Country:

Regional (with main focus on Albania, Bosnia & FYR Macedonia)

Title:

Contractor Credit Support

Objective:

To provide, through intermediary banks, working capital advances for local contractors and suppliers involved in major infrastructure construction projects in the region and for other specific needs of contractors in the region.

Description:

Working capital advances for up to two (or possibly three) years for local contractors and suppliers where the risk of non-payment is mitigated by the presence of major international firms as lead contractors and/or financing from IFIs, bilateral grants or other secure sources of funding. Up to one year for other project specific needs. First Loss grant funds would be leveraged by a modest three times in view of the relatively high risks of the construction industry.

Preparation Status:

Under preparation, but as the client banks will be the same as under the Trade Facilitation Programme, the implementation stage can be reached well before the end of 2000.

Rationale for Donor Support:

The developmental impact of projects under the Stability Pact umbrella, especially in infrastructure, would be enhanced by broad participation of local contractors and suppliers. Experience in Bosnia and other countries suggests that companies from the region often face severe constraints in competing for business as contractors or sub-contractors, even where they have the technical quality required for delivery. An important constraint is the weakness of local banks, which would in mature market economies provide guarantees for bid, performance and advance payment bonds, and working capital financing for liquidity needs at the start of construction. The proposed facility would tackle the weakness of the banks and thus seek to establish sustainable solutions rather than short-term ones. However, specialist skills are required at the banks that is often not available. TC would strengthen local banks’ capabilities to assess and mitigate construction risks. In addition, the thin capitalisation of many of the banks, and the risks involved, limit the ability of EBRD to lend on purely commercial terms without risk-sharing features such as first-loss funds. First-loss donor funds would enable the Bank to provide a considerably expanded programme of support.

Amount Required:

EUR 20 million First Loss fund ( US$ 5 million Quick Start and US$ 15 million Near Term).
EUR 2 million of T/C funds to provide specialist support to client banks in the evaluation and structuring of construction and other complex transactions.

Financing Plan:

First Loss grant funds would be leveraged three times. EUR 20 million will enable additional lending of EUR 60 million over the next eighteen months.

Final Beneficiary

Approved sub-borrowers of EBRD client Banks in the region.

Major Sector/Project Issues:

High risk of lending to the construction industry.
Need for Credit Risk Insurance to enable banks to take the client risk.
Risk of blocking banks’ balance sheets with large deals.

Contact numbers:

Funding enquiries:

Project enquiries: