Energy Efficiency Loans for Jamaican SMEs

THE DEVELOPMENT Bank of Jamaica (DBJ) has embarked on a three-pronged initiative to promote its small and medium-sized enterprises energy loan facility.

The initiative, to be undertaken over a 24-month period and is which is financed by the PetroCaribe Fund, will include amongst other items an education campaign to showcase energy efficient, energy conservation and renewable energy projects.

According to General Manager of DBJ’s Approved Financial Institutions Relationships (AFI) Division, Yvonne Lewars, the initiative will be jointly financed by the Inter-American Development Bank (IDB) and the DBJ. She says the entire project cost is $807,000, of which $593,000 will be a grant from the IDB, while the DBJ will provide the remaining $214,000.

Lewars says the decision to pursue the initiative, primarily, arose from the “sluggish” response to the 2008 energy fund by targeted stakeholders. These include commercial and industrial entities, energy service companies (ESCOs) and manufacturers of energy efficiency equipment and devices.

Over $500 million, provided by the PetroCaribe Fund, has been committed by the DBJ to finance the development and implementation of energy efficiency, energy conservation and renewable energy projects.

The funds are on-lent to sub-borrowers, primarily business entities interested in pursuing energy efficiency and conservation projects, through approved financial institutions affiliated with the DBJ, at an interest rate of 9.5 per cent per annum.

Lewars says $68 million was set aside for project development in the manufacturing, agro-processing and services sector, and the balance of approximately $432 million earmarked for SMEs and tourism interests. A maximum of $15 million per entity is provided for SME projects which, on average, equates to some 90 per cent of the DBJ’s funding input to borrowers.

Where the loan request exceeds this amount, she says the DBJ provides other lines of credit to cover the difference. She points out that in the case of larger clients, undertaking similar projects not falling under the dedicated energy fund, the DBJ provides up to 75 per cent financing with funds drawn from credit lines within the institution, or as the need arises.

She explains that the 9.5 per cent rate represents a “cut in the spread” for both the DBJ and the AFIs.

“We (DBJ) would borrow these funds from PetroCaribe at six per cent, and we would only add 0.5 per cent. Then we would ask the approved financial institutions to add only three per cent, wherein they would normally add 5½ per cent. So, it is, really, in an effort to push the savings of the country, because we are spending too much on energy,” she states.

The DBJ is currently working on developing projects for over 100 "potential borrowers", with an estimated value of close to $300 million.
Regarding a demand study, Manager of the Energy Fund, Howard Martin, told Jamaican JIS News that financial institutions and some of the SMEs are being targeted to get their feedback on the facility.

“We realise that up to 70 per cent of the cost of the overheads of most businesses is energy. That alone tells you, if you are able to save on that your business will be a bit more profitable. Therefore, we see this as a way for us to help the country,” he argues.

Monday 7th February 2011

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