KredEx Foundation (“KredEx”) is a legal person governed by private law and operates independently in the form of a foundation though manages and allocates the dedicated financial resources to energy efficiency projects in building apartments in line with the Estonian government’s energy efficiency support strategy and the objectives of the “Apartment building renovation loan programme”. It operates by the principles of a credit insurance provider, earning profit from guarantee fees and interest, and investment income from which losses as well as administration expenses are covered. In addition, KredEx provides for the Estonian state the administration service of available grants in the housing area.

Its financial experts worked out the design of the renovation loan scheme (terms, beneficiaries, etc.), ran negotiations with the partners (CEB, ERDF, local commercial banks) and managed the relations with the beneficiaries of the dedicated Fund (Union of Housing Associations, Builders Associations,…), together with representatives from MoEAC

Three main sources provided initial funding of about 49M € (766M Estonian Kroon) to the KredEx Fund:

• Council of Europe Development Bank (CEB), chosen through international bidding: loan of 28,8M €, guaranteed by the Estonian Government
• European Regional Development Fund (ERDF) through Regional Operational Programme ‘Living Environment’ (Management Authority Ministry of Finance): grant of 17,0M €
• KredEx Foundation: 3,2M €

KredEx Fund has the obligation to pay out all funds received from ERDF to projects by 31 December 2013.

In May 2013 the revolving Fund secured additional funding of 16,0M € from the Estonian Government (loan) and 7,0M € from Kredex, thus achieving 72,0M € funding.

The funds have been used to provide soft loans to two intermediary commercial financial institutions, Swedbank (2/3 of the funds) and SEB (1/3 of the funds) chosen through public tendering to administer the renovation loan scheme and to provide further lending to the intended beneficiaries.

Kredex Foundation has a Council whose main task is to make strategic decisions related to the Foundation’s operations and the approval and amendment of documents most important for the operations (budget, strategy, activity goals, risk management, cooperation principles with credit institutions). The council also approves all projects for which the individual total amount of the loan or guarantee issued by KredEx exceeds one million euro. The council consist of maximum 7 members including representatives from MoEAC and the Ministery of Finance.

The Board is the managing body of the Fund. It is responsible for managing the daily activities of the foundation, ensuring the implementation of the council’s decisions and taking responsibility for the fulfilment thereof.

KredEx Fund supports only renovation and reconstruction projects of multi-apartment buildings where at least three apartment owners want to make use of the loan possibility, preferably represented by a housing association.  A minimum commitment of 20% energy savings is required in buildings up to 2000 m², while in larger buildings this increases to 30%.

As a lender, KredEx Fund has been providing renovation loans at fixed 10-year term interest rates of between 3,5% and 4,5% (the latter interest rate was applied at the beginning), the average being approximately 4,0%, for up to 20 years. For the period 2009 – 2014 the average maturity of the loans is about 17 years.

A minimum own contribution of 15% is required from the beneficiaries (this can be own funds, or grants or any other loan) and the maximum amount has been capped to 1,35M € per building.

There is no collateral required and the loans are mostly being reimbursed with the achieved energy savings. The building has to be insured during the whole term of the loan.

The applied interest rates by KredEx Fund are below commercial-market interest rates and these favourable conditions have been possible because it received (zero cost) grants from ERDF and favourable interest rates from CEB and because, as a not for profit organisation, it does not distribute profits.

The KredEx Fund only applies 0,5% to 0,75% of the loan amount as contract fee which is also below commercial market terms.

Grants are available through KredEx for those housing associations who wish to undertake deep retrofit or reconstruction.

Beneficiaries can obtain grants of 15%, 25% or 35% depending on the level of energy savings achieved:

• For 15% grants the beneficiaries must meet the terms for renovation loan, achieve energy savings of 20% for buildings up to 2000m² or 30% for buildings with a size of more than 2000m², obtain energy label E and limit energy consumption to less than 250 kWh/m²;
• For 25% grants the beneficiaries need to include roof, facade, windows (U-value 1,1) heating system, achieve energy saving of at least 40%, obtain energy label D and limit energy consumption to less than 200 kWh/m²;
• For 35% grants the beneficiaries need to include roof, facade, windows (U-value 1,1) heating system, heat-recovery ventilation system, achieve energy saving of at least 50%, obtain energy label C and limit energy consumption to less than 150 kWh/m²

Beneficiaries can obtain grants up to 50% of the expenses for energy audit and building expert evaluations and project design documents. The purpose of these grants is to motivate representatives of apartment buildings to consult with an expert before planning and performing any reconstruction work, and to have the works carried out in accordance with the expert’s suggestions and the Estonian Building Act.

KredEx provides also apartment building loan guarantees covering up to 75% of the loan amount with no collateral requirement. These guarantees are intended for higher risk rated building apartments (number of debtors, rural area, low market value, payment risk) and when reconstruction cost per m² is higher due to complex reconstruction. Guarantee fee charges of 1,2% - 1,7% apply.

The loan or grant application process includes basically the following steps:

• Apartment building associations wishing to undertake retrofit need first to contract an energy audit. Up to 50% of the cost of the energy audit can be financed by grants through KredEx.
• Based on the energy audit the beneficiary needs to prepare the project design or building design documents (energy audit, energy consumption reports, selected energy efficiency measures, feasibility, required budget, building permit,…).  Up to 50% of the building design costs can be financed by grants through KredEx.
• Request for price quote is being organised by the beneficiary. At least 3 formal price quotes for the works to be carried out are required.
• Submission of the project and related documents to the intermediary bank and application for loan and/or grants.
• Project appraisal and creditworthiness assessment by the intermediary banks
• Formal decision on approval for financing by intermediary banks
• Forwarding of grant application by intermediaries to KredEx.
• Formal decision on approval of grants by KredEx
• Signatory of loan agreement with intermediaries and grant agreement with KredEx
• The service suppliers (works contractor, project management, supervision,…) are being chosen and contracted by the beneficiary
• During the works phase the invoices related to the works and the related services are being financed by the bank (funds made available to the beneficiary or paid directly to the service providers). 
• At the end of the works the construction grants (15%- 35%) can be paid out to the beneficiary.

The KredEx Fund’s final financing or grants recipients are cooperative housing associations and communities of apartment owners (built before1993) and local governments (as owner of social housing).