotion of the contacts between Bulgarian and Dutch companies with the aim of doing
joint business.
The “PSO+" Programme is oriented towards financing of projects developed and proposed by
consortia of Bulgarian and Dutch companies. The projects under the PSO+ Programme should
be related to investment by Dutch companies in Bulgaria or other forms of sustainable
cooperation and should aim at;

Fostering of innovations;

Establishment of lasting trade relationships;

Support for starting new business activities;

Support for the initiatives of Dutch-Bulgarian joint ventures;

Support for the transfer of know-how and capital goods.
Priority spheres of financing:
PSO+ supports companies in the following fields: agriculture, transport, the energy sector,
environmental protection, industry.
Requirements related to allocation of funds from the financial source:

Entrepreneurs should be interested in investments and joint activity, should have as a
partner a Dutch company, which should apply for participation;

The programme may be used by companies active in the following fields: agriculture,
transport, the energy sector, environmental protection and industry.
For contacts:
Address: 8, Slavianska St., 1000 Sofia, Bulgaria
Tel.: (+359 2) 987 49 92
http://www.senter.nl/pso
Programme for Support of the Process of
Social Transformation in the countries of
Central and Eastern Europe
Objectives:
The Matra/kap Programme of The Netherlands Ministry of Foreign Affairs is aimed at assisting
the process of social transformation in the countries of Central and Eastern Europe. The
programme is known also under the name “Matra” Programme of the Embassy for support of
small projects. It covers the following 15 states; Bielarus, Bulgaria, the Czech Republic,
Croatia, Estonia, Hungary, Latvia, Lituania, Poland, Romania, Russia, Slovenia, Slovakia,
Turkey and Ukraine. The embassies of The Netherlands Kingdom in the respective countries are
responsible for the implementation of the programme, which permits them to develop their
domestic contacts and the contacts with the public in the respective country.
Matra/kap provides financing above all for NGO projects, implemented in partnership with
sister-organisations in the Netherlands. One of the largest Matra/kap projects implemented in
Bulgaria is that realised in partnership with the Municipality of Bourgas and amounts to Dutch
gilders 2 million.
Priority spheres of financing:
Most often the grant financing provided in the framework of the Matra Programme plays a
supplementary role. In the event of projects financed by other donors certain activities often
remain outside the scope of the design assignment. In such cases Matra is in a position to
resolve this problem by supplying the deficient financing. Good coordination among the donors
from abroad is an important condition for obtaining free financing.
Requirements related to the allocation of funding by the financing source:
The activities, which enjoy priority in the allocation of grant financing, are as follows:

Initiatives for support of non-governmental institutions in the collection of funds for
organisation of events and for improvement of their relationship with governmental
institutions.

Initiatives for improvement of legislation.

Organisation of seminars oriented towards protection of human rights and the rights of
minorities, improvement of the environment, public participation in initiatives of the
local authorities, etc.

Publication of information materials, connected with the reform process.
The following requirements should be taken into consideration in the formulation of the project:

The project should be the result of a local initiative.

The project should be targeted towards a specific group of the population and the latter
should be involved in its implementation.

The beneficiaries of the project should take up part of the costs.

The project should be realisable under the local conditions.

The project should not be large and should not be market-oriented.

The project duration should not exceed 12 months.
Requirements related to the application procedure:

The application should be deposited in the local Dutch Embassy.

The application should be submitted by the NGO soliciting financing (assistance on the
part of a Dutch NGO is allowed).

The application for financing, prepared in English, should contain the following;
 Accompanying letter, description of the project and the planned activities;
 Description of the manner, in which the project will assist the development of
the civil society;
 Clearly defined project beneficiaries/users;
 Schedule for project implementation;
 Detailed budget in local currency, describing all costs and specifying all
sources of revenue, including the contribution of the project owners and
beneficiaries / users. It should be indicated for what purposes will the funds
under the Matra programme be spent.
If the project is approved, the candidate receives two copies of the contract laying down the
conditions of the donation, one of which should be signed and returned to the Embassy. The
Embassy remits the first installment of the donation against a signed receipt. Within maximum
thirteen weeks after project completion the candidate should present a report on the
implementation and the achieved results, accompanied by a report of the expenditures
incurred on the activities envisaged in the contract. Upon approval of these documents the
Embassy pays out the second - the last - installment under the project. The Embassy reserves
its right to check at any time the project account and the performed activities.
For contacts:
Address: 38, Galichitza St., 1000 Sofia, Bulgaria
Tel.: (+359 2) 962 54 81, 96257 85
http://www.netherlandsembassy.bg
Environment for Europe Fund of the British Government
Programme of the British Embassy and
the British Department for Environment, Food and Rural Affairs (Defra)
The organisations active in the field of the environment may apply to the British Embassy in
Sofia for funding of small projects from the Environment for Europe Fund of the Department for
Environment, Food and Rural Affairs. The Environment for Europe (EfE) Fund supports activities
in the field of the environment and projects in the associated states, the EU accessioncandidate states and the other countries from Eastern Europe, the Caucasus area and Central
Asia. The first round of granting of financing took place in December 2002.
Priority spheres of financing:
All projects should comply with the objectives of the British Action Plan concerning the eligible
countries and with the objectives of the British Department for Environment for assisting the
sustainable development on an international scale. Financing is granted for projects, which are
eligible for support from the EU and possess practical and measurable effect. The possible
spheres are as follows:

Resolution of urgent environmental problems, for which a small amount of financing is
needed;

Support for sustainable management and use of natural resources;

Protection and upgrading of the environment;

Improvement of the educational level and assistance for the free exchange of
information in the field of the environment and sustainable development.
These fields do not make the exhaustive list. Other proposals are accepted as well and are
subject to discussion.
Which organisations may participate:

Central and local authorities, state agencies and public organisations;

Non-profit organisations and NGOs;

Academic institutions and research centers.
Requirements related to the allocation of funds from the financial source:
The amount of financing depends on the type and the size of the project. It is expected that the
average amount of the projects will be about GBP 5 000 – 10 000, noting that every case is
reviewed individually. The ceiling of financing is set at GBP 15 000, however projects with
higher budgets will be allowed for review as well. The application should be accompanied by a
letter of support by the British Embassy in the respective country and a schedule of the events,
the dates of presentation of the preliminary and the final report, the dates of the meetings with
the representatives of Defra and representatives of the Embassy. It is also required to specify
the entire project value and to present detailed breakdown by types of expenditure.
The filled-in application form is sent to the British Embassy, which transfers it for further review
to the Project Approval Board, composed of experts from different state institutions and British
environmental protection organisations. The Board approves some 15-20 projects per year by
the end of November. Free grants are transferred in two installments – the first one is remitted
as an advanced contribution at the project start, upon its approval, and the second one – after
submission of the preliminary report.
For contacts:
For more information and submission of documents:
Peter Petrov
Environment Officer
Tel.: (+359 2) 933 9243
Fax: (+359 2) 933 9250
E-mail: peter.petrov@fco.gov.uk
For inquiries concerning the scheme of the Environment for Europe Fund or requests to obtain a
copy of the “Environmental Project Development Manual”:
EU Enlargement and Sustainable Development Team
Europe Environment Division
Defra
5/E8 Ashdown House
123 Victoria Street
London SW1E 6DE
E-mail: efe_enquiries@defra.gsi.gov.uk
Tel. +44(0)20 7944 6225 or +44(0)20 7944 6225 (until 27 September 2003)
+44(0)20 7082 8556 or +44(0)20 7082 8555 (after 27 September 2003)
Fax: +44(0)20 7944 6249 (until 27 September 2003)
+44(0)20 7082 8487 (after 27 September 2003)
Programme of the Japanese Government
Grant assistance for local level projects
Objectives:
The grant assistance for local level projects consists in granting of funding for projects for social
and economic development. The possible beneficiaries of this grant assistance are NGOs,
schools, research institutes, medical institutes and local self-government bodies. Assistance is
granted also to projects at the municipal and regional level.
Preferential terms and conditions for allocation of financial assistance:
Grant assistance to the amount of USD 50 000 maximum.
Priority spheres of financing:

Agriculture and forestry;

Handicrafts and small manufacturing units;

Professional qualification;

Education;

Medical treatment and health care;

Development of the regional infrastructure;

Construction of water supply and sanitary facilities;

Social activities;

Regional actions for protection of the environment;

Humanitarian aid in the event of natural calamities.
Requirements related to allocation of funds from the financial source:
1. Eligible to apply are NGOs and municipalities (mayoralties) but not trade companies,
single traders and other business entities.
2. The duration of the projects should be up to 1 year.
Required documents for application:
 Filled-in standard application form
 Certificate for actual legal status
 Taxation registration and BULSTAT
 Documents presenting the activities of the organisation
 The latest annual report on activities
 The latest endorsed financial report of the organisation/institution
 List of the members of the management bodies of the applicant and those of the
project partners
 Information note about ongoing projects and sources of financing
 Three up-to-date quotations for the activities, which the applicant intends to assign to
subcontractors.
Criteria for evaluation
Evaluation procedure:
1. By formal criteria;
2. By experts-reviewers;
3. By the Japanese Embassy in Sofia;
4. By the ministry of Foreign Affairs of Japan
Procedure for allocation of the funding for approved projects
1. Signing of a donation contract between the Embassy of Japan in Sofia and the beneficiary
of the grant;
2. Transfer of the funds to the beneficiary’s account;
3. Follow up control by the Embassy on how the funds are utilised.
Contact person:
Ralitza Dimitrova
Embassy of Japan
14, Liuliakova Gradina St., 1113 Sofia, Bulgaria
Tel.: (+359 2) 971 34 37, 971 27 08
Fax: (+359 2) 971 10 95
Export-Import Bank of the United States
Objectives:
The Export-Import Bank (Ex-Im Bank), founded in 1934, is an independent credit institution of
the federal government that finances the export of products and services made in U.S.A. The
Bank has an Environmental Export Programme, which renders assistance to environmental
projects in other countries, implemented in partnership with U.S. companies.
Priority spheres of financing:
Financing is allocated to projects from both the public and the private sectors. There are no
requirements concerning the minimum or the maximum size of the project.
Requirements related to the allocation of funds from the financial source:
An indispensable condition for obtaining financial support from the Export-Import Bank is that
the Bulgarian investor should have an U.S. partner, who submits a Letter of Interest to the
Bank. If there is no U.S. partner, the Bulgarian investor might address the Trade Department of
the U.S. Embassy with a request to conduct a marketing study.
For contacts:
Contact person: Stanislava Dimitrova
Tel.: (+359 2) 963 20 14
For more information, please visit our website: http://www.exim.gov/
REFERENCES
ECS. Financing Energy Efficiency. Application Manual. Energy Charter Secretariat
DEA. Joint Implementation and Clean Development Mechanism project. Manual
for project developers. Version 1. Danish Energy Authority, May 2002
NOVEM. Green Financing in the Netherlands. Environmental yields. Netherlands
Agency for Energy and Environment, 2001
Assessment of Private Sector Anticipatory Response to Greenhouse Gas Market
Development. Conducted for Environment Canada. Final Analysis. Natsource, July
2002
Achieving Full Municipal DSM Potential: An Assessment of DSM Potential,
Financing Options and Program Design. San Francisco: Hetch Hetchy Water &
Power, December 1994
EBRD. Municipal and Environmental Infrastructure. European Bank for
Reconstruction and Development, January 1999
EGI. Third Party Financing and Energy Municipal Utility Restructuring. Final Report.
EGI Contracting/Engineering, MUNEE, ASE, December 2002
ETSU. Economic Evaluation of Energy Efficiency Projects. Prepared for the
European Commission  General Directorate for Energy. Harwell, UK: ETSU – OPET,
1999
NOVEM. Financing Energy Efficiency. Application Manual. The Netherlands Agency
for Energy and Environment, October 1999
E.V.A. Energy Performance Contracting for Small and Medium Sized Municipalities:
Guidelines for Success. Wien: Energieverwertungsagfentur, April 2000
Jamet, Bernard and Michael Brown. Key Elements for the Establishment of an
Energy Efficiency and Climate Change Fund. Part 1: Analysis of the Main Issues to
be Considered. Draft Report. June 2002
Zeman, J. et al. How to Develop Municipal Energy Projects. Financial Manual for
Municipalities in Central and Eastern Europe. Energy Efficiency Series for Central
and Eastern Europe. Volume 1. Praha: SEVEn, April 1997
Книгата на Б.Жаме и Б.Лапош
Книжката от Енергийната харта за финансиране от трета страна
.......
Добре е да се направи библиографска справка от Дамяна. Това е справочен
материал и е важно да се посочат не само реално използваните източници, но
и тези, които може да послучат на читателя за допълнителна информация.
List of boxes in the text
Box 1.
DEMONSTRATION PROJECT IN THE OTETZ PAISSIY SCHOOL IN
GABROVO
Box 2.
RECONSTRUCTION OF THE STREET LIGHTING IN GABROVO
Box 3.
RECONSTRUCTION OF TOPLOFIKATSIYA-GABROVO
Box 4.
CALCULATION METHODS
Box 5.
CALCULATION OF THE DUE INTEREST
Box 6.
NATIONAL TRUST ECOFUND
Box 7.
DEVELOPMENT CREDIT AUTHORITY (DCA)
Box 8.
ENTERPRISE FOR MANAGEMENT OF ENVIRONMENTAL PROTECTION
ACTIVITIES
Box 9.
ISSUE OF MUNICIPAL BONDS IN VARNA
Box 10.
LEASING SCHEMES OF ERATO
Box 11.
BRUNATA BULGARIA OPERATES AS ESCO IN ROUSSE