1. Dana Craciunescu Principal Banker EBRD Municipal and Environmental Infrastructure Team Bucharest 29 September 2004 EBRD Lending to the Water Sector in Romania 

2. 2 EBRD: Financing Water Projects Introduction to EBRD Water infrastructure needs and challenges EBRD investments in Romania Outlook

3.  3 EBRD Water and Municipal Environmental Financing: Introduction to EBRD International financial institution founded in 1991, owned by 62 national and supranational shareholders, including EU Promotes market-based economies in 27 countries in Central & Eastern Europe and the former Soviet Union Provides finance to public and private sectors Total commitments of €21.3 Bln Commenced lending in water sector in 1995 with commitments of over €1.2 bln. Key facts about EBRD

4.  4 EBRD Approach Commercial Structure - loan size/structure linked to capacity to repay. - tariff increases assessed to keep within affordability - covenants to improve financial/operational performance Financial Discipline - increased local level financial and managerial autonomy and control - access to political EU/ISPA and other grant financing Political Commitment - municipal guarantee/support agreement - project support agreement with central government Objective is an independent and sustainable water business

5.  5 Water Sector: Challenges and Needs Lack of investment in water supply and wastewater treatment threatens: - poor quality of service (leaking pipes, inefficient equipment, groundwater pollution undrinkable water) -decline in environmental and health standards Water Companies have a weak financial position: - insufficient due to low tariffs - collection is weak impacting cash flow - inadequate metering and IT systems impact financial and operational management - affordability issues Commercial banks reluctant to make long term loans available for investment

6.  6 EBRD's Experience in Romania (Portfolio of € 256.2million) One of first countries in which EBRD lent money to restructure water sector Strong commitment from central government to decentralise finances to provide greater fiscal autonomy at the local level Water services are in the jurisdiction of counties and municipalities Services characterised by poor quality drinking water, high ground water pollution, large water losses Approximately 60% of households connected to water in cities versus 10% in rural areas ISPA and EU are key players in the water sector Tariffs set at local level, but approved by national regulator Trend away from sovereign loans toward non-sovereign and private sector

7.  7 EBRD's Experience in Romania Municipal Utilities Development Programme (MUDP) 1 (1995) and MUDP 2 (1997) two sovereign-guaranteed loans totalling USD 28 mln and USD 75 mln, providing funds for critical investments in 15 cities investment in priority areas coupled by strong TC component to improve financial and operational performance of the utilities metering and tariff increases have resulted in lower water volumes in more successful projects, political will to support tariff increases, cost reductions and improved collections, resulting in improved finances of the water companies

8.  8 MUDP Cities KEY MUDP I MUDP II

9.  9 EBRD Experience in Romania Municipal Enrivonmental Loan Facility (MELF) €110 million MELF loans provide co-financing for ISPA projects on a non-sovereign basis EBRD willingness to lend is based on cash flow of water company coupled with municipal guarantees Most loans are to existing MUDP clients, with a demonstrated track record coupled with the political will to reform MELF clients include water utilities in Constanta, Brasov, Iasi, Arad, Timisoara,Tg Mures,Oradea, Sibiu, with loan under preparation for Bacau Apa Nova €55.4 million loan to finance the water treatment plan for a water concession with Veolia (formerly Vivendi Environment) as operator for the city of Bucharest DEG as a co-financier

10.  10 OUTLOOK - Romania Significant investment needs Metering and tariff increases are resulting in rationalisation of water to EU levels Optimistic for water investment, due to EU Accession and availability of ISPA grant funding Growing interest in privatisations and public private partnerships Growing interest of commercial banks to lend under EBRD's umbrella SAMTID - Government initiative to consolidate and regionalise services of water operators to create financial strong water operators, sovereign financing involving EU, EBRD and EIB Institutional capacity to implement projects is growing

11.  11 Opportunities Technical cooperation assignments Investment opportunities Equipment sales → As water projects are categorised as public sector, EBRD’s public procurement rules apply – open tender → To be eligible for EBRD and ISPA financing, tender to award concession needs to be competitive

12.  12 MEI team Contacts Romania Susan Goeransson Tel: +44 20 7338 7940 Fax: +44 20 7338 6964 e-mail: goeranss@ebrd.com Dana Craciunescu Tel: +40 1 202 71 00 Fax: +40 1 202 71 10 e-mail:craciund@ebrd.com www.ebrd.com