Description: 

The Program is designed to support the government’s initiatives to scale up energy efficiency (EE) and cleaner production (CP) investments by increasing financial access for EE investments.

Background:

This Program will target approximately three to four commercial private banks and leasing companies, and seeks to develop a track record of SE investments which would spur other FIs to develop similar programs without additional donor funds. The program will be designed and implemented in coordination with IBRD. IBRD plans to support the government in its EE/CP efforts, focusing on new industries and ESCO support, and work mainly through government channels and state-owned banks.

In addition, there might be another EE program by ADB focusing on large heavy industries such as cement and steel. The ADB proposes a pilot program to finance waste heat recovery technologies in 10 large cement companies, which are mainly state-owned enterprises (SOEs). The IFC initiative differs from ADB’s proposed program in that it addresses the wider need for finance and market barriers reduction, such as knowledge and technical capacity across several sectors.

Objectives and Outputs:

The Program includes both commercial banks and leasing companies. The leasing sector in Vietnam is just emerging now, and many SMEs are turning to leasing companies for small incremental investments (typically 50,000 to 100,000 USD). Leasing is effective at keeping EE investments off-balance sheet and makes smaller investments more attractive. Leasing companies can finance many technologies, including boilers, compressors, chillers, control systems, EE motors, and co-gen units. Leasing companies also don’t often require, or require less collateral from SMEs. Once a track record has been established for the underlying investment portfolio, other FIs will make the upfront investment necessary to develop similar lines without subsidies.

Using FIs to promote private sector development has been a successful business model by IFC in other emerging markets, but not yet in Vietnam. IFC recognizes the intervention gaps, such as financial sector involvement and funding mobilization, but cannot offset the initial costs of developing EE and CP lines through concessional interest rates. CTF will provide incentives to strategic first mover FIs. CTF will also allow IFC to move quickly with multiple banks, and thus push the programmatic approach to reach market wide transformation faster. CTF support to FIs will show that financial sectors can be crucial in energy conservation and climate change, and private sector financing is effective to scale up climate financing, beyond the limited government and donor subsidies targeting SOEs and demonstration projects. Additional benefits include the service sectors stimulation, such as energy audit, energy management training, project development, equipment supplies, ESCO services, etc.

The advisory services component will support market development activities (promoting knowledge and technical expertise on the end-user side), and capacity building for participating FIs. Lessons learnt and experience of SE financing will be shared across areas.

This project summary is drawn from draft project proposals [such as the PAD, PID, SAR, and country investment plan] and may not contain the most up-to-date information.

Project Details:
Proposed Decision | Project Proposal | IFC Project Portal
Approved on September 30, 2010 (Approved Decision)
Approved amount(s):
USD 8.6 million (of the 30.0 million originally approved, 21.4 million was canceled)