Funded by the Global Environment Facility (GEF), UNDP Kazakhstan supported a factoring deal between the Ecoservice-2030 (Kostanay) energy service company (ESCO), and the First Factoring Company (Almaty). Under this pilot, Ekoservice-2030 ESCO conceded rights for several payments from ’Luch’ apartments owners' cooperative in Temirtau, and Druzhba premises owners' cooperative in Lisakovsk. The transaction is the first of a kind in Kazakhstan’s energy service sector.
Factoring is a substitute for a bank loan that does not require a collateral and it is a payment to a supplier now in exchange for the cash flows in future.
Within the framework of the UNDP-GEF project, the factoring company purchased several future payments from the Ecoservice-2030 ESCO for the thermal modernization projects in Temirtau and Lisakovsk, providing an opportunity for the ESCO to invest in new projects.
Energy service is a mechanism, which requires private sector investments to improve buildings’ energy efficiency. ESCOs invests their own funds in thermal insulation of buildings and similar activities and get paid out of the resulting savings for the residents due to the heat and electricity bills reduction. Such arrangement is simple and beneficial for the owners of the properties: it is enough just to agree to the modernization and then enjoy the savings. Of course, a part of the savings goes to an ESCO, but only until its investment is recouped and the ESCO makes some profit.
However, this model comes with certain difficulties for ESCO: having invested heavily in one or two projects, an ESCO would have the rights to the future payments only. The modernized property per se does not belong to the ESCO, and it is not possible to get a loan without a collateral to start a new project.
Factoring is therefore the most preferable tool when it comes to deferred payments, where the factoring company buys future payments due to the ESCOs, which in turn immediately receive funds to continue the works (a part of the profit goes to the factoring company, just like the interest on a loan, but unlike an loan, factoring does not require a collateral).
Yet, there have been a few pitfalls, which have hindered the development of factoring for ESCOs in Kazakhstan, such as the lack of such experience in the residential sector, the complexity of documenting of the transactions and the distrust of ordinary people, often confusing factoring with debt collection. The market niche for factoring in Kazakhstan is B2B, i.e. transactions between legal entities, when the purchasers are provided with the terms of payment and are financially sound companies, and their debts are readily purchased by factoring companies, providing quick funding to the suppliers of such reliable purchasers.
Under the UNDP-GEF initiative, a great deal of work has been completed to harmonize the factoring business processes and energy services, and mechanisms of interaction with homeowners have been developed. It is planned to implement several transactions for a total amount of around 1 million KZT in order to test the methodology for factoring deals.
The factoring may become an effective tool for the development of energy efficiency services in the residential sector, which represents the largest energy consuming segment in the country with a massive savings potential.