The role of OTP Bank in energy saving programs including renewable sources of energy
Dr. Éva Weöres

OTP Bank is the largest commercial bank in Hungary, with a total assets of HUF 2,390 billion (23% of all bank assets in Hungary), with 42% market share in retail deposits and 30% market share in retail loans.

OTP Bank wants to provide a new service for its partners. The largest obstacle for the third party financing method is the ESCO’s shortage of capital, its weak financial situation as well as its incapability to furnish guarantees or securities. New such structure is required, that can bring together all participants, and focus on detecting and minimizing eventual losses, through the implementation and realization as well as marketing, the general management and financing of the project. This is possible with the concept of third party financing, under the ESCO (Energy Service Company).

At the present (2003-2004) OTP Bank, together with some financial and manufacturing companies, are founding ESCOs, which, having a capital of three million USD, can be regarded as relatively strong compared to Hungarian circumstances. This money is for updating of the lighting and heating system, and also dedicated to the detection and realization of possible energy-saving steps.

Schools, hospitals, district heating companies and other public institutions are chronically suffering from a lack of money. The municipalities could take leading position in making this financing concept popular.
The creation of a possibility for saving energy without reaching once more into the tax-payers’ pockets can only be every politician dream.

About 10% of the total municipality expenses are expenses for energy. This is why the heads of the municipalities are especially interested in the establishment of such an investment concept.

The saved energy will provide the source for the return payments and the company’s profit, the division of which will be agreed upon in a shareholders contract.

OTP Bank, IFC, EBRD and HONEYWELL incorporated HONEYWELL-ESCO HUNGARY, a subsidiary to specialize in modern heating and upgraded district heating.

The Bank supports projects that are aimed at increasing energy primarily in the public sector. Through its cooperation with ÖKOLUX Energy-Efficiency Company, the Bank assists municipalities and public institutions in the modernization of public lightings leading to significant energy savings. The offered constructions allow municipalities to invest in energy saving without any financial sacrifice. The costs of the project are paid by the cost of energy saved during a 5 year period, such that an increasing proportion of the cost saving is “kept” by the municipalities. Since its establishment, in 1998 the OT P-ÖKOLUX has entered into 110 contracts with municipalities. For 1998 the OTP-ÖKOLUX has evaluated 480 proposals by municipalities into the amount of 1 billion HUF investments.

Both companies will mostly focus on refurnishing energy systems at government-funded institutions, municipalities and their institutions, companies and enterprises and in offering solutions for the most efficient use of energy. Using their own set of assets, the two companies deliver complex services targeted at improving energy efficiency.

Therefore it is important that the ESCO’s members harmonise their interests and aims and that they cooperate. Last but not least they should take advantage of every financial source, possibility, subvention and support, weather offered by national or international banks or institutions.
This is why the ESCO’s are founded, the OTP Bank, with the help of Honeywell some experienced partners ÖKO-LUX, who already work successfully in the field of energy-saving. The obstacle for the local manufacturing investors was their lack of financial resources, which is the basis for third-party-financing and so, with their help, we are able to found a company with enough capital to support them.

The financing of ESCOs typically is accomplished by the involvement of banks. ESCOs in Central and Eastern Europe typically have limited financial strength and good technical background. In this case involving a bank is necessary for the financing of the project, and the focus is more on the guarantees and collaterals.