Focus on MEI projects

Municipal and environmental infrastructure

The EBRD recognises the importance of infrastructure for economic development and the need to invest in its regeneration. The Bank has been active in Romania since 1995, when it began by financing critical investments in water infrastructure. Since then, the EBRD has expanded its role and works closely with the European Union across the country to co-finance improvements in water and waste-water systems. Building on its expertise in water infrastructure, the EBRD has expanded its assistance to other types of infrastructure: from modernisation of district heating in Timisoara, upgrading of roads in Brasov and Sibiu, improvements in public transport, for example tram line upgrades in Iasi, bus fleet regeneration in Sibiu and Brasov, refurbishment of historic city-centre infrastructure in Bucharest and improvements to solid waste infrastructure in Arges and Bacau.

With a flexible and creative approach, the Bank has worked closely with its clients and designed projects that are specifically tailored to meet the needs of various municipalities and counties. It complemented loans with technical assistance funds from donors and dedicated European Community programmes, and helped to implement projects having a positive impact on people’s life, improving their comfort and the quality of municipal services rendered to them. These loans led to more efficient operations, resulting in reduced losses and energy savings, enabling municipalities to direct budgetary savings to other priority areas of investment.

The EBRD typically lends to municipally owned utility companies. Since 2000, all of the EBRD’s loans have been without sovereign guarantees and have helped to shape the growing market for municipal finance. By extending loans designed to provide incentives for commercialisation and improved service delivery, the EBRD has supported the long-term sustainability of local utility companies which provide services for a population of nearly 7.5 million people. For non-revenue generating transactions, such as urban and regional road upgrading, the EBRD’s focus on economic rates of return has assisted municipalities in developing cost-effective capital investments and lower cost maintenance arrangements.

EU co-financing

The EBRD plays a crucial role in helping to mobilise EU funds and has mobilised nearly €0.5 billion in EU Phare and ISPA grant financing to support critical investments, predominantly in water and waste water. Through close monitoring of its clients, the Bank has developed a reputation for efficient and effective implementation, particularly for projects co-financed with EU ISPA grant funds. Three of the EBRD’s ISPA co-financed projects are in the final stages of implementation.

The EBRD has also promoted regionalisation, which will be a requirement for EU grant funds under its environmental window. Five of the EBRD’s clients are regional water operators and the EBRD financed the only water operator organised along river basin lines, Compania Apa de Somes, in the counties of Cluj and Salaj. The EBRD will continue its activity in working with its clients to mobilise EU Cohesion Funds.

Supporting extensive renovation in Sibiu

In 2006, Sibiu began preparations for becoming the European Capital of Culture in 2007. The city needed a total makeover following years of neglect during and after the communist regime. There was just one big problem: infrastructure.

The municipal government needed to undertake extensive renovations including restoration work to the facades of old buildings. Railway Station Square, the city’s main entrance point where most tourists gain their first impression of Sibiu, needed renovating to make it an efficient interchange for trains, buses, cars and pedestrians. Some 36 city streets needed to be fitted with proper drainage, among other things. All this would have been too costly for the municipality to fund alone.

The municipality could not attract long-term loans from local banks. Asked to help, the EBRD responded promptly and provided the city with two loans of €25 million in total that are to be paid in 12 years.

While Sibiu's economy and public services have developed a lot in the last three years, modernisation of urban infrastructure was still needed to support the high rate of development. The EBRD loan helped the city to purchase 30 buses, replacing 60 per cent of the city’s fleet and improving transport for locals and for the large numbers of visitors expected in 2007.

Extra, related, funds of €425,000 were attracted from the governments of Austria and the United States. These were used to support the municipality during contract tendering, to cover the cost of hiring consultants to supervise the renovation work, and the commercialisation of Sibiu’s public transport company.

An earlier EBRD loan guaranteed by the municipality of Sibiu helped improve waste-water services for more than 170,000 residents across the municipality. It was complemented by a €25.6 million grant from the European Union’s ISPA programme. The combined financing helped support the extension and rehabilitation of the sewer network, rehabilitation of the drinking water treatment plant, metering and monitoring of the water distribution network.

Support for road improvements

Brasov is the first county in Romania to receive an EBRD loan to help finance the rehabilitation of approximately 60 kilometres of regional roads. Some €5 million of the total €15 million loan will be syndicated to the Austrian Niederoesterreichische Landesbank-Hypothekenbank.

The financing introduced performance-based multi-year contracts into road maintenance to increase the efficiency of spent funds. Under these contracts, payments to the contractor were based on measured outputs reflecting service quality levels on the roads. The project included technical support to improve the county’s road database and to prepare EU structural funds applications.

Public transport upgrades

The Bank has already been involved in urban transport projects in the towns of Arad, Iasi, Braşov and Sibiu resulting in excellent relationships with these cities and developing potential for more public transport projects with increased transition impact.

Braşov, located in the heart of Romania, will significantly improve its urban and public transport using a €30 million loan from the EBRD. It is the first time that the Bank has lent directly to a municipal transport company in Romania without a guarantee from the city. This shows how other municipal companies open to reform can gain access to long-term finance without municipal or sovereign guarantees.

Braşov municipality will use its portion of the EBRD loan to upgrade key roads and further improve transport management across the city, while the public transport company will rationalise transport services and acquire around 100 new buses.

Investing in energy efficiency while modernising district heating

The EBRD has lent €15 million to Colterm, a district heating company owned by the city of Timisoara, to invest in the energy efficient generation of both heat and electricity in a move that will reduce harmful greenhouse gas emissions. This project has helped turn around an ageing heating company into one that is more modern, efficient, and will also provide local households with a secure and constant supply of heat and electricity.

By replacing outdated heat-only generation units with more environmentally-friendly gas turbines, Colterm will cut carbon dioxide (CO2) emissions by around 120,000 tonnes per year. To cut a similar amount of CO2 using offshore wind-farm technology, an investment of around €120 million would have been needed. These reductions will help produce up to €4 million worth of carbon credits, which will be sold to the EBRD for the account of the Netherlands, following a joint agreement between the two in 2003 to help reduce emissions in central and eastern Europe.

The idea of generating and using carbon credits to pay towards the investment is an innovative approach that works greatly in favour of the company because it makes the project more financially viable.

Tackling regional infrastructure development by addressing water treatment

The EBRD is supporting regional infrastructure development and the regionalisation of the water operators. As the process of convergence continues after the country’s accession to the EU, the Bank supports regionalisation as a means of improving water services in smaller towns and achieving greater economies of scale. Regionalisation also underpins the sustainability of investments and operations and the development of a long-term water sector strategy, while also promoting regional balanced growth

Some 26,000 people living in northwestern Romania, near the Hungarian border, will benefit from cleaner water and reduced pollution as a result of an EBRD loan worth €18 million that will also extend the reach of the local water network. A €12 million portion of the loan will be used to co-finance the extension of the water and waste-water network in Oradea by constructing water and sewage pipes in parts of the city and eight adjacent communities which are not currently connected to the network.

The significant environmental benefits of the loan also include the reduction of cross-border groundwater pollution in the Crisul Repede River on the border between Hungary and Romania.

These investments will be the first step in the company’s transformation into a sustainable regional operator – one of the key criteria for eligibility for EU cohesion funds. An additional €200,000 of technical cooperation funds for consultancy services will assist the company in its regionalisation, achieving substantial efficiency gains and greater access to commercial capital.

This project is the fifth EBRD project with a regional water utility in Romania, following the signing of the projects in Cluj Salaj in 2005 and Timisoara in 2007, and the conversion of the water utilities in Targu Mures and Arad.

Such projects had a significant impact on the reform of this sector in terms of building institutional and regulatory framework and tariff reform. Those service utilities and local governments that have implemented tariff reform and commercialisation are now in a position to obtain capital directly.

Introducing a solid waste management programme in Arges county

The EBRD is lending €6.2 million to Arges County, in southern Romania, to support a solid waste management programme covering the main municipalities in the county. This will be coupled with €18.3 million in grant finance from the European Union under ISPA, a programme supporting infrastructure projects in accession countries, that will finance a new EU-compliant landfill.

The EBRD loan will support a county programme to create a new regional landfill, improve solid waste collection facilities, and help to close down illegal dumping sites and landfills that incompliant with EU regulations. The loan will specifically finance waste collection and transportation, waste collection containers and containers that will support waste segregation, recycling and composting. The Bank will also work with the county to to boost public-private partnerships in the sector.

This loan is important in supporting a two-part programme being implemented by the county that should improve waste management across the whole of Arges County, covering the capital, Pitesti, as well as centrally located municipalities and rural areas – in all, a population of around 650,000.

New approach to solid waste in Bacau municipality

The EBRD is lending €5 million to the city of Bacau, in north-eastern Romania, to help improve its solid waste management programme.

The loan will be coupled with €15 million in grant finance from the EU ISPA programme. These funds will finance the closure and renovation of existing landfills, and will finance a new landfill site that is compliant with EU environmental requirements.

The Bank’s loan will specifically finance equipment and facilities for solid waste collection and recycling, such as bins and special collection vehicles, as well as items used for composting. The Bank will also work with the city to utilise private companies in the management of its solid waste operations.

The project in Bacau will provide for an environmentally sustainable and affordable integrated waste management system that complies with the EU requirements and national waste management legislation. This is a continuation of the fruitful cooperation between the EC and the EBRD in financing environmental investments in Romania.