Ministry of Economics of Latvia, as EU SBSR Policy Area ‘Energy’ coordinator, is organizing a series of online discussions on the topic "Financing renovation project: mapping roles and responsibilities". On November 19th, 2020 from 11 am to 13.30 pm Riga time (GMT+2) we are holding the first discussion round - Financing renovation project: stakeholders, decision-making process, project management, and documentation. In cooperation with the Swedish Institute, we have already established a strong network of experts in the field of energy efficiency by successfully establishing a Baltic Leadership Programme on Energy Efficiency. With the new series of discussions, we aim to discuss associated funding structures, project implementation, execution, main obstacles, and how to overcome them. The ultimate aim is to continue building a macroregional flagship process on exchanging experiences and sharing competencies on Energy Efficiency. Financing renovation project: mapping roles and responsibilities discussion LT

1. Financial Instruments for
Renovation of Multi-
Apartment Buildings in Lithuania:
Experience to Date
Inesis Kiškis
Ministry of Environment
November 19, 2020

2. Humble Early Attempts to do
Something
• Moves to launch modernisation of apartment
blocks in early 90’s were rejected;
• World Bank Project in 1996-2004
• Subsidized renovation program launched in
2006
• Program ran out of money in late 2007
• Decision to launch a “win-win” scheme using
JESSICA in early 2009

3. Original Financial Instrument on
Excellent Terms (too good to be true)
• Borrower: House-owner association
• Maturity up to 20 years
• Fixed interest rate at 3%
• 2 years grace period (during construction)
• No collateral
• 15% capital rebate if 20 % savings attained and energy
efficiency Class „D“ achieved (upon completion)
• 100% of costs to prepare renovation documentation
reimbursed
• 100% of reimbursement of loan installments to low
income families

4. Eligible Costs
• Anything that contributes to increase of
energy efficiency:
– Replacement of windows
– Replacement of doors
– Insulation of ceilings/roofs
– Insulation of walls
– Installation of solar panels
– Replacement of energy related equipment
– Replacement of elevators and electrical wiring in
shared areas (stair wells, basements)…

5. Big Disappointment: The Program
Didn’t Fly…
• Chronic distrust of population in Government
• Failed public relations program
• Apartment owners poorly organized
• Large share of owners on fixed income
• Many low income people were eligible for
heating bill compensations, and had no
incentive to join the program

6. A Number of Other Challenges Were
Encountered
– Possible state aid issues – need to identify and
register
– Legality of personal data handling
– Turning the apartment owners into borrowers
(possibly) against their will, and as a consequence:
– Questioning the constitutionality of entire scheme
– Constraint: limitations within construction sector,
as mostly small companies bid for contracts
– Success in battling „Gazprom“ on gas prices
backfires

7. Corrective Measures
• Extra 25% of capital rebate if savings reach 40% (limited
duration)
• Municipalities instructed to draw lists of the worst-performing
buildings;
• Municipalities appoint renovation administrators
• Administrators borrow on behalf and in favor of apartment
owners
• Loan remains off the balance of Administrator
• 50% +1 of apartment owners have to agree to join the
program (in fact – at least 55%)
• Gradual phase-out of heating bill compensations

8. An Overarching Bottleneck
• The subsidy element turned out to be too
much of a burden on State Budget
• Political courage needed to reduce the
subsidies

9. Current financial terms
• Loans 20 year maturity with 3% fixed interest
for the first 5 years
• 100% grant for preparation of technical
documentation, technical supervision of works
and project administration
• 30% capital rebate on saving 40 % and
reaching energy efficiency class „C“
• 100% of loan installments compensated for
low income families

10. Multiple Stakelholders
• Apartment owners and their representatives
• Government represented by ministries of
Environment, Finance, Housing Energy
Efficiency Agency
• EIB
• Participating banks and VIPA (Promotional
Bank)
• Construction companies

11. Step-by-Step
STAGE 1
Renovation
projects
prepared in line
with the
Modernisation
Loan programme
and approved by
BETA
STAGE 2
Key credit checks
and approvals of
final recipients:
• Min. 55%
vote in favour
• Max 10% of
residents with
utility bill
arrears
STAGE 3
Loan agreement
signed with
Building
Administrator for
entire multi-
apartment
building
STAGE 4
Loan
disbursements
direct to
contractor
following BETA
confirmation of
proper execution
of works
STAGE 5
Once EE targets
achieved capital
rebate grant paid
to financial
intermediary in
form of pre-
payment ofloan.
Final recipients
commence
repayment
Credit: EIB fi-Compass

12. Results
• Completed 2.972 projects
• 85 thousand apartments
• 830 mill. EUR investment
• 765 GWh thermal energy savings per year
• 180K tonnes CO2 saved
• 1.722 projects in progress
• about 57 thousand apartments
• about 760 mln. EUR planned investments

13. EIB Involvement
• Manages the Fund of Funds
• Does a lot of analytical and technical work
• Authorities hardly would have had enough human resources
and skills to accomplish all tasks
– Review of the relevant legal acts: EU and national
– Identification of the stumbling blocks
– Prepare criteria and select participating commercial banks
– Negotiation and signing agreements with commercial
banks

14. Attitude of Participating
Commercial Banks
• Initial reluctance and distrust
• Gradual warming resulting in Pre-financing
arrangement
• Paving the way to Investment Platform

15. EIB Involvement
Managing authority
and Ministry of Environment
Investment
Board
JESSICA Holding
Fund 2007-2013
The Jessica II
Fund
Lithuanian
Leveraged Fund
2 x Funding Agreements
Fund of funds manager
Investment
Board
Credit: EIB fi-Compass

16. Concept of a Leveraged Fund
LT Commercial
banks
Apartment
Owners
SPV
EIB
Funding
Agreement
Gurantee
Ownership
Loan
Loan
O
v
e
r
si
g
h
t
Renovation
Loans

17. Bridging arrangement
Managing Authority
VIPA
EBRD Loan
Green bond
Apartment owners
CEB Loan

18. Investment platform
Fund of funds
International Financial Institutions
Private investors
including
Banks
Institutions
F.Int First loss piece
Junior debt
Senior debt
Credit: EIB fi-Compass

19. How it will work?
• Government deposit into first loss piece layer -
€50 million
• Financial Intermerdiary’s own contribution –
20%
• Leverage effect – 5 times
• Guarantee – 80% of a single project
• Capped at 25% of portfolio

20. Conslusions as per Textbook
• Important to see the “big picture”
• Consistent policies and stable procedures
• Good knowledge of market conditions
• Scrutiny of alternatives
• Good planning – milestones and steps to achieve them
• Consultation with stakeholders, but be consistent and
tough, if necessary, in pursuing the goals
• Apply corrective measures in a timely manner
• Excessive grant funding is detrimental both to donor
and beneficiaries

21. Thank you for your patience!