Energy Transition Sector Development Program (Subprogram 2)

proposed

The following solutions are proposed under a sector development modality: (i) a policy-based loan to deepen the policy framework and support the government in adopting sectoral reforms to accelerate the energy transition; and (ii) a financial intermediation loan (FIL) to support private sector investments in energy efficiency. The FIL component will address a key constraint to the adoption of energy efficiency in Cambodia: access to finance, under favorable conditions, for investments in energy efficiency by local small and medium enterprises (SMEs), including those owned by women. To this end, an Energy Efficiency Revolving Fund (EERF) will be set up and operationalized to provide low interest loans to SMEs with the option of a credit guarantee product. The EERF will be financed with a concessional loan of ADB, with these resources subsequently on-lent to participating financial institutions (PFIs). The SME Bank, a state-owned bank under Cambodia's Ministry of Economy and Finance (MEF), is proposed as the financial intermediary that will administer the EERF. This critical connection between much-needed financing to local SMEs for energy efficiency investments is pivotal to deepening energy efficiency in the country. The effectiveness of a financing mechanism like the proposed EERF is also predicated on the establishment of an enabling policy and regulatory framework on energy efficiency, which was developed under subprogram 1 and subprogram 2, and will continue under subprogram 3.