Procedures for Processing and Issuing

Energocredit Corporative loans

This document is the internal document of Bank and it describes the procedures for processing

and issuing Energocredit Corporative loans. The users of this document are the corporate

department staff of the bank.

The document describes only the procedures relating to Energocredit, and all internal procedures

of Bank must still be followed.

It contains the following sections:

For corporate bankers

For management

CONTENTS

1. DEFINITION OF TERMS USED IN THE DOCUMENT ............................................................. 4

2. WHO DOES WHAT IN GEEP ......................................................................................................... 5

3. WHO DOES WHAT IN BANK ........................................................................................................ 7

4. MANAGEMENT AND COORDINATION ..................................................................................... 8 4.1. Reporting To EBRD ............................................................................................................................ 8 4.2. Coordination with GEEP ................................................................................................................... 8

5. ENERGOCREDIT – CORPORATE LOAN .................................................................................... 9 5.1. Description of Product ..................................................................................................................... 9 5.2. Product Benefits for Companies: .................................................................................................. 9 5.3. Energocredit Loan Conditions ....................................................................................................... 9 5.4. General Approach to Implement Energocredit .....................................................................10 5.5. Eligibility of proposed investment and Examples ................................................................11 5.6. Eligibility of client ............................................................................................................................12 5.7. Non-eligibility of client ...................................................................................................................12

6. RESPONSIBILITIES OF THE BANKER .....................................................................................14

7. STEPS TO SELL A LOAN ..............................................................................................................14 7.1. Identification of Client ....................................................................................................................14 7.2. Initial Contact with the Client ......................................................................................................14

8. STEPS TO PROCESS A LOAN ......................................................................................................15 8.1. Preparation of Recommendations from the GEEP Team ...................................................15 8.2. Revision of the Loan Application ................................................................................................16 8.3. Notification to GEEP about decision after loan approval ...................................................16 8.4. Documenting Process .....................................................................................................................16 8.5. Issuing Loan .......................................................................................................................................16 8.6. Payments to suppliers ....................................................................................................................16 8.7. Monitoring of Loan Purpose .........................................................................................................17

9. ENERGY AUDIT .............................................................................................................................17

1. DEFINITION OF TERMS USED IN THE DOCUMENT

Loan – Energocredit – Loan for the purpose of achieving energy efficiency or renewable energy

resources in the premises of the company in order to make sustainable use of energy resources

and reduce operational costs.

EBRD – European Bank for Reconstruction and Development (represented locally in Georgia

and in London)

GEEP – EBRD consulting team in Georgia (Georgian Energy Efficiency Programme)

Client – Legal person applying for the loan

Energocredit Application Form – Special form, filled out by the Banker and the Client

together in order to apply for a loan through the Energocredit credit line

Loan Application – Application form prepared by the bank which is filled out by the Client in

order to apply for a loan

Borrower – A legal entity, which has obtained an approval for a loan from the bank

VIPB – Corporative banking team responsible for very large and high importance customers

CB SECTORS – corporative banking team responsible for assessment and processing loans

over 500000 USD and customers with turnover over 5 Mil. GEL

Banker – Staff member (VIPB, CBSECTORS) appointed by the Corporate Banking

Department, which is responsible for receipt of the application, loan processing and its issue

Bank Procedures– Ordinary Bank procedures which exist in the corporate banking department

for processing loans, their review by the credit committee, documenting and issue, whether loans

are through Energocredit or not.

2. WHO DOES WHAT IN GEEP

The address and contact details of the GEEP office are:

17, Paliashvili Str, III Floor, 0179 Tbilisi, Georgia

Email: office@geep.ge

Phone/Fax: +995-32-224962

Web-site: www.energocredit.ge

The members of the GEEP Team based in Georgia are as follows:

Team Leader (overall responsible, deals with general banking issues, marketing, promotion,

management of team, financial and risk assessment, quality assurance for reports)

Helene Ryding

Email: helene.ryding@geep.ge

Mobile: +995-595-210215

Lead Engineer (responsible for all engineering issues, production of reports)

Kyriakos Argyroudis

Email: kyriakos.argyroudis.@geep.ge

Mobile: +995-599-993702

Deputy Team Leader (contacts with banks, marketing, promotion, coordination of local staff,)

George Zurashvili

Email: george.zurashvili@geep.ge

Mobile: +995-599-288624

EBRD Tbilisi Representatives for GEEP

Banking:

Irakli Mekvabishvili

Email: mekvabii@ebrd.com

EE and RES:

Irakli Vardigoreli

Email:vardigoi@ebrd.com

COMMUNICATIONS FOR ENERGOCREDIT

All written communications with the Consultant are to be in English. All communications are in

electronic form, except approvals by GEEP which are sent in both electronic and paper form

3. WHO DOES WHAT IN BANK

Due to the different participant banks responsible persons for implementing Energocredit may

vary, please contact Energocredit Team for detailed information for each PB bank.

Weekly Reporting

Reporting Officer makes weekly reporting to GEEP about the clients transferred to the team or

the status of negotiations.

4. MANAGEMENT AND COORDINATION

4.1. Reporting To EBRD

Reporting requirements to EBRD are specified in the Credit Line agreement between EBRD and

BoG.

In particular, loans reported by bank should be checked against loans reported monthly to EBRD

by GEEP.

4.2. Coordination with GEEP

Informal coordination meetings with GEEP should be held at 2 weekly internals to discuss the

following:

potential clients to visit,

pipeline of projects,

progress on GEEP reports

status of loans approved for disbursement

Reporting Officer makes weekly reporting to GEEP about the clients transferred to the team or

the status of negotiations.

5. ENERGOCREDIT – CORPORATE LOAN

5.1. Description of Product

The Georgian Energy Efficiency Programmme (GEEP) is the programme implementing

Energocredit, the aim of which is to help companies reduce their energy intensity and increase

their competitiveness through the following means:

a) Reduction of operating costs for energy

b) Increased production with the same cost for energy.

Energocredit is the brand name of the loan product sold by bank, which is funded by EBRD

through the dedicated GEEP credit line to bank.

5.2. Product Benefits for Companies:

By the use of Energocredit the company has the chance to:

Get an energy audit for free (if required)

Receive international consulting from specialists

Obtain lower interest rate on loans

5.3. Energocredit Loan Conditions

The upper limit for the size of the loan is set by EBRD, In certain cases bigger loan sizes than

this may be considered, with permission by EBRD. The lower limit is set by the bank for

administrative reasons.

The upper limit of the loan is 2.5 million USD.

The loan period is from one to five years, set by the Bank.

Interest rate is set by the Bank (currently starting from 10%)

Collateral requirements are set by the Bank.

5.4. General Approach to Implement Energocredit

There are 2 different 2 stage approaches to implement Energocredit – Identified and Not

Identified

Identified - Screening Report (SR) and Project Assessment Report (PAR) is used where client

knows what he want the loan for (Example of project implementation process)

Client applies for loan to Bank

Bank approves Client as creditworthy for size of loan

Bank passes loan application to GEEP for screening to make sure loan is eligible

GEEP screens loan and issues SR showing indicative amount of loan or rejection

Client and Bank agree to proceed further (if no rejection and size of loan is appropriate)

GEEP produces PAR approving amount of loan plus any conditions or recommendations

to Bank.

Bank finalises loan agreement including conditions and recommendations

Bank monitors loan investment implementation according to recommendation by GEEP

Client produces Completion Report and submits via the Bank to GEEP

Not Identified - Energy Audit Report (EA) and Project Assessment Report (PAR) in used when

the Client does not know what he wants to do, and the Energy Audit will provide suggestions

(Example of project implementation process)

Client applies for an EA to Bank

Bank approves Client as creditworthy

GEEP carries out EA and produces report with recommendations on options for action.

Client considers options and applies for loan for preferred options

Bank passes loan application to GEEP for preparation of Project Assessment Report

GEEP produces PAR approving amount of loan plus any conditions or recommendations

to Bank.

Bank finalises loan agreement including conditions and recommendations

Bank monitors loan investment implementation according to recommendation by GEEP

Client produces Completion Report and submits via the Bank to GEEP.

5.5. Eligibility of proposed investment and Examples

From a technical point of view, the project proposed for investment must make sufficient energy

savings in respective time period, in order to ensure the payback of the loan.

Georgian Energy Efficiency Program Consultants work with the bank and their clients to reduce

the risk to the minimum and work out good projects, which enables the bank to offer low interest

rates to their clients, reduce the size of mortgage and fix longer period for payback of the loan.

The loan payback is achieved through the energy savings or the income from increased

production as a result of investment. GEEP consultants help the clients in finding and calculating

savings or possibilities for increased income.

According to the Consultant’s calculations the justification for the loan payback is made, on the

basis of which the banks express their wish for funding.

The Client selects the equipment and plant according to the technical demands of the company

and the equipment’s availability and price. GEEP may suggest to the Client modern technologies

at a higher price in order to ensure that the energy efficiency is achieved at its maximum. The

loan may also cover the installation costs and the expenses for preparation of detailed

engineering drawings prior to installation.

Examples of Eligible Energy Efficiency projects (EE):

On site co-generation of heat and electricity

Rehabilitation of boilers (enhanced controls, economizers, improved insulation,

regenerative burners, automatic blow-down, etc.)

Replacement of old gas boilers with condensing boilers

Switch from electricity heating for fuel based direct heating

Process improvements including enhanced controls

Rehabilitation of steam distribution systems: installation for steam traps, increased

condensate recovery, etc.

Installation of heat recovery from processes (e.g., installation of economizers for pre-

heating purposes, heat recovery for space heating, heat recovery for drying, etc.)

Installation of absorption chillers

Installation of new chillers

Installation of Variable Speed Drives on selected electric motors

Rehabilitation of compressed air systems (e.g., decentralisation and/or resizing of air

compressors, replacing of old air compressors with new efficient ones)

Rehabilitation of power distribution systems (e.g., replacement of old or oversized

transformers, installation of capacitors to reduce reactive power consumption, etc.)

Implementation of Energy Management Systems (“EMS”) or Building Management

Systems

Implementation of energy saving and renewable energy measures in the built environment

(e.g. insulation of walls, roofs and floors; installation of rolling doors; installation of

new windows; installation of new heating and ventilation systems; installation of high

energy efficiency lighting; etc)

Examples of Renewable Energy Investment Projects (RE):

Wind farms

Run-of-river hydro plants less than 10MW

Solar water systems generating hot water for processes and/or heating

Biomass systems generating heat only or heat and electricity

Gas engines using biogas

Diesel engines using biodiesel

Geothermal heat pumps

Biodigesters producing biogas.

5.6. Eligibility of client

Any private sector company may apply for an Energocredit industrial loan if they are:

Existing borrower clients if the loan or its part maybe considered as energy efficient

(provided loan was disbursed less than six months ago, the investment is not yet

complete, and the client is willing to go through the Energocredit application process)

b) Potential borrower clients

c) Existing and potential non-borrower clients

5.7. Non-eligibility of client

The company may not use Energocredit for finance for the following purposes:

Projects in enterprises producing strong alcohol and tobacco

Construction projects for sale

Construction activities unrelated to energy saving components

Working capital for construction companies, even when the construction involves energy

saving equipment.

A full list of excluded company activities is available in the GEEP Operation Manual (Appendix 4).

Pending a change in the Georgian legislation clarifying their legal duties and obligations, housing associations are

also not eligible.

6. RESPONSIBILITIES OF THE BANKER These are as follows:

To identify suitable clients for the loan

To suggest the loan to the client

To manage the application process

To assist the communication between GEEP and the client

To communicate the status of the process to management and the client

To present the final application to the Credit Committee

To inform the client, GEEP and the relevant persons in bank when the loan is approved.

To monitor Loan Purposes

To present final reporting form (Completion Report)

7. STEPS TO SELL A LOAN

7.1. Identification of Client

Clients can be identified in three ways:

The Banker (VIPB, CBSECTORS) identifies the possible Energocredit clients, from the

existing or potential clients of the bank

GEEP may initiate informal discussion with the potential client maybe initiated by the

EBRD consulting team as well, but the Client should be accepted by the Bank before

making a formal application.

The Bank and GEEP together may organise events to promote the Energocredit product,

eg in the regions, or for a particular industry.

7.2. Initial Contact with the Client

The Banker meets the Client together with a member of GEEP, preferably at the Client’s

premises, so it is possible for the member of GEEP to tour the premises and make initial

suggestions for discussion. This is a free service for the Client.

The Banker and the member of GEEP give detailed information to the Client about Energocredit.

They explain the purpose of the product to the client as well as the benefits and the advantages

he will obtain in case of implementing an energy efficient investment project. The Banker and

GEEP provide the brochures, information materials and the web-addresses:

(www.energocredit.ge), where more detailed information about energy efficient products are

indicated.

8. STEPS TO PROCESS A LOAN Agreement about Loan Conditions with the Client

The Banker gives the explanation to the client in his conversation about the following:

The loan conditions

Possible Commission fees

Certain collateral terms and insurance (if any)

The client and the Banker agree on the collateral of loan, monthly payment and the loan term.

After client agrees to the conditions mentioned above, the Banker together with him fills out an

electronic loan application (see Annex 1) in accordance with the ordinary procedures existing in

the bank and the loan processing begins.

8.1. Preparation of Recommendations from the GEEP Team

After the financial documentation presented in the bank is in compliance with the bank standards

to revise the loan on credit committee, the Bank refers the application to GEEP. The Credit

Officer together with the client fills out the Energocredit special application form (Annex 2) and

sends it to the Lead Engineer and Deputy Team Leader of GEEP in order to prepare the

Screening Report. Copies should be sent also to the head of the sector, manager and reporting

officer, in the subject heading – “Energocredit Application – Title of The Company” should be

mentioned.

On the basis of the application submitted to GEEP, the agreement is made between the Client

and GEEP about preparation of preliminary screening report, which is prepared within 1 week

after the client provides necessary documents. The Screening Report may reject the loan, or

approve only part of it, as well as give a full approval. In the case of a partial approval the Client

and the Bank decide whether they wish to proceed.

Following a written go ahead from the Client and the Bank, GEEP continues working in order to

prepare Project Assessment Report (PAR). The deadline for preparation of the PAR is 2-3

weeks in case of a small size project after the submission of the necessary documents and 4-8

weeks in case of the big investment project. The PAR is sent to the designated Coordinator for

Director of the corporate banking department.

8.2. Revision of the Loan Application

After obtaining a positive PAR conclusion, the Banker, with assistance of the GEEP team if

required, makes a final request to the Credit Committee, to consider the content of the PAR, the

risk assessment and the recommendations, according to the procedures existing in the corporate

banking credit risk department, within the framework of which the limit of Energocredit and the

interest rate will be fixed.

After the positive decision about issuing the loan, Banker will notify the credit committee

decision to borrower by the phone using the contact details given in the loan application form or

sends him a written notice.

If the borrower agrees to the conditions of the bank, the Banker notifies him of the necessary

documents which need to be presented to the bank.

8.3. Notification to GEEP about decision after loan approval

After positive or negative decision on the loan, the Credit Officer notifies GEEP by sending an e-

mail on the following:

In case of the positive decision with the subject “Energocredit Approval – Title of

Company”

In case of negative decision with the subject “Energocredit Reject – Title of the

Company”

Cc sent to: Head of the sector, Manager and Reporting Officer

8.4. Documenting Process

Documenting process is implemented according to the standard procedures existing within the

bank.

8.5. Issuing Loan

The loan is issued by the procedure fixed within the bank

8.6. Payments to suppliers

After the issue of the loan, the payment with supplier/s is made by the bank transfer, or in case

this is impossible, in cash, with an obligation to present the document on purchase to the bank.

8.7. Monitoring of Loan Purpose

After installation of the Energy Efficient facilities the borrower must prepare the final reporting

form (Completion Report in Annex 3) and enclose the documentation confirming the purchased

facilities. In the final report, the client must present the financial documentation proving the

energy costs (gas, electricity and water payment bills), the Banker (VIP, CBSECTORS) is

obliged to send the indicated documentation with the credit filing Overview Of The Energocredit

Corporate Loan Approval Process

9. ENERGY AUDIT The Consultant through preliminary investigations, site visits and acquisitions of information

assess the scope and potential for a Sub-project.

The Consultant undertakes a preliminary technical screening with the following:

A brief description of the Client with basic information of its business and operations;

A brief description of the Sub-project concept with the general Sub-project scope and

anticipated cost of investment;

Preliminary assessment of compliance with eligibility criteria.

The Consultant defines the scope and potential for energy saving measures, including no and low

cost measures as well as those requiring higher investments. Where alternative solutions exist,

these alternatives are described and evaluated. The evaluation will cover a discounted cash flow

forecast and its profitability (IRR, NPV, etc.), analysis of technical risks associated to

construction, maintenance and operation of the equipment, proposed implementation plan,

review of compliance of the Sub-project with applicable environmental, health & safety

laws/standards.

The EA Report will cover the following issues:

Energy balance of the industrial operations (if applicable)

Analysis of production costs associated to energy use (if applicable)

Technical feasibility analysis of the proposed Sub-projects

Identification of additional feasible SE opportunities

Cash flow analysis of a proposed Sub-project and profitability analysis (including as a

minimum: IRR, NPV)

Assessment of anticipated energy saved and/or generated through the proposed

investments

Financial plan for the investment

Assessment of compliance with applicable environmental, health & safety laws,

regulations and standards

Implementation plan for the work including assessment of the permits required for the

construction and operation of the Sub-projects included

Analysis of reduction of emissions of greenhouse gases resulting from the implementation

of the REUP and assessment of the scope for a carbon credit transaction

A review of the specific Sub-borrower’s procurement arrangements, which will be

included in the final energy screening or energy audit report. In case of any inconsistency

with the EBRD’s Procurement Policies and Rules for private sector operations, the

Consultants’ review will comprise a Procurement Action Plan (“PAP”) listing the steps

required to ensure compliance. The monitoring of the implementation of the PAP will be

part of the overall monitoring plan of each individual Sub-project