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UNCLAS SECTION 01 OF 04 STOCKHOLM 000780 
 
SIPDIS 
 
STATE PASS TO USAID 
STATE FOR EUR/ACE. EUR/NB AND EUR/ERA 
 
E.O. 12958: N/A 
TAGS: EAID ECIN ECON EIND ENRG PGOV PREL SENV SW
SUBJECT: SWEDEN LAUNCHES EASTERN EUROPE ENERGY EFFICIENCY 
AND ENVIRONMENT PARTNERSHIP 
 
STOCKHOLM 00000780  001.4 OF 004 
 
 
¶1. (U) Summary: On NOvember 26, Sweden launched the Eastern 
Europe Energy Efficiency and Environment Partnership by 
hosting a donor conference, which raised more that EUR 90 
million in pledges from European countries and the US to 
finance energy efficiency projects. Poloff attended donor 
conference to express US support for the Partnership by 
pledging $1.5 million annually over the next 5 years for 
projects in Ukraine. In addition to securing the initial 
funding, the donor conference outlined the general framework 
of the Partnership, but most of the work on filling in the 
details, such as Fund rules, project selection criteria and 
project selection as well as country scope, remains. Country 
representatives were reluctant to finalize such details 
without consulting with respective home authorities and 
experts. The Partnership is off to a start, however, 
follow-through and continued commitment from donor and 
parnter countries, a new government in Ukraine especially, 
will be crucial if the Partnership is to be become a success. 
End Summary. 
Background 
---------------- 
¶2. (U) A Swedish initiative, the purpose of the Partnership 
is to allow a harmonized and effective delivery of 
international financial support over several years by pooling 
non-reimbursable contributions from a group of donors and 
beneficiaries, to be used primarily for supporting energy 
efficiency and other environmental projects. More 
specifically, the Partnership aims to increase 
competitiveness in the energy sector, enhance energy 
security, and positively affect the climate by reducing 
energy demand through energy efficiency measures. The 
Partnership aims to initially focus on district heating 
projects with a short implementation window, but 
environmental projects, such as in waste water or renewable 
energy, will also be in scope. Initial projects will focus on 
Ukraine, however, the Partnership envisions a future 
expansion to other Eastern Partnership (EaP) countries 
(Moldova, Belarus, Armenia, Azerbaijan, Georgia). 
 
¶3. (U) The first half of the conference was devoted to 
political declarations of support and pledges, while the 
afternoon session was dominated by expert discussions. In her 
opening remarks, Swedish Minister for International 
Development Cooperation, Gunilla Carlsson, noted that energy 
use in Ukraine today is only one-third as efficient as in EU 
countries on average and in addition to being a concrete 
measure ahead of the climate negotiations in Copenhagen, the 
Partnership provides clear support for the implementation of 
reforms in the energy sector and is key to greater energy 
security in Europe as a whole. Similarly, External Relations 
Commissioner Benita Ferrero-Waldner emphasized energy 
efficiency measures as &single best opportunity to improve 
energy security for Ukraine.8  Moreover, she referred to the 
Partnership as one not only common values, but also as a 
partnership for reform.  She urged the government of Ukraine 
to do more on energy reform. Ukrainian Deputy Prime Minister 
Hryhoriy Nemyria noted the politically sensitive situation in 
Ukraine and said the government,s commitment, including a 
financial one, to the Partnership demonstrates the Ukrainian 
leadership,s courage and strategic view. He expressed high 
hopes for the success of the Partnership because the model 
has been already tested within the framework of the Northern 
Dimension, involves the participation of the EBRD and the 
World Bank, includes projects that are not centered on Kiev 
and that make municipalities stakeholders, and complement 
national legislation on energy efficiency targets. Poloff 
highlighted the work of USAID in implementing the Municipal 
Heating Reform in Ukraine and US efforts to develop a 
national municipal heating strategy in consultation with a 
High-Level Task Force created by the GOU at the request of 
several donors. 
 
COUNTRIES PLEDGE OVER EUR 90 MILLION IN ENERGY EFFICIENCY 
MEASURES 
------------------------ 
¶4. (U) Participating countries pledged more than EUR 90 for 
the Eastern Europe Energy Efficiency and Environment 
Partnership Fund to finance specific projects. The European 
Commission, with EUR 40 million over the next 4 years, and 
Sweden, with EUR 24 million over the next 5 years, are the 
largest donors. Ukraine pledged EUR 10 million to match 
support from the EC. Norway pledged EUR 5.3 million over the 
 
STOCKHOLM 00000780  002.2 OF 004 
 
 
next 5 years conditional on full participation and 
eligibility of all EP countries to tap the Fund,s finances. 
Denmark pledged EUR 5 million beginning with 2011 and onwards 
and expressed desire to extend the Fund,s finances for 
renewable source of energy also. The US pledged USD 7.5 
million in funding over 5 years and subject to congressional 
approval. Estonia pledged EUR 160,000 for 2010 and expressed 
the possibility of an increase the following year. Latvia 
pledged EUR 50,000 to be made available sometime over the 
next 5 years. Lithuania also expressed its preparedness to 
contribute an unspecified amount. Other countries around the 
table, Finland, Poland, Romania, Czech Republic, Slovakia, 
and Japan expressed their support for the Partnership but did 
not pledge specific amounts. Japan and Slovakia highlighted 
the countries, bilateral support for Ukraine and Romania 
expressed desire that the next step in the Partnership,s 
work will be to include the remaining five countries of the 
EaP. Richard Jones, Director of the Official Co-Financing 
Unit at the the European Bank for Reconstruction and 
Development (EBRD), indicated to poloff that it will be 
possible to separate funding from donor countries and earmark 
funds for specific countries so that US funds are used 
specifically for Ukraine only. 
 
HOW WILL THE FUND OPERATE? 
---------------------- 
¶5. (U) The representatives of the contributing parties 
adopted the rules of the Fund ad referendum with the details 
of the rules to be worked out via a written procedure. 
According to the rules, the contributing countries form an 
Assembly of Contributors, which is the governing body of the 
Fund. (Note: The version of the rules presented at the donor 
conference no longer sets a minimum contribution required for 
a country to become a Contributor. A version of the rules 
circulated prior to the conference included a clause on the 
minimum contribution required for a country to become a 
Contributor. This is significant because only Contributors 
have voting rights.) The Assembly is expected to meet 2-3 
times a year and will be chaired by Sweden, the largest 
contributor, in the foreseeable future. No decision on the 
date or location of the next meeting was decided.  In 
addition to setting and supervising the implementation of the 
Fund,s overall strategy, approving the Fund Manager,s 
(EBRD) work program, reviewing the effectiveness of 
activities financed with the Fund,s resources, and 
monitoring the disbursements of Fund resources among other 
tasks, the Assembly decides which projects the Fund will 
finance. Each contributor has one vote in the Assembly and 
decisions are reached by consensus whenever possible. In 
cases where consensus cannot be achieved, a vote will be 
taken and a decision will be made provided a minimum of 
two-thirds of all members of the Assembly present vote in 
favor of the decision and the total value of the 
contributions paid to the Fund, up to the date on which a 
vote is taken, by such Contributors voting in favor of the 
decision, constitutes a minimum of two-thirds of the total 
value of all contributions. A decision to terminate the Fund 
requires unanimous consent of Contributors. Contributors 
representing at least one half of all contributions 
constitute a quorum. According to the draft Fund rules, the 
Assembly of Contributors may also make decision on the basis 
of written resolutions (a written procedure), in the absence 
of a meeting. 
 
¶6. (U) A Steering Group, consisting of participating 
financial institutions (EBRD, World Bank Group, European 
Investment Bank (EIB), Nordic Environment Finance Corporation 
(NEFCO), Nordic Investment Bank (NIB), Ukraine, and the EC) 
will identify eligible projects based on agreed criteria, 
prioritize eligible projects, facilitate the coordination and 
financing of such projects, and recommend to the Assembly of 
Contributors projects to be funded from the Fund,s 
resources, including the size of grant requirements for the 
project. Contributing donors may take part in the Steering 
Group as observers and the Group may invite representatives 
of other organizations, as required, to supplement the 
existing expertise. The Group can also decide whether to 
allow contributions to be earmarked for specific projects. 
(Note: Such earmarks are not allowed unless agreed otherwise 
by the Group.) The rules of the Fund do not provide for a 
decision making mechanism for the Steering Group. Modeled on 
the Northern Dimension Environmental Partnership (NDEP), the 
 
STOCKHOLM 00000780  003.2 OF 004 
 
 
Steering Group will operate by consensus.The Steering Group 
will be chaired by the EBRD. No decisions on future meetings 
have been announced at the donor conference. 
 
IMPLEMENTING AGENCIES 
---------------------- 
¶7. (U) The EBRD, the EIB, the NIB, the NEFCO, and the World 
Bank Group are designated as Implementing Agencies 
responsible for financing and monitoring projects. Funding 
Agreements with the EBRD define the terms and conditions 
under which funding is being provided to support a project. 
The Implementing Agency also prepares a grant agreement with 
the project,s local recipient, and uses its own procurement 
rules in consultation with the EBRD. 
 
¶8. (U) Several of the Implementing Agencies noted their 
ongoing projects in the Ukraine. EBRD representatives 
highlighted the Bank,s financing for three projects in 
district heating, some of which are financed through the 
international carbon market, and two additional projects 
ready for implementation as well as other projects in the 
proposal or technical study stages. The EIB announced it will 
establish a common office with the EBRD in Ukraine and 
emphasized the need for local partners and local as well as 
national government support for projects as important lessons 
from the NDEP. NIB has been in Ukraine since 2005 and has 
developed a potential pipeline of projects for implementation 
in cooperation with other financing institutions. The NEFCO 
representative also highlighted the institutions involvement 
in Ukraine and its  relatively quick fast decision-making 
process that position NEFCO favorably in getting involved in 
pilot projects. NEFCO also noted the possibility to use the 
carbon market to finance projects the region and its mandate 
to purchase carbon credits post 2020. Representatives from 
the World Bank and the the International Finance Corporation 
(IFC) mentioned numerous ongoing projects related to energy 
efficiency in the region. The World Bank and the Government 
of Ukraine are currently drafting an action plan that aims to 
reduce energy intensity by 20 percent by 2015. The IFC sees 
opportunities primarily in the area of residential housing 
efficiency and intends to role out an advisory program in 
this area. The IFC representative further noted the 
importance of avoiding market distortions as a result of 
grants and subsidies and listed access to municipal markets 
as a result of current procurement laws as potential 
problems. 
 
WHAT ARE THE SELECTION CRITERIA FOR PROJECTS? 
--------------------------------- 
¶9. (U) The EBRD presented a draft of selection criteria 
linking projects to energy efficiency improvements and 
reforms required for sustainability in the Steering Group 
session. The presented selection criteria did not apply to 
technical assistance, but technical assistance activities 
could be financed by the Fund, according to the EBRD. During 
the ensuing discussion of the selection criteria several 
participants expressed objections to the selection criteria. 
For example, the EC representative wished to see a more 
general formulation of the selection criteria away from a 
district heating focus. The EIB representative also cautioned 
against narrow selection criteria that would restrict 
funding. Others pointed out that the calculations to 
determine grant sizing are skewed toward electricity rather 
than gas saving projects and requested a more balanced 
approach.  Ukraine presented a separate list of criteria and 
requested that their suggestions are integrated into the 
Fund,s selection criteria. Consequently, no consensus on 
selection criteria was reached, leaving further deliberations 
to be conducted though a written procedure. 
 
¶10. (U) The EBRD presented three ready-to-go projects, two 
technical assistance projects to promote energy efficiency in 
public and residential buildings in Ukraine and one heating 
project in the Zhytomyr District of Ukraine. No decision was 
made to fund these projects, despite Swedish support to fund 
them. 
 
NEXT STEPS 
--------------- 
¶11. (U) Inquiries regarding the business of the Fund should 
be directed to the EBRD as the Fund,s Manager and Richard 
Jones, the Director of the Official Co-Financing Unit, more 
 
STOCKHOLM 00000780  004.2 OF 004 
 
 
specifically. His contact information is One Exchange Square, 
London EC2A 2JN, United Kingdom; Tel:  44 20 7338 7266; Fax: 
 44 20 7338 6942; E-mail:jonesr@ebrd.com. Poloff did not 
provide a USG POC for future business. Therefore, relevant 
USG representatives should reach out to the EBRD. 
 
¶12. (U) Future actions to operationalize the Fund will 
probably include: 
--Deliberations via a written procedure to agree on the rules 
of the Fund. 
--Deliberations via a written procedure to agree on project 
selection criteria and funding for the three EBRD projects 
presented in the Steering Group. 
-- Conclusion of a Contribution Agreement with the EBRD. 
--Securing support of the new Ukrainian leadership after the 
January elections.Currently there are no plans to engage new 
leadership in Kiev after the January election. 
 
¶13. (U) COMMENT: Initial deliberations in the Steering Group 
suggest that the US would have a voice in the Group as a 
Contributor, despite having an observer status only as a 
result of the consensus driven operational mode in the 
Partnership overall and the Steering Group. Poloff was told 
by both the EBRD and EIB representatives that, based on the 
experience in the NDEP, Contributor countries will be able to 
actively and fully participate in the Group, including having 
a say in determining the selection criteria. 
 
¶14. (U) COMMENT Continued:  The Implementing Agencies 
expressed that the role of Implementing Agencies should be 
limited to present financing institutions, although such 
preference does not indicate an exclusive approach. Poloff 
noted reluctance to have USAID included as an Implementing 
Agency in conversations with representatives of other 
Implementing Agencies, although, the possibility of having 
USAID participate as an Implementing Agency was not precluded 
in response to poloff,s inquiries.  The Steering Group 
expressed willingness to discuss the role of USAID in future 
meetings. 
 
¶15. (U) COMMENT Continued:  The Partnership is the mechanism 
to coordinate the work of donor countries and participating 
financial institutions to avoid overlap and duplication of 
efforts. For example, the EC mentioned the beginning of the 
implementation stage of a EUR 5 million project in the region 
to provide assistance with regulatory reform and legislation. 
Other participants did not appear to be aware of this 
project. There also appears to be a direct link between the 
EBRD proposed projects and the EBRD Sustainable Energy Action 
Plan developed for Ukraine. The EBRD ready-to-go projects 
presented in the Steering Group are also part of the EBRD 
Sustainable Energy Action Plan. End Comment. 
BARZUN