€80 million BDL-subsidized energy loans at zero interest. Financing scheme by EIB and AFD through local banks - Lebanon

€80 million BDL-subsidized
energy loans at zero interest
Financing scheme by EIB and

AFD through local banks

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The European Investment Bank (EIB) and Agence Française de Developpement (AFD) will provide a financing facility of €80 million ($95.8 million) through local banks to finance energy projects.

The interest rate paid by the borrowers will be near zero as the credit facility will be heavily subsidized by the Central Bank (BDL).

The facility, named Lebanon Energy Efficiency and Renewable Energy Finance Facility (LEEREFF), aims to finance small scale projects in the sector of energy efficiency and renewable energy, said Reinhard Six, Senior Engineer at the Energy Efficiency Division of the EIB’s Projects Directorate.

“It is a good opportunity for local companies to improve their energy efficiency and their performance in addition to enabling them to use more renewable energy,” Six said.

LEEREFF aims to finance projects ranging from a minimum of $54,000 of investment to a maximum of $60 million of investment. The scheme could also finance smaller projects if large demand for such loans emerges.

The objective is to disburse the funds within 24 months. The first tranche will come by the end of this year or early next year.

“Local banks are very well prepared and they are quite advanced in energy efficiency lending so I am very optimistic that the funds will be disbursed in a very short period of time,” said Helmut Lorenz, Consultant for financial systems development at German-based GFA Consulting Group.

GFA Consulting Group will support the implementation of the financing facility and will assist the participating banks. It will also cooperate with the banks to help investors develop their projects. “The support will be mainly technical and we will use our engineering expertise to proactively support investors,” said Lorenz. These services will be provided free of charge as part of the technical assistance funded by the European Union Commission under the Neighborhood Investment Facility scheme.

Rani Al Achkar, Energy Engineer at the Lebanese Center for Energy Conservation (LCEC), said they will benefit from the technical support that will be provided by the LEEREFF team. LCEC is mandated by BDL to study the technical side of the subsidized loans requests.

The total interest rate on a LEEREFF loan will be computed on the basis of the weighted average of the interest rates charged by EIB and AFD plus a margin of 3.75 percent for the local commercial banks, plus a commission of 0.5 percent for BDL. Then a percentage equivalent to 1.5 times the interest rate on one-year treasury bills in liras will be subtracted from the total interest rate and as a result the final interest paid by the borrower will be close to zero. The local banks will pay the interest to EIB and AFD, while BDL will provide liquidity in liras to the banks equivalent to one and a half times the amount of the loan.

The interest that the banks will earn on this liquidity will more than offset the interest they pay to EIB and AFD.

Six said they are in talks with five banks to select potential participants for the LEEREFF scheme. He said EIB will contribute 50 million euros to the LEEREFF and AFD the remaining 30 million euros.

LEEREFF will be complementary to, and will be run in parallel with the existing National Energy Efficiency and Renewable Energy Action (NEEREA).
Reported by Shikrallah Nakhoul
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Date Posted: Sep 20, 2017