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Introduction

The EuropeanBank forReconstructionandDevelopmentwas

established in 1991 when communism was crumbling in central and EasternEurope and ex-soviet countries needed support to nurture a new privatesector in a democratic environment. Today the EBRD uses the tools of investment to help build market economies and democracies in countriesfrom central Europe to central Asia. The mandate of the EBRD stipulates thatit must only work in countries that are committed to democratic principles.Respect for the environment is part of the strong corporate governanceattached to all EBRD investments.

• Largest single investor in the region• Owned by 61 countries and two intergovernmental institutions.• Mobilizes significant foreign direct investment beyond its own

financing.• Despite public sector shareholders, invests mainly in private

enterprises, usually together with commercial partners.•

Provides project financing for banks, industries and businesses, bothnew ventures and investments in existing companies.• Works with publicly owned companies, to support privatization,

restructuring state-owned firms and improvement of municipalservices.

• Uses its close relationship with governments in the region to promotepolicies that will bolster the business environment.

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Some Basic Facts

Every EBRD investment must

• Help move a country closer to a full market economy: the transitionimpact

• Take risk that supports private investors and does not crowd them out• Apply sound banking principles

Through its investments, the EBRD promotes

• Structural and sectoral reforms• Competition, privatization and entrepreneurship•

Stronger financial institutions and legal systems• Infrastructure development needed to support the private sector• Adoption of strong corporate governance, including environmental

sensitivity

Functioning as a catalyst of change, the EBRD

• Promotes co-financing and foreign direct investment• Mobilizes domestic capital• Provides technical assistance

Governance and Management of EBRD

The powers of the EBRD are vested in the Board of Governors to whicheach member appoints a governor, generally the minister of finance. The Board of Governors delegates most powers to the Board of Directors, which is responsible for the EBRD's strategic direction. ThePresident is elected by the Board of Governors and is the legalrepresentative of the EBRD. Under the guidance of the Board of Directors, the President manages the work of the Bank.

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About the EBRD

I. Countries of operations: EBRD uses the tools of investment to helpbuild market economies and democracies in countries from central

Europe to central Asia. Following are the countries in which EBRDoperates(in alphabetical order):

• Albania• Armenia• Azerbaijan• Belarus• Bosnia and Herzegovina• Bulgaria• Croatia• Czech Republic• Estonia• Georgia• Hungary• Kazakhstan• Kyrgyz Republic• Latvia• Lithuania• FYR Macedonia• Moldova• Mongolia• Montenegro• Poland• Romania• Russia• Serbia• Slovak Republic• Slovenia• Tajikistan• Turkey• Turkmenistan• Ukraine• Uzbekistan

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II. Financing Countries: The following countries are the financingcountries only

• Australia• Austria• Belgium• Canada• Cyprus• Czech Republic (receiving member until 2007-12-31)• Denmark• Egypt, Finland• France• Germany•

Greece• Iceland• Ireland• Israel• Italy• Japan• Luxembourg• Malta• Mexico• Morocco•

Netherlands• New Zealand• Norway• Portugal• South Korea• Spain• Sweden• Switzerland• Turkey• United States of America.•

The United Kingdom

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(Source:en.wikipedia.org/wiki/European_Bank_for_Reconstruction_and_Development)

III. Ownership and Funding:

• Ownership- The EBRD is owned by its member/shareholdercountries, the European Community and the European InvestmentBank. The Bank's share capital is provided by its members. Votingpower is in proportion to the number of shares.• Funding- With a subscribed capital totaling EUR 20 billion(EUR 5 billion paid-in and EUR 15 billion callable), the EBRDhas a solid capital base. The strength of the Bank's capital and itsprudent operational and financial policies are reflected in the

EBRD's credit rating of AAA from Standard & Poor's, Aaafrom Moody's and AAA from Fitch.

IV. Financing its Loans:

• The EBRD finances project lending and operational needs byborrowing funds on the international capital markets.• The Bank does not directly utilize shareholders' capital to financeits loans. Instead, the AAA/Aaa/AAA ratings enable the Bank to

borrow funds in the international markets by issuing bonds andother debt instruments at highly cost-effective market rates. Byraising funds on competitive terms, EBRD can structure loans whichbest match the requirements of its clients in its countries of operations.• The Bank manages its liabilities such that it does not incursignificant foreign exchange or interest rate risk in its fundingoperations. It interacts with major capital market participants on a

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daily basis in order to ascertain which market, currency or structureof debt can provide the EBRD with the most efficient cost of financing.• EBRD's securities are sold to investors, such as central banks,pension funds, insurance companies and asset managers around

the world.

V. Financing by EBRD:

• The EBRD is flexible by using a broad range of financinginstruments, tailored to specific projects. The main forms of financeare loans, equity investments and guarantees. The Bank appliessound banking and investment principles in all of its operations.

• The EBRD has signed investments in each of its countries of operations. By 31 December 2007, the Bank had signed 2,636projects with a total net value of €36.9 billion, making the Bank

the largest single foreign investor in the region.• Approximately three-quarters of EBRD commitments have been in

support of private sector projects. The EBRD’s investments havemobilized an additional €78.6 billion from other sources.

• The strong support that the EBRD receives from donors has enabledthe Bank to provide over €1.2 billion for technical cooperationprojects.

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*DATA PRIOR TO ABOVE INFORMATION

(Source: www.ebrd.com)

VI. Requirements for EBRD Financing: EBRD financing for privatesector projects generally ranges from 5 million to 250 million euros,in the form of loans or equity. The average EBRD investment is €25million. Smaller projects may be financed through financialintermediaries or through special programmes for smaller direct

investments in the less advanced countries.

To be eligible for EBRD funding, the project must:

• be located in an EBRD country of operations• have strong commercial prospects• involve significant equity contributions in-cash or in-kind fromthe project sponsor• benefit the local economy and help develop the private sector• Satisfy banking and environmental standards.

VII. Project Structure:

• The EBRD tailors each project to the needs of the client and tothe specific situation of the country, region and sector.• The EBRD typically funds up to 35 per cent of the total projectcost for a Greenfield project or 35 per cent of the long-termcapitalization of the project company.• The Bank requires significant equity contributions from thesponsors, which must equal or be greater than the EBRD’sinvestment.• There must be additional funding from the sponsors, other co-

financiers or generated through the EBRD’s syndicationsprogramme.

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Business Sectors supported by ERBD

The EBRD finances projects in most sectors. These include:

i. Agribusinessii. Energy efficiency and climate changeiii. Financial institutionsiv. Micro, small and medium businessesv. Municipal and environmental infrastructurevi. Natural resourcesvii. Power and energyviii. Property and tourismix. Telecommunications, informatics and media

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I. EBRD and Agribusiness:

The sector

The EBRD is the single biggest investor in the agribusiness sector in theEBRD region and its involvement spans all activities throughout theproduction chain, from farming, processing and trading to food distribution,packaging and retail. The EBRD countries of operations have manycompetitive advantages in the agribusiness sector.

• They account for more than 20% of the world’s potentiallyarable land, with top-quality soils and an abundance of skilledlabour.

• Their productivity could be increased vis-à-vis more developedeconomies.

•

They are home to 400 million consumers with increasingaverage incomes, driving an ever-growing demand for high qualityproducts and improvements in distribution and retail.

The team

The EBRD’s agribusiness team has a unique mix of expertise and experience:

• Experience of over 300 projects worth around €4.5 billionspanning the whole of the agribusiness production chain.

• Market knowledge and appetite for projects across the region

with the ability to support projects in challenging environments.• Flexible and innovative products and solutions, both debt- and

equity based.• Track record with satisfied major multinationals - in many cases

with multiple transactions - and a strong track record with localcompanies.

• 27 agribusiness banking specialists of 18 nationalities who areable to draw on the local expertise of other staff in the Bank’sdozens of offices across the region.

The team has a wide variety of clients, from multinationals wanting toexpand their retail business in the region, to local entrepreneurs requiringworking capital or finance for modernizing a production line. If projects arecommercially viable and complement- rather than compete with - privatesources, the EBRD can be a partner providing funds and sector know-how.

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Products

Financing ranges from long-term loans and equity investments in the retailsector to asset-backed, short-term facilities to support the seasonal activitiesof food producers, processors and traders:

• Long-term loans: Tailored to meet the individual needs interms of maturity, currency (including local), security and repaymentschedule.• Working capital loans: A particularly successful instrument toprovide liquidity to the seasonal farming business. These loans areoften secured by grain deposits or other produce.

• Commodity finance: This financing against commodities hasexpanded rapidly and is offered directly to food processors and tradersor channelled through local banks.• Equity: Up to 35% of the total equity in a project company canbe taken in many forms, such as straight equity, preferred shares andconvertible debt.• Guarantees: EBRD’s preferred creditor status, via guarantees,is a considerable benefit both for commercial banks and strategicinvestors in mobilizing private sector financing for agribusinessprojects.• Multi-project facilities: These allow financing to be provided tointernational food companies for several projects under a singleagreement.

International cooperation

• The EBRD Technical Cooperation Funds Programme provides fundingto improve the preparation and implementation of the EBRD’sinvestment projects and to provide advisory services to clients.

• It is funded by governments and international institutions andmanaged by the EBRD. Each year the programme provides about €80

million to finance a wide range of activities of consultants and otherexperts.• The team works in close co-operation with the United Nations’ Food

and Agriculture Organization (FAO) to support clients and sector via a joint Fund for Special Assistance to finance consultants for anythingfrom a sub-sector study to hands-on consultancy for a specific project.

• EBRD’s close cooperation with FAO and the World Bank helped foundEast Agri. East Agri members strive to build relationships, share

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experiences and strengthen communication in the sector and region.Outcomes are more innovative approaches towardsagricultural/agribusiness investments among international financialinstitutions and private banks operating in the region.

II. Energy Efficiency and ClimateChange:

• Energy efficiency is a key issue in the Bank’s countries of operation asthey are much more energy intensive than in the EU.

• All the countries exceed the EU average energy intensity and some

need around five times as much energy. One reason for this is thatcompanies and institutions are facing increasing and unsustainableenergy costs as energy prices increase towards international levels.

High energy intensity can:

• drain public and private sector finances• create social hardship• weaken the competitive advantage of private companies• increase the environmental cost through high levels of

greenhouse gas emissions

The Energy efficiency team

The EBRD is the only IFI with a specialized Energy efficiency team.

The role of the team is to:

• Develop specialized energy efficiency investment mechanismssuch as ESCOs and energy efficiency credit lines.• Identify and implement industrial energy efficiency opportunities

with other Bank clients.• Develop opportunities to sell carbon credits from EBRD fundedprojects, including the Netherlands EBRD Carbon Fund.• Promote and develop renewable energy products, incollaboration with the Power and energy team.

The team comprises nine professionals, including two funded with assistancefrom the Government of the Netherlands, one funded by the Government of

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Sweden and one funded by the Government of Italy. Members of the teamhave backgrounds in public finance, investment banking, accountancy,carbon financing and energy efficiency engineering.

Strategy

The Bank’s strategy in the Energy efficiency sector is to support mechanismsthat develop and finance energy efficiency projects. In addition, it aims toassist its clients to identify and develop energy efficiency opportunitieswithin their operations.

Specifically, the Bank aims to

- Provide direct finance to projects of a significant scale which save energy. The projects can be located in the public or private sector and concerngeneration, transmission/distribution or end-use. In particular:

• Industrial projects in energy-intensive industries• Cogeneration projects, including on-site industrial cogenerationprojects• Existing or new ESCOs. In particular, the Bank supports ESCO

projects which target social facilities, such as schools or hospitals.

- Support the development of sustainable mechanisms using local banks toprovide financing to smaller projects. This can be in the form of dedicatedcredit lines or risk sharing.

- Support innovative financing vehicles e.g. finance companies or equityfunds targeting energy efficiency and/or renewable energy.

- Help monetize carbon credits arising from emission-reduction projects. Thisimproves the bankability of emission-cutting projects such as energy

efficiency; renewable energy; fuel switching; methane capture; etc.

Energy operations Policy

For EBRD energy efficiency is fundamental to increasing energy security,reducing energy investment needs, addressing environmental concerns,alleviating affordability constraints and promoting the economiccompetitiveness.

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The Bank’s countries of operations are not insulated from global energydevelopments and could play a pivotal role in shaping the energy markets of the future. The region faces the following medium-term challenges:

• Competitiveness and efficiency

• Investment and growth

• Energy security

• Climate change

• Natural resource development

The goal of the policy is to address these challenges and help the region toachieve secure, affordable and efficient energy supplies, which arefundamental to the emergence of open market-based economies andsustainable development. To meet this objective, the Bank is setting thefollowing priorities:

• Promoting energy efficiency

• Advancing the unfinished reform agenda

• Promoting renewable energy technologies

• Promoting carbon trading

• Unlocking the region’s energy potential

• Supporting sound natural resource management

• Promoting energy trade and competition

• Increasing nuclear safety

• Promoting environmentally sustainable

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Financial institutions:

Role of financial institutions

• Promote continued development of market-based financial institutions andcontribute to institution building

• Support private and entrepreneurial initiatives, working with local andinternational investors

• Engage in policy dialogue to strengthen regulatory/legislative frameworks

• Focus on corporate governance and institution building.Strategy

One of the EBRD's key policy objectives is to support the development andcreation of a financial sector which is based on sound banking principles,provides high quality services to the corporate and retail sectors of the economyand operates on principles of transparency and good corporate governance. Thekey goals are to:

• Support development of financial systems in all countries of operations• Increase diversity of institutions and promote healthy competition• Strengthen corporate governance• Increase the diversity of financial products and services• Support privatization and restructuring• Promote lending to small and medium sized enterprises• Strengthen commercial orientation of state owned financial institutions

The EBRD seeks to achieve these goals mainly through project focused workwith financial institutions using a variety of financing instruments.

Small and medium enterprises(SMEs)

The EBRD is committed to the promotion of SMEs. Through local banks, theEBRD mobilizes funding for projects that are too small for it to handle directly.

Providing access to finance for SMEs is a crucial part of the Bank’s efforts tostrengthen private sector development and to stimulate competition in theenterprise sector. These facilities also support the development of the bankingsector by helping to improve banks’ credit appraisal procedures of new projects.

A variety of financing instruments are used, from supporting SME orientatedbanks with equity investments to providing financing through SME and micro

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credit focused programmes.

The approach is country specific depending upon the needs of the financialsector. In countries with less advanced economies or dominant state banks, the

Bank’s micro-lending programmes have been a successful tool for reachingsmall businesses. SME credit lines targeted at a wider range of borrowers havebeen successful in countries with more developed private sectors. The Bank’sparticipation in leasing companies is another approach to reach SMEs.Innovative products are being developed and implemented such as the co-financing risk participation agreement with IKB, a leading German Bank, allowingIKB to further expand its financing activities in the region in support of smallbusiness.

Private equity funds are also a significant source of equity financing for SMEs.Private equity funds have been effective at mobilizing additional sources of

financing from investors. The second stage of mobilization takes place at theinvestee company level as the EBRD sponsored equity investment enablesinvestee companies to obtain additional local debt and/or equity financing.

Products :

• Bank debts• Bank equity• Equity funds• Micro and small funds

• Non-bank financial institutions

i. Bank Debt

Strategic priorities

• Support institution building• Promote bank lending to private enterprises• Assist and promote inter and intra regional trade• Support lending for small and medium companies (SMEs)• Provide a broad range of debt and guarantee products

Key products

The EBRD responds to changing market conditions and client needs by revisingexisting debt products and offering new and innovative ones. The Bank can

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specifically tailor transactions to meet client needs.

• Senior loans: multi-currency, straight or with convertibility option,floating and fixed interest rates, caps and collar.

• Mortgage facilities: long term funds for on-lending, foreign or localcurrency on a select basis, standard pricing or with step-up, secured on apool of mortgages or unsecured, standardized features for potentialsecuritization.

• Subordinated debt: can be eligible for inclusion in tier two capital.

• SME Finance: credit lines through local banks for financing SMEs. Technical assistance for training bank staff often available.

• Trade Facilitation Programme: goal is to foster international and

intra-regional trade and to assist participating banks in building trackrecords with their correspondent banks.

• EU/EBRD SME facilities: targeted at EU new member states andaccession countries. Provides credit lines through local banks and leasingcompanies, for sub-loans up to €125,000, supported by EU grants forincentives including technical assistance.

• EU/EBRD Municipal finance: credit lines and/or risk sharing facilitieswith local banks to fund investments by small municipalities in EU newmember states and accession countries. Priority given to infrastructure

projects, 10-15 years maturity. EU grants provide technical assistanceand financial incentives to participating banks and municipalities.

• Global Environmental Credit Facility: credit lines through localbanks to fund environmental investments combined with GEF grants andtechnical assistance.

• Securitization: support the structuring of securitization transactions forCEE banks and non-bank FI such as leasing companies, consumer,mortgage financing companies. Two products: (1) Credit enhancementinstruments including guarantees, equity, sub-debt to facilitate

structuring. (2) Underwriting of commercial paper/bonds issues in thecontext of securitization transactions.

• Risk sharing: main advantage for participating banks is to reduce riskweighted assets for capital adequacy purposes and reduce country andsector exposure. Two products: (1) EBRD and CEE banks share risk of adefined loan portfolio with certain characteristics: SME senior/mezzanineloans, mortgage loans, grain receipt loans, general corporate loans. (2)

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Risk sharing for pool of loans to CEE companies but booked by strategicinvestor outside CEE.

• Energy Efficiency & Renewable Energy Facilities: provides creditlines to private sector through local banks for applicable projects.

Technical assistance for the development of Rational Energy UtilizationPlans and training of bank staff.

ii. Bank Equity

The EBRD has invested equity in 98 banks in 27 countries. It has a trackrecord of successful exits leaving strong well functioning banks. The Bankinvests in institutions committed to providing financial services to a diverserange of local companies.


• Sector reform: facilitate bank restructuring and privatization bysharing equity risk and through restructuring effort; Supportconsolidation in countries with fragmented banking sectors.

• Institution building: enhance corporate governance by activelyparticipating in supervisory boards, promoting managementaccountability, sound banking principles and practices and properenvironmental practices to instill high quality business attitudes andpractices; Increase standards of transparency; Support intra-

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regional bank consolidations and mergers within the countries of operation; Facilitate the transfer of modern financial skills andtechnology.

• Work with key strategic investors who are committed to localbanking markets.

•

Support banks with strong local partners, shareholders andmanagement: in the absence of a strategic investor, the Bank willoften develop a targeted technical assistance programme tofacilitate a transfer of skills to the institution’s local management.

Products

• Purchase/subscription of ordinary/preference shares (5-35% of capital).

• Provision of convertible senior or subordinated debt.• Multi Project Facility: EBRD and strategic partner agree to invest

alongside in a number of banks/non bank FI subject to satisfactorybusiness plan, terms and conditions.

• New products can be introduced to accommodate existing investeebanks' needs.

iii. Equity Funds

The EBRD is the largest private equity funds investor in the region withcommitments of over €2 billion. Third parties manage the funds, enablingthe EBRD to raise corporate governance standards and to promote anentrepreneurial culture.

EBRD’s significant support to its private equity fund managers accelerates thedevelopment and institutionalization of the private equity industry in theregion.


• Work with successful fund managers with demonstrable trackrecord

• Highly selective approach for new funds• Leading role in identifying private equity opportunities• Close partnerships with premiere institutional investors

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• Enhance transition impact and returns by providing co-investmentfacilities

• Promote high value added investment strategies• Share extensive in-house experience of equity sector and country

issues with management and institutional investors.

Products

a. Private Equity Funds

• All spectrum of investment strategies: venture capital,buyouts, mezzanine finance

• Both regional and country-specific funds

b. Donor Supported Funds

• Established by the EBRD and supported by donors whenprivate equity is not available

• Average fund capital €35 million • More typically found in earlier transition stage countries

where private equity investment is more difficult to attractand the business environment and exit strategies are moreuncertain.

New developments

The Bank is introducing new products in the developed equity markets. Forexample, Accession Mezzanine Fund is the first dedicated mezzanine financefund for central and Eastern Europe. Mezzanine finance is a form of riskcapital that combines the characteristics of conventional bank lending withthe potential of equity type returns. This financial instrument is expected totransfer substantial product knowledge not only at investee company level,but also more widely in the financial and legal community in the investee

countries. By investing in this facility, the Bank will increase the possibilitiesof investments by providers of other forms of capital, which ultimatelyincreases flexibility in financing available to local companies.

EBRD private equity funds represent, by different estimates, between onethird and one half of all private equity activity in the region. The performanceby the Bank’s funds thus represents a significant sample of the area’s assetclass.

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The Bank grants senior and subordinated debt to commercial banks and non-bank micro finance institutions for on-lending to MSEs. Amounts range from €20 to €200,000.

b. Equity

The Bank purchases ordinary or preference shares in microfinance banks andinstitutions, or existing commercial banks with a strategic focus on MSEfinance.

c. Technical assistance

Technical assistance focuses on institution building and creating MSE lendingexpertise.

Such measures are important to ensure that EBRD's partners have thenecessary capacity to enter the MSE finance market and to continueproviding loans long after Bank assistance and investment have ceased.

This assistance, which is generously supported by EBRD's donorprogrammes, focuses on:

• Staff training• Streamlining of processes and procedures• Implementation of best practice borrower analysis

• Integration of MSE lending into the partner banks' mainstreamoperations

d. Non-bank micro finance institutions

Non-bank micro finance institutions (MFIs) is a new and important deliverymechanism for the EBRD. The Bank provides leading regulated non-bankMFIs with senior debt for on-lending to micro borrowers. The Bank aims tosupport these financial intermediaries, particularly in their transformation todeposit-taking entities, and will consider future equity investments.

e. MSE focused equity funds

EBRD can invest in or alongside the increasing number of funds which havebeen created to invest in financial institutions with a strategic commitmentto the MSEs in the Bank’s countries of operation.

New initiatives

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• Local currency financing: The Bank is exploring ways to meet thehigh demand for microfinance in local currency by using standby creditlines and issuing securities, the proceeds of which would be providedto partner institutions for on-lending to MSEs. The Bank has alreadyengaged in local currency financing through programmes in Hungary,

Kazakhstan and Russia.• Microleasing : It can be difficult for MSE entrepreneurs to obtain

asset finance. Products available from MFIs are often short-maturityand those available from leasing companies are often tooexpensive. Leasing can provide a solution to the problem of lack of collateral faced by smaller businesses in the production sector. TheEBRD is looking at how to downscale existing leasing operations toamounts that could benefit MSE clients. Another approach is to helpfinancial intermediaries develop this product.

• Risk sharing and securitization: The Bank is exploring risk-sharingproducts to share the risk of the MSE portfolios of its partners. It is also

considering securitizing loan portfolios.• Credit scoring: Credit scoring mechanisms help partners enhance the

profitability and sustainability of their lending programmes. Newinitiatives in this domain would build on the experience gained byEBRD in Central and Eastern Europe.

v. Non Bank Financial Institutions

Equity and debt financing to insurance, pension, leasing, asset management,

consumer finance and non-bank mortgage institutions mobilizes savings andpromotes a competitive financial services environment. This is a growing area forthe EBRD and reflects demand for more sophisticated financial services, betterlegislation, pension reforms and the introduction of mandatory insurance in somecountries. The EBRD has over 100 equity and debt NBFI projects in 20 countriesand is the largest financial investor in the insurance and pensions sector in theregion.


• Broaden range of investments across countries and directly relatedcompanies - e.g. insurance brokers and asset managementcompanies

• Continue to transfer knowledge by working with key westerninvestors and support local shareholders and entrepreneurs

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• Promote enhanced legislation and regulation and in particular theintroduction of pension reforms

• Support the enhancement of local capital markets infrastructurerequired to service an ever increasing local institutional investorbase

• Further support the development of these key sectors:

Leasing Asset management: a professional asset management

discipline needed to manage the growing local institutionalinvestor base (pension funds and insurance companies) aswell as retail investors through mutual funds

Specialist mortgage institutions: focus onsecuritization, in turn broadening the available securitiesfor investors

Consumer finance: focus on experienced companies to

develop activities in the region and promote developmentof legislation and consumer protection.

Products

• Insurance: life, non-life and re-insurance, equity participationbetween 10 and 35%, 7 – 10 years exit horizon

• Pension Fund Management Companies: equity participationbetween 10 and 35%, 7 – 10 years exit horizon, investments indefined contribution pension scheme – both mandatory andvoluntary

• Specialist mortgage institutions: term funding for primarymortgage origination, support of secondary market development(e.g. underwriting of mortgage bonds, local and foreign currencies),equity participation

• Consumer finance: equity participation and loans to fund retailconsumer finance products. These include: low risk secured loans(e.g. charge and credit cards), secured loans to purchase specificgoods by installment credit or hire purchase and store credit

• Asset management: equity in local asset managementcompanies, both institutional and mutual funds, and seed capital fornew established funds

• Leasing: mainly to finance equipment. Four areas of operation:

1. Debt: financing facilities to leasing companies inforeign or local currencies, fixed or floating rate, large debtsyndication2. Equity finance

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3. SME: Credit lines through leasing companies for sub-loans up to €125,000.4. Vendor finance: lease type schemes with westernvendors of equipment.

IV. Micro ,Small and Medium businesses

The EBRD provides strong support for small, medium and micro sizedenterprises. The EBRD’s lending programmes provide individualentrepreneurs and firms with access to otherwise scarce finance. It alsoprovides complementary schemes that aim to help individual enterprisesadapt to the demands of a market economy.

These include all the products which have been discussed earlier under theabove heading:

• Bank debts

• Bank equity

• Equity funds

• Micro and small funds

• Non-bank financial institutions

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V. Municipal and EnvironmentalInfrastructure

The EBRD is committed to improving municipal and environmental servicesin its countries of operations, in line with its mandate to promoteenvironmentally sound projects.

At the EBRD, the MEI sector covers direct revenue earning services, such aswater supply, waste-water collection and treatment, solid wastemanagement, district heating, natural gas distribution and urban publictransport. Infrastructure, such as urban roads, and environmental clean-upoperations, which are not directly revenue-earning, are also included.Generally, the provision, financing and management of these municipal andenvironmental services are the responsibility of local or regionalgovernments. The MEI sector also covers environmental services, such asindustrial and hazardous waste management, that may be organizednationally or outside local government responsibility.

Municipal and Environmental Infrastructure Policy

A country's ability to provide efficient infrastructure and services at locallevel is an important contributor to private sector development.

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Environmental improvements and remediation at local level make industrialand commercial growth sustainable. Local infrastructure and serviceimprovements enhance the quality of life for residents and makes themmore willing participants in a democratic society and support a workforcethat is better equipped to dealing with the challenges of economic transition.

Finally, the linkage between local fiscal and political accountability promotesand deepens democratic principles and promotes a sense of ownershipwithin civil society.

Within this context, the core objective of the Bank's MEI operations is topromote greater efficiency and higher quality in the provision of localauthority services through investment and the promotion of independent,well-managed and financially sustainable operations provided on commercialprinciples and in a market-oriented institutional and regulatory framework.

The EBRD's approach is strongly supportive of transition towards-

• Decentralization of service responsibilities to local or regional levels• Commercialization of the operating companies providing local

services• Environmental improvement as a consequence of investments that

conserve environmental resources and reduce pollution

Decentralization

Decentralization is a key element in improving the quality and cost efficiencyof local infrastructure and services. Experience has shown that, by placingresponsibility closer to the point of delivery in the context of a democraticsystem, decentralization provides a motivation for the public sector to beresponsive to the needs of their constituents. At the same time, to thedegree that decentralization leads to costs being borne at the local level, thepublic sector is encouraged to be rational in its choice of investments and toimplement efficiencies in their operations. In this context, economies of scalein service delivery and managerial responsibilities may occasionally lead to

regional concentration in the provision of local services.

Effective decentralization is associated with:

• Clear and predictable sources of local government revenue andclear rules governing tax sharing and transfer paymentarrangements between national governments and local authorities;

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• Control of local government borrowing through disclosure, reportingand statutory limits rather than ad hoc political decisions;

• Improved corporate governance of local operating companiesallowing commercialization of the provision of local services;

• Independent regulatory arrangements governing the setting of

tariffs and commensurate quality of service standards.

Commercialization

Commercialization means that local government focuses on ensuring goodquality services as cost effectively as possible through the use of moreeffective public sector management, competitive or regulatory pressure andthe use of private sector participation (PSP) where appropriate and feasible,subjecting the affected entities (whether local government or serviceutilities) to the incentives and disciplines of the market. This involveschanges to internal organizations and management approaches to enable

the entities to respond to these new conditions.

Commercialization is associated with:

• Making rational investment choices where resources are limited byhard budget constraints

• Employing cost recovery approaches to maximize user basedrevenues to the extent possible and within affordability constraints

• Ensuring managerial independence while holding utility managersaccountable for delivering an acceptable quality of service

• Transparency and competition in the procurement of goods and

services to ensure good value for money and to avoid opaquepractices and corruption

• Promoting appropriate regulatory supervision by contract orotherwise whenever business activities are not subject tocompetitive pressure, in order to protect consumer interest andstimulate efficient provision of services

• Facilitating efficient PSP through an adequate range of options,including management contracts, concessions, outsourcing, “Build,Operate, Transfer” (BOT) contracts and privatization.

Environmental Improvement

The Bank’s projects in the MEI sector have a direct positive impact on theenvironment by:

• Achievement of environmental standards that are in line with bestinternational practice, in compliance with European Union (EU)directives

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• Appropriate pricing of environmental goods encouragingconservation

• Higher quality infrastructure and technology which reduce losses,energy use and pollutants together with sustainable institutionalstructures for meeting, maintaining and enforcing higher

environmental standards.

Water Tariffs Toolkits

Toolkit: social and political acceptability of water tariffs

The Municipal and Environmental Infrastructure team and the DanishEnvironmental Protection Agency have commissioned the preparation of atoolkit comprising best-practice techniques for assessing the social and

political acceptability of urban water and wastewater tariffs.

These practical tools should help in assessing the risks of non-payment,social dissatisfaction and political resistance associated with increasingwater and wastewater tariffs.

The toolkit should serve as a useful resource to decision-makers andpractitioners for the following purposes:

• setting appropriate performance standards (levels of service) thatreflect consumer preferences, and realistic timetables for increasing

these standards;• providing better information to city officials, banks and private

investors about the sustainability of tariffs and the financialfeasibility of projects;

• encouraging the use of transparent competitive bidding proceduresand public participation in the planning of concessions as a way toincrease the perceived fairness of prices and hence to reduce therisk of consumer resistance;

• providing better ways of assessing whether the criteria for grantsaccorded by bilateral and multilateral agencies (e.g. the EU ISPAprogramme) are met;

• providing information for the design of tariff structures and, if desired, targeted subsidies;

• Helping the water company plan a customer information campaignto reduce misperceptions and create trust.

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VI. Natural resources

Natural resources is one of the most important business sectors for manytransition economies. The EBRD has provided financing for a wide variety of projects in this crucial sector, contributing to an increase in oil and gasactivity and the development of a competitive gold mining industry.

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Natural Resources Policy

The natural resources policy was approved by the EBRD board on 23 March1999.

Natural resources in this context include oil (covering all the product cycle),gas, coal mining and mining of precious and non-precious metals.

Natural resources are an important endowment of several transitioneconomies, particularly in the Former Soviet Union (Azerbaijan, Kazakhstan,Russia, and Turkmenistan, Ukraine etc). In Eastern Europe, Romaniaproduces significant amounts of crude oil, while several other countries haveimportant refining capacity. Mining of precious metals is a major foreignexchange earner in countries such as Georgia, Kazakhstan, the KyrgyzRepublic, Russia and Uzbekistan.

The prospects for natural resource development in the countries of theregion are generally considered favourably. Russia and Turkmenistanharbour the world's estimated largest and third largest reserves of naturalgas respectively. Russia also ranks among the world's five largest oilproducers and significant unexplored structures remain in the northern andeastern Siberian territories. Caspian oil reserves are estimated by severalobservers to be approximately equal to those in the North Sea, giving theregion significant importance as a global producer.

However, reserve estimates provide only an imperfect indication of theeconomic potential of a country's natural resource endowments. In order to

be of economic value, natural resources need to be marketed. Thecommercial viability of natural resource extraction is thus a function of theavailability of competitive technology, transportation routes to majorconsumption centres, and production costs determined by the geologicalstructure of natural resource reservoirs. In the case of oil and preciousmetals, prices fluctuate widely on international commodity markets, andsubstantial financial muscle as well as high flexibility are required to remaincompetitive on international markets. The natural gas market is less volatileand given the need for extensive investments into pipeline transportationentry costs are high. Nonetheless, given substitution possibilities betweenvarious types of fuel and sources of supply, competition in the market for

natural gas is also high.

Marginal production costs for oil in Russia are very high by internationalstandards, a reflection of geological factors but also of the relativeorganizational and technological backwardness of its oil industry. Morefavourable geological factors, higher levels of foreign investment and morerecent development of the major fields lie behind lower production costs inthe Caspian, but here transport bottlenecks continue to constrain the

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development of production. Against this background, the recent fall in oilprices imposes severe adjustment pressures on the oil industry throughoutthe region and could slow its development at least temporarily. It alsohighlights the need to attract high calibre international players to the regionto make it globally competitive.

In the Balkans region, the Bank is called on to participate mainly indownstream projects (refining and petrochemicals), as well as corporaterestructuring and privatization. In Romania, the privatization of Petrol is anopportunity for the Bank to participate in the restructuring and privatizationof the oil and gas sector, so vital in this "oil and gas transit" country.

Central European countries like Poland and Hungary have alreadysuccessfully restructured (or are restructuring) their operations. The mainareas of interest for the Bank are in direct equity investments and other"advanced products" such as quasi-equity or mezzanine financing.

VII. Power and Energy Utilities

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Power and energy projects comprise a significant portion of the EBRD’soverall portfolio. Within the EBRD’s countries of operations, power andenergy infrastructure is often obsolete or old and in need of refurbishment. This challenge has made the EBRD the most active bank in the power sectorin central and Eastern Europe and the CIS.

The EBRD’s main objectives in the power sector are to:

• improve the investment climate and allow the development of energy systems functioning on market principles

• improve efficiency in conversion, transportation, distribution andconsumption of energy as well as the quality of energy services

• improve environmental performance, including supporting actionsto address the climate change issue

• improve the safety of nuclear power production

The Bank’s Power and Energy Utilities Team is the largest sector teamoperating within the region. The team comprises 22 professionals, includingexperts working in Warsaw, Bucharest and Almaty. The members of thePower and Energy Utilities Team have extensive experience in the sector,having worked in investment, commercial and development banks, politicalrisk insurers and power companies.

Energy Policy

The new Policy replaces and updates the Natural Resources OperationsPolicy and the Energy Operations Policy approved by the Board of Directors

in 1999 and 2000, respectively, combining the two spheres of activity intoone comprehensive policy.

Specifically, this Policy builds on past policies and complements moreclosely new regional and global energy initiatives now being implementedby national and international bodies. The Policy particularly mandates theBank to increase its support for energy efficiency and renewable energy,corporate governance and transparency, and to refine its activities inother areas based on lessons learned and evolving best internationalpractices.

The Policy encompasses all activities in energy conversion including:demand side performance, power generation, transmission, distributionand supply, the entire oil and gas cycle from production to transportation,refining, and distribution and coal mining. The Policy will guide the Bank inits direct investment operations and, as expressly provided, in itsinvestments through financial intermediaries.

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EBRD is making energy efficiency the cornerstone of its 2006 EnergyOperations Policy. Energy efficiency is fundamental to increasing energy

security, reducing energy investment needs, addressing environmentalconcerns, alleviating affordability constraints and promoting the region’seconomic competitiveness.

The Bank’s countries of operations are not insulated from global energydevelopments and in fact could play a pivotal role in shaping the energymarkets of the future. In particular, the region faces the followingmedium-term challenges:

• Competitiveness and efficiency• Investment and growth

• Energy security• Climate change• Natural resource development.

The goal of the policy is to address these challenges and help the regionto achieve secure, affordable and efficient energy supplies, which arefundamental to the emergence of open market-based economies andsustainable development. To meet this objective, the Bank is setting thefollowing priorities:

• Promoting energy efficiency• Advancing the unfinished reform agenda• Promoting renewable energy technologies• Promoting carbon trading• Unlocking the region’s energy potential• Supporting sound natural resource management• Promoting energy trade and competition• Increasing nuclear safety• Promoting environmentally sustainable development

Renewable Energy

The EBRD aims to promote environmentally sound and sustainabledevelopment in the full range of its activities. One of the Bank's objectives isto improve the environmental performance and long term stability of thepower sector, including supporting actions to address issues of climate

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change, energy security and diversification of supply. As part of thisobjective, the EBRD is actively supporting the development of the renewableenergy sector within its countries of operation.

The EBRD is pursuing opportunities to invest through equity, project financeand corporate debt to fund renewable energy development, construction andoperation activities. The Bank is also open to opportunities to invest inrenewable energy focused funds dedicated to the Bank’s countries of operation where these funds are filling a clear gap in the market or have welldefined value-add propositions.

Challenges of renewable energy projects

The founding agreement of the EBRD requires that all of the projects itfinances meet sound banking principles. Considering the generally low level

of power tariffs in the countries of operation and the lack of developedlegislation to support renewable energy projects, the EBRD and projectdevelopers have faced significant challenges in identifying those projectswith sufficiently robust economics to make financing possible.

However, the climate for renewable energy projects in the EBRD countries of operation is improving.

As part of the accession of the first group of Eastern European countries tothe EU, new members have set targets to generate a certain percentage of power from renewable sources and have put in place new legislation to

support the sector to meet these goals. This new supportive environment isenabling this new sector to emerge with the inflow of capital and expertise tothese markets combining with the entrepreneurship of local companies andindividuals. Nevertheless, many hurdles in testing, implementing andrefining the support structures for this new market still remain, andtransparency and consistency is key to its successful long term development.Beyond the EU, legislation and support for renewable energy is alsobeginning to be put in place and EBRD is playing an active role to promotethis development.

How the EBRD is increasing its portfolio of renewable energy

projects

The EBRD is taking active measures to expand the number of renewableenergy projects which would be eligible for Bank financing and to play aproactive role in the development of the sector:

• Technical Assistance to support sector development• Risk Capital for Project Development

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• Carbon finance

• Renewable Energy Funds

VIII. Property and Tourism

The EBRD plays an important role in attracting foreign investment to theproperty markets of its countries of operations. The EBRD has financed over30 projects in all major property sub-sectors, such as offices, shoppingcentres, warehousing, residential developments and hotels.

Property Policy

At the end of 2000, the Bank’s cumulative commitments to the PropertySector in the Bank’s countries of operation totalled Euro 450 million,supporting investments of Euro 1.5bn. Through its activities in these sectors,the Bank contributes to the development of markets which form part of thebasic business infrastructure expected by foreign investors as a prerequisiteto their investment in a particular country and for the sustained expansion of their business overtime

Further, the Bank’s engagement in policy dialogue especially with regard to

property rights and mortgages contributes to the advancement of theinstitutional framework that is a prerequisite to a proper development of theproperty markets. Additionally, through its investments and the backwardsand forward linkages they create to related economic sectors, the Bank alsohelps in the development of the local construction markets and relevantproperty and tourism service sectors thus contributing to the shift of localeconomies from industry to services over time.

In Advanced countries, significant developments have already taken place incapital cities, many with the Bank playing a leading role as a catalyst forcofinancing. For the real estate markets in these countries to develop further

and the developers and financiers to be incentivized to move into theprovinces (and to Early/Intermediate countries as well as Russia), theentirety of the property markets in the Advanced Countries need to functionproperly. The Bank therefore has a leading role to play in developing thedepth of the secondary property markets in the Advanced Countries mainlythrough the introduction of new instruments which will target both domesticand international investors.

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Finally, in the regional centres the Bank has a key role to play as a risk takerin the development of the primary property and hotel markets by being acatalyst for the development of institutional quality real estate of localproportions. By being flexible and innovative the Bank is in a position topromote transition effectively in the property and hotel markets of its

Countries of Operation and in parallel remain highly additional by introducingnew types of investors, both local and domestic, which contribute to theincrease in scope of financial sources available for the development of thesector and thus promoting transition further.

In the financing of operations in these sectors the Bank has the followingobjectives:

• Promoting private sector investment through equity and debtfinancing and creating long term investment vehicles and newproducts for local and foreign investors in order to promote both theprimary hotel and property markets as well as the secondarymarkets.

• Participating in smaller projects through direct sector specificinvestment funds and credit lines aimed at supporting SMEs.

• Supporting projects that transfer technology, knowledge andmanagement skills to the property and tourism markets.

• Developing the local construction and building materials sectors.• Supporting environmentally sustainable development projects

including projects that support urban regeneration.

The policy proposes a flexible approach to financing the Property sectordepending on the transition stage of the relevant countries and the Bank’sability to be a catalyst in moving the transition of the property marketsfurther.

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• Assisting the incumbent operator and the government to accelerateprivatization

• Developing appropriate regulatory and legal frameworks• Extending development of the Sector beyond basic telephone

services, including media, which promotes access to

communications and information.

The relative focus on these objectives will depend on the transition stage of any particular country. The Bank's unique capability to cover the full private-public spectrum of operations allows it to help the Sector throughout allstages of the transition from state-owned monopolistic operator to liberalizedcompetitive market-led environment. This evolution has led to a move fromsovereign guaranteed to corporate financing, thereby giving the EBRD theoperational flexibility needed to assist the public sector whilst maintaining itspriority for private sector participation.

The proposed strategy provides a flexible approach, tailored to the transitionstage of the host country, that responds to the highly complex, varied,technology driven and ever-changing needs of the Sector, promotes requiredreforms in the provision and financing of telecommunications, informaticsand media infrastructure and services, furthers good governance and reflectsthe comparative advantage of the Bank.

X. Transport

The EBRD fosters transition of the transport sector by financing economicallyviable infrastructure and transport projects. The EBRD’s policy aims to buildefficient, reliable and secure transport systems in six lines of transportbusiness: aviation, ports, railways, road transport, shipping, and logistics.

Transport Policy

The Transport Operations Policy sets out the general strategic and

operational role of the Bank in this sector and establishes the overallframework for the Bank’s activities. Approved by the Board of Directors on19 April 2005, this is be the third such policy, and replaces the documentapproved in February 1997.

The Transport sector is crucial for the development of the economies andmarkets of our countries of operation and is therefore an important sector forthe Bank.

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Focus Areas of EBRD

i. Integrity and Anti-corruption: The EBRD has developedmechanisms to ensure that the highest level of integrity is respected

in all of its activities. The reputation and the future of the EBRDdepend on the Bank’s integrity. The EBRD is committed to promoteintegrity, good corporate governance and high ethical standards inall business operations.

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ii. Bonds: The EBRD is an established debt issuer in the capital markets. The Bank continuously develops innovative products and has a broadinvestor base. This track record enables the EBRD to access themarkets at any time and in the borrowing volumes needed to supportthe Bank’s development targets. As at 31 December 2008, the Bank

had issued EUR 33.4 billion in 36 currencies, of which 437 wereprivate placements totalling EUR 10.2 billion, and EUR 12.9 billion of which remained outstanding. Many of the public issued bondsrepresented landmark deals. The average maturity of the Bank'sissuance was 10.8 years and the remaining average life of theoutstanding debt was 5.9 years.

iii. Capital Markets: With over 15 years of experience, the EBRD plays asignificant role in the international capital markets through a broad

range of activities. The Bank's Treasury department is involved in:

• Funding• Investments - Credit• Balance Sheet Management• Client Risk Management

The Bank has established conservative operational and lendingguidelines, which is reflected in the EBRD’s AAA/Aaa/AAA creditrating.

By maintaining prudent capital levels, a membership that iscommitted and a gearing ratio of 1:1, the EBRD offers its investorsreliable investments.

iv. Donors: Donor funds mobilize investment capital and expertise in theEBRD’s countries of operations by giving local business access toconsultant experts. The consultants help prepare projects andstrengthen local management know-how. They also developenvironmental strategies and work to improve the legal framework

which business operate in. Donor programmes are funded bygovernments and international institutions, and are managed by theEBRD.

v. Early Transition Countries: The Early Transition Countries Initiativeaims to stimulate economic activity in the Bank's eight poorest

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countries of operations: Armenia, Azerbaijan, Georgia, KyrgyzRepublic, Moldova, Mongolia, Tajikistan and Uzbekistan. More than50 per cent of the people in these countries live below the nationalpoverty line.

vi. Economics: The EBRD Office of the Chief Economist (OCE) works withbanking teams to strengthen the transition impact of projects. It alsohelps develop the Bank’s country strategies and sectoral policies.Finally, the OCE conducts research aimed at key strategic, policy andoperational issues.

vii. Environment: The EBRD is unique among multilateral financial

institutions in that it has had an environmental mandate since itsinception. The mandate commits the Bank to finance projects thatare environmentally sound and sustainable. 'Environment' is definedby the Bank in its broadest sense to encompass not only ecologicalimpacts but also worker, health, safety and community issues.

The EBRD will seek to ensure that the projects it finances:

• Are socially and environmentally sustainable.• Respect the rights of affected workers and communities.• And are designed and operated in compliance with applicable

regulatory requirements and good international practice. i.

viii. Evaluation: By evaluating its operations, the EBRD is able to assessits performance and account for its decisions. The Bank looks at theoutcomes of policies and projects, determines how successful theywere and tries to use these lessons to improve operations in thefuture

Although the Board of Directors is kept informed about the findings

of Evaluation Department Reports and discusses details in the AuditCommittee, it is the responsibility of the Evaluation Department todetermine what is contained in the reports it releases to the public. This is necessary to ensure that the Evaluation Department is able tofulfill its important independent evaluation role in the Bank andprovide lessons learned.

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projects and strengthen local management know-how. They alsodevelop environmental strategies and work to improve the legalframework which business operate in. Donor programmes are fundedby governments and international institutions, and are managed bythe EBRD.

xiv. Trade: The EBRD has a range of products to facilitate intra-regionaland international trade in its countries of operations. The tradefacilitation programme provides credit facilities in the form of EBRDguarantees issued in favour of international commercial banks,covering the risk of issuing banks in the region. In this wayconfirming banks benefit from the EBRD's AAA credit rating. TheEBRD also provides direct financing to banks in the region for on-lending to local companies for trade-related activities.

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Environment

The EBRD is unique among multilateral financial institutions in that it has had

an environmental mandate since its inception. The mandate commits theBank to finance projects that are environmentally sound and sustainable.'Environment' is defined by the Bank in its broadest sense to encompass notonly ecological impacts but also worker, health, safety and communityissues.

The EBRD will seek to ensure that the projects it finances:

• Are socially and environmentally sustainable.• Respect the rights of affected workers and communities.• And are designed and operated in compliance with applicable

regulatory requirements and good international practice.

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Bibliography

i. www.ebrd.comii. en.wikipedia.org/wiki/European_Bank_for_Reconstruction_an

d_Development

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