BRASÍLIA, June 28, 2018 – A new financial instrument will allow Brazil to increase its investment in urban infrastructure and make the country more energy efficient. The Financial Instruments for Brazil Energy Efficient Cities – FinBRAZEEC will catalyze resources from the private sector and climate funds to create new markets in the areas of efficient street lighting and industrial energy efficiency.
"With this project, CAIXA has the opportunity to develop innovative financing mechanisms that will attract new investors," said Antonio Gil Padilha Bernardes Silveira, executive director of sanitation and infrastructure at Caixa. "We will work to support the development, implementation and financing of projects for public lighting in Brazilian municipalities and industrial energy efficiency."
Brazil’s public sector funding declined in 2015 and 2016, exacerbating the gap in infrastructure financing and highlighting the urgency of bringing private funds into the financing equation. The country’s high urbanization rates (86% in 2018) make investments in urban energy efficiency crucial to address the 2030 SDG’s Energy Efficiency and National Determined Commitments (NDC) goals.
FinBRAZEEC will help Brazil increase investments in urban energy efficiency and meet the goal of improving energy efficiency in the electricity sector by 10% by 2030, set as part of its Nationally Determined Contribution under the Paris Agreement on climate change.
“The FinBRAZEEC project offers one of the first genuine project financing structures in the Brazilian market”, said Martin Raiser, the World Bank Director for Brazil. “Its innovative financing model will help us unlock investment potential in the street lighting and industrial energy efficiency sectors, which had previously been identified as particularly promising for market based solutions. But we hope the example will encourage similar approaches also in other areas”.
Under the project, which includes a US$ 200 million project IBRD loan combined with Green Climate Fund (GCF) and Clean Technology Fund (CTF) resources, the World Bank will partner with Caixa Econômica Federal (CEF), the second largest state-owned financial institution in Latin America and the fourth largest bank in Brazil, as the financial intermediary and borrower of IBRD and climate funds. CEF will lead the syndication of commercial lenders and will establish a Guarantee Facility that will provide partial credit guarantees to the commercial lenders participating in the syndication.
“The creative approach of FinBrazeec’s new financial instruments galvanizes the experience of the World Bank in strengthening a truly domestic, modern and de-risked infrastructure asset-class market for investors,” according to Antonio Barbalho, Practice Manager for Energy, Latin America and the Caribbean. “The World Bank developed a cutting-edge financial and risk mitigation product, opening new windows of opportunity for supporting infrastructure investments,” adds Barbalho. The instrument encompasses best practices in infrastructure project preparation and provides flexible features to mobilize private finance while managing and mitigating risks.
FinBRAZEEC is expected to mobilize more than US$ 1.1 billion for urban energy efficiency investments in Brazil. In addition to the US$200 million IBRD loan, it will count on US$180 million of counterpart funds, as well as US$195 million in climate funds from the GCF and US$25 million in climate funds from CTF. The Project’s goal is to leverage US$ 730 million in commercial debt and equity, making it an excellent example of the World Bank’s strategy of Maximizing Financing for Development.
The Project will also benefit from a strong technical assistance program, supported by a US$ 4 million GCF grant, as well as nearly US$1 million in Bank-executed funds from the Energy Sector Management Assistance Program (ESMAP) and the Global Infrastructure Facility (GIF). These funds will be used to increase CEF’s capacity to implement the innovative financial products and support sub-project pipeline development.