OREANDA-NEWS. June 20, 2013. The SMEs in China are small in size, but vast in number. Quite a lot of them have maintained their growth in an accumulative manner. With relatively outdated technologies, processes and equipments, they are characterized by high dependence on energy, low resource utilization rate and heavy environmental pollution.

It is an objective need for the existence and development of SMEs to promote energy conservation and emission reduction among them, but it is also a cause of crucial importance to restricting the excessively fast growth of energy consumption and fulfilling the national objectives of energy conservation and emission reduction.

In recent years, the field of energy conservation and emission reduction financing saw the presence of domestic commercial banks at increasing frequency, of which Industrial Bank (IB) made the most prominent achievements. As learnt by the reporter, up to now IB has accumulatively extended over RMB 126 billion for SMEs at home to use on energy conservation and emission reduction exclusively, based on a variety of financing means, covering not only fixed asset loan and working capital loan, but also financial lease, trust loan, short-term financing bonds, medium-term notes, SME collection notes, and consignment loan. Specifically, the credit financing has exceeded RMB 94 billion, and non-credit financing over RMB 32 billion. The projects supported was mainly in the following areas: development and utilization of new energy and renewable energy, carbon emission reduction, sewage treatment and water area control, reduction of sulfur dioxide emission, and recycling of solid wastes, etc.

A few days ago, the first loan project under the energy conservation and emission reduction loan program (phase III) released by IB in collaboration with the International Finance Corporation (IFC) was implemented in Changsha , Hunan . The loan of RMB 3 million with a term of three years would be used to support three energy performance contracting (EPC) projects in Shanxi Province of a Changsha-based private enterprise providing energy-saving technologies.

The enterprise, named “Changsha Xiang'E Energy-saving Technology Co., Ltd.”, is of a limited scale, specialized in the R&D, production and service of energy-saving technologies and products for motor-driving system. The company plans to transform the water pumps, with efficient water pumps and energy-efficient operation control system, for the circulating water systems (including circulating cooling water system, and circulating cooling water system for decomposition tank, etc.) of three energy consumers in the chemical and metallurgy sectors in Shanxi Province based on the EPC model. After transformation, the three projects may save electrical power up to 8.04 million kWh and coal equivalent up to 2,654 tons a year, equivalent to reducing the emission of carbon dioxide by 6,369 tons each year.

As introduced by the person-in-charge of the enterprise, though a small-sized private business, it boasts mature technologies and rich project experience. Nonetheless, as it can provide only a limited amount of assets as guarantee, it can hardly receive a conventional loan merely based on the incomes of energy-saving projects which are characterized by relatively limited scale in application for loans with single project. When the whole company found no way out, it fortunately came up with the energy conservation and emission reduction loan (phase III) of IB.

The energy conservation and emission reduction loan program (phase III) is a special product released by IB in collaboration with IFC for the energy conservation and emission reduction of SMEs, with a view to alleviating the contradiction between the blooming demands of SMEs for energy conservation and emission reduction financing and the financing difficulty and narrow financing channels. In the business of energy conservation and emission reduction loan program (phase III), IB gets the loan guarantee provided by IFC by paying certain fees to IFC, and then provides the guarantee to the SMEs with the need of energy conservation and emission reduction financing free of charge.

This innovative mechanism, in substance, loosens the requirements on the mortgage guarantee of borrowers, thus significantly reducing the financing threshold and cost of SMEs. Let's take Changsha Xiang'E as the example again. Considering the actual situation that this asset-light company boasts mature technologies, rich project experience and secured incomes, IB took the three bundled energy conservation projects of limited scale as a credit subject matter and future usufruct of EPC as the pledge. With the free-of-charge guarantee provided by the energy conservation and emission reduction loan program (phase III), the bank granted the loan to Changsha Xiang'E soon.

In addition, to promote the development of energy conservation and emission reduction cause of China in the underdeveloped areas, IB promises that the proportion of energy conservation and emission reduction loans extended to the underdeveloped areas will be ensured not below 70% of the total loan amount under the cooperation of energy conservation and emission reduction loan program (phase III).