Legal EE Infrastructure: Dnipropetrovsk

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Translated version of this PSD: Ukrainian The EBRD is considering providing a loan to the Municipal Energy Managing Enterprise of Dnipropetrovsk (the “Company”) for financing energy service company (ESCO) energy efficiency investments in public buildings and street lighting in the city of Dnipropetrovsk. The investments will be implemented by private sector contractors (specialised engineering companies, ESCOs) and financed after implementation. The investments will be procured in sub-projects on the basis of Energy Performance Contracting (EnPC), with contractors invited to participate in competitive and transparent public EnPC tenders. Tenders will require (1) design of energy efficiency investments, (2) their implementation and (3) guaranteed operational (energy) cost savings for repaying the projects’ works (efficiency investments) and services (operations and maintenance). Projects will reduce the operational energy expenditures of the municipality, while ensuring: (i) full investment cost recovery in a public budget neutral way; (ii) commercially viability of the tendered EnPC projects; (iii) reduction of uncertainty for all stakeholders by clarifying the legal framework conditions for EnPC projects and clear contractual allocation of responsibilities to the most adequate party (e.g. engineering responsibility for design and performance of energy efficiency measures to ESCO); (iv) attracting private sector expertise for designing energy efficiency investments. The project is a first step in the longer-term process of developing a private sector led and financed ESCO/EnPC market in Ukraine. In this pilot project, private financing is limited to the working capital and short term loans raised by the ESCOs for the implementation of the long term energy efficiency investments in public buildings. The transition impact of the project is expected to derive from: (i) framework for markets via the establishment of a legally and commercially viable and replicable contracting structure; (ii) private sector involvement in delivering and financing the investments and further energy savings through involvement in energy management; and (iii) transfer of skills from TC project implementation support to both project developers and EnPC service providers, as well as to other municipalities. The Project will support the creation of public sector demand for ESCO energy efficiency projects (in particular EnPC), while supporting private sector ESCOs with finance to supply this demand. The Company will competitively tender on behalf of the municipality the demand-side ESCO energy efficiency projects on the basis of EnPC. The Project will be a first step to demonstrate benefits of private ESCO services to the public sector with a view of a later national roll-out of EnPC projects. The Municipal Energy Managing Enterprise of Dnipropetrovsk, wholly owned by the City of Dnipropetrovsk. Up to EUR 20 million loan to the Company, secured by a municipal guarantee. Up to EUR 22.5 million. The loan financing is to be complemented by a grant of up to EUR 2.5 million from the Eastern Europe Energy Efficiency and Environment Partnership (“E5P”), approved by the E5P Assembly of Contributors on 6 December 2012. The project has been categorised B in accordance with the EBRD Environmental and Social Policy 2008. The project is expected to result in significant environmental and social benefits through energy saving measures in the selected public buildings. In addition to the energy savings, the project will improve comfort level for the users of the selected public buildings. Currently, over 70 public buildings including schools and administrative buildings are expected to benefit from the upgrading of their heating systems, lightning, insulation, ventilation and windows. An environmental and social due diligence was undertaken on the basis of independent energy audits of the buildings proposed to be included in the project and an Environmental and Social Questionnaire completed by the Company. The due diligence showed that the project is not expected to be associated with significant adverse impacts, provided that the potential localised and temporary nuisance and disruptions during the construction works are mitigated by adhering to good construction practices. The Company follows Dnipropetrovsk City Council’s public information disclosure policy and uses the City Council website to inform the public on on-going and planned sub-projects. An Environmental and Social Action Plan (ESAP) has been developed to ensure the company and its contractors will adhere to sound environmental, health and safety management practice during the project implementation and that there is a grievance mechanism in place available to public. An EBRD TC funded Project Implementation Unit will support the Company in implementing the environmental, health and safety requirements, as well as incorporating environmental and social conditions in the tender documents and contracts for the sub-projects. The Bank will monitor the environmental and social performance of the project by reviewing Annual Environmental and Social Reports provided by the Company and Lenders Supervisor’s Reports and may also undertake site visits. Pre-signing