CHUEE II

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	26486
Company name	Industrial Bank
Country	China
Sector	Finance & Insurance
Environmental category	FI
Department	Global Financial Markets Group
Status	Pending Disbursement

Date SPI disclosed	October 12, 2007
Projected board date	November 26, 2007
Previous Events	Signed: January 31, 2008 Approved: December 20, 2007

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The proposed project (CHUEE II or the project) is part of IFC’s strategy for China which entails scaling up its energy efficiency (EE) program in China. The project, CHUEE II, comprises two components:

- Investment:

An IFC investment in RMB of up to $170 million equivalent in Risk Sharing Facilities (RSF) for 2-3 participating commercial banks in China. The project would provide risk sharing for the creation of an additional new portfolio of approximately RMB 2.6 billion ($347 million equivalent) dedicated to industrial corporates for energy efficiency upgrades.

- Advisory Services:

A scaling up of the existing advisory services program to complement the new investment program. The Advisory Services Program will be implemented in partnership with the dedicated CHUEE team of PEP-China based out of IFC’s Beijing office.

CHUEE II is a follow-on IFC investment following the successful implementation of CHUEE I (project 24631) with Industrial Bank (IB) and Bank of Beijing (BoB). The CHUEE I risk sharing facility is proven to be an effective way to mobilize, stimulate and leverage financing from commercial bank partners to energy efficiency (EE) improvement projects. Since the start of the CHUEE I with IB, the RSF has been utilized faster than expected due to the strong demand in the market for EE project financings. The objective of this project is to scale up IFC’s investment in this sector by committing additional IFC risk-capital and increasing the leverage on the Global Environment Facility (GEF) first loss allocation relative to CHUEE I. The project will be offered to a number of commercial banks in China including.

Anticipated development impact of the project

The project is expected to generate significant impact in China’s EE market development, environmental improvements and financial market development.

- Improved energy usage:

China is facing growing challenges of energy resource shortage. This is largely caused by the fast growing economy and lower efficiency in production and consumption of energy. Promotion of EE projects and expanded use of renewable energy has been proven the most effective approach to address these issues and therefore has become a high priority for Chinese government.

This project will have very positive impacts on the development of China’s EE sector. With the increased investment amount, this scaling-up project will help IFC to support a significantly larger number of EE projects which are otherwise illegible for bank’s traditional financing. The energy and cost savings achieved from these projects will have significant impacts on the improvement of energy usage in China.

IFC's expected development contribution

IFC has over ten years of experience in EE financing, particularly in Central and East Europe and IFC is well positioned to leverage its experience into other regions. In China, EE finance is a relatively new and under-developed sector because of “high risk” perceived by commercial banks and private investors. As a result it is difficult for EE projects to get financing from traditional funding channels although the projects yield tangible social and commercial benefits. IFC’s CHUEE is designed to help fill this gap.

Environmental and social issues - Category FI

This project has been classified as a Category FI project according to IFC’s Environmental and Social Review Procedure. During appraisal, IFC will analyze the participating banks’ portfolio/pipeline activities proposed to be supported by this facility for types of transactions, size, tenor and industry sectors and determine the Applicable Performance Requirements, if any, that would include a combination of: The IFC FI Exclusion List, The applicable National Social and Environmental Laws and regulations, and/or The IFC Performance Standards.

IFC will also review, if required, the capacity of the banks availing of the RSF to manage social and environmental risks and to establish and maintain a Social & Environmental Management System (SEMS). If required, IFC will suggest Supplemental Actions to address any gaps in the SEMS. Based on the review, the project will be required to:

- Develop an, or upgrade, if necessary, any existing Social & Environmental Management System (SEMS), prior to disbursement to the satisfaction of IFC;
- Identify responsible, qualified persons to manage and implement the SEMS;
- Commit to implement the SEMS, to ensure that its investments/activities supported by IFC financing are in compliance with the Applicable Performance Requirements;
- Submit a periodic report to IFC as per a format to be provided by IFC.

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