Promoting Clean Urban Public Transport in Moldova

Promoting Clean Urban Public Transport in Moldova Designing a green investment programme POLICY HIGHLIGHTS

Introduction The OECD and the Ministry of Agriculture, Regional Development and Environment of the Republic of Moldova (hereafter “Moldova”) joined forces in 2016. Together, they analysed how a public investment programme could benefit the country’s environment. Specifically, they explored how an influx of funds could spur the development of cleaner public transport, and reduce air pollution and greenhouse gas (GHG) emissions from public transport in large urban centres.

This work was carried out as part of the OECD project on “Promoting Green Growth and Low-Carbon Development: Analysis and Support to Policy Dialogue on Key Governance Elements of the Green Economy Concept in Moldova” (2017-2018). The investment programme focused mainly on supporting the shift to modern buses. Such buses would be powered by cleaner (fossil) fuels – such as natural or petroleum gas – or electricity generated by these or other renewable energy sources (wind, solar or hydro power).

This collaboration led to the development of the Clean Public Transport Investment Programme (CPT Programme), and a step-bystep guidance on its design and implementation in two phases: l Phase 1 (pilot phase) that will cover two cities – Chisinau and Balti l Phase 2 (scaling-up phase) that would be extended to cover suburban areas of the two pilot cities (under Scenario 1) together with inter-city connections in Moldova (under Scenario 2).

The programme developed and costed two different scenarios for Phase 2, and identified and analysed four possible investment project pipelines. The pipelines focus on the replacement of the old public transport fleet in urban, suburban or even rural areas of the country.

The new vehicles would be modern buses fuelled by compressed natural gas (CNG) or liquefied petroleum gas (LPG), or by electric power (trolleybuses and battery-powered trolleybuses). The last option identified was to continue with diesel-fuelled buses that meet Euro V/VI emission standards.

The OECD also developed an accompanying model, Optimising Public Transport Investment Costs (OPTIC) (Box 2), to estimate costs and benefits of the CPT Programme, under several scenarios.

POLICY HIGHLIGHTS

Why a clean public transport programme?

The context The transport sector is responsible for 22% of GHG emissions in Moldova, making it the second biggest contributor after the energy sector. In air pollution, transport accounts for 86% of total emissions. However, transport is responsible for only 26% of primary energy consumption.

Moldova presented its Intended Nationally Determined Contribution at the UN Climate Conference in Paris in 2015. This set a target of reducing GHG emissions by 64-78% by 2030, compared to 1990 levels. Moldova’s Environmental Strategy 2014-2023 puts forward a target of reducing emissions of harmful substances into atmospheric air by 30% by 2030 compared to the baseline value of 1990. Moldova’s legislation foresees that renewable energy sources would generate at least 10% of the energy consumed in the transport sector by 2020.

The basic policy and regulatory framework that can support the advancement of clean public transport is in place. However, Moldova still lags behind in the development of modern emission norms for passenger cars, as well as for heavy-duty truck and bus engines.

In the country’s public transport, 98% of all vehicles run on diesel and 68% of the fleet correspond at best to the emission norm of Euro 1/I. These structural and technical features make vehicle transport an important contributor to poor air quality in many cities in Moldova.

Although the government has committed to develop energy-efficient local public transport, this shift will require significant resources, both private and public.

On the one hand, transport fares are as low as USD 0.11 per single ride. On the other, high interest rates on credit, currently about 17-18% per year, constrain access to the credit that could allow the purchase of a modern fleet. Without state support and/or tariff increases, the modernisation of the public transport fleet will continue to lag.

Figure 1. Direct GHG emissions from transport in Moldova, 1990/2015 4 500 1990

2015

3 914.8

4 000

kilotonne of CO2 equivalent

3 500 3 000 2 500 2 161.7 2 000 1 500 1 000 450.5

500 0

6.1

0.3

Domestic aviation

24.2 Road transport

Rail transport

19.1

0.1

Domestic navigation

91.3

16.7

Other

Source: GoM (2017).

INTRODUCTION . 1

Designing a green investment programme

Key policy messages Analysis and consultations with Moldovan stakeholders have brought to light some key barriers to the development of clean public transport in the country. These barriers, and the required policy actions to overcome them, are described below.

KEY BARRIERS Lax diesel engine emission norms: The equivalent of the Euro 4/IV emission standard has still not been implemented. This standard was introduced in the European Union in 2005 (and Euro 6/VI standard was put in place in 2014). Moldova has only introduced requirements for buses and coaches admitted to road transport to meet Euro I norms starting on 1 January 2020.

Low (diesel) fuel standards: Modern diesel engine emission norms cannot be introduced if the available fuel does not meet certain standards. This is because engines include equipment sensitive to low-quality fuel, and sulphur dioxide (SO2) emissions directly depend on the fuel’s sulphur content. Although available diesel fuel in Moldova meets Euro 5 standards (and seems to

be sufficient for a country-wide fleet upgrade), the legal requirements are based on post-Soviet GOST (Russian: ГОСТ (=state)) standards.

Weak technical inspection standards: Although buses must pass periodic technical inspection, the process has become a mere formality with low default rates.

Accordingly, if inspections are not strict on emissions, there is no signal to bus owners to improve emissions standards of their vehicles.

Inadequate pricing signals: Although CNG and LPG fuels are cheaper than diesel, the buses are more expensive (or require installation of additional equipment). In addition, operators receive a weak signal to switch to clean fuels, such as value-added tax (VAT) and duty tax exemption for clean(er) transport means or infrastructure.

2 . OECD POLICY HIGHLIGHTS: PROMOTING CLEAN URBAN PUBLIC TRANSPORT IN MOLDOVA

POLICY HIGHLIGHTS

Insufficient support to producers for clean buses: Some bus production in Moldova exists (licensed assembly of Belarusian trolleybuses). However, producers have no fiscal incentive to manufacture cleaner modern vehicles in the country.

Uneasy access to credit: Although banks dominate the financial sector, their function as financial intermediaries is limited. This is due to high interest rates and prudent lending practices of local banks since the banking crisis in 2014. Conversely, banks face constraints with regard to a lack of bankable projects and low rate of loan recovery.

POLICY ACTIONS TO OVERCOME THE BARRIERS Inter-ministerial co-operation in greening the transport policies. Besides the Ministry of Agriculture, Regional Development and Environment, the involvement of other ministries may increase the chances of the CPT Programme’s success. This is particularly true for the Ministry of Economy and Infrastructure that incorporates the former Ministry of Transport and Roads Infrastructure. The Ministry of Finance (as the main guarantor of public debt) can support the programme by issuing guarantees on bank loans; this would contribute to achieving low-carbon mobility.

Eco-driving – a drivingawareness technique that can reduce fuel consumption – can be introduced and promoted at schools for bus drivers.

Changes in the fare system for public urban transport.

Tariffs should be designed to maximise the social welfare of both passengers and public transport providers, subject to budget and capacity constraints.

Changes in public tenders for providing public transport in urban centres. Moldova could shift from short-term contracts among operators that effectively discourage investments towards a medium or longterm approach. Together with a good fare system, regulatory improvements and financial support from the state, longer contracts are more likely to lead to the modernisation of bus fleets.

Incentives for CNG/LPG vehicles. Moldova recently adopted its Programme on Promotion of Green Economy for 2018-2020. It foresees the adoption of tax incentives for the import of electric and hybrid motor vehicles, as well as development of the national infrastructure necessary for electric cars. The government may also consider introducing targeted tax exemptions (including VAT and import duties) for CNG/LPG vehicles and for owners of refuelling stations.

Promoting local production of clean engines. The CPT Programme focuses on providers of public transport services. However, another support programme could introduce incentives for manufacturing or assembly of efficient buses running on alternative fuels (CNG, LPG) with lower carbon dioxide (CO2) and particulate matter (PM) emissions. As replacement of trolleybuses in Chisinau and Balti since 2010 has shown, the CPT Programme (or other investment programme) may create conditions (demand) for domestic production in co-operation with a foreign manufacturer.

Encouraging energy efficiency in public transport. Fuel, and therefore cost, savings can be achieved by making the operation of public transport more efficient. For example, dedicated bus lanes can reduce the need to use inefficient mechanical braking. Eco-driving – a drivingawareness technique that can reduce fuel consumption – can be introduced and promoted at schools for bus drivers.

KEY POLICY MESSAGES . 3

Designing a green investment programme

Essential elements of a green public investment programme The public financier needs to ensure that green public investment programmes are designed in line with good international practices. These practices are defined in terms of essential elements that represent a set of minimum requirements to ensure transparency and cost-effectiveness of public spending.

Clearly defined objectives and priorities – these objectives should be specific, measurable, realistic and time-bound and priorities

Clearly defined timeframe of the programme

Specified cost estimates of achieving the objectives

Specified sources of financing, specified eligible project types and eligible beneficiaries

Clearly defined terms of financing including, among others, financial instruments (eligible form of subsidy), co-financing requirements, minimum/maximum level of support

Well-documented principles, rules and operating procedures for project cycle management

Clearly defined and robust criteria for appraisal, selection and financing of investment projects Source: OECD (2007).

A public investment programme consists of two main stages: analysis and design (defining essential elements) and implementation. Implementation requires that public authorities select the best institutional

arrangement; ensure stable and predictable sources of finance; and hire qualified managers. While these elements may look rather obvious and logical, their practical application is often quite challenging.

BOX 1. OECD TOOLBOX FOR STRENGTHENING GREEN PUBLIC FINANCE IN EECCA The OECD has assisted the countries of Eastern Europe, Caucasus and Central Asia (EECCA) to improve the management of their public resources allocated for green investments. The OECD toolbox includes a number of practical tools that can be used in the preparation of public investment programmes:

l An Excel-based model called Optimising Public Transport

Investment Costs (OPTIC) and a methodology to support the design of green investment in the public transport sector. The methodology, developed as part of the study on Kazakhstan (OECD, 2017), calculates the main financial and environmental parameters of the programme.

l Good practices for public environmental expenditure

management www.oecd.org/env/outreach/38787377.pdf. l Handbook for appraisal of environmental projects financed from

public funds www.oecd.org/env/outreach/38786197.pdf.

4 . OECD POLICY HIGHLIGHTS: PROMOTING CLEAN URBAN PUBLIC TRANSPORT IN MOLDOVA

POLICY HIGHLIGHTS

Determining the focus of the programme

Step

STEP 2: Defining programme objectives

Step

What are the main objectives and why were they selected?

The programme seeks to reduce air pollution and GHG emissions primarily in urban centres, and help the government achieve its climate-related and environmental objectives. In line with Moldova’s transition to a greener path of development, the CPT Programme will also contribute to socio-economic advancement of the country. In particular, the programme’s objectives are to:

1

Step

2

Specifying programme targets

Estimating programme costs and level of subsidy

Defining eligible projects and beneficiaries

Selecting programme’s institutional set-up

3

Step

5

Step

7

Step

Step

4

Defining programme objectives

Setting programme timeframe

l Reduce GHG emissions. l Reduce emissions of hazardous air pollutants in

urban areas.

Step

6

Determining sources of programme financing

l Modernise the urban (suburban, inter-city) transport

fleet, increasing the reliability and efficiency of public transport. l Stimulate the domestic market to produce, or at least

assemble, modern buses and trolleybuses.

Step

8

Choosing financial instruments

9

STEP 1: Determining the focus of the programme What is the main focus of the programme in Moldova?

The CPT Programme seeks primarily to green the public transport sector in Moldova and encourage low-carbon mobility. This would be achieved by switching to modern public transport vehicles (buses, trolleybuses and minibuses). These vehicles would run on cleaner fossil fuels – such as natural gas, petroleum gas and diesel Euro 5 and 6 – or have power generated by cleaner fossil fuels or renewable resources (wind, solar and hydro power).

How was programme focus determined?

Defining the focus of the programme is a political decision. In this case, the Ministry of Environment – since September 2017, under the Ministry of Agriculture, Regional Development and Environment – made the decision. It consulted with main stakeholders in the country, both governmental and non-governmental at the national, regional and local levels.

How were the objectives defined?

A market analysis determined the need for public support in the target sector – i.e. public transport – given the programme’s objectives. It reviewed the status of the bus fleet (ownership status, age, fuel type used); the market for CNG/LNG, liquefied petroleum gas (LPG) and electricity as alternative transport fuels/power carriers; domestic production and import of buses; bus fares for urban transport; and co-financing available for investment projects.

Figure 2. Emissions of harmful substances from automobiles in major cities in Moldova, 2016 Thousand tonnes

Chisinau 53.8

Balti

6 6.9 8.3 8.7 6.6

Cahul Anenii Noi Floresti Hincesti

75.7 Others Source: GoM (2017).

ESSENTIAL ELEMENTS OF A GREEN PUBLIC INVESTMENT PROGRAMME . 5

Essential elements of a green public investment programme

STEP 3: Specifying programme targets The programme objectives are translated into straight­ forward and measurable numeric targets. The main programme targets are to: l Reduce CO2 emissions in the transport sector in

Moldova by 0.1% after the pilot phase, by 1.0% after the scaling-up phase under the first scenario and by 3.4% under the second scenario (compared to a 2015 baseline).

l Reduce emissions of air pollutants in the transport

sector: carbon oxide (CO), nitrogen oxides (NOx), and sulphur dioxide (SO2) by 0.4% after the scaling-up phase under the first scenario and by 1.5% under the second scenario (compared to a 2015 baseline); contribute to a reduction of particulate matter (PM) – especially PM2.5 – by 0.7 tonnes after the pilot phase, by 9.9 tonnes after the scaling-up phase under the first scenario and by 35.1 tonnes under the second scenario.

l Increase the ratio of new buses (of Euro V/5 and VI/6

emissions standard) used for urban, suburban and inter-city public transport in Moldova from 2.1% (a 2017 baseline) to 3.3% after the pilot phase, to 7.9% after the scaling-up phase under the first scenario and to 21.8% under the second scenario. l Increase the ratio of modern trolleybuses (after the

production year of 2010) in the fleets of Chisinau and Balti from 45.9% (a 2017 baseline) to 56.6% after the pilot phase (combined averages for both cities). l Decrease the ratio of minibuses in the fleets of

Chisinau and Balti from 96.8% (a 2017 baseline) to 94.9% after the scaling-up phase under the first scenario and to 84.5% under the second scenario (combined averages for both cities).

To achieve these targets, the government of Moldova needs to select one of the programme scenarios following the pilot phase, assign institutional roles for implementation and designate financing for it.

Some bus production in Moldova exists (licensed assembly of Belarusian trolleybuses). However, producers have no fiscal incentive to manufacture cleaner modern vehicles in the country.

6 . OECD POLICY HIGHLIGHTS: PROMOTING CLEAN URBAN PUBLIC TRANSPORT IN MOLDOVA

POLICY HIGHLIGHTS

How were the targets defined?

The targets were defined as part of the analysis undertaken in the market study. Among other issues, the market study analysed the feasibility of the programme targets.

The project used an Excel-based model to determine the amount of reductions of CO2 emissions and air pollution possible through replacement of an outdated public transport fleet. The model, Optimising Public Transport Investment Costs (OPTIC), was developed within the framework of the OECD regional project of which Moldova is a part (“Strengthening public finance capacity for green investments in the countries of Eastern Europe, Caucasus and Central Asia”).

The model helps to design the programme that contains: l costs, both public and private

STEP 4: Setting programme timeframe What is the timeframe for implementing the programme?

Implementation of the CPT Programme is proposed in two phases.

The first (pilot) phase is designed for two pilot cities (Chisinau and Balti) and is expected to last for one year.

The results of this first phase should be evaluated to decide whether to continue. In the event of a positive decision, a second phase would extend the network to suburban areas of the pilot cities or even inter-city routes. This second (scaling-up) phase – designed to last for five years – would require the establishment of a programme Implementation Unit at the national level (see Step 8).

Before the pilot phase of the programme is launched, a (one-year) preparation period will be needed to incorporate the programme in the state budget process; and, if necessary, identify and apply for funding from additional sources (including donors).

l proposed financing instruments, both repayable and

non-repayable l expected outcomes, both environmental and socio-

economic.

The programme design also entails institutional arrangements that can be set up to manage an investment programme in clean public transport, as well as proposed procedures for project cycle management.

The programme foresees accompanying measures to support implementation. It also reflects and proposes complementary actions based on reviews and analyses of macro-economic and environmental conditions; policy and regulatory framework for the transport sector; and market analysis of clean fuels and technologies.

How was the timeframe determined?

The programme held discussions with the partner environmental ministry and other stakeholders, and analysed the experience of other countries with similar publicly supported investments. In this way, it determined the timeframe, which also accounts for the time needed to assemble buses in the country.

Figure 3. Proposed timeline (in years) Year 1 Programme preparation

Year 2

Year 3

Pilot phase: implementation in 2 cities Evaluation of the pilot phase

Year 5

Year 4

Year 6

Year 7

Second phase

Continuous monitoring and evaluation of the programme

Setting up of the Implementation Unit

Programme marketing Source: Author’s assumptions

ESSENTIAL ELEMENTS OF A GREEN PUBLIC INVESTMENT PROGRAMME . 7

Essential elements of a green public investment programme

STEP 5: Estimating programme costs and level of subsidy What are the costs of implementing the CPT Programme?

The pilot phase of the programme covers the replacement of 77 vehicles in the cities of Chisinau (60 units) and Balti (17 units). Costs are estimated at MDL 353 million (USD 19.1 million), of which up to MDL 178 million (USD 9.6 million) is required as public co-financing.

Phase 1 targets primarily the replacement of the most worn-out vehicles, whereas Phase 2 aims to increase the service area.

Two phases, two scenarios for the second phase and two financing options of the programme were proposed and costed. l Under Scenario 1, the cost of replacing 735 vehicles

(including those from Phase 1) is estimated at MDL 2 779 million (USD 150.2 million), of which up to MDL 1 593 million (USD 86.1 million) is required as public co-financing.

l Scenario 2 considers the replacement of vehicles also

used for inter-city connections. This would involve the replacement of 2 510 buses with modern vehicles powered with cleaner fuels (or power generated by cleaner/renewable energy). Replacement cost is MDL 9 223 million (USD 498.6 million), of which up to MDL 5 542 million (USD 299.6 million) is required as public co-financing.

In the first option, the programme envisages blending public funds and commercial loans provided by banks.

In the second option, most financing would come from public transport operators’ own sources coupled with a public grant (see also Step 8).

For Option 1, additional costs – including for operations and loan guarantees – would range from MDL 35 million (USD 1.9 million) to MDL 213 million (USD 11.5 million) depending on the chosen scenario.

For Option 2, additional costs are estimated at MDL 6 million (USD 0.3 million). However, Option 2 would require MDL 810 million (USD 43.8 million) more from public sources in Scenario 1, and MDL 3 148 million (USD 170.2 million) in Scenario 2.

In the future, commercial loans combined with public support in the form of loan guarantees and grants from public sources can be given to bus operators. They can use these funds to repay a portion of the loan.

8 . OECD POLICY HIGHLIGHTS: PROMOTING CLEAN URBAN PUBLIC TRANSPORT IN MOLDOVA

POLICY HIGHLIGHTS

BOX 2. THE OPTIC MODEL adjusted accordingly. This would occur if underlying economic conditions in the country change over the programme (e.g. tariffs are increased, interest rates on commercial loans are lowered) and/ or available public financing is reduced or augmented.

The Optimising Public Transport Investment Costs (OPTIC) model is an Excel-based, simple and easy-to-use decision support tool. OPTIC helps calculate and optimise total programme costs, emissions reductions of CO2 and other pollutants from urban public transport (CO, NOX, PM, SO2) that could be achieved via the proposed project pipelines. The model also allows calculation of the optimal level of subsidy that can be offered to potential beneficiaries.

The model consists of seven modules: i) assumptions; ii) emission factors; iii) transport sector overview with information on current bus fleet and age; iv) determination of subsidy level; v) cost calculation; vi) emission reductions calculation; and vii) programme costing and environmental effects.

Optimisation of costs and benefits implies achieving given targets at the lowest possible cost for the public financier. Both targets and subsidy levels can be further re-calculated (or optimised) and

targets. This model was also used to determine the amount of financing necessary to meet the targets. In addition, it helped analyse if financing could be raised for the programme.

Both scenarios of the second phase include the costs of the pilot phase as well.

How were the costs calculated?

The OPTIC model was developed to calculate programme costs, emission reductions and the optimal level of subsidy (financial support) for public transport operators to stimulate demand for cleaner transport vehicles.

What are the main results of modelling work?

Table 1 summarises the main results of the modelling.

These show the number of new clean buses that can be purchased in each phase of the programme and expected emissions reductions. They also show the cost of these investments for both the programme financiers and public transport operators (beneficiaries of the programme).

The model optimises the return on investment for service providers with the amount of subsidy required to stimulate the market, given the pollution reduction Table 1. Financial results of modelling New buses Bus Diesel Phase 1

Investment costs

Minibus

CNG

LPG

Diesel

Trolleybus LPG

mln USD Total

Subsidy

Beneficiary

0

0

0

0

15

62

19

10

9

Phase 1&2 (Scenario 1)

131

132

130

133

147

62

150

86

64

Phase 1&2 (Scenario 2)

648

325

483

489

503

62

499

300

199

Source: OECD calculations, OPTIC model.

Table 2. Environmental results of modelling Emissions reductions per year CO2

CO

NOx

PM2.5

SO2

t (normative)

kg

kg

kg

kg

Phase 1

2 277

6 800

30 665

655

595

Phase 1&2 (Scenario 1)

20 812

85 422

403 752

9 890

8 391

Phase 1&2 (Scenario 2)

73 944

300 637

1 444 075

35 123

29 463

Source: OECD calculations, OPTIC model.

ESSENTIAL ELEMENTS OF A GREEN PUBLIC INVESTMENT PROGRAMME . 9

Essential elements of a green public investment programme

Public transport operators will most likely be unwilling to opt for a higher upfront investment.

Step 6: Determining sources of programme financing

to opt for a higher upfront investment. To stimulate lowcarbon mobility, the government will need to subsidise such investments.

What are the sources for co-financing the CPT programme?

The CPT programme can be financed by a mix of public funds (state and/or international) and private funds.

The state component would be part of the mediumterm expenditure framework (MTEF) process. In the preparation phase, the government may seek additional financing from donors, if necessary.

The main source of financing will in most cases be public transport operators’ own financial sources (revenue, profits, commercial loans, etc.). As new vehicles are less air-polluting but also more expensive, public transport operators most likely will be unwilling

How was the level of subsidy defined?

Given the social nature of this investment, the OPTIC model recognises that investments should generate at least a minimum return for the providers of public transport services. Thus, a social discount rate of 5% was used to determine the net present value (NPV) of the investment needed to replace an old bus. This discount rate is similar to the one used by other public financing institutions that support similar investments. The subsidy is then determined at the level at which NPV is equal to zero. The subsidy will encourage potential beneficiaries to participate in the CPT Programme without allowing them to generate a profit based on the subsidy.

Figure 4. Overview of CPT Programme’s total investment costs 10,000 Public support min.

Public support max.

500

PTOs* investment min.

400

6,000

300

4,000

200

2,000

100 0

0 Pilot

Pilot + Phase 2 / Scenario 1

Note: *PTOs – public transport operators.

Source: OECD calculations, OPTIC Model.

10 . OECD ALIGNING POLICY POLICIES HIGHLIGHTS: FOR A PROMOTING LOW-CARBON CLEAN ECONOMY URBAN–PUBLIC A SYNTHESIS TRANSPORT IN MOLDOVA

Pilot + Phase 2 / Scenario 2

USD (mln)

MDL (mln)

8,000

POLICY HIGHLIGHTS

To stimulate low-carbon mobility, the government will need to subsidise such investments.

Step 7: Defining eligible projects and beneficiaries What are the eligible project types?

The main types of projects to be supported through the programme include: l Projects that aim to replace old buses and that

provide public transport services in urban centres with environmentally friendly models equipped with Euro V/VI diesel engines, engines running on CNG/ LPG, or using electric motor (trolleybuses and battery trolleybuses). l Since Moldova’s bus fleet is ageing, the proposed

pipelines are intended to support the purchase of new buses, not simply the modernisation of bus engines. l Minibuses that dominate public transport are not

excluded, while preference is given to normal buses (>10m length). l Other investments such as studies, construction

of CNG filling stations, creation of maintenance workshops for new buses and additional investments that improve public transport services that accompany the replacement of buses in the four pipelines (CNG, LPG, diesel, trolleybuses).

Only investment projects (i.e. those involving capital outlays) are eligible for financing under the programme.

The Implementation Unit will review the list of eligible projects annually. In so doing, it will ensure the relevance of the identified project types with regard to national environmental, climate and energy policy goals.

Who are the eligible beneficiaries?

The following types of beneficiaries are eligible to receive support from the CPT Programme: l private public transport operators that provide

services in eligible urban centres (Phase 1) and suburban areas of the pilot cities (Phase 2, Scenario 1) or inter-city connections (Phase 2, Scenario 2) l municipal public transport operators that already

provide services in eligible urban centres (Phase 1) and suburban areas of the pilot cities (Phase 2, Scenario 1) l city administrations (for preparation of necessary

studies).

ESSENTIAL ELEMENTS OF A GREEN PUBLIC INVESTMENT PROGRAMME . 11

Essential elements of a green public investment programme

Step 8: Choosing financial instruments What are the financial instruments that can be used to disburse programme resources?

The financial support can be provided in the form of: l grant co-funding

instrument – through the Environmental Fund.

The proposed financial support schemes are easier to implement if most of the investment costs are co-financed by public sources. The loan and loan guarantees will require strict cooperation with the banking sector.

Under Option 1, financing comes through commercial loans backed by a loan guarantee from a public authority and a smaller public grant (see Figure 5).

l loan guarantees.

How were these instruments chosen?

The government of Moldova already has substantial experience with grants – a traditional financial

Under Option 2, operators bear the financing burden through their own sources coupled with a larger public grant (see Figure 6).

Figure 5. Option 1 – Financing from commercial loans CPT PROGRAMME

PUBLIC TRANSPORT PROVIDERS

BANKS

l Loan guarantee

l Loan

l Grant

l Programme promotion

l Selection of and

agreements with banks

l Purchase of new bus fleet

and direct contracts with beneficiaries

financed from the loan l Direct contract with the

bank

l Programme promotion,

selection procedures and standards, monitoring Source: Author’s assumptions

Figure 6. Option 2 – Financing from own sources and public grant CPT PROGRAMME l Grant l Programme promotion, selection procedures and

standards, monitoring l Direct contract with beneficiaries l Programme management by Implementation

Unit Source: Author’s assumptions

12 . OECD POLICY HIGHLIGHTS: PROMOTING CLEAN URBAN PUBLIC TRANSPORT IN MOLDOVA

PUBLIC TRANSPORT OPERATORS l Purchase of new bus fleet financed from public

transport providers’ own sources and a grant l Direct contract with the Implementation Unit

POLICY HIGHLIGHTS

Step 9: Selecting programme’s institutional set-up To facilitate future programme implementation, the OECD study has developed some supporting materials that include, among others:

– Implementation Unit (IU): The IU is charged with drafting the programme’s operating regulations (marketing, announcing calls for proposals, collecting applications, appraising and selecting projects for financing, disbursing funds, and monitoring and evaluating rollout and results).

l a proposal for project cycle management procedures,

including eligibility criteria, project appraisal criteria, project-ranking procedures and financing rules l a proposal for institutional arrangements to manage

the CPT Programme comprising three levels:

– Technical Support Unit (TSU): The TSU provides specialised assistance, advice and expertise in the areas of energy and fuel efficiency, CNG and LGP buses, modern diesel buses and air pollution and GHG emission reductions.

– Programming Entity (PE): The PE is responsible for the design of the programme. The Ministry of Energy could play this role.

Regardless of the institutional form, programme management should involve an institutional structure and procedures that promote environmental effective­ ness, embody fiscal prudence, and use financial and human resources efficiently.

References

Further reading

GoM (2018), Environmental Audit Report on Air Quality in the Republic of Moldova, Government of Moldova, Chisinau, http://lex.justice.md/UserFiles/File/2018/ mo18-26md/raport_65.doc (in Romanian).

OECD (2017), Promoting Clean Urban Public Transportation and Green Investment in Kazakhstan, Green Finance and Investment, OECD Publishing, Paris, https://doi.org/10.1787/9789264279643-en.

GoM (2017), National Inventory Report 1990-2015: Greenhouse Gas Sources and Sinks in the Republic of Moldova, Submission to the UNFCCC, Government of Moldova, Chisinau, www.clima.md/download.

OECD (2006), Recommendation of the Council on Good Practices for Public Environmental Expenditure Management, OECD, Paris,

OECD (2007), Handbook for Appraisal of Environmental Projects Financed from Public Funds, OECD Environmental Finance Series, OECD Publishing, Paris, www.oecd.org/env/outreach/38786197.pdf.

www.oecd.org/env/outreach/38787377.pdf..

This study was conducted within the framework of the OECDMoldova Co-operation. The work was carried out jointly by the OECD GREEN Action Task Force and the Ministry of Agriculture, Regional Development and Environment of Moldova. The project was financially supported by the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety of Germany (BMU), through its 2014 International Climate Initiative (IKI).

The OECD provides the Secretariat for the GREEN Action Task Force, which has been supporting the countries of Eastern Europe, Caucases and Central Asia (EECCA) to integrate environmental considerations into mainstream economic, social and political reforms for more than 20 years.

For more information: www.oecd.org/environment/outreach/GREEN-Action-Task-Force David.Simek@oecd.org Nelly.Petkova@oecd.org Images Š Shutterstock.com

OECD Environment Directorate, July 2019