EBRD Lending to the Water Sector in Romania

1. Dana CraciunescuPrincipal BankerEBRD Municipal and Environmental Infrastructure TeamBucharest29 September 2004 EBRD Lending to the Water Sector in Romania 

2. EBRD: Financing Water Projects • Introduction to EBRD • Water infrastructure needs and challenges • EBRD investments in Romania • Outlook

3. Introduction to EBRD Key facts about EBRD • International financial institution founded in 1991, owned by 62 national and supranational shareholders, including EU • Promotes market-based economies in 27 countries in Central & Eastern Europe and the former Soviet Union • Provides finance to public and private sectors • Total commitments of €21.3 Bln • Commenced lending in water sector in 1995 with commitments of over €1.2 bln. EBRD Water and Municipal Environmental Financing:

4. EBRD Approach • Commercial Structure - loan size/structure linked to capacity to repay. - tariff increases assessed to keep within affordability - covenants to improve financial/operational performance • Financial Discipline - increased local level financial and managerial autonomy and control - access to political EU/ISPA and other grant financing • Political Commitment - municipal guarantee/support agreement - project support agreement with central government Objective is an independent and sustainable water business

5. Water Sector: Challenges and Needs • Lack of investment in water supply and wastewater treatment threatens: - poor quality of service (leaking pipes, inefficient equipment, groundwater pollution undrinkable water) -decline in environmental and health standards • Water Companies have a weak financial position: - insufficient due to low tariffs - collection is weak impacting cash flow - inadequate metering and IT systems impact financial and operational management - affordability issues • Commercial banks reluctant to make long term loans available for investment

6. EBRD's Experience in Romania (Portfolio of € 256.2million) • One of first countries in which EBRD lent money to restructure water sector • Strong commitment from central government to decentralise finances to provide greater fiscal autonomy at the local level • Water services are in the jurisdiction of counties and municipalities • Services characterised by poor quality drinking water, high ground water pollution, large water losses • Approximately 60% of households connected to water in cities versus 10% in rural areas • ISPA and EU are key players in the water sector • Tariffs set at local level, but approved by national regulator • Trend away from sovereign loans toward non-sovereign and private sector

7. EBRD's Experience in Romania Municipal Utilities Development Programme (MUDP) 1 (1995) and MUDP 2 (1997) • two sovereign-guaranteed loans totalling USD 28 mln and USD 75 mln, providing funds for critical investments in 15 cities • investment in priority areas coupled by strong TC component to improve financial and operational performance of the utilities • metering and tariff increases have resulted in lower water volumes • in more successful projects, political will to support tariff increases, cost reductions and improved collections, resulting in improved finances of the water companies

8. MUDP Cities • KEY MUDP I MUDP II

9. EBRD Experience in Romania Municipal Enrivonmental Loan Facility (MELF) €110 million • MELF loans provide co-financing for ISPA projects on a non-sovereign basis • EBRD willingness to lend is based on cash flow of water company coupled with municipal guarantees • Most loans are to existing MUDP clients, with a demonstrated track record coupled with the political will to reform • MELF clients include water utilities in Constanta, Brasov, Iasi, Arad, Timisoara,Tg Mures,Oradea, Sibiu, with loan under preparation for Bacau • Apa Nova • €55.4 million loan to finance the water treatment plan for a water concession with Veolia (formerly Vivendi Environment) as operator for the city of Bucharest • DEG as a co-financier

10. OUTLOOK - Romania • Significant investment needs • Metering and tariff increases are resulting in rationalisation of water to EU levels • Optimistic for water investment, due to EU Accession and availability of ISPA grant funding • Growing interest in privatisations and public private partnerships • Growing interest of commercial banks to lend under EBRD's umbrella • SAMTID - Government initiative to consolidate and regionalise services of water operators to create financial strong water operators, sovereign financing involving EU, EBRD and EIB • Institutional capacity to implement projects is growing

11. Opportunities • Technical cooperation assignments • Investment opportunities • Equipment sales → As water projects are categorised as public sector, EBRD’s public procurement rules apply – open tender → To be eligible for EBRD and ISPA financing, tender to award concession needs to be competitive

12. Romania Susan Goeransson Tel: +44 20 7338 7940 Fax: +44 20 7338 6964 e-mail: goeranss@ebrd.com Dana Craciunescu Tel: +40 1 202 71 00 Fax: +40 1 202 71 10 e-mail:craciund@ebrd.com MEI team Contacts www.ebrd.com