WB to Support Energy Efficiency Lending by Minsheng Bank

A new World Bank loan of US$100 million, approved by its Board of Executive Directors today, will help China's Minsheng Bank to develop lending for energy efficiency projects, so as to help the Government of China to achieve its ambitious target of 20 percent reduction in energy intensity by 2010.

The China Energy Efficiency Financing II Project is designed to facilitate and catalyze commercial investments in industrial energy efficiency rehabilitation projects, and demonstrate viable mechanisms for financing industrial energy efficiency investments that can be replicated by other commercial banks in China.

"As part of the World Bank Group's energy efficiency financing program in China, the project will continue assisting the Government of China in scaling up energy efficiency commercial lending in China ," said Mr. Wang Leiping, World Bank Senior Energy Specialist who is the task team leader for this project.

The US$100 million loan will be provided to Minsheng Bank which, in turn, will lend the funds to industrial enterprises or energy service companies for eligible energy efficiency investment projects. The major types of energy efficiency projects eligible for financing under the project include:

(a) replacement of inefficient industrial technologies with energy saving technologies such as more efficient industrial boilers, kilns, and heat exchange systems;

(b) recovery and utilization of by-product gas, waste heat and pressure;

(c) installation of highly efficient mechanical and electrical equipment, including motors, pumps, heating and ventilation equipments; and

(d) industrial system optimization to reduce energy use.

The loan size will be below US$20 million and at a market-based interest rate. The financing will be available for both private and state-owned enterprises. Lending to small and medium-sized enterprises will be particularly encouraged. In parallel with the World Bank financing, Minsheng Bank has committed at least US$500 million equivalent of its own resources to finance energy efficiency and renewable energy projects.

In addition, the World Bank will provide technical assistance to Minsheng Bank and strengthen its capacity for developing low-carbon lending businesses, carbon finance and managing environmental and social risks. Specifically the Bank will assist Minsheng Bank in:

(a) identifying, appraising, and conducting due diligence on energy efficiency projects for various types of borrowers;

(b) developing specific credit and risk management processes for such investments;

(c) strengthening its capacity to manage environmental and social risks of its future energy efficiency lending portfolio;

(d) exploring new business opportunities in the carbon financing market; and

(e) piloting the application of the Equator Principles for socially responsible and environmentally sustainable lending project finance practices.

To meet the Government's energy efficiency target, investment requirements for energy efficiency improvements in the next few years are estimated at more than US$20 billion per year.

Financing requirements of this magnitude cannot be secured without significant contributions from the commercial banking sector. In the past few years, the World Bank Group has assisted the Government in initiating two programs to encourage commercial debt financing of energy efficiency projects.

The China Utility-Based Energy Efficiency Project I and II, funded by the International Finance Corporation (IFC) and Global Environment Facility (GEF), supported energy efficiency commercial lending with guarantee facilities established in selected Chinese commercial banks.

The China Energy Efficiency Financing Project, funded by the World Bank and GEF and approved in 2008, fostered the development of large-scale energy efficiency loan programs in the Export-Import Bank of China, Huaxia Bank and other domestic participating banks.

(China Development Gateway June 25, 2010)