Update on PPC activities and prospects for the future

Craig Davies PPC Executive Secretary Tenth Meeting of the EECCA Environmental Finance Network Paris, 22-23 February 2007

Presentation overview

 PPC staffing  Project identification, preparation and financing  Key challenges and lessons learned in financing environmental infrastructure investments  Capacity building: progress with Project Financing Workshops  Planned activities up to the Belgrade Ministerial Conference  Future prospects for the PPC

PPC staffing – deployment of PPC Officers

 The PPC has continued to shift more of its capacity out of IFI headquarters and into EECCA countries  Sept 06 – Sept 08: new Swedish-funded PPC Officer position based in Tbilisi covering environmental infrastructure projects in Early Transition Countries  Sept 06 – Sept 08: new Finnish-funded PPC Officer based in St. Petersburg covering environmental infrastructure in North-Western Russia  Oct 05 – Mar 07: support from an EC-funded Project Preparation Consultant working on water AND sanitation projects in Armenia, Moldova and the Kyrgyz Republic

Project identification, preparation and financing in EECCA countries

 In the EECCA region, PPC Officers are currently involved in the preparation of:  14 water supply and sanitation projects (9 in Early Transition Countries, 5 in North-Western Russia)  2 district heating projects (in North-Western Russia)  8 solid waste management projects (6 in Early Transition Countries, 2 in North-Western Russia)  4 municipal transport projects (in Early Transition Countries) • Further details are given as an annex to the handouts for this presentation.

• Quantitative figures of amounts of finance are in preparation pending finalisation of reports for the Belgrade Conference.

Key challenges to financing environmental infrastructure investments in EECCA

 Difficulties in identifying donors interested in supporting projects in specific countries (e.g. Kyrgyz Republic).

 Some donors have very long processing times for considering funding applications, which makes it impractical for them to fit in with project cycles.  Uncertain ownership of projects due to unclear divisions of responsibility between different government departments/agencies and ad hoc decision making.  Difficulties in securing sovereign guarantees, where needed, can significantly slow down project development.

 Carbon financing (under Kyoto protocol mechanisms) presents new opportunities for financing a range of environmental infrastructure investments (e.g. district heating) – but are EECCA countries equipped to take advantage of them?

Specific challenges: financing water supply and sanitation projects

 The identification of sufficient capital expenditure grant co financing from donors to enable investments to go ahead while ensuring the affordability of the water supply to the population.  Some low-income EECCA countries are subject to IMF caps on concessional lending, although this is not necessarily a problem in its own right as a large proportion of grant financing is usually needed anyway to avoid unaffordable tariff increases.

 An important limiting factor on project development is access to untied technical cooperation funds for project preparation, especially untied funds that can be mobilised quickly for small assignments like audits, credit analysis, etc.

Specific challenges: financing solid waste management projects

 Solid waste management projects are subject to many of the same constraints as water supply and wastewater projects.

 Institutional issues can pose additional challenges for solid waste management projects – for example land acquisition can be a slow process which can impact negatively on timely project preparation.

Specific challenges: financing municipal transport projects

 It is particularly difficult to identify donor capital expenditure grants for public transport projects.  The Netherlands is one of the few donors active in the transport sector, but otherwise opportunities are limited.  It is also difficult to secure sovereign guarantees for urban transport projects.  Loans can be provided directly to cities, but only at higher interest rates.  This makes it difficult for public transport companies to cover loan repayments as fares cannot be increased to cover such relatively expensive loans.

Capacity building: Project Financing Workshops (PFWs)

• First workshop held in Tbilisi, Georgia, in July 2006 (with UK funding).

• Participants from three municipalities (Kutaisi, Rustavi and Zugdidi), plus water utilities and the Ministry of Natural Resources and Environmental Protection.

• Project Concept Data Sheets developed for project ideas in the areas of water supply and solid waste management:  Water supply improvements in the city of Kutaisi: construction of facilities to access alternative sources of potable water in a city of 190,000 inhabitants;  Solid waste management in the city of Kutaisi: construction of a landfill site and improved waste collection and disposal facilities;  Solid waste management in the city of Rustavi: improvements to existing systems for waste collection, transportation and disposal.

Capacity building: Project Financing Workshops (PFWs)

 Second PFW delivered in Russia (Volgograd) in December 2006 with UK funding  Representatives of five municipalities from Volgograd Oblast participated. Six Project Concept Data Sheets were developed:  Flood protection of the town of Frolovo, Volgograd Oblast  Sludge dewatering facilities at the Kamyshin biological wastewater treatment plant  Design and construction of a sewage discharge manifold from the Kamyshin pumping station  Reconstruction of water treatment facilities in Central District, City of Volgograd  Reconstruction of water treatment facilities in Krasnooktyabrsky District, City of Volgograd  Reconstruction of the third line of the waste water treatment plant in Volzhsky municipality.

Project Financing Workshops: next steps and lessons learned so far

• Major barriers to project development identified and addressed  low levels of knowledge about IFIs and donors  little experience of preparing project proposals for IFIs  securing political backing from municipal authorities  technical and language skills.

 Next steps: PPC to facilitate presentation of finalised Project Concept Data Sheets to IFIs/donors  Including through a dedicated page on the PPC website ( www.ppcenvironment.org

).

Future Project Financing Workshops in EECCA during 2007

 Ukraine - planned for April 2007  planned in partnership with the Association of Municipalities  funding from the German Federal Environmental Agency.

 Armenia - planned for May 2007  planned in partnership with UNDP  funding from the Early Transition Countries Fund.

• Kazakhstan - proposed for September 2007  pending funding negotiations with the German Federal Environmental Agency.

Other planned PPC activities up to the Belgrade conference

 Recruitment of a new Netherlands-funded PPC Officer to work on energy efficiency, renewable energy and emissions trading  Local-hire officer to be based in Tbilisi covering Early Transition Countries.

• Two reports to be prepared for the Belgrade Ministerial Conference  Category I: Mobilising Finance for Environmental Priorities – Recommendations for the Future  Category II: PPC report to the Sixth Ministerial Conference “Environment for Europe” in Belgrade.

• A review of donor support for environmental investments in EECCA.

• Finalisation of the PPC review to determine future options for the PPC after the Belgrade Ministerial conference.

Options for the PPC after Belgrade

 The PPC review has proposed two broad scenarios for the PPC:  PPC working with a wider range of IFIs supported by a new multi donor fund  PPC working exclusively with EBRD supported by existing multi donor funds such as the Early Transition Countries Fund.

• These options will be presented in more detail at the Joint Meeting of the EAP Task Force and PPC on 15-16 March.

• A final decision on the future of the PPC will be taken by Ministers at the Belgrade Conference.