|                                                                                                                                                             |  | MAKING UKRAINE ENERGY EFFICIENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       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|**BISNISHome PageSearchBISNISEmbassyReportsCountryReportsIndustryReportsPublicationsSourcesof FinanceLeadsand EventsExchangeRatesState ExportsOtherSources** |  | April 1998by Meredydd EvansUkraine has one of the world's most energy-inefficent economies.  Energy was plentiful and cheap
in Soviet times and little effort was made to conserve it.  Since 1992, however,  energy prices
have risen close to world levels and Ukraine finds itself saddled with very high energy costs. 
Ukrainian managers know that they must lower these costs if their companies are to compete both
locally and internationally.  The Ukrainian Government is also under pressure to lower natural gas
imports and reduce the country's trade imbalance with Russia.  As a result, incentives to save
energy in Ukraine are now great, and the market for energy efficiency products is growing.  The
Ukrainian Government estimates that this market will generate $700 million to $1 billion worth of
sales in the year 2000.Opportunities: Manufacturing and Construction
Ukraine's manufacturing and construction sectors both hold tremendous opportunities for energy
efficiency.  Manufacturers are struggling to reduce costs and improve quality.  Greater energy
efficiency can help industrial plants reduce their energy costs; more modern, energy-efficient
technologies can also improve product quality.  Opportunities exist in Ukraine for a variety of
energy efficiency technologies:Automatic controls can help firms reduce energy use and improve product quality.High-efficiency motors can greatly reduce electricity consumption in industry.  The
competition is sparse; few companies import high-efficiency motors into Ukraine, and local
motors, while inexpensive, do not approach Western standards of efficiency.Pipe insulation is in short supply in Ukraine; local industrial plants often have miles of
exposed steam lines with old or nonexistent insulation.Steam traps are badly needed at Ukrainian factories, although poor-quality local steam traps
have given the product a bad name with many managers.Others include efficient air compressor systems, heat recovery units, refractory materials,
and efficient lighting.Distribution, Financing, Productivity
Distribution, financing, and a focus on overall plant productivity are essential for selling industrial
energy efficiency products in Ukraine.  Plant directors would like to see evidence that the product
is easy to obtain, can be serviced easily, and has worked in similar applications elsewhere in
Ukraine.  Financing is critical for larger purchases, since most industrial firms do not operate with
large cash reserves.  Most transactions are on barter terms, and U.S. companies should be
prepared for countertrade proposals.  Leasing is also becoming increasingly popular in Ukraine. 
Finally, plant managers often care more about production than energy costs.  Thus, a sales
presentation that highlights potential improvements in overall plant productivity and product
quality is more likely to succeed than one which focuses on energy savings alone.Housing construction and renovation also provide important opportunities for exporters of energy
efficiency products.  Despite Ukraine's difficult economic situation, new housing construction and
renovations are common, particularly among the affluent.  Many high-quality energy efficiency
products for buildings must be imported by the individual consumer, however, and few private
individuals are willing to do this.  The energy efficiency products most in demand in the building
sector include: energy efficient windows; automatic heat controls; insulation (particularly when it
enhances the appearance of the building); modern, efficient lighting; and roof-top boilers.  The
potential demand for weatherstripping is also high, since quality weatherstripping is virtually
unavailable in Ukraine.Appearance, comfort, and convenience are critical factors driving customer demand for energy
efficiency products in the construction sector.  For example, a customer may buy an energy-efficient window because it looks modern and expensive, rather than to save money on the energy
bill.  In fact, most energy efficiency measures in buildings will have little effect on the customer's
energy bill, unless the customer goes through a long process to switch from estimated billing to
metered billing.  Ukraine has passed a law requiring district heating companies to switch to
metered billing in the near future, but few district heating companies are implementing the law
yet.Funding
The World Bank and the European Bank for Reconstruction and Development (EBRD) are
both developing large energy efficiency projects in Ukraine.  The World Bank is preparing a $38
million loan for energy efficiency improvements to public buildings in Kiev.  The loan will finance
modifications to schools, hospitals, clinics, and government office buildings.  The World Bank
board is expected to review the loan in 1998 and procurement of equipment and services is
expected to begin in 1998-99.  Procurements will most likely include heat exchangers, controls,
weatherization materials, and expertise in managing and evaluating building retrofits.The EBRD has an "Energy Efficiency Unit" that is working on several energy efficiency projects
in Ukraine.  The most significant of these projects involves establishing an "Energy Services
Company" (ESCO) in Ukraine that will be called UkrESCO.  This company will finance and
implement energy efficiency projects throughout the country, and will need to procure energy
efficiency equipment.  UkrESCO will be operational in mid 1998.Ukrainian Energy Efficiency Center
The Ukrainian Energy Efficiency Center, ARENA-ECO, can assist energy efficiency
companies working in Ukraine.  ARENA-ECO has databases on Ukrainian industrial firms and
products, and publishes quarterly energy and economic bulletins.  ARENA-ECO can conduct
market research and help firms identify potential customers or partners.  The Pacific Northwest
National Laboratory (PNNL) helped establish the center as a nonprofit, independent
organization with initial funding from the U.S. Agency for International Development. For
more information, contact ARENA-ECO at 011 380 (44) 268-8088 (voice), 268-8451 (fax) , or
by e-mail at arena@arena. kiev.ua; or contact Meredydd Evans at 202-646-7811 (voice), 202-646-5233 (fax), or by e-mail at [email protected].Meredydd Evans is a Senior Scientist at  the Pacific Northwest National Laboratory in
Washington, DC.This report is provided courtesy of the Business Information Service for the Newly
Independent States (BISNIS)