«Warm credits in Ukraine», How to insulate private residences

Experts claim, that an independent lending market for the energy saving projects has been formed in Ukraine
In early April, Prime Minister Vladimir Groisman has promised to increase the amount of money for the officials’ project of the Ministry of Regional Development, Construction and Housing – these are the so-called “warm credits”.
According to the head of the government, an additional 400 million UAH will appear in the budget for lending as part of programs “Tepla Oselya”, “Oschadny Dim” and others (in other words – “warm credits”), after which the total amount of the program will be 800 million UAH.
The main problem of “warm credits” that is hard to use them. The key problem: funds from the budget come with delays to the operator banks, so the “warm credit” programs are often put on hold. Throughout the 2016, the total time of such stops was almost five months, nevertheless, all the funds budgeted of the last year, this is almost 900 million UAH, was assimilated.
No wonder that informal intermediary services have appeared in this regard, when there is a guarantee for the “warm credit” applicant to issue the credit for a separate charge, upon resumption of the budgetary financing. More simply, it reminds Soviet period, when dealers sold a spot in line for critical goods. Today, conditions of payment for a spot in a line for a “warm credit” are contractual and ranges from 5 to 10% of credit`s amount (in addition to the official 5% one-time payment). Taking into account this additional payment, the cost of “warm credit” will not be much lower than for ordinary bank loans for individuals, because its base rate is about 18% per annum. Although if the loan is taken for the maximum possible period of three years, then the difference in interest rates will become tangible.
In spite of the emergence of a shadow industry around     government banks, people “from the street” still have chances to achieve a “program” loan for the winterization of housing or replacement of the heating system – this will require careful monitoring of when the next tranche will be devoted out of the state budget.
For years, many credit and grant programs related to energy efficiency projects have been operating in Ukraine from international financial institutions such as the European Bank for Reconstruction and Development, the World Bank, the European Investment Bank, etc. In opposition to domestic “warm credits”, international credit and grant programs are aimed at companies and private entrepreneurs – the so-called small and medium-sized business sector.
Besides, each of the foreign financial organizations-donors can have additional priorities that restrict the range of Ukrainian recipients of loans for energy efficiency projects.
“Our support is concentrated on those companies, which have export potential. Moreover, it is not just about exporting raw materials, but about value-added products. For example, not milk, but yogurt, “said Anton Usov, Senior Advisor for External Relations of the EBRD in Eastern Europe.
According to the calculations of the European Commission, the volume of energy consumption of buildings and structures is reduced by 30% when using cost-effective interventions.
For such emerging exporting companies, the bank has launched the EBRD program with a total budget of 270 million $ called TFP, and energy modernization is one of its directions. Ukreximbank, UniCredit and Megabank are involved in this program, contacting them, you can learn more about the terms of the loan. And its general framework is as follows: the loan period is up to five years, the interest rate is 19% per annum in UAH and 10% per annum in foreign currency.
European experience
It stands to mention that Germany’s GDP in 2013 was 25 times higher than the corresponding indicator in Ukraine, while the costs of primary energy resources in Germany were only 3.2 times higher than in Ukraine. The total energy consumption of Poland was 96% of the Ukrainian, and GDP was 3.6 times more.
The systemic nature of the EU’s activities on energy conservation and energy efficiency is also provided by solving financial and information problems. One of the largest energy consumers in the EU is the housing sector (40% of all primary energy consumption). About two-thirds of this energy is spent on accommodation buildings and one third on non-domestic buildings and structures. At the same time, two-thirds of the energy, which is consumed by the building is necessary for the operation of heating, ventilation and air conditioning systems.
An essential part of the EU’s energy policy is to increase the share of energy generated from renewable sources (RES). The European Union has set a goal to receive 20% of primary energy from renewable energy sources by 2020. Achievements and problems in this area deserve special attention.
One more emphasis of the EBRD is the financing of works related to the modernization of utilities, for the transfer of their equipment from the use of electric heating to heating from the fuel, in other words, gas, coal, firewood, etc. In this case, the following credit scheme works. Ukreximbank is a Ukrainian bank operator. Projects with a profitability of at least 10% are taken into consideration, and are calculated solely on the basis of the financial cost of potential energy savings. Loans are provided at a rate of 20% per annum for up to five years (in this case a grace period – is up to 18 months).The European Investment Bank (EIB) and the German bank KFW, which created the Green for Growth Fund in Ukraine with a budget of 10 million euros, are also have more liberal terms of conditions.
Under this fund, small companies and private entrepreneurs can obtain loans to reduce energy consumption and reduce emissions of harmful substances into the atmosphere, as well as to replace lighting, heating and installation of renewable energy sources. The essential condition for obtaining a loan – the business plan should provide that as a result of the project implementation a saving of at least 20% of energy costs will be achieved. The Fund cooperates with Megabank, which provides loans of up to 5 million UAH for up to five years.
Serious money from the West
The World Bank provides one of the largest collections of energy efficiency lending programs. Specialists of the World Bank together with Ukreximbank have developed and launched a system of financing projects for the modernization of not only industrial facilities, but also office and residential buildings (but only if their owners are juridical persons) for a total of  200 million $. This is linked to the fact that, according to experts WB, for 90% of Ukrainian high-rise buildings requires thermal modernization. And this means a complex of work on the insulation of houses, and not the foam covering of individual apartments, which is currently popular. As indicated in one of the documents of the program, to modernize 25% of existing buildings by 2020, Ukraine will need financial investments up to 9 billion $.
This system operates as follows: the Ukrainian bank, with the help of a loan from the World Bank, provides Ukrainian enterprises with loans for investments to modernize the outmoded machinery and purchase new equipment, so the current energy consumption at this equipment can meet modern European standards.
Under this program, it is possible to implement the long-term projects. The term of repayment of loans is depending on the payback period of investments, although there is still a limitation – it should not exceed 10 years.
Priorities for the WB are as follows: loans are provided to enterprises with high profitability. For these purposes the following criterion is introduced: the profits of the borrower must not be less than 1.3 times higher than the payment on loans and interest. Another aspect – the profitability of the project, under which the loan is directly issued, should be at least 10% (taking into consideration the reduction in energy consumption).
In Vasily Stepanenko opinion, the co-chairman of the Association of Energy Service Companies, short periods of loan are peculiarity of Ukraine and are associated with a number of problems that are taken into account by Western bankers.
“This is in reference the protracted transitional state of our economy, which is reflected in economic and contractual law, accounting and the mentality of leaders who forgot how to think in terms of five-year plans and cares about the future. Foreign financiers estimate this as risks, and this is reflected not only in interest rates, but also in limited terms, “Vasily Stepanenko said.
How small Ukrainians should insulate
In such a manner, a significant part of the financial resource, which foreign pecuniary institutions are ready to provide, is focused on the corporate sector,     though its priority is small and medium business. At the same time, taking into consideration the interruptions with the programs of state “warm credits”, a niche was formed – a demand for loans for energy modernization by Ukrainians was created. And this is a considerable niche – it has already been said, that modernization is required for 90% of city buildings. And the degrees of the necessary modernization can be seen by assessing of the Association of Energy Auditors of Ukraine, according to which in the usual Soviet high-rise building payments for heat are two to three times higher than in modern buildings.
“A significant increase in utility tariffs forces Ukrainians to start warming their homes at their own risk, including loans,” said Vladimir Dovbenko, a member of the Association of Energy Auditors of Ukraine.
In his opinion, the advantages of individual projects of thermal modernization can be assessed not only by the owners of private mansions and cottages, but also by those who live in multi-storey buildings. For them, simple, but not cheap solutions exist, to how quickly and significantly reduce heat loss.
One of the programs for insulating housing for individuals is the EBRD’s IQ energy program. It is respectively new in Ukraine (it has been operating since 2016), but not new for the EBRD. Similar programs have already been working in 20 countries; there are technical and financial expertises, by which Ukrainians can be warmed. The program provides for non-recoverable grant assistance of up to 3,000 euros (per individual) for the insulation of housing. To get compensation, it is necessary: 1) to buy energy-efficient and related products on credit from the partner banks of the program, specifically from UkrSibbank, Raiffeisen Bank Aval or OTP Bank; 2) to modernize housing; 3) register and apply for compensation on the site Iqenergy.org.ua
As the head of the IQ energy program Oksana Bulgakova notes, the replacement of windows by installments for three to six months, the modernizations of heating systems, including the replacement of gas boilers and columns for more modern ones, as well as the warming of private houses from outside, receive the highest attention. In addition, with each passing month of the IQ energy program operation, there is a growing demand for alternative energy sources, such as heat pumps and solar collectors. Banks-partners offer different types of loans to clients – from interest-free installments for three to six months and payment of goods by credit card, to financing complex projects for the modernization of existing housing and construction of a new one.
There is an opportunity to buy goods on credit without the first installment and certificates of income. The decision on the loan is accepted within 10 minutes. The amount of the loan for the complex insulation of the house outside, as well as the use of alternative energy sources, is usually 200-450 thousand UAH, respectively, the compensation under the program will be about 3000 euros (20% of the loan / investment amount). Under the program, you can take either one loan or several, gradually, according to the construction or repair. Compensation is paid in euros, on a separate from the client’s credit account. You can retrieve cash in euros until the loan is repaid in UAH.
Separately worth noting, the speed of compensation`s payment. Compensation is transferred to the customer’s account in euros for three to five weeks from the date of electronic confirmation of the application. You can get compensation for the cost of installation works and related products. In total, 15 million euros are provided for compensation for the program period. Payments are made without delay, on a monthly basis from September 2016 to September 2020.
At this time, the catalog of technologies of the IQ energy program has already exceeded 3500 products from eight categories. It has both imported goods and materials and equipment of Ukrainian production, which meet the European criteria for energy efficiency. According to Oksana Bulgakova, this year the program consultants will continue to work on filling the technology catalog with new products of Ukrainian and imported production, that meets European standards. A number of special offers are being prepared, thanks to which the partner banks will be able to reduce the interest rates on loans within the IQ energy program.

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