KfW – German Development Bank in Serbia

KfW Group

KfW Development Bank was established in 1948 as a public institution headquartered in Frankfurt am Main. KfW is Germany´s leading financial institution for domestic business and for developing and transition countries. The Federal Republic of Germany holds 80% of its founding capital, while the remaining 20% belongs to the German federal states. With a balance sheet totaling more than EUR 500 billion, KfW is among the largest banks in Germany.

The Cologne-based German organisation for investment and development (DEG or Deutsche Investitions – und Entwicklungsgesellschaft) has been a member of the KfW Group since 2001. DEG invests into profitable, environmentally and socially sustainable private companies, supporting the private sector in developing and transition countries.

KfW Group

KfW Development Bank was established in 1948 as a public institution headquartered in Frankfurt am Main. KfW is Germany´s leading financial institution for domestic business and for developing and transition countries. The Federal Republic of Germany holds 80% of its founding capital, while the remaining 20% belongs to the German federal states. With a balance sheet totaling more than EUR 500 billion, KfW is among the largest banks in Germany.

The Cologne-based German organisation for investment and development (DEG or Deutsche Investitions – und Entwicklungsgesellschaft) has been a member of the KfW Group since 2001. DEG invests into profitable, environmentally and socially sustainable private companies, supporting the private sector in developing and transition countries.

Activities of KfW Development Bank in the Republic of Serbia

By order of the Government of the Federal Republic of Germany, KfW has established financial cooperation with Serbia. The investment and programmesfinanced by KfW have by now reached some EUR 1.8 billion, out of which approximately 40% lies in the energy sector and the same in supporting small and medium-sized enterprises through the financial sector. The remaining 20% has been dedicated to environmental protection. Since January 2006, DEG has had a representative in Serbia.

Energy Sector

Immediately after the political changes in October 2000, KfW Development Bank launched a programme of emergency support measures with a value of EUR 70 million. Energy import and the procurement of urgently needed spare parts were financed under this programme.

While these and other earlier projects were aimed at ensuring a stable electricity supply, more recent projects have focused on making the energy sector more environmentally and climate friendly by promoting energy efficiency and alternative energy sources.

The rehabilitation of the hydro-power plants Bajina Bašta and Zvornik, financed by favourable loans of EUR 100 million, was one of the first projects of this type. In the field of electricity production, KfW, in cooperation with the European Bank for Reconstruction and Development (EBRD), participated in financing the introduction of a coal quality management system in Serbia’s largest mining area Kolubara. This novel system will significantly reduce CO2 emissions.

In the next few months, the implementation of the project Renewable Energy Sources in Wind Farm Kostolac should begin in cooperation with EPS.

In addition to financing these supply-oriented projects, KfW Development Bank began in 2014 to finance consumption-oriented projects, allowing the financing of measures for achieving energy efficiency in public buildings.

In addition, KfW Development Bank has approved to Serbian banks loan facilities for refinancing projects in the field of energy efficiency and renewable energy sources. These loans are intended for enterprises and private households.

Energy Sector

Immediately after the political changes in October 2000, KfW Development Bank launched a programme of emergency support measures with a value of EUR 70 million. Energy import and the procurement of urgently needed spare parts were financed under this programme.

While these and other earlier projects were aimed at ensuring a stable electricity supply, more recent projects have focused on making the energy sector more environmentally and climate friendly by promoting energy efficiency and alternative energy sources.

The rehabilitation of the hydro-power plants Bajina Bašta and Zvornik, financed by favourable loans of EUR 100 million, was one of the first projects of this type. In the field of electricity production, KfW, in cooperation with the European Bank for Reconstruction and Development (EBRD), participated in financing the introduction of a coal quality management system in Serbia’s largest mining area Kolubara. This novel system will significantly reduce CO2 emissions.

In the next few months, the implementation of the project Renewable Energy Sources in Wind Farm Kostolac should begin in cooperation with EPS.

In addition to financing these supply-oriented projects, KfW Development Bank began in 2014 to finance consumption-oriented projects, allowing the financing of measures for achieving energy efficiency in public buildings.

In addition, KfW Development Bank has approved to Serbian banks loan facilities for refinancing projects in the field of energy efficiency and renewable energy sources. These loans are intended for enterprises and private households.

Municipal Infrastructure

Since 2001, long-term activities have been carried out with the aim of rehabilitating the system of district heating. The programme is now in its fourth phase and covers 22 municipalities and an investment volume of more than EUR 100 million. Germany has earmarked an additional amount of EUR 32 million for the continuation of the programme. In addition to focusing on the modernisation and expansion of boiler plants, the maintenance of pipeline networks and the installation of measuring instruments, this programme also promotes the staff training and the introduction of consumption-based tariffs.

Planned loans for biomass heat generation add a new facet to the promotion of this sector by introducing another environmental component.

Another aspect of municipal infrastructure is water supply and sewerage systems. In many Serbian cities and municipalities, these systems are both quantitatively and qualitatively unsatisfactory. The German Federal Government, through KfW Development Bank, has financed the rehabilitation of water supply and sewerage systems in Belgrade, Niš, Novi Sad and Kragujevac. The programme has focused on maintenance, rehabilitation and organisational support provided to utility companies.

Since 2008, the Water and Sewerage Programme in Medium-Sized Municipalities in Serbia has been implemented in 17 cities and municipalities. A special feature of this programme is its performance-based approach, i.e. only cities that fulfill certain technical and economic conditions during the preparation phase are allowed to participate in the investment phase. This approach has proven to be very effective and successful. A new sewerage programme is therefore being prepared for an additional 8 medium-sized cities/municipalities.

The project Protection of Biodiversity of the Palić and Ludaš Lakes aims at protecting biodiversity in the area of these lakes and creating conditions for exploiting the tourism potential of this region.

In municipalities with underdeveloped structures, especially in the south of Serbia, there has been no investment in social infrastructure for many years. The project Strengthening Social Infrastructure in Municipalities Strained by the Refugee Crisis rehabilitates, extends or reconstructs social infrastructure facilities in the structurally weak or migration-affected communities, with the aim of improving social infrastructure services to the local population, primarily vulnerable groups such as minorities (Roma) and refugees who have been returned to Serbia.

As in the energy sector, KfW Development Bank has also approved loan facilities to Serbian banks with the aim of refinancing loans for small investments in municipal infrastructure, e.g. construction of roads, energy distribution, rehabilitation of schools and kindergartens, water supply and sewerage reconstruction. The municipalities are supported by a consulting team engaged by the Standing Conference of Towns and Municipalities and acting as the implementing agency for technical assistance. So far, over 400 projects have been financed with funds amounting to EUR 136 million. Further loan facilities will be available in 2015. This second programme focuses on municipal investment in energy efficiency and environmental projects.

Financial Sector

In the year 2000, micro-, small and medium-sized enterprises had limited access to loans. Private individuals with low or medium income had almost no access to financial services.

To address this, KfW Development Bank, ProCredit Holding, Commerzbank, the European Bank for Reconstruction and Development (EBRD) and Dutch development bank FMO conjointly founded ProCredit Bank of Serbia, which is a member of the ProCredit Group.

Together with the most important donors in Southeast Europe, KfW Development Bank established the European Fund for Southeast Europe (EFSE) in 2005. EFSE successfully activated private investment with the aim of increasing the scope of loans for small and medium-sized enterprises in Southeast Europe. By the end of 2017, its loan portfolio equaled EUR 131.4 million for more than 100,000 small enterprises.

To strengthen public trust in the banking sector, KfW Development Bank has provided financing and consulting services to the Deposit Insurance Fund for a value of EUR 10 million.

Given that agriculture has a considerable share in the Serbian economy and since businesses and entrepreneurs in rural areas face difficulties in obtaining funds for their investments, KfW Development Bank has begun on behalf of the German government to provide refinancing loans to improve agriculture. The most recent project is the introduction of an innovative combination of loans and insurance, which is aimed at solving an existing issue of specific obstacles to accessing investment loans.