Nalas EU Logo

Local borrowing case-studies









Serbia – Uzice regional solid waste treatment facility/EBRD loan - City of Uzice, Serbia, (83.022 inhabitants, last official census in 2002)


Short description of the experience:

The nine local government units from the region around city of Uzice have agreed on the construction of an EU-standard sanitary landfill called “Duboko” for solid waste to serve their residents. The project further includes a waste separation line at the landfill site, the construction of waste transfer stations in each of the local government units, and closure of existing dumpsites in each of them.

The Duboko region comprises the cities of Uzice and Cacak and municipalities of Cajetina, Pozega, Kosjeric, Lucani, Arilje, Ivanjica and Bajina Basta and is located in the western part of Serbia. Population in these LGs is estimated at around 371,000. The region is not a separate legal entity but has been defined exclusively for the implementation and operation of the “Duboko” Regional Landfill Project. For the purpose of the Project, participating municipalities have established the inter-municipal company called “Public Utility Company Duboko”. Duboko will be the first Regional waste management plan in Serbia and because of that it will also be comparative project for other regions in Serbia. Goals of the Project are improvement of services quality and operational effectiveness.

The main component of the project financed by EBRD loan is construction of landfill for 500.000 m3 of waste. Additionally, preparation of location and access roads will be completed as well as sewerage for waste water and natural gas installations. Also, separation line for recycling organic waste will be constructed, than construction of waste transfer stations in 8 municipalities together with trucks for waste transportation and costs for consultant supporting the project implementation are financed by EBRD loan.

The whole process was done through rather innovative arrangement between nine municipalities, joint public utility company and the EBRD as financing bank. The whole arrangement includes 5 separate contracts signed by these parties: loan contract between EBRD and joint utility company Duboko, contract on inter-municipal support between joint utility company and 9 municipalities and EBRD, contract on pledge on joint public company bank accounts between EBRD and joint utility company, contract on waste disposal between Public Utility Company Duboko and Public Utility Bioktos Uzice and contract on waste disposal between Public Utility Company Duboko and Public Utility Komunalac- Moravac Cacak (this means that joint public company has contracts with public utilities for waste collection from two biggest cities out of total 9).

Borrowing instrument used for financing this project was bank loan provided by EBRD, total amount of 5 million euro. On the top of this grants were provided by European Agency for Reconstruction (2.9 million euro) and Serbian Government Ecology Fund (1.1 million euro). Finally, participation of municipalities themselves will be 3.1 million euro. Total project investment finance is 12.1 million euro. For purposes of this example, only EBRD loan is relevant and will be elaborated.

Total amount of EBRD loan is 5 million euro and will be disbursed in total or by installments not less than 100.000 euro each . The loan is euro denominated. Front payment bank fee is 1% of the loan (50.000 euro) and assessment fee is additional 30.000 euro. Also, loan user will be obliged to pay 0.5% annually for total outstanding loan amount which hasn’t been used by the loan user on initially agreed periods. The loan will be repaid in 10 equal semi-annual payments (on 10th of June and 10th of December each year) starting from June 10th, 2011. The date of the loan agreement is March 20th, 2008. For premature loan repayment, loan user will pay fee to the bank equal to 3% of the principal which is prematurely repaid. The interest rate is Euribor plus margin equal to 3%.

Strong points/critical factors of the experience and what were lessons learned and/or solutions found?

The whole project is still in implementation phase and under construction so it is too early for lessons learned. Regarding the loan itself, it is still in the grace period since repayment of the loan will start from June 2011. However, some solutions found or critical factors can be pointed out:

1) this was the first time that group of municipalities on regional basis are entering rather complexed financing arrangement including the bank loan, specifially since the loan is coming from international financial institution like EBRD

2) this arrangement has one additional unique feature which is related to collateral or guarantee; according to Law on public debt local governments in Serbia can not issue guarantees for their public utilities so this was overcome by sophisticated contracts arrangement between municipalities, public utility and the bank itself in a way which is giving the bank enough confort to enter the investment

3) this example shows that municipalities grouped together can attract bigger investors like EBRD and can get more attractive borrowing conditions than ones existing on local market

4) this kind of inter-municipal cooperation was able to attract additional support in the form of grants coming both from EU funds but also from Serbian Government funds

5) potential negative feature of this loan agreement is contract provision which is regulating bank fee for funds not withdrawed as planned (bank fee for committed and not used funds); this can prove to be significant having in mind usual practice of delayed implementation of specific phases regarding construction projects in Serbia.

Information available on this experience and its context and background

Official website of Public Utility Company Duboko, Uzice -

Officail website of European Bank for Reconstruction and Development (EBRD)

For further information, contact:
Name: Aleksandar Bucic
Position: Assistant to Secretary General for Finance
Address: Makedonska 22, 11000 Belgrade, Serbia
Telephone, fax: +381 11 3223 446
Web site:



Croatia – Municipal Bond aissue, examples of City of Koprivnica/Rijeka


Short description of the experience:

This example of selecting the agent and procedure of issuing of municipal bonds reveals how the process in Republic of Croatia. Municipal bonds are debt securities that the local government as the issuer agrees to return within a specified period borrowed funds to a particular interest. Collected funds are invested in projects of local and regional significance. Municipal bonds are one of the safest securities because of their guaranteed payment of county, city or municipality and shall be properly traded on the securities market.

General information on the amount involved:
The amount of money involved in the borrowing experience:
City of Koprivnica: HRK 60 mln = cca. EUR 8.2 mln (in June 2004.)
City of Rijeka: HRK 180 mln = cca. EUR 24.5 mln (in May 2006.)

Period of the project: June 2006- June 2008

General aim of the experience and specific objectives:

Croatian market debt securities consisting of long-term and short-term securities. Long-term securities are bonds or bonds with a state guarantee, as well as corporate and municipal bonds, while short-term securities are Treasury bills issued by the Ministry of Finance and commercial records company. On the Croatian market are traded Eurobond issuers of Croatian. Development of the domestic corporate bond market started the beginning of 2002. Corporate bonds recorded significant expansion in the domestic market during 2004. Three homemade books (EUR 117 mil.) and a parallel version in the domestic and international markets contributed to the promotion of this way of external financing of enterprises in the domestic market. Most domestic editions of corporate bonds are bonds with indexed or denominated in euros, were issued with fixed coupons and principal payment at maturity with semi-annual payment of interest.

At the Zagreb Stock Exchange in late 2005, there were a total of 20 listed bonds in the first quotation (Official Market) of which is 10 bond issues of Croatian 103 State is associated institutions (HBOR), 8 corporate edition (Agrokor, Atlantic Group, Belišće, Bina-Istra, Hypo Alpe-Adria- Bank, Medika, Pliva and Podravka) and 2 issues municipal bonds (City of Koprivnica and the City of Zadar).

In Croatia, the two editions were issued municipal bonds. Bonds City of Koprivnica has been issued in three tranches in 2004, the total nominal amount of EUR 60 million, with the deadline expiry Juny 29, 2011 .

Bonds of City of Koprivnica is amortization bonds. That means the principal of the bonds shall be payable in 14 semi-annual installments to be paid on the due date and 1 / 14 of the principal. Bonds is included in the first quotation (Official Market) of the Zagreb Stock Exchange and the first quotation Varaždin Stock Exchange. Since its listing on the Zagreb Stock Exchange by mid-June 2007. total turnover of this bonds was amount HRK 49.6 mln..

The first tranche of bonds issued to the City of Rijeka on July18 th, 2006th in the amount of EUR 8.191.504,00, and the second tranche of the May 17th, 2007th in the amount of EUR 8.191.504,00. Also in 2008th was released the third tranche of bonds the City of Rijeka in the amount of EUR 8.191.505.00 and the total amount of bonds the City of Rijeka in circulation in 2008. amount to EUR 24.574.513,00. Finally the principal portion of the bonds is July 18th, 2016th. Bonds of City of Rijeka is also amortization bonds. Since its listing on the Zagreb Stock Exchange by mid-June 2007. total turnover of this bonds was amount HRK 7.1 mln.

City of Koprivnica edition of municipal bonds has financed the building of city swimming pool, high school and communal infrastructure.

Brief overall, narrative, description of the experience:

In Republic of Croatia, in accordance with the provisions of Article 5 of the Public Procurement Act (Official Gazette No. 110/07) and Article 4 Law on Amendments to the Law on Public Procurement (Official Gazette No. 125/08) it is not necessary to organize a public tender for selection of agent and underwriter of municipal bonds.

First of all, before applying for borrowing the Croatian Government and the terms in which these procedures should be implemented, the procedure (in Republic of Croatia) goes:

- selecting the bank which will transact business underwriter of municipal bonds
- a decision on choosing the bank sponsor brings city or municipality council,
- decisions about the city borrowing by issuing municipal bonds to qualify for the domestic market which will in accordance with the Rules of Procedure of borrowing will be determined by purpose of borrowing (clearly defined projectsfor borrowing) the name of the bank underwriter of bonds, the amount of bond issues, bond maturities and other characteristics bonds as the best bid is selected bank - underwriter - a decision made by the city or municipality council,

- decision on accepting capital projects with a clear purpose brings city or municipality council.

After making these decisions about borrowing and acceptance of capital projects, city or municipality council sends Croatian Government the Application for issuing approval for borrowing. Application with the aforesaid decision, submitted documentation prescribed in Article 10 Rules of Procedure of borrowing of local (regional) governments (Official Gazette No. 55/09) and providing guarantees for borrowing by district (regional) governments. Application for approval for borrowing and issuing guarantees submitted mayor or Mayor (of the city) or prefect.

With the application municipalities, cities and counties submitted the required attachments and documentation, as follows:

- adopted the budget plan for the year in which the borrowing. General part of the plan budget, the revenue account and expenditure account includes funding from the planned receipts from financial assets and borrowing and expenditure for the financial assets and repayment of loans. In a separate part of the budget plan should be transparent expenditure for procurement of fixed assets for which the county, city or municipality borrowing.

- coordinated plan for development programs in which the listed investment by borrowing from sources of revenue for the overall performance of the investment and display all expenses related to investment, which will be charged to the budgets next year,

- decisions regarding the execution of the budgets of local or regional government for the budget year in which the specified amount of new debt and / or guarantees during the budget year and the expected amount of total debt at the end of fiscal year,

- decisions of the representative body of the acceptance of investment with a clear purpose. If an investment is financed more subjects, it is necessary to submit a draft agreement on co-financing,

- decisions of the representative body of the assignment, giving assurances and approvals. The decision contains the purpose of investment and the name of the creditor / donor of the loan in accordance with section 7th this article - that means proposed contract or letter of intent lenders / service the loan with loan terms and repayment schedule with all the listed conditions (amount of credit 105 / loan repayment period, interest rate, grace period, assets of insurance and other costs),

Of the Application for borrowing Croatian government decision within 40 days after the Application. After receiving approval follows the process of making bond prospectus and application to the Committee for the Croatian securities for approval of the prospectus. After receiving the decision by the Committee for the Croatian securities approval of the prospectus following bond issues and the primary sales of bonds. The time period in which the prospect of making bond and term bond issues shall be determined after the procedure and the selection of the bank - municipal bond underwriter.

After the procedure of collecting bids for conducting underwriter of municipal bonds, the city or municipality council hired an authorized brokerage company for business consulting and development of the Information Memorandum. Now follows the selection of the bank will transact business underwriter of bonds. Underwriter of bonds guaranteed by the registration of the total bond amount, regardless of the investor interest for the registration of bonds in the primary market and the bond issuer pays the full amount of funds on behalf of registration of bonds. As I wrote before, to select the bank underwriter is not necessary to conduct public procurement procedures with regard to the fact that the acquisition of financial services in connection with the issuance, sale, purchase or transfer of securities or other financial instruments, brokerage services, and services central bank does not apply the provisions of the Public Procurement Act. In accordance with the recommendation of consultants, the bank underwriter has selected in a way that large banks in Croatia and who are authorized to trade securities, make a call for tenders for conducting underwriter of bonds. The text calls on all essential elements on which banks may be submitting a proposal, drawn up earlier selected consultant.

With the invitation, Committee for conducting municipal bond underwriter (appointed by the municipality or city) deliver to the potencial banks and Information Memorandum. Information Memorandum is designed in a way that the bank, interested in business sponsorship of bond issues, provides a comprehensive economic picture of the economic and social environment interested municipality or city, information on strategic projects and asset management, a review of revenues and expenditures of local budget, legal framework for borrowing, a description of projects which will be financed from funds generated from issuing bonds to financial and schedule of investments and the proposal of the basic elements of bond issues under which the bank gives its offer.

Committee evaluates the submitted bank bids, and two best bid has been selected for the second round of negotiations and establishing the final conditions of bond issues, after which the Committee proposes to the city or municipality council the making decisions about choosing of the bank - municipal bond underwriter.

After selected bidders - bank underwriter is going to make prospectus. Prospectus for the issuance of municipal bonds must be approved by HANFA (Croatian Agency for Supervision of Financial Services). Before an issuing municpal bonds, city or municipality must join to SKDD (Central Depository Company). After that bonds is going to issue, in this case, in dematerialized form, the name and denomination of 1 HRK. Interest will be calculated at a constant annual rate, in this case of 5.50%. Interest will be paid semi-annually in equal amounts. Repayment of principal on bonds is amortizated, in a way that will repay the principal on bonds over the past five years to maturity of bonds in the amount of 20% per annum.

Information available on this experience and its context and background:

Maybe you can provide here links to documents available on websites.
Here are some links of prospectus for the issuing of municipal bonds:
For further information, contact:
Name: Vladimir SESET
Position: CEO for Investments and public tenders in Municipality of Molve
Address: Trg S. Radica 7a, 48326 Virje, Republic of Croatia.
Telephone: +385 91 223 1000 (cell phone)
Fax: +385 48 892 294



Albania - Improving secondary and local roads –an initiative of Albania Government supported from World Bank and implemented from Albania Development Funds.


Short description of the experience:

Main Objectives:

- Improvement of the transport conditions in the rural areas;
- Facility in access to marketplaces;
- Improvement in access to administrative, educational and health services;
- Contribution to the economic development via employment and creation of conditions for the rural development.


This program aims at improving the access to basic services and at increasing the opportunities of economic, agricultural and tourist development for the beneficiary population via the provision of asphalted roads for the inhabitants in the hinterlands of the project roads.

Expected results:

- Reduction in vehicle journey time and relevant expenses.
- Reduction of expenses on vehicle maintenance by road users.
- Increase in access to health, educational and administrative facilities as well as the increase in access to regional markets;
- Increase in traffic volumes on project roads.
- Increase in positive expectations by road users regarding quality of roads.

Short description of the project implementation

This project has as objective to improve the access in the basic services and to increase the possibility for economic, agriculture, touristic development for the rural population profitable in the improving roads areas. The project it is expected to achieve this objective through: (i) improve priority segments of the secondary network and local roads in all the Albania; (ii) using maintenance contracts by contracting private sector for the local roads network; (iii) empowerment of responsible organism for managing local roads network and (iv)consolidating institutions responsibility for managing and planning the maintenance and the investments in secondary roads.

This program includes about 1,500 km secondary and local roads, with an amount of 400 million USD for the entire program. The project has started the implementation in December 2007 and actually includes the most important regional axis in 12 counties in the country. Actually the following projects are in implementation in total: 100 million USD; World Bank (20 million $), OPEC Fund (15 million $), Albania Government (5 million $), CEB (56 million $ or 40 million Euros) and IPA program 2008 (11 million $ or 8 million Euros)}. Also, are being draft financial agreements with 40 million USD with IDB, 50 million Euros with BERZH and BEI and 70 million USD with Japan Government.

The main component of the project:

Component 1: includes infrastructure works to improve the segments of secondary road network (regional). Due to the amortization of the road, the interventions of this component are the rehabilitation and reconstruction of the road. The entire pavement is done through new asphalt and with the necessary under floors. The rehabilitation works includes the construction of new podium and paving the new asphalt.

Component 2: includes civil works accompanied with improvement in the local road network (roads in the commune or in the municipality). This local road network was in very bad conditions, that’s why it was intervene in the rehabilitation and reconstruction. The pavement of the new asphalt in the secondary roads projects, as well as the rehabilitation works includes the construction of the new basement and the pavement of the new asphalt. Attention was pain also to the roads safety and the environment protection, protecting and using the contemporary parameters and standards.

Component 3 – Implementation and Institutional Support

This component finance giving technical support, buying merchandise as well as financing operational expenses which facilitate the project implementation, especially capacity building of ADF and local government.

Feasibility Analyze.

The evaluations of primary and secondary works are done through using a process of two phases with multi-criteria analyzes. The first phase includes local government units in the identification and delivering of their own projects to be financed from the project, which latter on were evaluated and listed from ADF according to several criteria (used in the program of competitive grants).

These criteria include:

The impact in the social and economic development, the approach of the project with the local/ regional strategy. local banks

The impact in reduction of poverty and increasing the access in the basis services;

The direct beneficiaries; local banks

The physical roads condition that will be reconstructed;

The projects that will be selected are evaluated according to a contemporary method of cost-benefits or cost-efficiency, following the World Bank models.

The second phase the analysis costs-benefits which is been undertaken (CBA) consists in the comparison of two alternatives one of the given example (or doing the minimum) and the proposed alternative of reconstruction in the project (scenario of the project). The result of this analyze gives the percentage of economic return (ERR) of 16%.

The selection of the priority roads segments is done through an open and transparent method. In the first phase of the project ADF has included the local government in identifying and presenting the priority projects toward to several criteria sent to the local governments units and published in the web-page of ADF. These priorities are ranked by ADF according to others criteria published as well. The final criterion includes the socio and economic impact such as: influence in agriculture production, promoting natural and cultural tourism, the impact in reducing the poverty and community participation in the decisionmaking process.

The local government is requested to introduce a yearlong plan for the contraction of the maintenance, as a precondition for the project on going and in ensuring its sustainability. The evaluation process and the lists with the project ranking are being published in the web-page.

The progress of the project. The project has started in December 2007 with these activities developed until today:

Selecting the implementer agency, ADF. In accordance with the World Bank Mission in June 2007, Albanian authority confirmed the Albania Development Fund as the implementer agency of the project. The Albanian Development Fund has a large experience with the implementation of the World Bank projects starting from its foundation in 1993, including here the latest project on going, Works in the Community II.

The goal of this project is to: Improve the living conditions of the rural population by drafting the local development plans for the communes which possess potentials for the economic development especially in tourism.


-To encourage sustainable socio-economic development.
-To improve communal infrastructure.
-To strengthen government at local level.
- To increase community role at governance via participative approaches.

Expected results:

- Drafting of narrow sectoral plans for 16 Communes,
- Drafting of Spatial Plans (Petrele, Ulez, Velipoje),
- Drafting of Tourism Development Plans (Ishem, Petran, Qender-Vlore).

Preparing phase of the project. During February the British company “Roughton International” has started working as a consultant in drafting the project. As part of the contract the company is finalizing technical projects and tenders documents for the first phase of the work. This plan includes the selected areas in 12 counties of the country. In the end of 2008 the company in collaboration with the ADF has prepared or reviewed technical projects ready for procurement 400 km of regional and local roads.

The first phase of the plan. The first phase of the plan has started during 2008 and consists in the reconstruction of 12 important regional areas in 12 counties with the financing of WB, OPEC, and Albania Government including designing, supervising and technical assistance. The selection of the segments for the financing has been realized with a large participation of the beneficiaries. ADF in collaboration with the international consultancy (ROUGHTON International) has realized a full analyze of the traffic, the transport and economic profit. The four other segments are financing from IPA 2008, respectively in the Counties: Gjirokaster, Durres, Lezhe and Shkodër.

The list of priorities and the financing segments. During this period ADF has collaborated with an international consultant Roughton International (RI) for the inventory of 3500 km of secondary and local roads based in their functionality. ADF has a database of the economic transport evaluation for 1500 km, or approximately 525 roads segments, which are evaluated as the main rural network. To accomplish this duty has been undertaken many activities such as: measuring the difficulties of walking on the road, measuring the traffic and its intensity for any category of vehicles etc. All these database are analyzed from a software, which prepare the feasibility of each road, by offering in a real time a prioritizing of investments and the respectively costs.

Supervising infrastructure work. ADF has a considerable experience in supervising the infrastructure work. By having the need of high level standard in this project, ADF collaborated with an international supervising company with a high reputation level. In collaboration with this company, ADF is supervising the implementing object, in total will include 1500 km. Project sustainability. ADF, expect of the investments in the roads, has ensured the right technical support in capacity building through trainings for the Local Government, aiming the maintenance of the investments. ADF has the right means and programs to help in predicting costs and time to interfere for the maintenance.

Strengths/critical factors of the experience, lessons learnt and findings.

Ensuring and a sustainable financing as a result of Albania Government and foreign donors commitment.

Feasibility analyze in two phases including local government units in identifying the primary roads segments and delivering the projects as well as the costs-benefits analyze.

Including local government units (municipality, commune) in defining the priorities as well as in assuring the maintenance after the project (as a helpful factor of the investments).

Including city council for studying the project-proposal has increased the effectively in assuring a beneficial with local and regional values.

Using the standards which are applying by the donors and the support from an international and specialized company.

Supervising the works from ADF, which now has a large experience in the investments field in local government, ensure a guaranty in implementing the projects as well as in influencing the local governments to create a good work tradition in this direction, especially in the local government units with small capacity.

Useful information on this experience, content and background

Albania Development Fund was created with a special law in 1993, as a necessary way in adding financial sources for investments in the local government. In the beginning they used funds from different donors mainly the World Bank, as well as 5-10% the contribution of the local governments’ funds, in order to increase and develop the community interest for the implemented projects.

Gradually, the government participation became more visible, and the donors have been increased. ADF is directed from a board chaired by the deputy Primeminister or another person from the Ministry Council, with other Ministry participation and representatives from the local governments.

During these years of application, ADF has realized many investments in local public objects, has helped local governments units in increasing their capacities, in drafting projects, in implementing standards for realizing investments, in the commitment of the maintenance of the financed objects, in the field of procurement and of purchased materials etc.

The previous year some additional and improvement was made to the law which gives to ADF the possibility and the power to lend money to local governments, but it didn’t started yet to be implemented.

For further information please contact:

Name: Zyher Beci
Pozition: Ekspert
Adress: Albanian Association of Municipalities
Telephon: +355 4 2257603
Fax: +355 4 2257606
Web site:



Macedonia – Karposh Energy Efficiency through Loan – Saving for the Future


Short description of the experience:

The Municipality of Karpos has applied to access the USAID Development Credit Authority (DCA) loan guaranty facility through the USAID/Macedonia Local Government Activity (MLGA) and its Municipal Investment Program.

The USAID MLGA has provided extensive technical assistance to the Municipality of Karpos to assess its creditworthiness and its current financial health, the credit condition and future projections. Based on this analysis it was estimated that the Municipality of Karpos is creditworthy and has the financial capacity to borrow.

The project proposed by the Municipality met the DCA requirements in terms of the municipal capability to implement energy efficiency project as well as to improve municipal services.

Type of the borrowing instrument used – Loan; The total proposed Municipal Investment Project is in the amount of $635,000 USD

Period of the project – July – October 2008

General aim of the experience and specific objectives - Municipality of Karpos has applied to access the USAID Development Credit Authority (DCA) credit guaranty facility through the USAID/Macedonia Local Government Activity (MLGA) and its Municipal Investment Program. The application is directed at completion of a primary school project. This primary school "J.A.Komenski" is one of the first in the history of independent Macedonia to be constructed by a municipality with decentralized authority over education (as opposed to a central government).

By utilization of municipal credit via the DCA the Municipality of Karpos will complete the construction of the primary school focusing on the energy efficiency and especially installation of energy efficient heating system, electricity and lighting, and roof construction.

As one of the main priorities of the DCA supporting work in the municipality of Karposh is the energy efficiency. The Council of the municipality of Karposh has adopted a program for energy efficiency (MEEP) 2008-2012. Installation of appropriate high efficiency heating and lighting equipment in the new primary school "Jan Amos Komenski" will enable much more efficient use of energy and significant reduction of operating costs.

The impact of the equipment to be DCA financed is as follows:

a. Heating - Assessment of the savings (compared to typical existing school infrastructure) was between 10 and 20%

b. Electricity - The type of lights and other electrical equipment which are installed in the new building is fully compliant with the prescribed standards for an educational facility, and fluorescent lights are used, i.e. mostly luminous pipes with parabolic raster. Assessment of the energy savings with the new lights was estimated at around 30%, and the amount of lighting, in comparison with the older type fixture will be increased by approximately 50%

c. Roof construction - It was estimated that with the improvement in thermal efficiency of the roof construction insulation there will be less loss of thermal energy by about 20%.

Macedonian municipalities and municipal utilities that are creditworthy, authorized by Macedonian law to borrow money, and capable of implementing energy efficiency or renewable energy projects to improve municipal infrastructure or operations are qualified to apply for DCA guarantee support. Prior to the borrowing procedure, the USAID MLGA has provided a technical assistance to the Municipality of Karpos as a cooperating municipality. The creditworthiness selfassessment tool was installed and applied there to assess the current municipal financial health, the credit condition and future projections based on historical budget trends and future revenue and expenditure scenarios. This tool used by the financial officers helped them to better understand the influences of financial stability or instability in relation to the revenues and expenditures in the recurrent and capital budgets. It also gave the finance officers a diagnostic tool to analyze the factors that may improve the collection of revenues and cost savings, as well as to perform certain scenario analysis. The analysis outlined a strong municipal financial standing and net operating result substantially higher than the debt service capacity.

Before the borrowing procedure started, as required by the Law, the Municipality of Karpos contacted several financial institutions to obtain draft terms and conditions for borrowing. The obtained draft terms and conditions were submitted to the Ministry of Finance along with the Request for obtaining an opinion for borrowing.

After the Government of the Republic of Macedonia, on the basis of the positive opinion from the Ministry of Finance issued a consent for borrowing, the Municipality of Karpos was obliged to procure the financial service pursuant to the provision of the Public Procurement Law. The Municipality of Karpos has published a tender and UNI Bank, a DCA partner, has offered most competitive conditions for loan and therefore it won the tender. This was the first USAID/ DCA guaranteed municipal loan.

This was also the first approval that the Government of the Republic of Macedonia has issued to any municipality since municipal borrowing has been enabled by the newly enacted legislation.

On July 2008 the Municipality of Karpos and UNI Bank signed the Loan Agreement for the amount of $635,000.00 USD, of which 50% is guaranteed by the USAID Development Credit Authority (DCA), five (5) years term of the loan and 7.5% interest rate.

Results of the experience: The total energy operating cost savings in the first year was approximately $13,681 USD. Note that this savings estimate is conservative since it assumes constant electrical and heating costs. Given that heating and electricity costs increased 12% and 10% respectively, the total adjusted savings in closer to $19,500 USD.

Municipal Energy Efficiency Program Results – "J.A.Komenski" School, Municipality of Karpos
  Before Capital
After Capital
% Reduction  
  MKD/m2 MKD/m2 MKD/m2    
Heating 430.85 386.80 44.05 -10.22%  
Electricity 245.30 156.70 88.60 -36.12%  
Renovated Building size
equals 4,280 m2
Total savings 132.65 MKD/m2  
567,742 MKD Total Annual Savings
$13,681 USD Total Annual Savings

Strong points/critical factors of the experience and what were lessons learned and/or solutions found:

1) This new way of municipal financing will have a very significant influence for the local community, the media and the general public, and especially for other municipalities considering whether to apply to the DCA for their projects.

2) Access to capital is a major issue for Local Governments in Macedonia, especially now once they are allowed to borrow from the private credit market to stimulate growth. Many have not had the opportunity to develop a credit history or to be recognized by banks as "clients in good standing".

3) This is a model of cooperation, involving diverse participants: USAID, the DCA participating bank, ZELS, the municipality, energy service companies and the Ministry of Finance, all cooperating in this program and providing a model for public-private partnerships in the future.

4) This very first DCA successful project implementation is seen as incentive to other mayors, for now they have the tools and resources to be able to implement energy efficiency projects or to improve municipal infrastructure.

Information available on this experience and its context and background:

Official website of the Municppality of Karposh -

Officail website of the USAID Local Government Project

For further information, contact:
Name: Gjorgji Josifov
Position: Municipal Credit Team Leader
Telephone, fax: +389 70 367339
Web site:



Turkey – The Supply and Commissioning of 120 Subway Vehicles in Metropolitan Municipality of Istanbul


Short description of the experience:

Istanbul is a city with a dynamic population of 12,9 million. It is a tough job to fulfill the needs of its residents regarding transportation problems dating back to tens of years. Istanbul Metropolitan Municipality, which has an annual consolidated budget of approximately USD 10 billion, has taken an initiative to ease the transportation stress in the city. The most practical solution obviously is the application of underground mass transportation, which is the metro construction, in order to surpass the traffic above.

In this regard, the Project of Kadikoy-Kartal Metro Line has been launched with a deal of EUR751 million. The financing of this project, which was accomplished through a syndication loan of 10 commercial banks, covered only the construction and electromechanical works.

Our interest will now focus on the procurement of rolling stocks to be utilized in this project and its financing process. The bureaucratic steps taken during this financing process will be presented in detail. Furthermore, the problems and/or obstacles the Municipality had been exposed to will also be discussed in this case study

12.9 million people will benefit from this project financing. (The Whole Province)

The reasoning is that Turkish Grand National Assembly passed a law in 2005 that the area served by Istanbul Metropolitan Municipality had been enlarged; therefore, the border of the whole province has been turned out to be the service area of the Metropolitan Municipality

Features of the Financing Practice:

Project Owner: Istanbul Metropolitan Municipality
Name of the Project: The Supply and Commissioning of 120 Metro Vehicles to be utilized in Kadıkoy-Kartal Metro Line
Project Amount: EUR 138,739,027
Contractor: Construcciones y Auxiliar de Ferrocarriles S.A. (CAF)
Lender/Creditor: BNP Paribas Corporate & Investment Banking
Export Credit Agency: Compañia Española de Seguros de Crédito a la Export ación S.A. (CESCE)

Instrument Used: Project Financing Export/Buyer Credit: EUR 117,928,172.95 (plus EUR 9,875,733.94 Insurance Premium)
Maturity: 31 months of Grace Period + 10 years (20 equal installments)
Commercial Credit: EUR 20,810,854.05
Maturity: 6 months of Grace Period + 7 years (14 equal installments)

Period of the project: October 2009 – May 2012

The signing date of the procurement agreement is 09.09.2009
The starting point of the project is 28.10.2009
The end of the project is 28.05.2012 (31 months from the starting point)
The signing date of the loan agreements is 10.03.2010

General aim of the experience and specific objectives:
The goal of the project is to purchase 120 Subway Vehicles to be utilized in Kadikoy-Kartal Metro Line. The tender was put out; and finally a Spanish contractor won the deal with an offer of EUR 138,739,027.

In order to finance a project; a few points must be taken into consideration:

- The project can be aimed to be financed through foreign financial institutions (with foreign capital) only in case of its inability to be implemented via Turkish Technology.
- The project must appear in the "Annual Bulletin" of State Planning Organization;
- The approval of Under-secretariat of Treasury must be obtained.

As known, state guarantee is a choice for all credible local governments. To this extent, Istanbul Metropolitan Municipality, which has the best creditworthiness among all Turkish Local Authorities, followed a way without state guarantee in order to avoid wasting time.

After these steps had been taken; Istanbul Metropolitan Municipality pursued a policy to involve several financial institutions in the deal to succeed in getting the best financial offer. Therefore, around 100 financial institutions were informed about the project and its financing process via Request for Proposals (RFP).

Steps taken:

The steps are listed below in accordance with chronological order:

- Preparation of feasibility reports of investment projects within the municipal structure

- Selection of projects to be implemented in the upcoming budgetary year and their existence in the following year's forecasted budget

- Preparation of qualified projects and involvement of these projects in the Municipality's Annual Investment Program (Law No. 5393, Clause 18-a)

- Approving "Investment Program" in the Municipal Council after regular discussions (Law No. 5393, Clause 18-a)

- Project's appearance in "Government Investment Program" (Notification Clause 3 for Procedures and Principles for providing external debt that is stated in the Annual Investment Program, Law No. 4749 Clause 8)

- Receipt of official document from the Directorate of Rail System about requesting of financing the Project

- Requesting "prior permission" from Under-secretariat of Treasury for the financing of the Project (Notification Clause 3 for Procedures and Principles for providing external debt that stated in the Annual Investment Program, Law No. 4749 Clause 8-Article 10 )

- Carrying out "Municipal Council Resolution" for external borrowing for the Project (Law No. 5393 Clause 68)

- Completing the Tender Period with the framework of No. 4734 Public Tender Law

- Sending RPFs (Request for Proposal) to all financial institutions in the database for indicative proposals

- Analyzing the indicative proposals and short listing banks/proposals (In the analyses, we use different methods and software.)

- Informing the shortlisted banks/group of banks in order to modify their offers

- Mandating BNP Paribas as presenting the best offer regarding financial costs

- Starting negotiations with BNP Paribas on the wording side of the drafted agreements

- Implementation of Tender with Finalized Loan Agreements

- Sending the Signed Loan Agreements to the Head Office of External Economic Relations of Under-secretariat of Treasury (Notification of Procedures and Principles for providing external debt that stated in the Annual Investment Program, Subject 3)

- Appointing a Process Agent in the Turkish Embassy located in London since English Law was chosen as the Governing Law in the Loan Agreements

- Registering the Loan Agreements in the "External Financial Information System" (External Debt Log) at the Under-secretariat of Treasury (the Head Office of Public Finance: Notification regarding T.P.K.K.H. 32 Clause 42, Decision T.P.K.K.H. 32 B.H and D.T.M.' 91-32/5 I-M Circular regarding Republic of Turkey Central Bank)

- Mailing the documents required for disbursements, which are called as "Conditions Precedent", to BNP Paribas Bank in 30 days after signing agreements.

- Transferring the insurance fee to Spanish Export Credit Agency (CESCE); and commission fees to Mandated Lead Arranger

- Transferring the Advance Payments and Progress Payments to the supplier (Construcciones y Auxiliar de Ferrocarriles S.A.- CAF) by making first disbursement from Loan Agreements

- Informing the Head Office of Public Finance of Under-secretariat of Treasury via sending related documents within 10 days after disbursement (T.P.K.K.H 32 Notification No: 91-32/5 Clause 42)

Results of the experience

Since this financing process was going to focus mainly on export financing, we were aware that financial institutions would be highly enthusiastic about our project. Hence, we determined our own/unique strategy and implemented it till the end.

In the first indicative proposal phase, we were slightly concerned that the costs were a bit higher than we had anticipated due to global financial turmoil. On the other hand, we were surprised that offers and costs varied in a broader range. Our expectation was in a manner that banks would submit quite similar proposals.

Actually, this helped us to easily eliminate the banks at the worst end, and to shortlist 5 banks/group of banks in the end.

As the due date for submitting the final proposals of shortlisted banks arrived, almost all banks waited till the very last minute.

BNP Paribas's offer was quite good since the bank's overall financial condition in the crisis was sound. They even acquired Fortis Bank in the meantime.

In conclusion, our expectations were met and a successful agreement was signed between two parties.

Strong points/critical factors of the experience and what were lessons learned and/or solutions found:

Borrower should be very concise and precise in negotiations. The costs of the proposal may seem to be very suitable; however, the wording of the agreement may force you to get exposed to pay more in different ways.

Borrower should be careful about extra demands of the creditor about documentation. Sometimes documentation may be frustrating. Creditors would always be willing to supervise financial statements periodically.

Fees depicted in the agreement should be negotiated. Disbursements should be made in accordance with the project, and the opportunity cost of commitment fee should be calculated before disbursements.

Extra expenses/Out-of pocket expenses should be capped. If not, then it may cause you to incur disproportionate amount of costs when the creditor is malicious.

Creditors should be well reviewed and past experiences should be considered as assets.

Borrower should force creditors to put a binding clause that states "any right/ and or obligation cannot be transferred to a third party or an affiliate, which is located in a country that Borrower's country does not recognize".

Disbursement requests should be in the authority of only Borrower, not Supplier.

Documents designed to fulfill conditions precedent are usually submitted in 30 days after signing agreements. So, Borrower should be quick and practical in documentation; otherwise, agreements may be canceled.

Information available on this experience and its context and background: for-Istanbul-metro-deal.html haber-249017.htm

For further information, contact:

Name: Mehmet Onur PARTAL

Position: Expert, Istanbul Development Agency

Address: Havalimani Kavsagi, EGS Business Park B2 Blok Kat:16, Yesilkoy 34149, Istanbul TURKEY

Kasim sk. No.62 Merter-Istanbul, TÜRKEY

Telephone: +90 212 468 3429

Fax: +90 212 468 3444


Web site:



Bulgaria – Bridge financing from "FLAG" Fund in support for the project implementation for the municipality of Mezdra


Short description of the experience:

Since its operation in January 2009, "Fund for local authorities in Bulgaria- FLAG" STC (FLAG) has managed to become a partner of the municipalities in the preparation and implementation of projects financed by EU funds.

According data to July 2010, concluded is a total number of 105 credit agreement amounting at 119.09 million BGL / approximately 60 million EURO/ for support to the implementation of municipal investment at the value of 339.83 million BGL/ approximately 170 million EURO/.

FLAG does not finance projects; it just assists the municipalities for their successful implementation through the provision of bridge financing- i.e. providing necessary resources for payments to the contractors, which ease the timely submission of interim and final payments to the relevant Managing Authority.

One of the municipalities whose projects are being implemented with financial support from FLAG is Mezdra municipality. Municipality of Mezdra receives bridge credit for implementation of the project for reconstruction of 6.7 km municipal road, financed entirely by grants under the Operational Programme " Regional Development" 2007- 2013.

The municipality applied for resource from FLAG relatively at the late stage of the project implementation - two months before its completion. The amount of the loan, compared to the actual cost of the project (after the public procurements and contracts signed with contractors) is approximately 85%.

The credit from FLAG at the amount of 2.8 million BGL/ approximately 1.4 million EURO/ provides a resource for final payment to the contractors also for refinance of the part of the costs incurred to date by the municipality, paid with its own resources.

The credit is short term- 7 months, and its repayment is in two installments with the funds received from the interim and final payments by the Managing Authority of OP. The project was completed successfully and the loan is repaid within the fixed deadlines.

1.591 habitants will benefit from this project financing. (The whole municipality)

Strong points/critical factors of the experience and what were lessons learned and/or solutions found:

One of the problems in the absorption of the funds under the Operational Programs is the delaying in payments to the municipality (beneficiary) from MA, this is leading to non-implementation of the time schedule for completion of the relevant project activities- FLAG maintains intensive communication with the Managing Authorities of Operational Programs on the implementation of projects for which funding requests for credit are deposited.

As information about the project, the Managing Authority of Operational Program provides to FLAG, is the status of requests for payment from the municipality to the MA and the possible reasons for the delay (need for corrections to the payment request, suspected irregularity established irregularity, etc.). There have been detected some weaknesses in project management, showing a lack of sufficient administrative capacity at local level- through consultations provided by the experts from FLAG, for the purpose aiming to minimize mistakes, especially at the stage of actual implementation of the project and submitting of the requests for payment to the Managing Authority of the OP.

Information available on this experience and its context and background:

Information for FLAG – ; (EN)

Loan conditions for project implementation -

Report for company activities for 2009- 20Report%202009.pdf

For further information, contact:

Name: Emil Savov
Position: Executive director
Adress: "Solunska" 27 Str.
Tel: +359 (2) 490 01 86
Fax: +359 (2) 490 01 87
Web page:



Romania – 500 million euro for traffic improvement in Bucharest


Short description of the experience:

In 2005 Bucharest municipality carried out a 500 million EURO bond issue in London. The bond issue had been chosen as the best instrument available to finance many priority investments simultaneously. The central government publicly supported the initiative and also exempted the city from the legal debt threshold.

Before the issue, the city hired an international rating agency and an investment bank. Both prepared the way for what became the most successful local debt project in Romania.

The proceeds were used to finance numerous public works aimed at upgrading the road infrastructure and public transportation of a rapidly developing city.

Period of the project: June 2005 – June 2015

General aim of the experience and specific objectives:

The bond issue was chosen in 2004 as the best solution for financing the investment needs in the public infrastructure of Bucharest.

In 2000 the city had approved the conclusions of a comprehensive transport study made by foreign consultants which presented the mayor with a list of investment in the city's ageing road infrastructure, parking facilities and public transportation fleet. In addition, in 1999 the city had concessioned the water& sewerage services to a private operator, while retaining some of the major investment commitments. Moreover, the investment needs in the district heating infrastructure were also badly needed as the main transport and distribution network had been built in the 1960s.

Consequently, the city hall has put together a priority list of investments, decided the bond issue as the best instrument for financing and started due diligence and preparations.

The city did not put forward to investors a comprehensive detailed list of investments, but mentioned the rehabilitation and upgrading of the city infrastructure. Indeed, the city did not have all technical documentation prepared, nor had it secured the land rights for some of the planned investment. All these aspects were bound to take time and were sometimes uncertain.

However, the city hall publicly said the money would be use to build the twokilometer Basarab overpass completing the main ring-road, build an underground parking at the main railway station, buy new tramcars, build parking spaces in residential areas and other capital spending on urban infrastructure.

Spending the money begun in earnest in 2007. Eventually, the Basarab overpass was financed from the bond issue. However the parking projects and the new tramcars did not materialize. In turn, much of the bus and fleet of the local transportation company was revamped (1.000 buses). In addition, major road works were carried out on the main city roads.

During the 1990s few of the investments needs of Bucharest, the 2 million inhabitants capital of Romania, were met. During 2000-2004 the elected mayor, Traian Basescu, put forward a bold investment plan in the city road, water and district heating infrastructure. Securing the financing has proved to be un uphill struggle for several reasons:

- the legislation regulating the city revenues was amended repeatedly to divert revenues from the city hall to the six district halls

- the internal local credit marked was in its inception

- the city hall and central government were at odds politically and strategically: central government sought to weaken the city mayor and council in favor of the district mayors and councils.

In 2004, the mayor was re-elected and used his new legitimacy to push for the badly needs investments. A priority list was assembled. An analysis of financing opportunities was carried out. The conclusion was that neither local credit market and nor the international financial institutions (ERBD, EIB, IFC etc) were able to meet the city demands. Hence, the only option left was the private international markets, namely a bond issue.

Then the city hired Standard&Poor's to undertake a rating analysis. In 2004 it gave Bucharest municipality the same rating as the central government (BBstable). Just before the bond issue it upgraded the rating to BB+ stable.

In parallel, the city carried out an public procurement for the investment bank. A consortium made of JP Morgan&ABN Amro was selected. It carried out all the preparation of the bond issue, including the much needed advertising and investor awareness. To this end, a city hall delegation took a roadshow in several major European financial cities, Athens, Vienna, Paris, Frankfurt, Münich, Amsterdam şi London. It also developed the structure of the issue, namely a 150 million EURO 10 year bullet repayment instrument. By then, the city had a new mayor. Traian Basescu had been elected president and the new government and the new mayor were political allies. Hence, the government passed an emergency ordinance exempting the city from the 20% debt threshold (of own revenues) which was in forced at that time. The exemption was passed just a month before the bond issue.

The issue took place in mid-June 2005 at London Stock Exchange. Initially, the issue was valued at 150 million EURO, but it was quickly apparent that demand largely exceeded that amount. Finally, the city sold bonds worth 500 million EURO, although the demand exceeded 700 million. The interest rate was 4,12% per year, better than the initial estimate. The bond underwriters were mainly major European banks.

The municipality deposited the money in a local bank until the public works would begin. The deposit yielded just enough interest to service the bond issue interest rates for two years.

Most of the bond issue proceeds have been spent to this day. Less that 10% is still left to finish the works at Basarab overpass.

Results of the experience

The bond issue ended up more than three times bigger than planned. It saved the city hall from looking for more financing in the coming years.

In terms of money usage, not all of the initial investment came to materialize. However, the city infrastructure and transport got much needed upgrades.

The city had not borrowed ever since. It is trying to do so, but the bullet repayment makes if exceed the debt threshold in 2015. The Ministry of Finance claims that the 2005 exemption did not include the repayment, only the approval for the issuance.

Strong points/critical factors of the experience and what were lessons learned and/or solutions found:

The main strong point is the city itself. As the largest in Romania, Bucharest is set to grow faster than the country as a whole and is the likeliest source of investment, jobs and high wages. Most of the city hall budget depends on income tax.

Secondly, the central government publicly backed the city and exempted it from the debt threshold. However, no hint of an eventual bailout was given.

The city officials were flexible enough to increase the issue as demand proved high.

The deposits from bond proceeds yielded enough interest to service the debt for two years.

The bullet repayment structure causes problems to the city nowadays. It's plan to take a new loan to build kindergartens is stalled because the debt threshold is set to be broken in 2015 when the bond issue is repaid.

The interest rate of 4,12% is lower than that of central government bonds. The Ministry of Finance pays 5% interest for bonds issued in 2010. It is also lower than most interest rates of current municipal loans in Romania.

Information available on this experience and its context and background:
For further information, contact:
Name: Radu Comsa
Position: Romanian Association of Communes
Telephone: Fax:
Web site: