German Financial Cooperation with Europe and Caucasus - Municipal Infrastructure Workshop on water / urban infrastructure Brussels, 29th May 2009 Christian Haas, Division Chief, Water and Sanitation Europe Thomas Wolf, Senior Engineer, Municipal Development, Europe & Caucasus

2 Overview KfW Entwicklungsbank - Who we are KfW Entwicklungsbank – How we work Municipal Infrastructure in Europe/Caucasus - Geographic distribution of projects Municipal Infrastructure in Europe/Caucasus - Challenges and solutions

3 Investment Finance Germany and Europe Financial Cooperation Promotion of Housing; Environment and Climate Protection; Education, Infrastructure Commitments 2008: 33,8 bn € International Project and Export Finance Commitments 2008: 17,6 bn € Promotion of SMEs, Business Founders, Start-ups Commitments 2008: 14,3 bn € Promotion of Developing and Transition Countries Commitments 2008: 4,9 bn € KfW Entwicklungsbank A part of KfW Group. International Project and Export Finance

4 Organisational Structure from September 2008 Evaluation Department Financial Cooperation Sector and Policy DivisionDivision Regional Team Governance Agriculture and Environment Water Resources, Solid Waste Health, Education, Social Protection Agriculture and Natural Resources Social Infrastructure, Governance Economic Infrastructure Finance, Economic Infrastructure Water Resources, Solid Waste (North Africa) Water Directorate II Sub-Saharan Africa Finance and Private Sector Institutional Development social/economic Infrastructure Regional Team Energy Financial and Private Sector Health Department South and Central Asia Department South and Central Africa Department East and West Africa Department North Africa Middle East Department Latin America Caribbean Department Strategy Development economics and research DC strategies and cooperations Promotional instruments and financial products General Principles and FC processes Planning and monitoring Disbursement Management I Transaction and Collateral Management Board of Managing Directors Department Transaction and Collateral Management Loan and Risk Management Disbursement Mgmt III, Debt Rescheduling and Release Disbursement Management II Regional Team Financial Sector Transform Energy, Transport Water Resources, Solid Waste Municipal Development, Environment Department Europe and Caucasus Directorate III Europe, North Africa and Middle East Regional Team Transport, Communications Water and Vocational Training Protection of Natural Resources Department East Asia and Pacific Promotional Loans for Infrastructure Directorate IV Latin America and Strategy Berlin Office IT coordination Financial and Private Sector Directorate I Asia

5 Overview KfW Entwicklungsbank - Who we are KfW Entwicklungsbank – How we work Municipal Infrastructure in Europe/Caucasus - Geographic distribution of projects Municipal Infrastructure in Europe/Caucasus - Challenges and solutions

6 Relationship between BMZ and KfW: From the intergovernmental agreement to the financing agreement KfW Project executing agency Partner country BMZ agreement under international law financing agreement mandate KfW's partners are public authorities or state-owned enterprises provision of trust funds commitment of trust funds and KfW funds project monitoring, evaluation

7 Our financial products Project preparationFeasibility StudyGrant funding Investment Physical investment Implementing consultant Concessional long term loans with maturities between 12 and 30 years (in some countries up to 40 years). Delivery of servicesTechnical assistanceGrant funding PhaseInstrument Funding conditions

8 Overview KfW Entwicklungsbank - Who we are KfW Entwicklungsbank – How we work Municipal Infrastructure in Europe/Caucasus - Geographic distribution of projects Municipal Infrastructure in Europe/Caucasus - Challenges and solutions

9 Municipal Infrastructure Sector in Southeast Europe KfW’s Current Project Portfolio Albania: EUR million Bosnia Herzegovina: EUR 46.5 million Croatia: EUR 73.5 million Kosovo: EUR 21.5 million Macedonia: EUR 61.4 million Montenegro: EUR 71.5 million Serbia: EUR million TOTAL: million

10 Water & Sanitation Projects in Turkey Total commitments ongoing projects: EUR 150 million On-going / under preparation Concluded z

11 FZ im Südkaukasus Financial Cooperation with South Caucasus: Overview of Water&Sanitation Projects Total commitments ongoing projects: EUR 170 million Sheki Ganja Batumi Imishli Borjomi Armavir Gyumri and Vanadzor

12 Overview KfW Entwicklungsbank - Who we are KfW Entwicklungsbank – How we work Municipal Infrastructure in Europe/Caucasus - Geographic distribution of projects Municipal Infrastructure in Europe/Caucasus - Challenges and solutions

13 Municipal Infrastructure - Challenges High investment (and re-investment) needs – but limited financial resources Insufficient cost coverage leads to poor service quality and lacking maintenance Limited implementation capacity at municipal and central level Limited municipal borrowing capacity (financial, legal and political) Municipalities and their utilities have little or no experience with credit financed investments Lack of transparency regarding diverse funding sources and their availability

14 Quality at Entry: Hands-on Experience through KfW’s long-standing presence on the ground and frequent contacts with beneficiaries also in periphery regions Sound Preparation via international expertise for (Pre-)Feasibility Studies and own assessments with focus on technical, environmental, socio- economic and institutional needs and capabilities on project and sector level Focus on medium-sized Municipalities to maximize development impact Flexible Financing Solutions for tailor-made funding conditions fitting to economic and social situation Municipal Infrastructure - KfW’s Approach (1)

15 Responsible Finance: Graduation Principle 1:  Phased investments based on technical, institutional and financial performance criteria (incl. ability and willingness to reforms) Graduation Principle 2: 1. Direct lending to municipalities 2. Lending via financial intermediaries Intensive Monitoring in order to ensure efficient implementation on high quality standards Investments linked with TA to improve management capacities and ensure sustainable operation also after the end of external support Independent Evaluation with focus on sustainable impact Municipal Infrastructure - KfW’s Approach (2)

16 Municipal Infrastructure Sector Example of performance-based Programme Exclusion of Municipality Phase 1 Urgent measures Phase 2 Larger scale investments Criteria 2 met? Criteria 1 met? yes no Further TA TA directed towards criteria set 1 TA directed towards criteria set 2

17 Examples of performance criteria: municipalities

18 Examples of performance criteria: utilities

19 More Information Newsletter published by KfW Entwicklungsbank ( Newsletter/index.jsp) Annual Report on Cooperation with Developing Countries ( Evaluation report on the effectiveness of cooperation with developing countries ( Specialist publications / Online Library in the Internet (

20 Do you have any Questions?