China - Energy Efficiency Financing Project

Page 1 INTEGRATED SAFEGUARDS DATA SHEET CONCEPT STAGE Report No.: AC2237 Date ISDS Prepared/Updated: 06/19/2006 I. BASIC INFORMATION A. Basic Project Data Country: China Project ID: P084874 Project Name: China Energy Efficiency Financing Task Team Leader: Leiping Wang GEF Focal Area: C-Climate change Global Supplemental ID: P098916 Estimated Appraisal Date: June 5, 2007 Estimated Board Date: September 13, 2007 Managing Unit: EASTE Lending Instrument: Financial Intermediary Loan Sector: District heating and energy efficiency services (90%);Banking (10%) Theme: Climate change (P) IBRD Amount (US$m.): 200.00 IDA Amount (US$m.): 0.00 GEF Amount (US$m.): 13.50 PCF Amount (US$m.): 0.00 Other financing amounts by source: BORROWER/RECIPIENT 0.00 Local Sources of Borrowing Country 200.00 200.00 B. Project Objectives [from section 2 of PCN] The development objective of the proposed project is to improve energy efficiency in medium and large-scale Chinese industries by developing sustainable energy efficiency project lending programs in selected banks to support energy efficiency investments in these industries. The key performance indicators of the project will be energy savings achieved in medium and large scale industries; and associated emission reductions of greenhouse gas and other pollutants. EE project lending increases in participating banks will also be a key output indicator. C. Project Description [from section 3 of PCN] The preliminary design of the proposed project was initiated jointly by the GoC and the Bank in 2004. Since then, the concept of the proposed project has been developed gradually based on extensive consultations with major stakeholders and market assessments under the Three Country EE Financing Technical Assistance Project. Five commercial banks and two policy banks have shown strong interests in participating in the project as financial intermediaries and four of them (two commercial and two policy banks) have formally submitted project applications to the GoC. Page 2 It is proposed for the project to finance a line of credit to the selected domestic bank(s) with an IBRD loan of US$ 200 million. Under the project, the selected banks will establish EE lending business with the support of the proposed technical assistance (up to US$ 15 million including proposed GEF financing), and will utilize their own financial resources in addition to the Bank loan proceeds to increase the impact of the project. The proposed technical assistance may also support additional domestic commercial banks committing to EE financing but not participating in the IBRD on-lending support to further amplify the impact of the proposed project. Component I ??? Line of Credit for EE financing The proposed IBRD loan would be on-lent by the GOC to selected domestic bank(s) which would in turn re-lend these funds, at market rates, to enterprises (regardless of public or private ownership) for medium- and large-sized EE investment sub-projects, according to the lending policies of the bank(s) concerned as well as the operational manual that includes procedures and eligibility criteria to be agreed with the Bank. The domestic banks will be responsible for loan repayment to the GOC and assume all the financial risks. As some of the EE subprojects may be potentially eligible for carbon credit trading under the Clean Development Mechanism (CDM) scheme of the Kyoto Protocol, opportunities of carbon financing will be explored to enhance EE subprojects??? creditworthiness and improve their risk profiles. Approaches for such credit enhancement will be developed during the project preparation stage. These may include: (a) carbon credit payment escrowed as a debt service reserve by the subborrowers; or (b) assignment of carbon credits to the bank(s) concerned as part of the collateral for the bank loans. Component II ??? Technical Assistance Tailored technical assistance (TA) will be provided to the domestic banks for (1) EE lending business start-up; (2) capacity building and training; (3) development of necessary internal mechanisms, procedures, and a knowledge base adequate to evaluate and extend loans to industrial enterprises for energy efficiency projects; (4) lending subproject pipeline development; and (5) loan evaluation and due diligence. TA will also be provided to Chinese energy intensive industries through participating banks to mitigate technical risks of large scaled energy efficiency projects, especially those involving new technologies and/or comprehensive system re- integration. Finally, technical assistance is proposed for GOC to (a) develop a set of government policy and regulatory vehicles to promote investment into the industrial sector for large energy efficiency projects and (b) strengthen the government capabilities, in the areas of enforcement of related laws, government regulations and standards, and supervision and monitoring of energy efficiency related activities by energy intensive industries. D. Project location (if known) Nationwide Page 3 E. Borrower