By Nevena Krasteva
Does the EBRD plan to increase its engagement in the Western Balkans in 2020 and 2021 in response to the coronavirus crisis and what priority areas will the bank support?
Since March 2020 EBRD has already been delivering finance and advice under our crisis response package across the Western Balkans. The increase in our SME financing through commercial banks and leasing companies, working also in tandem with public guarantee schemes when such have been launched and available, has been substantial – close to 60% of our overall new financing in 2020! Credit lines, risk-sharing and trade finance have all been playing an important role. Financing has been accompanied with enhanced advisory support to SMEs, with particular focus on liquidity and human resources management during crisis times.
EBRD has also come up with a new type of financing: emergency liquidity loan for vital infrastructure services impacted by Covid-19 lockdown and related measures. EPCG, the Montenegrin power utility and Kosovo (municipal utilities, Kosovo Telekom) have been beneficiaries of such support and more such exceptional loans are being prepared for other countries and infrastructure companies. At the same time, we have been trying our best to support our existing corporate clients and to ensure that on-going public sector infrastructure investments do not suffer delay and that new ones are prepared and ready for financing and implementation, like the Nis-Merdare section of the Peace Highway between Serbia and Kosovo. To date we have signed over 830 million euro in new financial commitment and expect to reach 1.5 billion euro by year end.
We are hopeful that 2021 will be the year of recovery and growth also in the countries of the Western Balkans and we’ll be working under the motto ‘Build Back Better’. We’ll have three priorities. First, we’ll support private enterprises to recover, grow, innovate and be more resilient to shocks – through digitalisation, becoming exporters or be part of European supply chains and better manage human resources to have a diverse, well-skilled labour force. In essence, this will be an SME Reboot programme.
Second, we’ll go berserk about ‘green’! You’ll observe a renewed EBRD zeal to get investments and measures implemented under the Green & Smart City Action Plans, prepared or adopted already for nine cities in the region – and more Green Cities will spring up. We also believe it is high time to clean up the Western Balkans of solid waste and introduce new regulations, operational management and step up investment in solid waste management. In 2021 EBRD will ‘send an ultimatum’ to coal, perhaps the largest contributor to air pollution today in the Western Balkans and the most expensive fuel in the coming 5-10 years for power generation as EU carbon tax on border will be introduced. There is significantly higher private investors’ interest in renewable energy in the Western Balkans – solar, wind or in district heating – than the countries can harness today. We’ll work with governments and private investors to turn interest into investments. We’ll support gas interconnection projects, with gas being a transition fuel in decarbonisation, and the related infrastructure potentially serving hydrogen transportation in a longer term.
Last but not least, in our continued financing of transport infrastructure, including roads, we’ll weave in electrification of transport. Our third priority, as we enter the first year of the new EBRD strategy, will be financing and advising on digitalisation as well as advanced technologies,
whether by private enterprises or in the public sector.
Let me add that overall, we’d like to promote more private sector involvement in developing and operating public infrastructure and mobilise commercial financing, taking also into account the sovereign debt constraints many Western Balkan countries face due to the economic impact of the corona pandemic.
Let me also remark that 2021 will be the first year of delivery under the EU Economic & Investment Package for the Western Balkans, where EBRD will be fully engaged with financing and will push-assist with accelerated implementation of the flagship projects.
How well positioned are the Western Balkans to attract global manufacturers considering shorter supply chains?
The Western Balkans is the closest potential supplier base for companies in the European Union and the region’s connectivity with EU markets is steadily improving. The EBRD as well as the EU’s Economic & Investment Plan for the Western Balkans prioritises infrastructure – road, rail, port, energy, digital – connectivity investments for major further tangible results to be achieved by 2025. Regional co-operation or, to be more precise, actions and measures need to be developed and implemented to facilitate border crossing for goods. The ‘green lanes’, introduced earlier this year due to Covid, are here to stay! A major improvement.
However, what is equally important to develop the ‘near-shoring potential’ of our region is the quality of goods and services that are produced by locally owned SMEs. There is a great number of excellent SMEs still hidden from the eyes of customers and need market information and networking opportunities. Nonetheless, there is still much to do to improve standards and to invest in skilling up workforce and in equipment to reach standards required by integrators or final customers.
Finally, there is the issue of business conditions, also important to attract foreign direct investment. The conditions are improving and in many Western Balkan countries new foreign investors are welcomed with substantial support. However, the pace of further improvement must be accelerated and the focus should equally be on new regulations and the implementation of legislative measures or regulations and enhancing the enforceability of contracts. Just for the last three months EBRD has held zoominars with business associations from France, Poland, China, Italy, Turkey, promoting the Western Balkans as an investment destination and as a supplier base. There is good interest and an increasing level of knowledge about our region. EBRD, also in co-operation with the Western Balkans Chambers of Commerce will continue such events on knowledge-sharing and business match-making.
A year ago the EBRD said it plans to increase financing for large-scale wind and solar projects in the Western Balkans. Are these plans still on the Bank’s agenda and what is the estimated amount of financing the Bank is ready to provide?
Let me start with an example: EBRD provided policy advice to the Government of Albania on capacity auction for the Karavasta solar plant – with excellent results. The lowest price in Europe offered by an excellent private investor! This demonstrated that with the right policy framework, implemented consistently, renewable energy investments do not need any more feed-in tariff or other support. We’ll continue such advisory services in Albania, start in Serbia and invest with private investors in Montenegro. The trend is very promising and we hope to co-finance such investment increasingly with commercial banks.
EBRD argues for support, including through EU grants, for the upgrade of the transmission grid and the roll out of smart metering as well as regulatory changes to take into account the emergence of ‘prosumers’, companies both consuming and producing – from renewable sources – electricity. In the district heating sector, we are already preparing feasibility studies to introduce solar energy and heat pumps, combined with use of gas and abandoning fuel oil and coal, and it seems that there is strong interest in municipalities to implement such investments through PPPs. As renewable heat and power generation will predominantly come from private investments and the policy-regulatory framework is evolving in our region, it is difficult to give an estimate of total investments or EBRD’s share in it. Overall, we expect our green financing in the region to be around 600-700 million euro per year.
What do you see as the key challenges to improving investor confidence in the renewables sector in the region?
The policy framework and a level playing field are key. A firm commitment by governments to increasing renewable energy generation, partnership with private sector investors and publicly owned energy utilities in defining and developing the policy framework are the primary enablers. Further development of the regional energy market with power exchanges also linked to the European Union is another important direction to go. EBRD is here to assist with advice and financing.
The U.S government recently announced it will be stepping up its commitment in some of the countries in the region. Would the Bank be interested in working together with the DFC?
In fact, we have already confirmed our interest to our DFC colleagues to work together. In the coming weeks-months, we’ll be exploring the scope for joint or parallel financing for private investments, including in energy and ICT sectors, as well as for schemes enabling SMEs to get wider access to financing.