Amangeldy Isenov, Deputy Chairman of the Management Board of the Eurasian Development Bank

Doing business in RE field is a big global trend today. Multinational corporations, international organizations, and financial institutions are also involved in “green” projects. How does the Eurasian Development Bank participate in them? What is the Bank's RE support financing program? Amangeldy Issenov, Deputy Chairman of the Management Board of the Eurasian Development Bank, answers these and other questions.

-          Amangeldy Sagandekovich, please tell us about the EDB's goals in general, as well as about the RE support financing program, in particular.

-          The purpose of the program is to increase the Bank's portfolio in the field of renewable energy sources and to provide further support to the member states in the development of “green” energy. Renewable energy sources are taking increasingly prominent place in the global electric power industry. At present, renewable energy sources do not occupy a significant place in the energy balance of the EDB member states; however, many countries have developed state support programs and have identified specific targets for the construction of such facilities. In accordance with their mandate, EDB and other development institutions support the establishment and development of the RE field.

EDB, which has already successfully financed renewable energy projects in Russia, Kazakhstan and Belarus, is able to provide long-term financing in national currencies under flexible conditions, and is also ready to take risks on renewable energy projects in accordance with the regulations in the member countries. In this regard, the Bank can become one of the key financial institutions in financing investment projects in the field of renewable energy in the region.

-          The volume of financing under the announced program is quite substantial - 600 million USD. What projects will EDB focus on? Are there any preferences for a particular renewable energy source (solar, wind, hydropower, geothermal sources)?

-          Over the past few years, the Bank has signed a number of agreements and financed projects for the construction of RE generation facilities, including:

• a loan to Ereymentau Wind Power LLP (subsidiary of Samruk-Energo JSC) amounting to 23 billion KZT for the construction of a 50 MW WPP in the town of Ereymentau, Akmola oblast;

• purchase of bonds issued by Samruk-Energo JSC totaling 21.7 billion KZT, part of which is aimed at modernizing Shardarinskaya HPP;
  
• loans to Solar Systems LLC companies totaling 6.6 billion RUB to finance the construction of four SPPs of 15 MW each in Astrakhan oblast;
  
• a loan to Enel Rus Wind Azov LLC amounting to 9.5 billion RUB to finance the construction of a 90 MW WPP in Azov district, Rostov oblast;
  
• a loan to Nord Hydro - Belyi Porog LLC amounting to 3.8 billion RUB to finance the construction of two small-scale HPPs of 25 MW each in Karelia;
  
• a loan to the First Wind Power Plant LLP amounting to 14.2 billion KZT to finance the construction of a 45 MW WPP near the town of Ereymentau, Akmola oblast, etc.
  

In financing renewable energy projects, the Bank actively cooperates with international and national development institutions. Together with such institutions as the New Development Bank, the International Investment Bank, the Asian Infrastructure Investment Bank, a number of promising projects in the field of renewable energy are being considered, which are planned to be constructed in 2020-2021.

Over the last years, EDB has accumulated sufficient experience in financing renewable energy projects, therefore, the Bank intends to continue developing such areas as financing of solar, wind and hydropower plants.

-          EDB is an international financial institution. How will the program funds be distributed among the countries participating in the program? Will small and medium-sized businesses from the renewable energy sector be able to apply for financing? What requirements will EDB set?

- EDB member states are actively developing domestic renewable energy resources, which in many countries is a priority area in the energy sector. For example, Armenia focuses on the construction of small-scale HPPs, Kyrgyzstan - the construction and modernization of large-scale HPPs and the development of small-scale HPPs, Tajikistan's RE field priority for 2016-2020 is given to small-scale HPPs. Russia, Kazakhstan and Belarus are actively developing wind and solar power plants. At the same time, EDB is ready to consider renewable energy projects in any country that is a Bank's shareholder.

The program offers:

- up to 600 million USD to finance renewable energy projects with a total installed capacity of up to 500 MW;

- each loan term is 10-15 years;

when financing projects under program, the Bank seeks to use possibilities to form loan syndicates with national credit institutions and multilateral development banks, and attract funding from international and national development institutions.

To be considered for financing, a project needs to have the following parameters:

- project amount - from 30 million USD (equivalent in national currency);

-          payback period - 10—12 years (if offtake agreement - for the period of validity, but not more than 15 years);

-          share of the borrower - at least 20% of the total investment needs of the project;

-          collateral (movable and immovable property), bank and corporate guarantees or other security document that meets Bank's requirements;

-          economic and technological feasibility.

It is expected that the prospective borrower and (or) a group of companies (if the borrower is a specially created company for the project implementation) have sufficient experience in the implementation of large investment projects, a positive reputation, are financially stable and operating at no loss.

-          What are the lending conditions under which investors in the renewable energy sector can get a loan in national currency? What is the time frame for considering an investment project from filing an application to the start of disbursing funds?

-          The Bank provides financing both in foreign currencies (US dollars, euros) and in the national currencies of the member states. An interest rate is influenced by a number of factors, including the level of project risk, the compliance of the project with the Bank's mission and strategy. Integration between the member countries in purchasing equipment, using technology, attracting capital, etc. is a factor contributing to the reduction of an interest rate as well.

As for project finance, the Bank is developing this area in renewable energy projects. One of the EDB's instruments is Limited Recourse Project Financing, which is a form of project finance under which the main risks are assumed by the project, but it is possible to distribute risks over project participants (the project company, investors / sponsors, etc.) so that each participant carries his/her own risk. It should be noted that each project requires individual consideration, that is, conditions may differ.

The speed of project consideration also depends on transaction structure. If we talk about more standard loan structures, for example, credit lines to a known borrower, collateral and a well-developed package of documents, the process of considering projects from application to disbursement can take from 2 to 6 months. In the case of a syndicated loan, with two or more lenders involved, a big number of collaterals, or the use of foreign legislation, the states. If participants are non-residents, the Bank engages independent legal firms to conduct a due diligence. Based on the results, the Bank's competent authority makes a decision about whether to finance the project or not. As a rule, procedure can take from 6 months to a year.

-          There is no doubt that many renewable energy projects in Kazakhstan have been implemented thanks to foreign investors. Will the EDB financing program for renewable energy projects be open to foreign investors who want to implement renewable energy projects in the member states?

-          One of the Bank's requirements is to implement a project on the territory of the member foreign investors create special companies according to the legislation of the member state which removes some of the legal risks. As any investor, investors in renewable energy projects want a stable and predictable market. For renewable energy projects, an important issue is long-term financing (15-20 years) in national currency at a low interest rate (with a final rate of no more than 10%). SPAQ constantly raises these issues at different levels. We discussed this issue at Solar Fest Qazaqstan in July 2019, included it in the final Charter to the Government of the Republic of Kazakhstan. As you can imagine, this would allow avoiding currency risks to a certain extent, and would also create economic incentives for the sector's development.

-          As it is known, the European Bank for Reconstruction and Development is now the leader in investing in renewable energy projects in Kazakhstan. The Asian Development Bank has been also active and initiated several wind power projects. The Development Bank of Kazakhstan has also started to move towards renewable energy projects. Is not the market getting crowded? Will EDB be able to offer more attractive mechanisms for investors and developers to fill its niche?

-          EDB has financed a number of renewable energy projects in Kazakhstan, Russia and Belarus. Several projects are currently under consideration. During this time, our team has accumulated sufficient experience in this area, thanks to which we are always in tune with our customers and try to jointly solve emerging issues. The Bank has been assigned high ranks by three major international rating agencies Standard & Poor's, Moody's Investors Service and Fitch Ratings, which exceed the sovereign ratings of the Bank's member states. High ratings allow attracting relatively cheap funding for further project finance, which has a positive effect on interest rates. In addition, the Bank uses various instruments:

Limited Recourse Project Financing, investment financing through loans and the purchase of bonds, participation in the authorized capital, syndicated loans, which gives some flexibility in structuring projects.

For our clients' convenience, since 2019, the Bank has been providing payment processing, including opening and maintaining savings accounts and the ability to make payments from current accounts in national currencies of the EDB member states (Republic of Armenia, Republic of Belarus, Republic of Kazakhstan, Kyrgyz Republic, Russian Federation, Republic of Tajikistan) through the Bank's correspondent accounts opened directly with central (national) banks and denominated in the national currencies of the respective countries.

EDB fulfills its mission by financing activities for the preparation and implementation of investment projects, supporting regional integration programs, and conducting interstate, national, sectoral and innovative research. To this end, the Bank created a Technical Assistance Fund, providing technical assistance in financing investment projects, subsidizing the interest rate, and technical assistance to expand the EDB's investment activities.

In general, each financial institution has its own strengths and weaknesses, as well as its own category of borrowers, who, having compared all the conditions and criteria, choose a suitable lender. For example, one client is ready to sacrifice some high cost of money in favor of speed, while for another, the main criterion is the cost of money, in other words, the interest rate.

Thanks to our shareholders, team and clients, we have filled a niche in the market and are planning to expand our customer base and portfolio.

-          Today there is a lot of talk about "green" finance instruments. Does the program provide for the development of such instruments?

-          This year we have expanded the RE financing program and are developing a “green” finance program, which will include projects not only in the field of renewable energy, but also in such areas as transport and infrastructure, construction, agriculture, waste management, etc. The main criteria for “green «projects are a positive impact on the environment, reducing CO2 emissions and increasing energy efficiency.

The Bank does a great deal of work in this area together with the Astana International Financial Center (AIFC). We consider this direction promising and after the program's approval, we expect the Bank, together with AIFC, to become an active participant in the “green” finance market. We also hope to improve customer experience by attracting targeted funding from institutions specializing in “green” finance, as well as by further increasing the Bank's ratings.

-          Finally, I would like to talk about the potential of the Eurasian renewable energy market. This is undoubtedly a difficult question due to differences in energy systems in different countries. Still, private companies from countries such as Kazakhstan and Russia, where the renewable energy installed capacity has already exceeded 1 GW, could perhaps share their experience and knowledge with other member state, where renewable energy sources have not yet received much development? Do you think it is possible to use the resources of the EDB financing program for this?

-          The EDB Centre for Integration Studies is working a lot in this direction. The Centre was founded in 2011 and has established itself as a serious and reliable source of high-quality analytics in the field of Eurasian integration. The EDB Centre for Integration Studies specializes in applied quantitative research. The range of topics covers macroeconomic modeling (especially in the context of the EAEU), monetary and financial issues, mutual investments, mutual trade, activities of regional associations, development of cross-border infrastructure, labor migration trends and public perception of integration.

The United Nations Development Program (UNDP), with the help of funding from the Russia-UNDP Trust Fund for Development, is implementing the “Capacity Building for Sustainable Development Finance in the CIS Region” project initiated by EDB. The project will conduct research, including on such topics as «Green Economy: Analysis of the Best International Practices and Methodologies of MDBs and IFIs in Project Finance», «Analysis of the Best International Practices and Country Methodologies for the Development of a Green Economy «. The studies provide for the analysis of international practices in the field of the “green” economy, “green” finance, regulatory aspects of the “green” economy, the implementation of projects and programs by international organizations and international financial institutions in the field of the “green” economy, recommendations to EDB on the strategy of positioning the Bank as an institution that finances projects in the field of “green” economy.

-          Thank you for the interview.