JESSICA

JOINT EUROPEAN SUPPORT FOR SUSTAINABLE INVESTMENT IN CITY AREAS

JESSICA INSTRUMENT FOR ENERGY EFFICIENCY IN LITHUANIA

Supplementary study

FINAL REPORT

3 February 2010

This document has been produced with the financial assistance of the European Union. The views expressed herein can in no way be taken to reflect the official opinion of the European Union.

TABLE OF CONTENT
EXECUTIVE SUMMARY......................................................................................................................... 7 1. INTRODUCTION................................................................................................................................. 13 1.1. Context of Study............................................................................................................................. 13 1.2. Overview of the JESSICA operation set up in Lithuania for energy efficiency in multi-apartment buildings ................................................................................................................................................ 14 1.2.1. Current set up of the JESSICA instrument.............................................................................. 14 1.2.2. Eligible amounts for student dormitories from Lithuanian national envelope of the European Regional Development Fund............................................................................................................. 14 1.3. Existing relevant EU and Lithuanian legislation and programmes as regards efficient use of energy and renovation of buildings in the context of student dormitories ............................................ 15 2. ELIGIBILITY ....................................................................................................................................... 18 2.1. Eligibility of student dormitories and other buildings under the jurisdiction of Ministry Education and Science for application of JESSICA instruments ........................................................................... 18 2.1.1. Eligibility of student dormitories: student dormitories as housing.......................................... 18 2.1.2. Eligibility of other buildings under the jurisdiction of Ministry Education and Science........ 18 2.1.2.1. Provisions of Regulation No 1080/2006........................................................................... 19 2.1.2.2. Cohesion Promotion Operational Programme for the years 20072013 ........................ 19 2.1.3. Eligible modernisation measures............................................................................................. 20 2.1.4. Required amendments of legal acts......................................................................................... 22 3. FUND STRUCTURE............................................................................................................................ 23 3.1. Stakeholder analysis ....................................................................................................................... 23 3.1.1. Ministry of Education and Science.......................................................................................... 23 3.1.2. Ministry of Finance ................................................................................................................. 24 3.1.3. Ministry of Environment ......................................................................................................... 24 3.1.4. Higher education institutions (universities and colleges)........................................................ 25 3.1.5. Authorized agencies ................................................................................................................ 26 3.1.6. Energy service companies (ESCO) ......................................................................................... 28 3.1.7. Potential concessionaires......................................................................................................... 29 3.1.8. Municipalities (as founders of secondary schools).................................................................. 30 3.1.9. Banks ....................................................................................................................................... 30 3.2. Institutional scheme: the question of the Urban Development Fund ............................................. 31 3.3. Analysis of the current situation: basic data about students, student dormitories and other buildings under the jurisdiction of Ministry Education and Science for consideration of eligibility for JESSICA instruments ............................................................................................................................ 32 3.3.1. Number of students (higher education institutions, vocational training, secondary schools) . 32 3.3.2. Basic data about student dormitories: number of dormitories, occupancy ratio, construction dates and compliance to the hygiene norms ...................................................................................... 33 3.3.2.1. State higher education institutions ................................................................................... 33 3.3.2.2. State vocational education and training institutions ........................................................ 36 3.3.2.3. State secondary and special schools ................................................................................ 39 3.3.3. SWOT analysis for student dormitories .................................................................................. 39 3.3.4. The cost of residence in student dormitories against the rent market...................................... 40 3.3.5. Investments into renovation of student dormitories ................................................................ 41 3.3.6. Other buildings under the jurisdiction of the Ministry of Education and Science .................. 43 3.4. Assessment of the amount of funds needed and their suggested distribution among various tasks (dormitories, other public buildings, etc.), including calculations of potential energy and financial savings................................................................................................................................................... 43 3.5. Allocation of risk and return between private and public capital, and between stakeholders........ 50 4. TARGET BENEFICIARIES & FINANCING SCHEMES .................................................................. 52 4.1. The effect of lending by the Urban Development Fund on the public sector debt and deficit....... 52 4.2. Loan by the dormitory manager scheme ........................................................................................ 54 4.3. Loan by the designated state owned limited liability legal entity .................................................. 56 4.4. ESCO (Energy Service Company) scheme .................................................................................... 57 4.5. Concession scheme......................................................................................................................... 57

4.6. Factoring scheme............................................................................................................................ 58 MAIN CONCLUSIONS AND RECOMMENDATIONS ........................................................................ 61 ANNEXES ................................................................................................................................................ 63 Annex 1. Current set up of the JESSICA instrument for energy efficiency in housing in Lithuania.... 63 Annex 2. Questionnaire for collection of data about student dormitories (used in this study) ............. 64 Annex 3. List of stakeholders interviewed and sources consulted for the purposes of this study......... 66 Annex 4. Investment for renovation of student dormitories managed higher and vocational education institutions in 20002009 ...................................................................................................................... 68 Annex 5. Detailed calculations for possible concession scheme for three (typical) student dormitories of the Vilnius University ....................................................................................................................... 71 Annex 6. A short summary of partially implemented ESCO scheme for energy efficiency by the Vilnius City Municipality...................................................................................................................... 76 Annex 7. Summarised financial calculations for renovation of students dormitories........................... 78 Annex 8. Territorial distribution of students dormitories in Lithuania ................................................. 79 BIBLIOGRAPHY ..................................................................................................................................... 81

LIST OF ABBREVIATIONS
CF CFCU CPMA CPO EC EIB ERDF ESCO EU HUDA JHF LDHA UDF Cohesion Fund Central Financing and Contracting Unit Central Project Management Agency Central Purchasing Organization European Commission European Investment Bank European Regional Development Fund Energy Service Companies European Union Housing and Urban Development Agency JESSICA Holding Fund Lithuanian District Heating Association Urban Development Funds

LIST OF TABLES
Table 1. Full modernisation of dormitories .................................................................................10 Table 2. Implementation of energy efficiency measures only.....................................................10 Table 3. Number of students in the beginning of the academic year ..........................................32 Table 4. Demand and supply of places in university student dormitories (in the beginning of the academic year)..............................................................................................................................33 Table 5. Monthly rent exclusive of utilities (flats in old construction multi-apartment houses in the sleeping (remote) districts of the cities) (in LTL)...............................................................40 Table 6. Rent prices per student at the dormitories of the Vilnius University and Vilnius College (inclusive of utilities) (in LTL) ....................................................................................................41 Table 7. Investments made for renovation of student dormitories operated by a public company Vilniaus universiteto bstas (in LTL)* ........................................................................................41 Table 8. Summary of total renovation works to be carried out and their breakdown into categories in the universities managed dormitories (complex renovation) ...............................44 Table 9. Summary of renovation works to be carried out and their breakdown into categories in the universities managed dormitories (only energy efficiency related renovation)...................44 Table 10. Summary of total renovation works to be carried out and their breakdown into categories in the colleges managed dormitories (complex renovation) ....................................45 Table 11. Summary of renovation works to be carried out and their breakdown into categories in the colleges managed dormitories (only energy efficiency related renovation)....................46 Table 12. Average heating price in dormitories (LTL/ m per month) .......................................47 Table 13. Heating costs in dormitories........................................................................................47 Table 14. Summary of total renovation works to be carried out and their breakdown into categories in the vocational and training education institutions managed dormitories (complex renovation) ...................................................................................................................................48 Table 15. Summary of renovation works to be carried out and their breakdown into categories in the vocational and training education institutions managed dormitories (only energy efficiency related renovation) .......................................................................................................49 Table 16. Total funds needed for complex renovation and energy efficiency measures ............49 Table 17. Full modernisation of dormitories ...............................................................................53 Table 18. Implementation of energy efficiency measures only...................................................54

LIST OF FIGURES
Figure 1. Further education of general upper secondary school graduates .................................32 Figure 2. Occupancy rates at student dormitories of Lithuanian state higher education institutions ....................................................................................................................................34 Figure 3. Distribution of dormitories of state higher education institutions according to their construction date ..........................................................................................................................34 Figure 4. Occupancy rates of student dormitories of Lithuanian state vocational education and training institutions.......................................................................................................................36 Figure 5. Distribution of student dormitories of state vocational education and training institutions according their construction date...............................................................................36

EXECUTIVE SUMMARY
This supplementary feasibility study addresses the the possibility of extending the current scope of the energy efficiency actions beyond traditional housing, to include student dormitories, an important component of urban housing, and other buildings under the jurisdiction of the Ministry of Education and Science. It does so by providing legal analysis about eligibility of those buildings for JESSICA instrument and by making detailed calculations only for student dormitories (with a possibility to extrapolate the findings for other buildings). The study draws on the scheme already developed for energy efficiency measures for multiapartment housing. As regards available resources which could still be transferred to JESSICA Holding Fund (JHF) specifically for renovation of student dormitories without redistribution of already committed funds for multi-apartment housing, additional 39.5 72.5 million LTL could be mobilised depending on the treatment of already committed finances for awareness raising and promotion of energy efficiency related renovation. Parts of these finances would be subject to differing geographical eligibility constraints, which could only be avoided if the cash flows within the JHF are separated. The study finds student dormitories considered as premises of residential purpose in national legislation and therefore deemed as housing. Therefore the needed investments should be treated as eligible under the Regulation No 1080/2006. As regards other buildings under the jurisdiction of the Ministry of Education and Science, the specified categories provided by the ministry are clearly public buildings, for which provisions of Regulation No 1080/2006 do not establish restrictions on eligibility for modernisation from the funds of the ERDF. While this regulation does not prohibit the use of the JHF finances to invest into public buildings, such a scheme in Lithuania would require a redesign of the Operational Programme, approval by the European Commission and discontinuation of the current practice of issuing grants for public buildings. A loan based approach is certainly worthwhile looking at in the future, and would have been a proper thing to do for all energy related (repayable) renovation measures irrespective of the use of the building. Current existence of two parallel schemes for energy efficiency related renovation of public buildings in Lithuania (existing grant scheme financed by Cohesion Fund and supposed JESSICA loan instrument financed from ERDF) makes the operation of the loan scheme very unlikely, unless the funds of the grant scheme dry out. As regards possibility to finance renovation measures in student dormitories other than energy efficiency, the study concludes that only energy efficiency improvements as defined in Article 7.1(a) of Regulation No 1083/2006 may be performed in student dormitories because currently at least two conditions specified in Article 7.2 of Regulation No 1080/2006 (which would enable investment into measures other than energy efficiency) may not be met. Measures not related to energy-efficiency could be financed, if appropriate decision on the use of the resources of the JESSICA Holding Fund exceeding the minimum national co-financing rate is adopted, pending clarification from the European Commission. The stakeholder analysis reveals that, in order to be successful, application of JESSICA instrument for energy efficiency in student dormitories would depend on the irreversible entrenchment of the policy line by the Government that all investments generating return should be channelled through the loan schemes. Energy efficiency measures are important to be financed, but additional measures in order to improve student welfare conditions in dormitories and in their territories are extremely significant too, because most of dormitories do not meet hygiene norms and formally even can not be operated. A possibility to install not only energy efficiency measures, but also to perform complex renovation would strongly motivate higher 7

education institutions to borrow or to participate in the borrowing schemes. Among other reasons for this supplementary feasibility study, the Ministry of Finance is interested in solving the problem of renovation of dormitories through employment of the JESSICA holding fund, albeit in a way as close as possible to the neutral effect to the public debt and budget deficit. The study does not find potential participants of an ESCO (Energy Service Company) model to be very enthusiastic about such a scheme, while concession approach generated a much bigger interest among the potential participants in the scheme. This study suggests that the currently existing institutional set up for multi-apartment housing is maintained also for student dormitories and that a financial institution (i.e. a bank or banks) serve the function of the Urban Development Fund (UDF) as for renovation of multi-apartment houses. It did not find compelling reasons to advance the possible alternative, namely, the assignment of the function of the UDF to an existing institution by virtue of a national legal act. On 30 September 2009, there were 28 state institutions providing higher education, of which 15 were universities and 13 colleges. Among themselves, they had 124 student dormitories (of which 45 belonged to colleges and 79 to universities). A total of 28,068 students lived in all dormitories on 30 September 2009 at a rather high 92% average occupancy rate, compared to the existing accommodation capacity (30,639 places). Higher education institutions use their income received from accommodation services as well as other funds to maintain and repair dormitories. However, these funds are not sufficient for renovation of dormitories. 83% of the funds received from accommodation services are used to pay for administration and utilities of dormitories, 16% for maintenance and 1% for other necessities. More then half (69) of the student dormitories are in operation already for 2949 years. According to the data of April 2008, there were 75 state vocational education and training institutions in Lithuania. Between them, there were a total of 86 dormitories, which hosted 9.462 students at an occupancy ratio of 51% (the maximal capacity stood at 18,578 living places). Majority student dormitories of vocational education and training institutions have been in operation for 3337 years. Due to considerable depreciation, almost all dormitories do not meet the following standards set in three hygiene norms (for accommodation services, ambient air of residential environment and microclimate in residential and public utility buildings) and three technical regulations of construction on essential requirements for buildings (hygiene, health and environmental protection; on heating, ventilation and air conditioning, and energy saving and heat retention). According to the data of the Register of Authorizations and Hygiene Passports (managed by the State Public Health Service under the Ministry of Health), the non compliance rate among various categories of dormitories has been as follows, a) 73% among higher education institutions (90 out of 124 buildings), b) 61% among state vocational education and training schools (52 out of 86), and c) 81% among general education schools and schools for students with special needs (89 out of 111). Investments actually made in the framework of implementation of the Programme for Renovation of Student Dormitories of Higher Education Institutions (which correspond to the investment source (c) above) during 20062009 totalled LTL 40 million, of which LTL 25 million were invested into university dormitories and LTL 15 million were spent on college dormitories. In addition about LTL 10.5 million of reconstruction works were financed by transfers from Privatization Fund of Lithuania in 20072008, most likely to make up the difference of forecasted and actual renovation costs during the period of construction (prices) boom in Lithuania. It is important to note, that, according to the Ministry of Finance, the allocations set aside for reconstruction of dormitories in the State Investment Programme in 2010 concern only completion of reconstruction works from previous years.

Experience shows that renovated dormitories save about 30% of heating, and heating costs could be reduced by 50%. Thus, for instance, in 20032004 three dormitories of Vilnius Pedagogical University were renovated. Before renovation, heating costs comprised LTL 3/m, while after renovation they stood at approximately LTL 1.5/m, meaning that LTL 1.5/m is saved during the heating season. Renovation costs were LTL 148150 per 1 m. According to the calculations made, these investments should pay back in 14 years. Calculations were made in order to measure the magnitude of the renovation problem and primarily to target student dormitories of three types, namely those of a) universities, b) colleges and c) vocational education and training institutions. These calculations were made for two scenarios, namely, a) in order to implement only energy efficiency measures (as defined in the applicable EU regulations) or b) to undertake complex renovations (beyond energy efficiency to tackle also the problem of improvement of welfare in the buildings and around them). Also two investments financing alternatives were evaluated: a) with 15% state support and b) without state support. The background data for these calculations were generated by the survey, which the consultants made with the universities, colleges and vocational education and training institutions about the state of play of their dormitory stock and improvements needed. According to the data received, most of the dormitories require modernisation of roofs and balconies, replacement of windows, insulation of walls, modernisation of heating stations, replacement of electric installation and pipes, renovation of water closets and kitchens. Dormitory surroundings should be also managed car parking lots should be expanded, sport and leisure fields developed, etc. For dormitories of higher education (university and college) institutions, the scope of remaining renovation works will be as follows: replacing approx. 14 thousand m of old windows; renovating and insulating approx. 65 thousand m of roofs and approx. 2.5 thousand meters of outdoor heating circuits; modernising 37 heating stations; replacing over 4 thousand m of exterior doors; insulating more than 266 thousand m of external walls; repairing approx. 2,500 m of dormitory premises, approx 30.4 thousand m of toilets and showers and almost 18 thousand m of kitchens; renovating cold, hot, circulating water and sewage systems in dormitories of 9 universities; partially renovating electricity and lighting systems in dormitories of 7 universities; renovating ventilation systems in dormitories of 3 universities. The total area of dormitories of higher education institutions to be renovated comprises 462.6 thousand m, of which university dormitories make up 315.6 thousand m and college dormitories 147 thousand m. Standard energy demand for heating, ventilation and hot water is approx. 84,000 MWh/year. In order to cover energy costs universities spend over LTL 8 million, while colleges approx. LTL 3 million per year. According to the data provided, during the last heating season dormitories consumed 49,267.19 MWh of energy (of universities consumed 31,292.3 MWh and colleges 17,974.89 MWh). The calculations of possible energy savings are based on the results received by comparing energy savings in modernised dormitories. According to the monitoring of these dormitories carried out when drafting a Programme for the Renovation of Student Dormitories of Higher Education Institutions, the renovation of dormitories saves approx. 30% of heating energy consumption and up to 50% of heating costs. The investments into 1 m amounted to LTL 148 150. The calculations show that the investments into these dormitories should pay back in 14 years. The calculations of financial savings are based on the presumption that the price of electric energy is 35 ct/kWh, of heating energy 21 ct/kWh, of hot water LTL 16.15/m.

After the modernisation and the implementation of energy efficiency measure (insulation of walls and roofs, replacement of piping and windows), the energy consumption will be reduced by 30% on average. In this way, 14,780 MWh of energy or LTL 3.1 million will be saved annually. The reduction in energy consumption in buildings will save another 10,420 MWh of energy. Hence, after renovation, the standard energy consumption will be 58,800 MWh and the savings will amount to 25,200 MWh or LTL 5.3 million per year (where heating price is 21 ct/KWh). One of the key energy saving sources could be the construction of co-generation power plants in the area of student dormitories. It would reduce the payback period of investments by 1.5 times at least. Such results are possible as the cost of electric energy produced in a co-generation power plan is 12.4 ct/kWh, and of heating 10.8 ct/kWh. The calculations are based on the presumption that one co-generation power plant, the capacity of which is 100 kW of output and 80kW of electric power per hour, is built for a complex of five dormitories with the area of 2,000 m each. Such co-generation power plant, including installation works, costs LTL 480,000. However, this option would be possible only if the current district heating supply does not meet the established parameters (eg energy losses in a long range circuit) and most likely would be opposed by district heating companies. It therefore would require further investigation. The total area of vocational education and training institutions to be renovated is 262 thousand m. The energy consumption during the last season was 23,012.99 MWh. Modernisation works could be financed under a scheme similar to the one used for the programme for the modernisation of multi-apartment buildings financed by the JESSICA funds. Hence, a soft loan with the fixed annual interest rate of 3% would be granted together with 15% state support. In such a case, the total amount of the state support required for the implementation of energy-efficiency measures in all dormitories would aggregate LTL 22,478,127.73. With a help of the state support and without it, the investments (requiring loan funds) into 1 m (where the energy savings are LTL 11.46/1 m) would be as follows: Table 1. Full modernisation of dormitories
Payback Payback Funds period Investments State Interest per period with required for without into 1 m (in support to 1 year (in 15% state 1 m (in state LTL) m (in LTL) LTL) support (in LTL) support (in years) years) 349.17 312.09 28.82 29.04 320.35 283.04 4.83 4.26 28.0 24.7 30.5 27.2

Institution

Universities Colleges Vocational education and training institutions

315.22

34.78

280.44

4.22

24.5

27.5

Table 2. Implementation of energy efficiency measures only

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Institution

Payback Payback Funds period Investments State Interest per period with required for without into 1 m (in support to 1 year (in 15% state 1 m (in state LTL) m (in LTL) LTL) support (in LTL) support (in years) years) 192.15 193.61 28.82 29.04 163.33 164.57 2.46 2.48 14.3 14.4 16.8 16.9

Universities Colleges Vocational education and training institutions

231.87

34.78

197.09

2.97

17.2

20.2

Modernisation of dormitories of education institutions should be financed on the basis of the reduction in energy consumption so that savings could help to pay back loans irrespective of the borrower (the education institution, the authorised institution organising modernisation works or the contractor). The credit period should not be shorter than the payback period of the measures implemented. Similar to the programme for the modernisation of multi-apartment buildings, soft loans with the fixed annual interest rate of 3% should be granted. Another possible source of income for loan servicing is rent paid by students and pupils who live in dormitories. However, it is risky the increase in the rent for dormitory accommodation may result in the reduction of the number of students living in dormitories as the education institution will not be able to compete with the prices offered by the private sector. If the rent is left unchanged, some of the funds received could be used for loan servicing since a modernised dormitory requires fewer resources for the running repair during the first 5 years. Irrespective of the borrower, the loan payback should be ensured by: (a) rent paid by dormitory residents; (b) energy savings and smaller demand for funds to pay for energy. Some of the savings (approx. 7580%) should be used for loan servicing. If, according to the calculations, the savings amount to LTL 11.46/m, LTL 8.69.2/m annually could be directed to loan servicing. The remaining amount required for loan servicing could comprise of the income received for the services provided to inhabitants. If funds are borrowed from banks, one of the main issues will be risk sharing and credit security measures. The risks should be assumed by the state as there are no legal possibilities to mortgage the buildings to be modernised. Furthermore, a list of priority buildings to be modernised should be drawn up in order to prioritise buildings which consume the most energy and the state of which is extremely poor. A loan should be granted only if the investment project provides for the implementation of energy-efficiency measures along with other modernisation measures, which ensure at least 20% energy savings per year. Institutionally, two loan schemes are possible: (a) similar to the case of multi-apartment buildings, loans are granted by the Holding Fund via banks operating in Lithuania; (b) loans granted by the institution authorised by the Holding Fund. The study already proposed the preference for option (a). In order to avoid drawing of the new selection criteria or requirements, which would be timeconsuming to prepare, it is proposed to leave the same eligibility and selection criteria as in the case of multi-apartment buildings. Further, given the financing situation of education

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institutions, it is also proposed not to request the co-financing of at least 5% of the project value, if education institutions take loans themselves. In this case, 100% of the project value should be financed. In all other cases, 95% of the project value would be financed. A loan with the fixed annual interest rate of 3% would be granted for a period of up to 20 years. 15% state support could be provided to the implemented projects under the same conditions as it is provided to multi-apartment buildings. As regards the effect of lending operation to public debt and deficit, the establishment of the JESSICA holding fund has increased the debt of the public sector and the fiscal deficit respectively only by the amount of national co-financing. It was one-off deficit-increasing action calculated during the transfer of the funds borrowed for co-financing to the JESSICA holding fund. Further borrowing from the JESSICA fund for the implementation of the goals set by the fund will increase the debt of the public sector and the deficit respectively, depending on the borrower (i.e. if the borrower is a public sector entity, the deficit and the debt will grow). However, there are no methodological explanations yet in this respect (for JESSICA instruments). Commercial loans (expenditure experienced during their use) to public sector entities should be added to the debt/deficit of the public sector. This study analyzes five possible financing schemes, of which the first three (loan by the dormitory manager, state owned limited liability legal entity or ESCO) would be possible for application of energy efficiency measures from the JESSICA instrument. The last two schemes (concession and factoring) could be used for more ambitious (complex) modernization which in addition to energy efficiency measures would also target welfare measures. Of the five schemes, loan by the dormitory manager and concession schemes seem to be most promising to achieve the aims of dormitory renovation. If this renovation aims at issues beyond energy efficiency measures, then concession scheme should be advanced further.

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1. INTRODUCTION 1.1. Context of Study

In November 2009, the JESSICA Task Force of the European Investment Bank (EIB) drafted the terms of references for consultancy services to carry out a supplementary study on JESSICA instruments for energy efficiency in Lithuania. For this purpose the JESSICA task force commissioned a consultant, Europos socialiniai, teisiniai ir ekonominiai projektai (ESTEP) to undertake this study. The draft final report from the consultant was expected to be submitted within eight weeks after the launch of the study. It was expected to include all elements of the final report. For the purposes of this study, the consultant mobilized a team of experts. Dr Klaudijus Maniokas assumed the overall responsibility for coordination of this study. Darius eruolis and Renata Pakalnyt analyzed the institutional issues (stakeholders, fund structure and target beneficiaries). Gintautas Maniuis and Aist Jucien analyzed financing issues (funds strategy and products). Legal issues in this study were dealt by SPP (Sutkien, Pilkauskas ir partneriai) law firm, which also assisted the team of experts with legal verification of proposed institutional and financial solutions. The study was necessitated by the request of the Lithuanian Ministry of Education and Science and the Ministry of Finance to EIB to review the possibility of extending the current scope of the energy efficiency actions beyond traditional housing, to include student dormitories, an important component of urban housing, and other buildings under the jurisdiction of the Ministry of Education and Science. This definition of the general scope is, however, a rather broad one, especially in the view of very tight deadlines established for this supplementary study. During the introductory meetings between the ESTEP experts and the representatives of EIB and Ministries of Finance, Education and Science, it was agreed to solve this dilemma in the following way. Legal analysis was to be made for the full scope of the terms of references, namely, to analyze eligibility of student dormitories and other buildings under the jurisdiction of the Ministry of Education and Science for possible application of the JESSICA instrument. However, detailed financial calculations were agreed to be made only for student dormitories, that is, for the scope established by the Resolution No 843 of the Government of the Republic of Lithuania of 1 September 2006 On the Approval of the Programme for the Renovation of Student Dormitories of Higher Education Institutions (which applies to public (state) higher education institutions, i.e. universities and colleges), and for student dormitories of vocational education and training institutions. Data available about other buildings under the jurisdiction of the Ministry of Education and Science were processed only in the aggregate way in order to demonstrate the magnitude of the renovations needed to improve energy efficiency for those buildings. This supplementary study builds on the experience accumulated and lessons learned while preparing a targeted study to explore/justify JESSICA intervention, namely that on renovation of multi-apartment houses for energy efficiency (Supplementary Study on JESSICA Instruments for Energy Efficiency, April 2009). Its approach is therefore very similar to that employed in the previous study. Alternatives are analyzed and presented only as they arise from the differences between multi-apartment housing and dormitories.

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1.2. Overview of the JESSICA operation set up in Lithuania for energy efficiency in multi-apartment buildings
1.2.1. Current set up of the JESSICA instrument On 11 June 2009, Ministries of Finance and Environment of Lithuania and the European Investment Bank signed a Funding Agreement establishing the JESSICA Holding Fund Lithuania, managed by European Investment Bank, for the purpose of investing funds in housing energy efficiency projects through the banking sector in Lithuania. The EIB, acting as JESSICA Holding Fund, launched a call for expression of interest to channel the first tranche of funds to final beneficiaries through financial intermediaries. Applications were accepted until 14 December 2009, and the EIB is now evaluating the proposals. Selected financial intermediaries (banks or credit unions) will provide preferential credits (soft loans with promotional interest rates and long maturities) to owners of multi-apartment buildings. The fund will therefore contribute to reduction of energy consumption and achieve other associated goals, such as reduction of emissions and improvement of quality of life1. Ministry of Finance as managing authority participates in the scheme of renovation of housing for energy efficiency in Lithuania. Ministry of Environment as intermediary authority is responsible for implementation of measure VP3-1.1-AM-01-V Holding Fund for the Modernization of Multi-Apartment Houses of Lithuanian Operational Program for Promotion of Cohesion for 20072013.2 In accordance with the Funding Agreement establishing the JESSICA Holding Fund, Ministries of Finance and Environment shall contribute to the JESSICA Holding Fund a total amount of EUR 227 million3. Selected financial intermediaries (banks or credit unions) are acting as Urban Development Funds (UDFs) leveraging commercial co-financing from their own resources and providing coguarantee. Through its regional departments located in ten major cities of Lithuania, Lithuanian Housing and Development Agency (HUDA) provides technical assistance to owners of housing on renovation (modernization) of multi-apartment houses. The current set up of the JESSICA instrument is schematically summarized in the Annex 1. 1.2.2. Eligible amounts for student dormitories from Lithuanian national envelope of the European Regional Development Fund This section analyzes eligible amounts of investment which could be transferred to the JESSICA Holding Fund in Lithuania for energy efficiency measures from Lithuanian national envelope for 20072013 of the European Regional Development Fund (ERDF). It is based on the information supplied by the Division of Managing Operational Programme for Cohesion Promotion of the Ministry of Finance. The ceiling of available fund which could be deployed to JESSICA Holding Fund is defined by the ceilings of two constituent sources. The first source is either 3% available for housing of the ERDF funds allocated to an Operational Programme or 2% of the total national envelope to be financed by the ERDF, as set out in Article 7.2(b) of Regulation No 1080/2006 of the European Parliament and Council regarding the European Regional Development Fund. Lithuania opted
1 2

European Investment Bank website: www.eib.org, accessed on 14 January 2010. EU structural support for Lithuania 20072013 website: www.esparama.lt, accessed on 12 January 2010. 3 European Investment Bank website: www.eib.org, accessed on 14 January 2010.

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for the latter criterion and therefore can transfer a total of LTL 237.7 million to HF from this source. Allocation of these funds is guided by Article 47 of Regulation No 1828/2006 of the European Parliament and Council, which a) (in 47.1) enumerates criteria for determining geographic areas of intervention into the areas of integrated urban development planning or experiencing or threatened by physical deterioration and social exclusion, and b) (in 47.2) frames the investment itself, i.e. into refurbishment of the following main structural parts of the building, technical installations of the building, and energy efficiency actions. In Lithuanian case, the geographical scope according to this Regulation would be limited to the problem areas (14 municipalities), which were defined by the Government. The second source is additional 4% of the national envelope from the ERDF, which were made available for housing by the amendments to Regulation No 1080/2006 on 6 May 2009 (i.e. by Regulation No 397/2009). The ceiling of this tranche constitutes LTL 475 million. Therefore, a total of LTL 713 million can be transferred to JESSICA Holding Fund for the purposes of housing from the ERDF during the 20072013 EU Financial Perspectives. The amounts which can be used for renovation of student dormitories, should be calculated depending on whether a recent (24 December 2009) allocation of LTL 30 million to Housing and Urban Development Agency for promotion and awareness raising about energy efficiency related renovation (measure VP3-1.1-AM-02-V Incentive for the Modernization of MultiApartment Houses) is treated as investment into housing. If it is not, then additional LTL 39.5 million could be transferred to JHF under the 4% ERDF cap (and unconstrained geographically), and LTL 33 million could be shifted away from other planned measures and invested under the 2% ERDF capping rule, which would be constrained by the territorial provisions of Article 47 of Regulation No 1828/2006. If promotion measures are nevertheless treated as investment into housing, the additional investment into student dormitories could be LTL 39.5 million, but the lions share (LTL 33 million) would be subject to geographical constraints of Article 47.1 of Regulation No 1828/2006. This restriction could be avoided only if the cash flows within the JHF are separated.

1.3. Existing relevant EU and Lithuanian legislation and programmes as regards efficient use of energy and renovation of buildings in the context of student dormitories
The main regulations4 laying down the rules of EU Structural Funds, including establishment and use of financial engineering instruments were comprehensively reviewed in Jessica Evaluation Study for Lithuania5 and Supplementary Study on JESSICA Instruments for Energy Efficiency6. The provisions of these regulations are relevant in this study while determining the definition of housing (dormitories as housing), eligibility of other public buildings under the jurisdiction of Ministry Education and Science to be financed from JESSICA funds, eligible modernization measures, etc. This analysis is presented in Section 2 of this study.
(a) Council Regulation (EC) No 1083/2006 of 11 July 2006 on the European Regional Development Fund, the European Social Fund and the Cohesion Fund and repealing Regulation (EC) No 1260/1999, Official Journal, 2006, L 210 (with later amendments); (b) European Parliament and Council Regulation (EC) No 1080/2006 of 5 July 2006 On the European Regional Development Fund and repealing Regulation (EC) No 1783/1999, Official Journal, 2006 L, 210 (with later amendments); (c) Council Regulation (EC) No 1828/2006 of 8 December 2006 on the rules for the implementation of Council Regulation (EC) No 1083/2006 on the European Regional Development Fund, the European Social Fund and the Cohesion Fund and of European Parliament and Council Regulation (EC) No 1080/2006 on the European Regional Development Fund, Official Journal, 2006, L 371 (with later amendments). 5 JESSICA Evaluation Study for Lithuania, January 2009. 6 Supplementary Study on JESSICA instruments for energy efficiency, April 2009.
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National legislation relevant to this study is, first of all, programmes for the renovation of student dormitories and education institutions, namely: Resolution of the Government of the Republic of Lithuania On the Approval of the Programme for the Renovation of Student Dormitories of Higher Education Institutions7 and Resolution of the Government of the Republic of Lithuania On the Approval of the Programme for the Renovation of Education Institutions.8 Technical regulations for construction9 and hygiene norms10 serve as references in this study in order to check whether they constitute a sufficient basis for performance (including energy efficiency) of dormitories and other public buildings. Performance standards are important for auditing performance before and after renovation not only to verify efficiency (savings) achieved. The Law on Education11 establishes the goals and principles of the educational system of Lithuania, the framework of institutions, its functions and powers, funding of education, etc. The provisions of the Law concerning property of education institutions and the disposal of their assets, founding, reorganisation, liquidation and restructuring of State-run schools and higher education institutions are important. The Law on Science and Studies12 sets up regulation of the State higher education system, and inter alia, provides a framework for management of the property of state higher education institutions and other related issues. For more details please refer to Section 3. The Law on Budget Structure13 defines borrowing conditions and restrictions for state budgetary institutions. Its provisions are relevant to this study and are evaluated in Section 4 while analysing possible institutional scheme and target beneficiaries. The Law on Concessions14 is applicable for concessions and its provisions will be relevant in
Resolution of the Government of the Republic of Lithuania No 843 of 1 September 2006 on the Approval of the Programme for the Renovation of Student Dormitories of Higher Education Institutions (Official Gazette No 943699, 2006). 8 Resolution of the Government of the Republic of Lithuania No 559 of 10 June 2009 on the Approval of the Programme for the Renovation of Education Institutions (Official Gazette No 72-2916, 2009). 9 (a) Technical regulation for construction STR 1.01.09:2003 on Classification of Buildings According to their purpose (adopted by Order No 289 of the Minister of Environment of the Republic of Lithuania of 11 June 2003 (Official Gazette No 58-2611, 2003)); (b) Technical regulation of construction STR 2.01.01(3):1999 on Essential Requirements for Buildings. Hygiene, Health and Environmental Protection (adopted by Order No 549 of the Minister of Environment of the Republic of Lithuania of 21 October 2002 (Official Gazette No 106-4776, 2002)); (c) Technical regulation of construction STR 2.09.02:1998 on Heating, Ventilation and Air Conditioning (adopted by Order No 19 of Minister of Environment of the Republic of Lithuania of 18 January 1999 (Official Gazette No 13-333, 1999; No 39-1446, 2002; No 145-5552, 2006)). 10 (a) Hygiene Norm HN 118:2002 on Health Safety Requirements for Accommodation Services (adopted by Order No V-2 of the Minister of Health Care of the Republic of Lithuania of 6 January 2003 (Official Gazette No 13-531, 2003)); (b) Hygiene Norm HN 35:2007 on Maximum Permitted Concentration of Chemical Substances (Pollutants) in Ambient Air of Residential Environment (adopted by Order No V-1191 of the Minister of Health Care of the Republic of Lithuania of 5 December 2008 (Official Gazette No 145-5858, 2008)); (c) Hygiene Norm HN 42:2004 on Microclimate in residential and public utility buildings (adopted by Order No V-479 of the Minister of Health Care of the Republic of Lithuania of 29 June 2004 (Official Gazette No 105-3911, 2004)). 11 Law of the Republic of Lithuania on Education No IX-1630 of 17 June 2003 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 63-2853, 2003)). 12 Law of the Republic of Lithuania on Science and Studies No XI-242 of 30 April 2009 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 54-2140, 2009)). 13 Law of the Republic of Lithuania on Budget Structure No IX-1946 of 23 December 2003 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 4-47, 2004)). 14 Law of the Republic of Lithuania on Concessions No IX-1647 (adopted by the Seimas of the Republic of Lithuania of 24 June 2003 (Official Gazette No 70-3163, 2003)).
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case concession scheme is chosen for renovation of dormitories. It is analysed in Section 4.

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2. ELIGIBILITY 2.1. Eligibility of student dormitories and other buildings under the jurisdiction of Ministry Education and Science for application of JESSICA instruments
This part of the study addresses three questions, namely, whether a) student dormitories and b) other buildings under the jurisdiction of the Ministry of Education and Science are eligible for application of JESSICA instruments, and c) whether the investment from JESSICA Holding Fund would be eligible for other housing related measures than energy efficiency. 2.1.1. Eligibility of student dormitories: student dormitories as housing As funds of JESSICA Holding Fund (hereinafter, JHF) are specifically allocated from the European Regional Development Fund (hereinafter, the ERDF), the provisions of Regulation No 1080/2006 on the European Regional Development Fund and repealing Regulation No 1783/199915 (hereinafter, Regulation No 1080/2006) are to be applied. Article 7.1(a) of Regulation No 1080/2006 allows for the Member States to determine themselves what may be considered as housing by indicating that Member States shall define categories of eligible housing in national rules <>. Lithuanian legal acts define that student dormitories are premises of residential purpose. Article 6.623 of Civil Code of the Republic of Lithuania16 stipulates that dormitories are premises in residential houses. Additionally, Technical Regulation for Construction STR 1.01.09:2003 Classification of Buildings according to their Purpose17 also stipulates that dormitories are one kind of premises of residential purpose. Accordingly, as under national legislation student dormitories are considered to be premises of residential purpose, student dormitories are to be deemed as housing and expenditure thereon should be treated as eligible under Regulation No 1080/2006. 2.1.2. Eligibility of other buildings under the jurisdiction of Ministry Education and Science Ministry of Education and Science of the Republic of Lithuania requested the consultants to evaluate the possibilities to use JHF for modernisation of the following building categories under its jurisdiction18: a. educational and laboratory buildings of state universities and state research institutions;
European Parliament and Council Regulation (EC) No 1080/2006 of 5 July 2006 on the European Regional Development Fund and repealing Regulation (EC) No 1783/1999, Official Journal, 2006, L 210, P. 1-11. 16 Civil Code of the Republic of Lithuania (adopted by Law No VIII-1864 by the Seimas of the Republic of Lithuania of 18 July 2000 (Official Gazette No 74-2262, 2000)). 17 Technical regulation for construction STR 1.01.09:2003 on Classification of Buildings According to their purpose (adopted by Order No 289 of the Minister of Environment of the Republic of Lithuania of 11 June 2003 (Official Gazette No 58-2611, 2003)). 18 Clarification of the Ministry of Education and Science of 11 December 2009 provided in response to the letter by the consultancy team.
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b. educational buildings and buildings of practical training of state and municipal vocational training institutions; c. buildings of general education schools and buildings of preschools. 2.1.2.1. Provisions of Regulation No 1080/2006 Modernisation of such public buildings may be attributed to the relatively broad Convergence objective of the ERDF. Article 4 of Regulation No 1080/2006 stipulates that the precise policy shall depend on the specificities of each Member State, however, Member States shall take into account broadlydefined priorities, such as research and technological development, innovation and entrepreneurship, improvement of links between tertiary education institutions, research institutions and research and technology centres, information society, integrated pollution prevention and control, investments in culture, including protection, promotion and preservation of cultural heritage, education investments etc. Article 7 of Regulation No 1080/2006 defines the eligibility of expenditure and indicates the possible expenditure particularly on housing. This provision should not be treated as a general rule providing for that only expenditure on housing is allowed, but as a specific exception for expenditure on housing, i.e. only costs for housing are bound by certain limitations. Accordingly, provisions of Regulation No 1080/2006 directly themselves do not establish restrictions for modernisation of public buildings from the funds of the ERDF. 2.1.2.2. Cohesion Promotion Operational Programme for the years 20072013 The Cohesion Promotion Operational Programme for the years 2007 2013 (hereinafter, the Operational Programme) prepared by the Republic of Lithuania and approved by the decision of the European Commission19 does not provide for the possibility to modernise public buildings particularity form the funds of the ERDF and, therefore, from the funds of JHF. Under Article 2.1 of Regulation No 1083/2006 laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund and repealing Regulation No 1260/199920 (hereinafter, Regulation No 1083/2006) the Operational Programme is a document setting out a development strategy with a coherent set of priorities to be carried out with the support of a particular fund. Accordingly, the Republic of Lithuania is bound to use the funds from the ERDF particularly for the purposes that have been indicated in the Operational Programme. Four priorities are set forth in the Operational Programme, each of which is financed by particular fund: a. Priority 1 Local and urban development, conservation of cultural heritage and nature and adaptation for tourism development (financed by the ERDF);
Decision of the European Commission No C(2007) 3738, CCI 2007LT161PO0001 of 30 July 2007 (with later amendments). 20 Council Regulation (EC) No 1083/2006 of 11 July 2006 on the European Regional Development Fund, the European Social Fund and the Cohesion Fund and repealing Regulation (EC) No 1260/1999, Official Journal, 2006, L 210, P. 25.
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b. Priority 2 Quality and availability of public services: health, education and social infrastructure (financed by the ERDF); c. Priority 3 Environment and Sustainable Development (financed by the Cohesion Fund, (hereinafter, the CF)); d. Priority 4 Technical support for Cohesion Promotion Operational Programme (financed by the CF). As the funds of JHF are allocated from the ERDF, only Priority 1 and Priority 2 should be taken into account. However, detailed tasks of these both priorities do not include modernisation of public buildings21. The Operational Programme also indicates that financial engineering instruments such as JESSICA are to be used only while implementing tasks outlined in Priority 1 (71, 78 pages of the Operational Programme). The Government of the Republic of Lithuania has transferred the funds to JHF particularly for the development of housing according to Priority 1 of the Operational Programme 22. Meanwhile, as for modernisation of public buildings (including buildings of educational purposes), it is foreseen in Priority 3 Environment and Sustainable Development, which is financed not from the ERDF, but from the CF, funds of which are not allocated in JHF. Accordingly, in the current wording of the Operational Programme modernisation of public buildings from the funds of the ERDF, and, therefore, from the funds of the JHF is not foreseen. 2.1.3. Eligible modernisation measures Regulation No 1080/2006 establishes certain restrictions on eligible expenditure on the housing. It is stated that only expenditure on energy efficiency improvements and on the use of renewable energy in existing housing shall be deemed eligible, i.e. Article 7.1(a) of Regulation No 1080/2006 indicates that in each Member State, expenditure on energy efficiency improvements and on the use of renewable energy in existing housing shall be eligible <>. According to this provision, modernisation of student dormitories is possible by particularly implementing measures that improve energy efficiency. Article 7.2 of Regulation No 1080/2006 specifies that for the new Member States expenditure on the other measures (not necessarily on those that increase energy efficiency) is possible only if the following conditions are met: 1. Expenditure shall be programmed within the framework of an integrated urban development
Tasks of Priority 1 Local and urban development, conservation of cultural heritage and nature and adaptation for tourism development: (i) reduce differences of living environment and quality between major cities and other cities, particularly focusing on improving housing conditions; (ii) create preconditions for faster diversification of economic activities in rural areas; (iii) promote foreign and local tourism by properly using of natural resources and cultural heritage, and create favourable conditions for active recreation; (iv) enhance preservation of natural resources (especially water resources, landscape and biodiversity), by allowing their efficient adaptation for the use of people and economic (65 page of the Operational Programme). Tasks of Priority 2 Quality and availability of public services: health, education and social infrastructure: (i) provide accessible health services of good quality; (ii) provide higher quality of educational services and their accessibility by enhancing participation of people of all age groups in lifelong learning; (iii) ensure better consistency of supply and demand of professional training, improve the quality of workforce and encourage the economically inactive population to enter the labour market; (iv) encourage better integration into the society and labour market for people with social risk and of socially excluded individuals and their families (80 page of the Operational Programme). 22 Extract from the Minutes No 17 of the Meeting of the Government of the Republic of Lithuania of 4 March 2009, Clause 5.3.
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operation or priority axis for areas experiencing or threatened by physical deterioration and social exclusion. The European Commission has adopted the list of criteria needed for determining these specific areas. Article 47.1 of Regulation No 1828/2006 of setting out rules for the implementation of Council Regulation No 1083/2006 laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund and of Regulation No 1080/2006 of the European Parliament and of the Council on the European Regional Development Fund23 indicates that in determining these areas that experience or are threatened by physical deterioration and social exclusion Member States shall take into consideration at least one of the following criteria: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) a high level of poverty and exclusion; a high level of long-term unemployment; precarious demographic trends; a low level of education, significant skills deficiencies and high dropout rates from school; a high level of criminality and delinquency; a particularly rundown environment; a low level of economic activity; a high number of immigrants, ethnic and minority groups, or refugees; a comparatively low level of housing value; a low level of energy performance in buildings.

The Government of the Republic of Lithuania has issued Regulation No 428 Regarding Determination Criteria of Problematic Territories of 8 April 200324, under which competent authorities are obliged to define these territories. At the moment mainly criteria of unemployment rate and of a number of low-income persons are applied and, accordingly, the following territories are currently defined as problematic: districts of Akmen, Druskininkai, Ignalina, Jonava, Jonikis, Jurbarkas, Kelm, Lazdijai, Maeikiai, Pasvalys, Rokikis, Skuodas, alininkai, and venionys25. All major cities, in which most universities and student dormitories are situated, are not included in this list. For the purposes of modernisation of student dormitories, possibility to introduce more relevant criteria (e.g. a comparatively low level of housing value or a low level of energy performance in buildings) for determination of these territories may be considered. 2. The allocation to housing expenditure shall be either a maximum of 3% of the European Regional Development Fund allocation to the operational programmes concerned or 2% of the total European Regional Development Fund allocation. 3. Expenditure shall be limited to: (i) multi-apartment housing or (ii) buildings owned by public authorities or non-profit operators for use as housing designated for low-income households or people with special needs. Under applicable Lithuanian legislation there is no specific provision indicating that student
Council Regulation (EC) No 1828/2006 of 8 December 2006 on the rules for the implementation of Council Regulation (EC) No 1083/2006 on the European Regional Development Fund, the European Social Fund and the Cohesion Fund and of European Parliament and Council Regulation (EC) No 1080/2006 on the European Regional Development Fund, Official Journal, 2006, L 371, P 1-183 (with later amendments). 24 Regulation of the Government of the Republic of Lithuania No 428 of 8 April 2003 on the Determination of Criteria for Problematic Territories (Official Gazette No 35-1483, 2003; No 14-479, 2006). 25 Ministry of the Interior of the Republic of Lithuania website: http://www.vrm.lt/nrp/index.php?id=216, accessed on 6 January 2010.
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dormitories are not multi-apartment housing. However, while interpreting the applicable legal acts (e.g. the abovementioned Technical Regulation for Construction STR 1.01.09:2003 Classification of Buildings according to their Purpose), there is a clear distinction between housing that has apartments and housing for certain social groups (e.g. dormitories for students, orphans, monks etc.). Accordingly, national legislation presupposes that student dormitories may not be treated as multi-apartment housing. As for the possibilities to determine student dormitories as social housing, it may depend on the criteria, under which places in dormitories are allocated for the students. Under the current practice, the priority is given to those students who are from low-income families, however, this is not a single condition to be taken into account and a number of other students are also admitted to dormitories. Additionally, it is highly questionable if students, as a particular social group, may be treated as persons with special needs. Accordingly, only energy efficiency improvements as it is defined in Article 7.1(a) of Regulation No 1083/2006 may be performed in student dormitories because currently at least two conditions specified in Article 7.2 may not be met. 2.1.4. Required amendments of legal acts Although applicable legal acts allow financing modernisation of student dormitories from the funds of JHF, the following documents still have to be amended in order to extend modernisation of multi-apartment buildings to additional modernisation of student dormitories: a. Regulation No 787 of the Government of the Republic of Lithuania regarding Confirmation of the Annex to Cohesion Promotion Operational Programme dated 28 July 2008, Official Gazette No 95-3720, 2008 (with later amendments). b. Funding Agreement between European Investment Bank, Ministry of Finance of the Republic of Lithuania and Ministry of Environment of the Republic of Lithuania. In order to have a possibility to use the funds of JHF for modernisation of other buildings that are under the jurisdiction of Ministry Education and Science of the Republic of Lithuania certain amendments the Operational Programme may be required. For the revision of operational programmes provisions of Regulation No 1083/2006 should be applied. Article 33 of respective regulation specifies procedure and exact cases when operational programmes may be revised. In any case separate decision of the European Commission will have to be obtained. Additionally, the above mentioned Regulation No 787 of the Government of the Republic of Lithuania and the Funding Agreement should also be revised.

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3. FUND STRUCTURE 3.1. Stakeholder analysis

The stakeholder analysis as presented below is based on information collected during the interviews and information available in various official documents and legal acts. Official functions relevant to the process of renovation of student dormitories and other buildings under the jurisdiction of the Ministry of Education and Science and institutional interests and preferences are presented for each stakeholder separately. 3.1.1. Ministry of Education and Science Ministry of Education and Science of the Republic of Lithuania shapes and implements state education policy, takes responsibility for education quality, and drafts Strategic education plans and annual Education action programs. It submits proposals and draft resolutions to the Government concerning the drafting and improvement of laws and other legislative acts, funding of education, material supplies and property of schools and disposal of schools assets, founding, reorganization, liquidation and restructuring of the state-run higher education institutions, and issues permits and issues permits for education institutions to carry out study programmes. Within the framework of state education policy, the Ministry coordinates activity of education departments of county and municipal administrations.26 It establishes vocational schools, non-formal adult education schools, and, if necessary, the schools to satisfy nationwide student education (learning) needs (for example, national arts schools, special education schools, etc.) and institutions providing assistance to students, teachers and schools. It does so with the written approval of the Minister of Finance27. State higher education institutions (universities and colleges) are also under the jurisdiction of the Ministry of Education and Science. However, the Ministry of Education and Science does not manage property of state higher education institutions, as the State (Government) transfers its property directly to the state education institutions under a trust agreement28. To date, the renovation of student dormitories has been financed by the State Investment Programme in the form of grants. During an interview with the representatives of the Ministry of Education and Science, the consultants were warned that the higher education institutions continue to prefer the old ways of grant allocations from the State Investment Programme to the revolving loan schemes such as JESSICA instruments and that the success of JESSICA for renovation of student dormitories therefore will fully depend on the irreversible entrenchment of the policy line by the Government that all investments generating return should be channelled through the loan schemes. The officials of the Ministry at the same time recognized that the harder budget constraints (i.e. the transition from the grant schemes to loan schemes) may help the higher education institutions to learn to manage their property.
Article 56(1, 2, 3, 4, 10) of the Law of the Republic of Lithuania on Education No IX-1630 of 17 June 2003 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 63-2853, 2003)). 27 Article 42(1) of the Law of the Republic of Lithuania on Education No IX-1630 of 17 June 2003 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 63-2853, 2003)). 28 Law on Science and Studies of the Republic No XI-424 of 30 April 2009 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 54-2140, 2009)).
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The funds for renovation of dormitories allocated from State budget were insufficient29, and most of dormitories still are in poor condition, and need to be renovated as soon as possible30. It should be noted that current budgetary institution status of higher education institutions excludes the possibility to borrow. According to the laws in force, budgetary institutions have no right to borrow. The present situation will change before 2012, when higher education institutions will change their status from budgetary institutions to public companies31, but even then borrowing limits will be applied to them. According to the Ministry, energy efficiency measures are important to install, but additional measures in order to improved student welfare conditions in dormitories and in their territories are extremely significant too, because most of dormitories do not meet hygiene norms and formally even can not be operated. A possibility to install not only energy efficiency measures, but also to perform complex renovation would strongly motivate higher education institutions to borrow or to participate in the borrowing schemes. 3.1.2. Ministry of Finance According to the Governmental Resolution32, the Ministry of Finance of the Republic of Lithuania is managing, coordinating, certifying and paying authority of the EU structural funds. The Ministry of Finance is also responsible for implementation of financial engineering measures. As managing authority, the Ministry is participating in the scheme of renovation of housing for energy efficiency in Lithuania. As to the renovation of dormitories, the interests of the Ministry of Finance are few-fold. First, the Ministry takes a view that public investments generating return should be channelled through loan schemes (instead of previously used grants) as much as possible. This naturally brings a question of applicability of JESSICA instruments to a range of public investment issues. Second, the Ministry of Finance is interested in solving the problem of renovation of dormitories through employment of the JESSICA holding fund, albeit in a way as close as possible to the neutral effect to the public debt and budget deficit. Third, in terms of the possible start of dormitory renovation schemes, it should begin as soon as possible. Real possibilities to renovation of dormitories through loan schemes is expected to motivate higher education institutions to change their current status of budgetary institutions into public companies faster than the deadline of 1 January 2012 (as mentioned above, to the legislation in force, budgetary institutions cannot borrow).33 And finally, ideally the schemes should target solution of all renovation problems and aim at complex renovation, but only if that is not possible they should aim at solving of the energy efficiency measures within the limits of JESSICA instrument. 3.1.3. Ministry of Environment
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While the Government actually invested the forecasted amounts during 20062009 in the framework of its own Programme for Renovation of Student Dormitories of Higher Education Institutions (LTL 50.5 million actually spent against a forecast of LTL 44 million), it is evident from the calculations presented in Section 3 of this study that a lot more will be needed in order to complete the renovation process. 30 Interview with representatives of the Ministry of Education and Science of 28 December 2009. 31 Vieoji staiga in Lithuanian. 32 Resolution of the Government of the Republic of Lithuania No 1139 of 9 September 2007 on Allocation of Functions and Responsibilities of Authorities for the Implementation of the Lithuanian Strategy for the use of EU Structural Assistance Strategy for 20072013 and Operational Programmes (Official Gazette No 114-4637, 2007). 33 Interview with representatives of the Ministry of Finance of 7 January 2010.

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Ministry of Environment of the Republic of Lithuania forms the state policy of environmental protection, forestry, utilization of natural resources, geology and hydrometeorology, territorial planning, construction, provision of residents with housing, utilities and housing, as well as coordinates its implementation. The goals of the Ministry of Environment are (1) to ensure a proper environmental quality taking into account the norms and standards of the European Union, (2) to ensure the rational use of natural resources (including forests) and its further increase, to preserve biological diversity, natural heritage, landscape identity, (3) to ensure sustainable development of construction and housing sectors, and extend housing options for all social groups of residents.34 The Ministry of Environment as intermediary authority is responsible for implementation of certain measures of Lithuanian Operational Programme for Promotion of Cohesion for 2007 2013, among others, the measure VP3-1.1-AM-01-V Holding Fund for the Modernization of Multi-Apartment Houses (within Priority 3.1 Local and Urban development, cultural heritage and nature conservation and adaptation for tourism development), and the measure VP3-1.1AM-02-V Promotion of modernization of Multi-Apartment Houses (within Priority 3.3 Environment and sustainable development).35 The Ministry of Environment coordinates implementation of the measures of the Programme for renovation (modernization) of multi-apartment houses36 (the funds for implementation of the programme have been allocated from EU Structural funds too through JESSICA initiative) and is responsible for implementation of the financing model for renovation of multi-apartment houses. Together with the Ministry of Finance and European Investment bank, the Ministry of Environment has established a Holding Fund (HF), which provides loans to residents seeking to renovate their housing37. 3.1.4. Higher education institutions (universities and colleges) State universities in Lithuania are established by the Seimas (Parliament) of the Republic of Lithuania upon proposal from the Government. State colleges are established by the Government upon proposal from the Ministry of Education and Science.38 Higher education institutions are under jurisdiction of the Ministry of Education and Science in terms of implementation of the State education policy, but enjoy the autonomy in their academic, administrative, economic and financial management activities, based on the principle of selfgovernment, and academic freedom. In accordance with the Constitution, the Law on Science and Studies, and other national legislation, the autonomy of higher education institutions is checked by accountability of these institutions to the public and to its founders.39 The State (Government) transfers its property the state higher education institutions under a trust agreement,40 so that they use the transferred asset (property) for implementation of their functions.
Ministry of Environment of the Republic of Lithuania website: www.am.lt. Ministry of Environment website of the Republic of Lithuania website: www.am.lt. 36 Resolution of the Government of the Republic of Lithuania No 243 of 5 March 2008 on replacement of the Resolution No 1213 of 23 September 2004 on apartment-house modernization program (Official gazette No 361282, 2008). 37 Apartment-house modernization program website: www.atnaujinkbusta.lt, accessed on 14 January 2010. 38 Article 42(1) of the Law of the Republic of Lithuania on Education No IX-1630 of 28 June 2003 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 63-2853, 2003)). 39 Article 7(1) of the Law of the Republic of Lithuania on Science and Studies No XI-242 of 30 April 2009 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 54-2140, 2009)). 40 Article 80 of the Law on Science and Studies of the Republic of Lithuania No XI-242 of 30 April 2009 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 54-2140, 2009)).
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According to the results of interviews held with two higher education institutions (Vilnius University and Vilnius College)41 renovation of dormitories is necessary as most of the dormitories are in poor condition. Energy efficiency measures are important to install, but their importance is decreasing over time as institutions make their own investment. However, other renovation measures aiming at improving the general welfare in the dormitories and around them are acutely important as most of the dormitories do not meet hygiene norms and actually can not be operated. For example, only 1 of 10 dormitories of Vilnius College and 5 of 18 dormitories of the Vilnius University have obtained mandatory hygiene permits for operation. Environmental rehabilitation, pavements, the parking lots or garages, financing for sports grounds or sports complexes for students would be also relevant. Both higher education institutions would be interested to seek greater energy efficiency and invest more in order to save as much as possible after the renovation. Due to the heat and electricity price increase it is necessary to start renovation of dormitories as soon as possible. Physical condition of dormitories is deteriorating every year. Both institutions indicated a preference for fast application of investment schemes. They find it difficult to wait until 2012, when higher education institutions will become public companies with the right to borrow on their own (subject to restrictions). Vilnius University has already developed technical projects for the renovation of dormitories, which allows rapid start of renovation works. As it was stressed during the interviews, higher education institutions would strongly prefer grants for renovation of dormitories, and would agree to borrow for renovation only if grants are not available. This suggests that the appropriate policy line should be adopted by the Government about financing of dormitories renovation. 3.1.5. Authorized agencies According to the Regulation 1828/2006, the body implementing functions of an urban development fund (UDF) is needed in the JESSICA scheme. Urban development funds (UDFs) are the most important tool for JESSICA implementation. The UDFs are financial engineering instruments which directly invest into public-private partnerships and other contractual arrangements relating to urban development and other projects incorporated into integrated plans for sustainable urban development42. Authorized agencies such as the Housing and Urban Development Agency (HUDA) or the Central Project Management Agency (CPMA), if authorised by the Government, could carry out the functions of Urban Development Funds (UDFs). Housing and Urban Development Agency (HUDA) is a budgetary institution founded by the Ministry of Environment to ensure the implementation of programmes and measures defined in Lithuanian Housing Strategy. The HUDA is responsible for housing programmes, administration and the effective management of the housing system and economic development, land planning and urban development regulatory development functions. The activities of the HUDA are financed from the state budget.
Interview with representatives of the Vilnius University of 4 December 2009; Interview with representatives of the Vilnius College of 18 December 2009. 42 Article 46 of the Council Regulation (EC) No 1828/2006 of 8 December 2006 on the rules for the implementation of Council Regulation (EC) No 1083/2006 on the European Regional Development Fund, the European Social Fund and the Cohesion Fund and of European Parliament and Council Regulation (EC) No 1080/2006 on the European Regional Development Fund, Official Journal, 2006, L 371.
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HUDA is in charge of the development of concepts for urban planning, effective management and maintenance systems for housing, promotion of effective use of energy, and enhancement of energy-efficient modernisation of private and public buildings. The HUDA administers the Multi-Apartment Houses Modernisation Programme and the support provided under it, prepares and implements investment programmes and investment projects for residential houses, social and public buildings. The HUDA provides support to municipalities, building administration and maintenance companies, home owners by 1) providing consultations on legal, technical, financial, organizational and other questions related to housing and urban planning; 2) preparing and implementing investment programmes and investment projects for residential houses, social public buildings; 3) signing agreements with credit institutions, issuing credit insurance or loan guarantees for the beneficiaries of the Multi-Apartment Modernisation Programme. The HUDA is also responsible for the evaluation of the prepared investment projects, procurement of contracted works, and for ensuring the compliance of the works carried out with the requirements of the programme. The HUDA has ten regional departments (subdivisions) located in ten key cities, and that the information about housing modernisation projects and urban development issues could be available in every region of the country43. The first JESSICA feasibility study has identified the HUDA as one of the possible institutions to carry out the functions of UDF44 and indicated the HUDA as the most possible example of an institution to be assigned (by virtue of national legal act) with the functions of UDF for the purposes of JESSICA45. HUDA participates in the implementation of JESSICA programme46 for renovation of multiapartment houses. Through its regional departments located in ten major cities of the country, HUDA provides advice and technical assistance to owners of housing on renovation (modernization) of multi-apartment houses, evaluates and approves the investment plans, contract documents, cooperate with local governments, engineering consulting firms, implements other activities related to the program. Central Project Management Agency (CPMA) was also considered as potential candidate to carry out the functions of the UDF47. CPMA is a public company and is an institution established by the Ministry of Finance. It is tasked to ensure efficient management of financial assistance funds provided by the European Union, international financial institutions and other international and local support providers. The agency was established in 2003 through a merger of two organizations the Central Financing and Contracting Unit (CFCU, established in 1998) and the Housing and Urban Development Fund (HUDF, established in 1996). The CFCU was responsible for the projects financed by EU PHARE/ ISPA programmes whereas the HUDF was implementing programmes financed by international finance institutions, such as the World Bank, National Irish Bank, EIB, EBRD, etc. The CPMA provides services and assistance to a wide range of public and private entities such as ministries and other governmental institutions, municipalities and municipal enterprises, private businesses. The CPMA is the implementing agency for the many programmes, including the EU Structural Funds measures in education, health, social, information and technologies and urban sectors for the Financial Perspective 20072013. After the implementation of the pilot projects, the CPMA has got the approval of the Government to carry out the functions of the Central
43 44

Housing and Urban Development Agency (HUDA) website: www.bkagentura.lt. JESSICA Evaluation Study for Lithuania, January 2009, P. 152-153. 45 JESSICA Evaluation Study for Lithuania, January 2009, P. 166. 46 Apartment-house modernization program website: www.atnaujinkbusta.lt, accessed on 12 January 2010. 47 JESSICA Evaluation Study for Lithuania, January 2009, P. 10.

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Purchasing Organization (CPO) in September 2008. CPMA is implementing measures under the Operational Programme for Economic Growth for 20072013 (for example, the Priority 2.1 Research and Technological Development for the Competitiveness and Economic Growth, which CPMA as implementing authority manages together with the Ministry of Education and Science). The CPMA is also implementing authority of three priorities under the Operational Programme for Promotion of Cohesion for 20072013, i.e., Priority 3.1 Local and urban development, cultural heritage and nature preservation and adaptation for the development of tourism which includes measures such as reducing the difference of living environment and the quality between the main cities and other cities of the country and accelerating the diversification of economic activities in rural areas; Housing development in problem areas (the measures are managed together with the Ministry of the Interior). CPMA could be involved in implementation of JESSICA instruments for energy efficiency in student dormitories, for example, as an institution performing the functions of a UDF, subject to relevant authorization under the national legislation. It is probably the most capable institution of its kind. It has in-depth experience in management of the EU financed programmes and projects, implementation of quality assurance and control system requirements, and, what is more, possesses necessary financial, economic, managerial and technical expertise. It is also experienced in managing financial instruments, similar to those under JESSICA, e.g., loans. It ceased to do that in 2007, but at the time the CPMA used to provide loans and relevant project appraisals, i.e., evaluated the recoupment of investments, determined co-financing sources, assessed the implementation of projects, and acted in other capacities. In 2004 the CPMA was given Extended Decentralised Implementation System accreditation by the European Commission.48 The Ministry of Education and Science has closely and successfully worked with the CPMA while implementing various investment programmes (for example, School Improvement Programme), and during the interview for the purposes of this study the Ministry of Education and Science has indicated that they want to build on the successful and productive cooperation with the CPMA, and would be ready to work with it during renovation of the dormitories49. In the Ministrys view, the CPMA as the CPO may run the selection procedure of service provider (concessionaire or contractor, according to the chosen scheme). 3.1.6. Energy service companies (ESCO) Companies providing heating services could participate in JESSICA funding scheme for renovation of dormitories through an ESCO model. They could borrow JESSICA funds to install energy efficiency measures in buildings (dormitories), and would repay the loan from savings receiving in return an agreed margin. The interests and rights of the Lithuanian District Heating (DH) utilities, organisations and others associated energy structures in the DH sector are represented by the Lithuanian District Heating Association (LDHA). LDHA unites 41 members, of which 32 are DH companies, which produce and supply around 99% of the total heat through the DH network in Lithuania, and 9 are companies whose activities are closely linked to the heat sector. There are no restrictions for energy service companies to participate in the scheme, but the question whether energy supplier would be interested to invest into project decreasing
48 49

JESSICA Evaluation Study for Lithuania, January 2009, P. 153154. Interview with representatives of the Ministry of Education and Science of 28 December 2009.

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consumption of the energy remains. The consultants sent a formal request to LHDA explaining the purposes of this study and asking specific questions about the motivation of the LHDA members to participate in a possible ESCO scheme. At the time of drafting of this report the LHDA replied that this letter was forwarded to all members but no replies were received. It thus can be concluded that the district heating companies are not actively interested in participating in an ESCO scheme for dormitory renovation. 3.1.7. Potential concessionaires Private companies providing building maintenance (building administration) services could participate in JESSICA funding scheme for renovation of dormitories as concessionaires. A concession is defined by the Law on Concessions as an authorization granted by the awarding authority to the concessionaire in compliance with the concession contract, to engage in the economic activity relating to the design, construction, development, renovation, transformation, repairs, management, use and/or maintenance of infrastructure objects, to provide public services, manage and/or use state-owned or municipal property where the concessionaire assumes under the concession contract all or part of the operating risk and undertakes the relevant rights and duties50. There are several private companies providing building maintenance services, based mostly in Vilnius, but also operating in the regions (City Service AB, Dota UAB, Tukompa AB, Adminsta UAB, Vits valdos UAB, Panevio but kis AB). City Service AB is the leading company in Lithuania providing building maintenance services for private and corporate customers. For private customers apartments it provides building administration, including administration of multi-dwelling buildings, building energy efficiency certification, technical maintenance, construction maintenance, repair works of residential buildings by instalments, administration of renovation projects, cleaning services. For corporate customers facilities management services are provided by company to ensure full building maintenance starting from maintenance of engineering equipment, power resource management to in-house cleaning and security (i.e. building maintenance administration, building energy efficiency certification, engineering equipment maintenance, occupational safety, security services, cleaning services). The company is operating in Vilnius, Kaunas, Klaipda, iauliai, Panevys, Alytus, Palanga, ilut and Paggiai providing services for private customers, and throughout Lithuania for its corporate customers. During an interview with City Service AB,51 the company expressed a strong interest in participating in the JESSICA funding scheme for renovation of dormitories, and finds concession model as most favourable for renovation of dormitories, especially in terms of possibility to install not only energy efficiency measures (which would be financed from JESSICA funds), but also to raise additional (private) funds for other measures of complex renovation of dormitories, which seem to be very important to universities/colleges and vocational education institutions. In its view, such combined investments would enable full renovation of the buildings, while management by professional administrators would motivate them to propose and provide additional services for students. Municipal enterprises (i.e. companies founded by municipalities) also provide building administration services (for example, Senamiesio kis UAB, nipiki kis UAB, etc.) in the respective cities by the order of the director of municipal administration. In recent years most of
Article 2(1) of the Law of the Republic of Lithuania on Concessions No IX-1647 of 24 June 2003 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 70-3163, 2003)). 51 Interviews with representatives of City Service AB of 10 December 2009 and 21 December 2009.
50

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these companies have been reorganized into limited liability companies (UAB). As student dormitories of general education schools did not fall within the focus of this study, only a preliminary assessment as regards possible legal restrictions for borrowing by these companies could be made. It shows that there are no legal provisions which would prohibit municipal companies or limited liability companies controlled by municipal administrations from borrowing. However, their ability to invest into complex renovation of dormitories could be limited due to limited funds they own. For these reasons municipal companies are not likely to be strong participants of the concession scheme, where the main idea and strength of the scheme is raising of private funds for complex renovation of dormitories. 3.1.8. Municipalities (as founders of secondary schools) Municipalities are responsible for organisation of general education, vocational training and vocational guidance of children, youth and adults (founding, reorganization, liquidation, maintenance of educational establishments, organisation and implementation of teaching according to the programmes of formal education52. The municipal representative institution (Council) implements State education policy in the municipality. It establishes, reorganises, liquidates or restructures the schools53. Municipalities are founders of 98% of general education schools54, and they are fully responsible for their management and administration. Funds for the implementation of these functions are foreseen in municipal budgets. According to the Law on Budget Structure municipalities can take long-term domestic or foreign loans or provide guarantees for loans to be used only to finance investment projects, but the borrowing is possible only in accordance with borrowing limits approved by the Seimas (Parliament) of the Republic of Lithuania. 55 In terms of number (but not in size), municipalities own quite a few general education school dormitories,56 but their interest in utilizing the JESSICA funding instruments could not be assessed because of the very tight deadlines for preparation of this study, which demanded that the most urgent needs of higher education institutions and vocational education and training institutions are tackled first. Therefore the interviews with the representatives of municipalities were not held. 3.1.9. Banks Commercial banks can have interest to participate in JESSICA instrument for renovation of student dormitories, and attract additional (their own) financial resources to the renovation of dormitories, especially as regards complex renovation measures as noted above. However, their role would be very similar to the renovation scheme of multi-apartment buildings, where their real capacity and intentions are still to be tested. Due to very tight deadlines of study preparation the interviews with the representatives of commercial banks were not held.
Article 6(6) of the Law of the Republic of Lithuania on Local Government No X-1722 of 15 September 2008 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 113-4290, 2008)). 53 Article 59(1) of the Law of the Republic of Lithuania on Education No IX-1630 of 17 June 2003 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 63-2853, 2003)). 54 Interview with representatives of Ministry of Education an Science of 28 December 2009. 55 Article 10 (1) of the Law of the Republic of Lithuania on Budget Structure No IX-1946 of 23 December 2003 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 4-47, 2004)). 56 According to data supplied by the Centre of Information Technologies for Education (www.itc.smm.lt), in the beginning of the 20092010 academic year there were 111 student dormitories belonging to general education schools in Lithuania, of which about 50% belonged to the schools providing general education for students with special needs.
52

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3.2. Institutional scheme: the question of the Urban Development Fund

In view of the strong preference of the Ministries of Finance and Education and Science that renovation of student dormitories through the use of the JESSICA instrument is started as soon as possible, this study suggests that the current institutional set up is maintained and that a financial institution (i.e. a bank or banks) serve the function of the Urban Development Fund (UDF) as for renovation of multi-apartment houses. During the research for this study, the maintenance of the current option was assessed against another possible option, namely, the assignment of the function of the UDF to an existing institution by virtue of a national legal act. There are several reasons why a different UDF than in the case of multi-apartment housing could be desirable. First, renovation of student dormitories could be seen as a more planned operation. Second, it should not only tackle the issue of energy efficiency in these buildings at present time, but should assess the demand for such renovated housing among the students in the future. Since higher, vocational and general education systems of Lithuania have been undergoing reforms for a long time, the question of finality and optimality of the existing network of schools should be addressed so that the scarce resources are invested only in the buildings of the schools needs which would be operated for long enough. And finally, a set up of an UDF within the existing institution would help to deliver the necessary technical assistance better. However, the Ministry of Education and Science did not indicate to the consultancy team that optimality of the education institutions at all levels (higher, vocational and general education) was an important issue which should affect the choice of a different UDF than existing institutional scheme. Also under the Law on Financial Institutions of the Republic of Lithuania57, only financial institutions are eligible to provide financial services on continuous basis. Lending and providing factoring are financial services. Thus, if such services are provided on continuous basis, as a general rule, entity providing such services must be financial institution. However, Article 1.3 of the Law on Financial Institutions stipulates that this law is not applicable to state and municipal institutions and establishments which provide financial services under the laws of the Republic of Lithuania. Thus if the chosen scheme includes lending or providing factoring services, the Urban Development Fund functions may be undertaken either by financial institution, state or municipal institution or establishment, which is entitled to provide financial services by law. By virtue of Article 1 of the Law on Lending by Economic Entities to Natural and Legal Persons58, the ability of non-credit institution to provide financing to natural and legal persons is limited by the amount of the authorized capital of the financing entity. It should be noted, that the Government of the Republic of Lithuania has proposed a law revoking this law. Though not insurmountable, these legal issues would prolong selection and appointment process of a different (than existing) UDF. It would be so also not least because none of the analyzed (in January 2009 first JESSICA feasibility study in Lithuania) candidates among the existing
Law of the Republic of Lithuania on Financial Institutions No IX-1068 of 10 September 2002 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 91-3891, 2002)), with later amendments. 58 Law of the Republic of Lithuania on Lending by Economic Entities to Natural and Legal Persons No I-226 of 15 July 1993 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 31-714, 1993)), with later amendments.
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institutions to which this function could be assigned by a virtue of a national legal act fully meets the criteria of an institution capable to take on the function of an UDF. And finally, one of the five possible financial schemes analyzed in this study (see Section 4), namely, factoring scheme is possible only with a bank acting as an UDF and provider of factoring services.

3.3. Analysis of the current situation: basic data about students, student dormitories and other buildings under the jurisdiction of Ministry Education and Science for consideration of eligibility for JESSICA instruments
3.3.1. Number of students (higher education institutions, vocational training, secondary schools) Table 3. Number of students in the beginning of the academic year
Date Public education institutions 20052006 20062007 20072008 20082009 Number of students 20052006 20062007 20072008 20082009 763,564 737,641 710,577 688,747 181,282 180,998 180,866 184,872 46,283 45,342 43,832 43,771 535,999 511,301 485,879 460,104 1,618 1,586 1,557 1,497 31 31 31 30 74 78 78 78 1,513 1,477 1,448 1,389 Total Higher education institutions Vocational education institutions General schools

Sources: Department of Statistics of Lithuania, and its publications Education 2008 and Statistical Yearbook of Lithuania 2009.

According to the data of Department of Statistics of Lithuania, in 2008, 78.6% graduates from upper secondary school pursued higher education studies in colleges and universities (see Figure 1). A total of 47,926 students were admitted to bachelor level studies (of which 29,544 to universities and 18,382 to colleges). Figure 1. Further education of general upper secondary school graduates

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90 80 70 60 Per cent 50 40 30 20 10.2 10 0 2005 2006 2007 2008 9.2 6.8 5.2 Graduated from upper secondary school and continue s tudies in colleges and universities Graduated from upper secondary school and continue s tudies in vocational s chools 74.8 78.6 71.6 74.2

Source: Statistical Yearbook of Lithuania 2009 (Department of Statistics of Lithuania)

It is important to note that a very significant part (74%) of all dormitory applicants was admitted to the dormitories (see Table 2). In absolute figures, the number of students, who applied for a place at a dormitory remained on comparable levels since 2005. Table 4. Demand and supply of places in university student dormitories (in the beginning of the academic year)
Statistical indicator Number of student applicants for a dormitory Number of students admitted to dormitories Ratio of supply to demand, % 20052006 26,257 21,055 80.2 20062007 27,328 20,763 76.0 20072008 27,264 20,489 75.2 20082009 27,692 20,503 74.0

Source: publication Education 2008 of the Department of Statistics of Lithuania.

3.3.2. Basic data about student dormitories: number of dormitories, occupancy ratio, construction dates and compliance to the hygiene norms This part draws heavily on the findings presented in two unpublished reports of the Ministry of Education and Science, namely, Renovation Programme of Student Dormitories of Higher Education Institutions (stage 2) (October 2009), and Investment Project of Renovation of Student Dormitories Managed by Vocational Education Institutions (June 2008). Territorial distribution of students dormitories is presented in Annex 8. 3.3.2.1. State higher education institutions On 30 September 2009, there were 28 state institutions providing higher education, of which 15 were universities and 13 colleges. Among themselves, they had 124 student dormitories (of which 45 belonged to colleges and 79 to universities). A total of 28,068 students lived in all dormitories on 30 September 2009 at a rather high 92% average occupancy rate, compared to the existing accommodation capacity (30,639 places). Although average occupancy rate in university and college student dormitories differs by 10%, about one quarter (29) of all student dormitories were fully occupied, while another 45% (or 54 buildings) were occupied at a rate

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exceeding 90%. However, there were outliers too. For example, student dormitory No 3 of the University of iauliai (Dubijos g. 1A, iauliai) was overcrowded and at the end of September 2009 hosted 216 students against its maximal capacity of 193 places (occupancy rate 112%). At the other extreme, occupancy ratio in one of Marijampol College dormitory (Armino g. 94, Marijampol) and one dormitory of Vilnius College (Giedraii g. 61, Vilnius) was only 39% (correspondingly 110 students to 280 places and 42 students to 108 places). For distribution of student dormitories of Lithuanian state higher education institutions according to the occupancy ratio see the Figure 2. Figure 2. Occupancy rates at student dormitories of Lithuanian state higher education institutions
Number of universitiesmanaged students ' dormitories Number of students' dormitories, units 30 25 20 20 15 10 6 5 0 0 39-50 51-65 66-70 71-75 76-80 81-90 91-95 96-99 100 112 Accommodation intencity of students ' dormitories , % 4 0 1 0 2 1 3 3 1 0 9 7 7 5 9 18 24 Number of collegesmanaged students' dormitories

Source: Renovation Programme of Student Dormitories of Higher Education Institutions (stage 2), October 2009. An unpublished study of the Ministry of Education and Science of the Republic Lithuania

Dormitories were built in different periods (1905, 19311940, 19531989, 1996) and following the then applicable construction standards and rules. Since then, regulatory construction requirements have changed, equipment and systems maintaining the optimal microclimate in buildings have morally outdated and physically worn out. Some of the university dormitories have been renovated. Higher education institutions use their income received from accommodation services as well as other funds to maintain and repair dormitories. However, these funds are not sufficient for renovation of dormitories. 83% of the funds received from accommodation services are used to pay for administration and utilities of dormitories, 16% for maintenance and 1% for other necessities. The newest among the 120 student dormitory buildings is one of the dormitories belonging to Mykolas Riomeris University. It was built in 2001 (Valakui g. 5, Vilnius), while the oldest one belongs to Vytautas Magnus University in Kaunas (Muitins g. 7, Kaunas), which was built in 1850. In the category of college dormitories, the newest one was built in 1990 and is operated by Panevys College (Klaipdos g. 31, Panevys), and the oldest one was built in 1956 and belongs to Vilnius Technology and Design College (Antakalnio g. 56, Vilnius). Figure 3 shows that more then half (69) of the student dormitories are in operation already for 2949 years. Figure 3. Distribution of dormitories of state higher education institutions according to their construction date

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Number of univers itiesmanaged students' dormitories Number of students' dormitories, units 25 20 20 15 10 5 0 1850-1905 1906-40 1951-60 1961-70 3 0 9 18 16

Number of collegesmanaged students' dormitories

15

14

7 2 0 1971-80 1981-85 3

6 4 2 0 1986-90 1991-95 2 0 1996-2000

Students' dormitories cons truction date

Source: Ministry of Education and Science of the Republic Lithuania // Students dormitories of higher education institutions renovation program (II stage), October of 2009.

Currently, there are two types of dormitory management: most of the dormitories are managed by universities and colleges, while some of those belonging to the Vilnius University and Vilnius Gediminas Technical University have been transferred under trust agreements to public companies established by universities and student representations. According to the Classifier of Economic Activities (rev. 1.1)59, accommodation in student dormitories is assigned to 55.23.20 subcategory provision of other lodging places. It was included in the list of commercial activities, for which possession of a hygiene permit (passport) was mandatory.60. The right to engage in activities referred to in the abovementioned list is permitted only with possession of, and in accordance with the terms of the permit (hygiene passport) which has to be renewed every five years. Possession of the hygiene permit (passport) testifies that the conditions of commercial activity meet the public health safety requirements, and gives the holder the right to carry on with their business. According to the data of the Register of Authorizations and Hygiene Passports (managed by the State Public Health Service under the Ministry of Health)61, only 10 of 30 or 33% higher education institutions possess the necessary hygiene permits (passports), and, among the buildings, the ratio of compliance is very similar, as out of 124 dormitories only 34 have the hygiene passports. It is important to note that as of 1 January 2010 accommodation in the student dormitories was excluded from the list of commercial activities, for which hygiene permits (passports) are mandatory62.
Resolution of the Government of the Republic of Lithuania No 696 of 17 May 1995 on the Classification of Economic Activities (Official Gazette No 43-1054, 1995). 60 Order of the Minister of Health Care of the Republic of Lithuania No V-791 of 5 October 2007 on Approval of the List and Permissions Hygiene Passports Rules for Commercial Activities, for which Hygiene Passports are Mandatory (Official Gazette No 106-4352, 2007), with later amendments. 61 The State Public Health Service under the Ministry of Health internet metadata file: http://www.vvspt.lt/lhp/, accessed on 15 January 2010. 62 Order No V-593 of the Minister of Health Care of the Republic of Lithuania of 20 July 2009 on Replacement of Order of the Minister of Health Care of the Republic of Lithuania No V-791 of 5 October 2007 on Approval of the List and Permissions Hygiene Passports Rules for Commercial Activities, for which Hygiene Passports are Mandatory (Official Gazette No 88-3770, 2009).
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3.3.2.2. State vocational education and training institutions According to the data of April 2008, there were 75 state vocational education institutions in Lithuania. Between them, there were a total of 86 dormitories63, which hosted 9.462 students at an occupancy ratio of 51% (the maximal capacity stood at 18,578 living places). Places of 6 student dormitories were completed in 10% of all existing living places (students didnt live in 4 of them!), and only 9 of all student dormitories were fully accommodated (see Figure 4). Figure 4. Occupancy rates of student dormitories of Lithuanian state vocational education and training institutions
Number of students' dormitories managed by vocational education ins titutions Number of students' dormitories, units 16 14 12 10 8 8 6 4 2 0 0-10 11-20 21-30 31-40 41-50 51-60 61-70 71-80 81-90 91-100 Accommodation intencity of students' dormitories, % 7 6 4 7 7 10 9 14 14

Source: Ministry of Education and Science of the Republic Lithuania, unpublished study titled Investment Project of Renovation of Student Dormitories Managed by Vocational Education Institutions, June 2008

The newest among of 86 dormitories of vocational education and training institutions is dormitory building built in 2002 at Ukmerg Technology and Business School (Kauno g. 108a, Ukmerg). The oldest dormitory building belongs to the Rehabilitation Centre for Vocational Training for Students with Hearing Disabilities (ilo g. 24, Vilnius) It was built in 1958. It is evident from the Figure 5), that majority student dormitories have been in operation for 3337 years. Figure 5. Distribution of student dormitories of state vocational education and training institutions according their construction date
Unpublished study titled Investment project of renovation students dormitories managed by vocational education institutions, Ministry of Education and Science of the Republic Lithuania, June 2008.
63

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Number of students' dormitories managed by vocational education ins titutions Nubenr od students' dormitories, units 30 25 25 20 20 15 11 10 5 1 0 1958-60 1961-65 1966-70 1971-75 1976-80 1981-85 1986-90 1991-95 1996-2000 2001-2002 Students' dormitories construction date 3 1 0 2 12

11

Source: Ministry of Education and Science of the Republic Lithuania, unpublished study titled Investment project of renovation students dormitories managed by vocational education institutions, June 2008.

These dormitories were built according to construction norms and regulations of the times. While over time regulatory requirements changed, and systems for maintenance of the microclimate became outdated and worn out, student dormitories were not renovated for a long time. During all operating period there were no renovation works done in as many as 17 student dormitories. The first major renovation was performed in 1992 on a part of student dormitory of Panevys Trade and Service Business School (Klaipdos g. 146, Panevys). Another instance of important renovation investment was renovation works in 1997 in 17 student dormitories. In 19972007 different volumes of repairing works were carried out in many students dormitories, but the main part of them were done during period of last seven years (20002007). The most common renovations made were related to the change of windows, change of roofing, insulation of exterior walls, overhaul of heating points, bathrooms and toilets. According to the data of the Register of Authorizations and Hygiene Passports (managed by the State Public Health Service under the Ministry of Health), only 34 out of 86 dormitories of state vocational education and training schools possessed the necessary hygiene passports. Evidently, improvements to the technical condition of dormitories were made by renovations carried out until 2010. The amounts invested are presented in the Subsection 3.3.5 of this study. However, it can be still argued that the majority of the student dormitories are still in the unsatisfactory conditions as most of them: 1. still have outdated, permeable and worn local networks of district heating (outdated, permeable and worn local networks of district heating result in technical as well as financial issues. Due to their age, which is over 25 years, there is a high possibility of accidents. It is recommended to give up old local networks and replace them by underfloor ones.); 2. still exploit heating system pipes which have not been replaced since the beginning of exploitation. Moreover, they have systems, the operation of which is not controlled and is not based on external temperature, and use outdated heating devices, pipes, armatures and equipment (the existing heating systems require automatic balancing valves and new closing armature; the location of waterproof line pipes should be changed and line pipes reinsulated); 37

3. still have outdated and worn cold, hot and circulating water supply and sewage systems (some of the cold, hot and circulating water supply and sewage pipes should be replaced by new ones; a solution how to access to them during the operation should be also found. New closing armatures should be installed when replacing the pipes. Newly-built pipes may be insulated on demand); 4. do not have mechanical ventilation systems in kitchens, showers and toilets (new sealed windows cause ventilation problems. Some of the buildings require mechanical ventilation systems in kitchens, showers and toilets. Air recuperation system may adjusted, if required); 5. have outdated, permeable roofing. Water permeates old roofs and damage interior of premises (some of the roofs should be replaced either by pitched roofing or hydro-insulating flat roofing); 6. have a lot of premises which worn out because of a lack of upkeep, rainwater permeating old roofs, and humidity (premises of the poorest state should be repaired, including taking off old plaster, mending all cracks, removing fungus with the proper material, flattening, plastering, daubing and painting of surfaces, replacing flooring); 7. have outdated and worn electric power systems which do not meet the existing demand for electric power. They also have outdated lighting equipment and low lighting in premises (some of the lighting equipment should be replaced, and, where required, new electric power lines installed; installation should be earth-grounded); 8. still have outdated and worn toilets, showers and their equipment (toilets and showers of extremely poor state require major repairs, including the replacement of the equipment and all engineering pipes, and complete decoration of premises); 9. have old, worn and uncomfortable kitchens because of a long-term lack of upkeep and constant humidity (ceiling, walls and flooring should be repaired). Due to considerable depreciation, almost all dormitories do not meet the following standards: Hygiene Norm HN 118:2002 on Health Safety Requirements for Accommodation Services (adopted by Order No V-2 of the Minister of Health Care of the Republic of Lithuania of 6 January 2003 (Official Gazette No 13-531, 2003))64; Hygiene Norm HN 35:2007 on Maximum Permitted Concentration of Chemical Substances (Pollutants) in Ambient Air of Residential Environment (adopted by Order No V-1191 of the Minister of Health of the Republic of Lithuania of 5 December 2008 (Official Gazette No 145-5858, 2008)); Hygiene Norm HN 42:2004 on Microclimate in Residential and Public Utility Buildings (adopted by Order No V-479 of the Minister of Health of the Republic of Lithuania of 29 June 2004 (Official Gazette No 105-3911)); Technical regulations of construction STR 2.01.01(3):1999 on Essential Requirements for Buildings. Hygiene, Health and Environmental Protection (adopted by Order No 549 of the Minister of Environment of the Republic of Lithuania of 21 October 2002 (Official Gazette No 106-4776, 2002)); Technical regulations of construction STR 2.09.02:1998 on Heating, Ventilation and Air Conditioning (adopted by Order No 19 of the Minister of Environment of the Republic of Lithuania of 18 January 1999 (Official Gazette No 13-333, 1999; No 39-1446, 2002; No 145-5552, 2006)); Technical Regulations of Construction STR 2.01.01(6):2008 on Essential Requirements for Buildings. Energy saving and heat retention (adopted by Order No D1-131 of the Minister of Environment of the Republic of Lithuania of 12 March 2008 (Official Gazette No 35-1255, 2008)). According to the data of the Register of Authorizations and Hygiene Passports (managed by the State Public Health Service under the Ministry of Health), the non compliance rate among
64

Bathroom (shower) and toilet premises of general use.

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various categories of dormitories has been as follows, a) 73% among higher education institutions (90 out of 124 buildings), b) 61% among state vocational education and training schools (52 out of 86), and c) 81% among general education schools and schools for students with special needs (89 out of 111). Taking into account the information presented above, the provisions65 of Article 36.1 of the Law on Construction No I-1240 of 19 March 1996 (Official Gazette No 32-788, 1996, as last amended on 22 September 2009) as well as the findings of the two abovementioned unpublished reports of the Ministry of Education and Science, it could also be concluded that the warranty period for these buildings has expired and therefore major repairs are required.66 3.3.2.3. State secondary and special schools According to the data provided by the Centre of Information Technologies of Education under the Ministry of Education and Science of the Republic of Lithuania, in the school year 2009/2010 there were 111 dormitories of secondary and special schools in Lithuania. Information on their total area, condition, renovation needs was not available. Due to the fact that most of secondary school dormitories are usually located in small towns and can highly differ by their area, accommodation capacities, it is impossible to evaluate funds needed for their renovation. In case the data on at least the area of these dormitories is available, the investment needed can be estimated by using the method of extrapolation, but even then risks to be very inaccurate. 3.3.3. SWOT analysis for student dormitories Strengths The average occupancy rate of all dormitories managed by all companies is 92%, showing high effectiveness of the benefits potentially created by the measures to be implemented.

Weaknesses The majority of the dormitories have been exploited for 2949 years without any interior repair works and only with partial energy efficiency package implemented; Most of the dormitories:
65

still have outdated, permeable and worn local networks of district heating; still exploit heating system pipes which have not been replaced since the beginning of

The warranty period of a building shall be fixed in contracts, contracts related to construction works design and technical supervision of construction of a building. Such period may not be less than 5 years (as of the acceptance of the building as fit for use); for hidden elements of a building (structures, pipelines, etc.) 10 years, and if defects which have been deliberately hidden are established 20 years. 66 Major repairs of a building means repairs of a building, where: worn load-bearing structures of a building (except load-bearing walls, carcass and foundations which are only reinforced) are replaced with load-bearing structures with the same or durable and better properties of use, or the existing load-bearing structures are reinforced; the look of the facades of a building are partly changed (by changing a part of facade elements or by installing new additional elements balconies, doors, windows, architectural details, by replacing worn exterior finish of a building with exterior finish of the same or different type); replacing worn joint engineering systems of a building or their parts with the systems (elements) of the same type without exceeding their output; installing separate engineering systems of a building; doing major repairs of technological equipment and technological engineering systems, engineering and utility networks and traffic routes specified in standards pertaining to the safety and purpose of a building. Article 20.2 of the Law of the Republic of Lithuania on Construction No IX-583 of 8 November 2001 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 101-3597, 2001)).

39

exploitation. Moreover, they have systems, the operation of which is not controlled and is not based on external temperature, and use outdated heating devices, pipes, armatures and equipment; still have outdated and worn cold, hot and circulating water supply and sewage systems; do not have mechanical ventilation systems in kitchens, showers and toilets; have outdated, permeable roofing. Water permeates old roofs and damage interior of premises; have a lot of premises which worn out because of a lack of upkeep, rainwater permeating old roofs, and humidity; have outdated and worn electric power systems which do not meet the existing demand for electric power. They also have outdated lighting equipment and low lighting in premises; still have outdated and worn toilets, showers and their equipment; have old, worn and uncomfortable kitchens because of a long-term lack of upkeep and constant humidity. to renovate dormitories and thus create high quality accommodation services for students and the microclimate which meets all hygiene standards. due to constantly deteriorating technical state, dormitories will soon be unable to meet requirements for residential buildings; students will refuse to live in dormitories because of poor living conditions and unsatisfactory microclimate; the incapability to provide students with accommodation will reduce the quality of all services provided by public higher education institutions; the incapability to provide students with accommodation will damage the prestige of public higher education institutions.

Opportunities

Threats

3.3.4. The cost of residence in student dormitories against the rent market This part provides a brief selective comparison between the rent charges in the student dormitories and rent markets. Rent charges in the student dormitories are inclusive of utilities and therefore are lower than renting out in the city. Table 5. Monthly rent exclusive of utilities (flats in old construction multi-apartment houses in the sleeping (remote) districts of the cities) (in LTL)
City Vilnius Kaunas Klaipda 1 room flat, old construction (3040 m2) 400 400 300400 2 rooms flat, old construction (50 m2) 450500 400 400500

Source: own compilation from the websites of renting agencies. Utilities during the heating season (October to April) for a 60 m2 flat would cost an extra LTL 470/month.

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Table 6. Rent prices per student at the dormitories of the Vilnius University and Vilnius College (inclusive of utilities) (in LTL)
Vilnius University (standard dormitory)* 190 170 340 150 225 Vilnius University (renovated and refurbished dormitory)* 300 600 200 330 Vilnius Vilnius College (II College (I category category dormitory) dormitory) 180 110 100 140 220 120 110 160

Price per one place

Single occupancy room Double occupancy room, two tenants Double occupancy room, one tenant Triple occupancy room, three tenants Triple occupancy room, two tenants

* a dormitory supplied bedding costs extra LTL 20/month per person. Sources: price lists supplied by the Vilnius University and Vilnius College

3.3.5. Investments into renovation of student dormitories This part analyses the investment already made during the past few years into the renovation of student dormitories. It was a somewhat complicated task to do, as there was no single data source from which the consultancy team could obtain reliable statistics. This is because of several sources of funding for dormitories maintenance (operation and management costs) and repairs (reconstruction). These needs are financed from the following sources: rent paid by the students, collected and spent by the dormitory operators (higher education institutions, or, in few cases, by public companies managing the dormitories under a trust agreement (for example Public Company Vilniaus universiteto bstas); transfers made or invoices paid on behalf of the dormitory manager by the higher education institutions, whose funding originate either i) from the state budgetary annual transfers allocated individually to the institutions for all their functional needs (the size of the transfer is calculated in accordance with a methodology, approved by the Ministry of Finance) or ii) funds directly raised by the higher education institutions, for example, for tuition). The share of these funds subsequently reallocated to the dormitory maintenance or reconstruction costs is determined by the higher education institutions themselves and can be obtained only through direct contact; allocations of the State Investment Programme (SIP), which are planned and disbursed for capital investments (construction, renovation or modernization) to specifically designated objects (students dormitories).

This variety of funding sources can be illustrated by an example of the Vilnius University. The Vilnius University operates a total of 21 student dormitory buildings, of which 18 are managed under an agreement of trust by a public company Vilniaus universiteto bstas. Table 7. Investments made for renovation of student dormitories operated by a public company Vilniaus universiteto bstas (in LTL)*
No (a) Investment sources Part of rent collected and allocated for repair/ reconstruction 2006 2,000,000 2007 2,000,000 2008 2,000,000 2009 1,184,000

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No (b)

Investment sources Invoices for reconstruction works paid by the Vilnius University Allocations from the State Investment Programme

2006 1,997,314 0 1,729,000

2007 1,660,547 447,000 1,123,000

2008 2,560,493 1,139,000 1,528,000

2009 1,470,372 0 1,976,000

(c1) Allocations from Privatization Fund (c2)

* exclusive of three dormitories directly managed by the Vilnius University (more than LTL 2 million investments made for operational and reconstruction during 20062008). Source: data supplied by a public company Vilniaus universiteto bstas ((a) and (b)) and the Ministry of Finance ((c1)-(c2)).

One stream of investment made for renovations of dormitories was generated by the Programme for Renovation of Student Dormitories of Higher Education Institutions67. Its main aim was to renovate student dormitories and to bring them into compliance with essential requirements for construction, increase energy efficiency and improve living conditions in the buildings. The programme was pursuing the following objectives: 1) to reconstruct constructions and engineering systems of dormitories; 2) to modernize energy system of buildings; 3) to reduce operating costs and to ensure effective use of public funds, and 14 measures, namely, 1) preparation of technical documentation; 2) overhaul of heating points; 3) reconstruction of heating supply circuits; 4) repairing and insulation of the roofs; 5) change of the windows; 6) replacement of the exterior doors; 7) repairing and insulation of exterior walls; 8) repairing of existing heating systems, installation of new heating systems; 9) repairs of hot, cold and circulation of water supply and wastewater systems; 10) repairs of air supply and removal systems; 11) repairs of interior; 12) repairs of power installation and illumination systems; 13) repairs of bathrooms and toilets; 14) replacement of furniture. An ex-ante assessment estimated a total of LTL 44 million of investments during 20062009, of which LTL 40 million to be drawn from the state budget and state investment programme and LTL 4 million were expected to be invested from the higher education institutions own funds. Investments actually made in the framework of implementation of the Programme for Renovation of Student Dormitories of Higher Education Institutions (which correspond to the investment source (c2) in the Table 5 above) during 20062009 totalled LTL 40 million, of which LTL 25 million were invested into university dormitories and LTL 15 million were spent on college dormitories. In addition about LTL 10.5 million of reconstruction works were financed by transfers from Privatization Fund of Lithuania in 20072008, most likely to make up the difference of forecasted and actual renovation costs during the period of construction (prices) boom in Lithuania. It is important to note, that, according to the Ministry of Finance, the allocations set aside for reconstruction of dormitories in the State Investment Programme in 2010 concern only completion of reconstruction works from previous years. The breakdown of investment financed through State Investment Programme since 2000 and by individual higher education institutions is presented in the Annex 4. Experience shows that renovated dormitories save about 30% of heating, and heating costs could be reduced by 50%. Thus, for instance, in 20032004 three dormitories of Vilnius Pedagogical University were renovated. Before renovation, heating costs comprised LTL 3/m, while after renovation they stood at approximately LTL 1.5/m, meaning that LTL 1.5/m is saved during the heating season. Renovation costs were LTL 148150 per 1 m. According to the calculations made, these investments should pay back in 14 years.
Resolution of the Government of the Republic of Lithuania No 843 of 1 September 2006 on the Approval of the Programme for the Renovation of Student Dormitories of Higher Education Institutions (Official Gazette No 943699, 2006).
67

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3.3.6. Other buildings under the jurisdiction of the Ministry of Education and Science As mentioned above, the Ministry of Education and Science of the Republic of Lithuania requested the consultants to assess eligibility of the following categories of buildings under its own jurisdiction for application of JESSICA instruments, i.e. (a) educational and laboratory buildings of state universities and state research institutions, (b) educational buildings and buildings of practical training of state and municipal vocational training institutions, and (c) buildings of general education schools and buildings of preschools. All these categories are public buildings. However, the Ministry provided only the data about state vocational education and training institutions. A total and heated area of buildings managed by subsidiary bodies of the Ministry of Education and Science accordingly amount 684,423.71 m2 and 467,772.21 m2. It also should be noted that part of these buildings are already eligible for subsidies for investment into their energy efficiency measures (Measure No 3.4 titled Renovation of the Public Buildings on the National Level) under the Cohesion Promotion Operational Programme. It allocated LTL 700 million and envisaged that 94 buildings will be renovated in health care and education and science institutions.

3.4. Assessment of the amount of funds needed and their suggested distribution among various tasks (dormitories, other public buildings, etc.), including calculations of potential energy and financial savings
This chapter summarizes the results of calculations made in order to measure the magnitude of the renovation problem and primarily targets student dormitories of three types, namely those of a) universities, b) colleges and c) vocational education and training institutions. These calculations were made for two scenarios, namely, a) in order to implement only energy efficiency measures (as defined in the applicable EU regulations) or b) to undertake complex renovations (beyond energy efficiency to tackle also the problem of improvement of welfare in the buildings and around them). Also two investments financing alternatives were evaluated: a) with 15% state support and b) without state support. Summarised calculations are presented in Annex 7. The background data for these calculations were generated by the survey, which the consultants made with the universities, colleges and vocational education and training institutions about the state of play of their dormitory stock and improvements needed. Ministry of Education and Science has greatly facilitated the process of data collection, and the research team is very grateful to them for their kind assistance. The contents of a standard questionnaire used for the purposes of this study is attached in Annex 2 to this study, while the answers from all education institutions surveyed are attached in the electronic form (in CD-ROM). According to the data received, most of the dormitories require modernisation of roofs and balconies, replacement of windows, insulation of walls, modernisation of heating stations, replacement of electric installation and pipes, renovation of water closets and kitchens. Dormitory surroundings should be also managed car parking lots should be expanded, sport and leisure fields developed, etc. These data together with the data related to energy savings in the renovated dormitories and construction costs (as extracted from the collection of information programmes SMATA

43

(supplied by Sistela UAB)) served as a basis for calculations made to identify demand for funds for renovation of dormitories, establish possible energy savings and investment payback. The payback period was calculated with an assumption that the loan will be paid back only from energy savings, and the dormitory rent price for students will not increase. Table 8. Summary of total renovation works to be carried out and their breakdown into categories in the universities - managed dormitories (complex renovation)
Price per unit of Unit of Total amount measurement (in measurement of works LTL) m m km set m m m m m m m pcs m 8,729.36 38,135.30 2.40 13.00 182,324.07 105,456.00 38,929.00 36,336.00 581,585.36 19,914.93 12,409.55 28.00 9,791.20 518.46 192.78 1,620,677.20 35,618.95 188.64 95.00 75.00 300.00 15.00 736.72 741.16 100,000.00 35.00 Total: Total amount of funds required to carried out the work (in LTL) 4,525,823.99 7,351,723.13 3,889,625.28 463,046.35 34,393,612.56 10,018,320.00 2,919,675.00 10,900,800.00 8,723,780.40 14,671,727.23 9,197,462.08 2,800,000.00 342,692.00 110,198,288.02

Work to be carried out

Replacement of windows Roofing reconstruction and additional insulation Repair and insulation of outdoor heating circuits Modernisation of heating station Insulation of facade walls Rearrangement of heating and hot water systems Replacement of cold water system Replacement of sewage pipes Replacement of electrical installations and lighting system Repair of toilets and showers Repair of kitchens Replacement of lifts Repair of balconies

The total amount required to carry out complex renovation works in universities - managed dormitories comprises LTL 110,198,288.02. If only energy efficiency measures are implemented, the demand for investments will be as presented in the table below. Table 9. Summary of renovation works to be carried out and their breakdown into categories in the universities - managed dormitories (only energy efficiency related renovation)

44

Work to be carried out

Unit of measurement

Total amount of Price per unit of funds required Total amount measurement (in to carried out of works LTL) the work (in LTL) 8,729.36 38,135.30 2.40 13.00 182,324.07 105,456.00 518.46 192.78 1,620,677.20 35,618.95 188.64 95.00 Total: 4,525,823.99 7,351,723.13 3,889,625.28 463,046.35 34,393,612.56 10,018,320.00 60,642,151.31

Replacement of windows Roofing reconstruction and additional insulation Repair and insulation of outdoor heating circuits Modernisation of heating station Insulation of facade walls Rearrangement of heating and hot water systems

m m km set m m

The total amount required to carry out only energy efficiency measures in universities managed dormitories comprises LTL 60,642,151.31. Table 10. Summary of total renovation works to be carried out and their breakdown into categories in the colleges - managed dormitories (complex renovation)
Unit of measurement Price per unit of Total amount measurement (in of works LTL) 5,257.19 26,772.00 24.00 84,439.45 39,904.60 12,835.30 518.46 192.78 35,618.95 188.64 95.00 75.00 Total amount of funds required to carried out the work (in LTL) 2,725,642.73 5,161,106.16 854,854.80 15,928,657.85 3,790,937.00 962,647.50

Work to be carried out

Replacement of windows Roofing reconstruction and additional insulation Modernisation of heating station Insulation of facade walls Rearrangement of heating and hot water systems Replacement of cold water system Replacement of electrical installations and lighting system Repair of toilets and showers Repair of kitchens

m m set m2 m m

m m m

231,390.00 10,507.47 5,443.10

15.00 736.72 741.16

3,470,850.00 7,741,063.30 4,034,208.00

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Work to be carried out

Unit of measurement

Total amount of Price per unit of funds required Total amount measurement (in to carried out of works LTL) the work (in LTL) 11.00 3,051.71 100,000.00 35.00 Total: 1,100,000.00 106,809.85 45,876,777.18

Replacement of lifts Repair of balconies

pcs m

The total amount required to carry out complex renovation works in colleges - managed dormitories comprises LTL 45,876,777.18. If only energy efficiency measures are implemented, the demand for investments will be as presented in the table below. Table 11. Summary of renovation works to be carried out and their breakdown into categories in the colleges - managed dormitories (only energy efficiency related renovation)
Unit of measurement Price per unit of Total amount measurement (in of works LTL) 5,257.19 26,772.00 24.00 84,439.45 39,904.60 518.46 192.78 35,618.95 188.64 95.00 Total: Total amount of funds required to carried out the work (in LTL) 2,725,642.73 5,161,106.16 854,854.80 15,928,657.85 3,790,937.00 28,461,198.54

Work to be carried out

Replacement of windows Roofing reconstruction and additional insulation Modernisation of heating station Insulation of facade walls Rearrangement of heating and hot water systems

m m set m m

The total amount required to carry out only energy efficiency measures in colleges - managed dormitories comprises LTL 28,461,198.54. The grand total required for complex renovation of all dormitories, managed by higher education institutions (universities and colleges), is LTL 156,075,065.20, while implementation of only energy efficiency measures LTL 89,103,349.85. The total area of higher education institutions - managed dormitories to be renovated comprises 462.6 thousand m, of which universities - managed dormitories make up 315.6 thousand m and colleges - managed dormitories 147 thousand m. Investments for complex renovation into 1 m of a dormitory would amount to LTL 349.17 for universities and LTL 312.09 for colleges. If only energy efficiency measures are implemented, the investments into 1 m2 will amount to LTL 192.15 in case of universities and LTL 193.61 in case of colleges.

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The basic assumptions and calculations of possible energy and financial savings are presented further. Standard energy demand for heating, ventilation and hot water is approx. 84,000 MWh/year. In order to cover energy costs universities spend over LTL 8 million, while colleges approx. LTL 3 million per year. According to the data provided, during the last heating season dormitories consumed 49,267.19 MWh of energy (of which universities consumed 31,292.3 MWh and colleges 17,974.89 MWh). The calculations of possible energy savings are based on the results received by comparing energy savings in modernised dormitories. According to the monitoring of these dormitories carried out when drafting a Programme for the Renovation of Student Dormitories of Higher Education Institutions, the renovation of dormitories saves approx. 30% of heating energy consumption and up to 50% of heating costs. Thus, for instance, in 20032004 three dormitories of Vilnius Pedagogical University, located in Student g., Vilnius, were renovated. Before renovation, the average price for heating was LTL 3.0/1 m, while after renovation, approx. LTL 1.5/ m. Hence, during the heating season approx. LTL 1.5/ m is saved. The investments into 1 m amounted to LTL 148150. The calculations show that the investments into the said dormitories should pay back in 14 years. Tables 12 and 13 present the data on the difference between heating costs in three dormitories of Vilnius Gediminas Technical University, which had their windows replaced, and heating costs in a dormitory with old and unsealed windows. Table 12. Average heating price in dormitories (LTL/ m per month)
Dormitory, address No 1, Saultekio al. 25 No 3, Saultekio al. 16 No 4, Saultekio al. 18 N0 5, Saultekio al. 19 (windows not replaced) 2004 1.52 2.59 2.29 1.99 2005 1.22 1.66 1.66 2.04 Savings (in LTL) 0.30 0.93 0.63 -0.05

Table 13. Heating costs in dormitories

Dormitory, address No 1, Saultekio al. 25 No 3, Saultekio al. 16 No 4, Saultekio al. 18 No 5, Saultekio al. 19 (windows not replaced) 2004 MWh 865.48 948.52 843.99 1,062.02 LTL 95,873.55 105,072.30 93,492.99 117,645.27 MWh 695.52 608.11 611.79 1,088.39 2005 LTL 77,046.23 67,363.39 67,771.04 120,566.40 Savings (in LTL) 18,827.32 37,708.91 25,721.95 -2,921.13

The calculations of financial savings are based on the presumption that the price of electric energy is 35 ct/kWh, of heating energy 21 ct/kWh, of hot water LTL 16.15/m. After the modernisation and the implementation of energy efficiency measure (insulation of walls and roofs, replacement of piping and windows), the energy consumption will be reduced by 30% on average. In this way, 14,780 MWh of energy or LTL 3.1 million will be saved per year. The reduction in energy consumption in buildings will save another 10,420 MWh of energy or LTL 2.2 million. Hence, after renovation, the standard energy consumption will be 58,800 MWh and the savings will amount to 25,200 MWh or LTL 5.3 million per year (where price of heating energy is 21 ct/kWh). Accordingly savings for 1 m2 will comprise LTL 11.46. 47

On the basis of the above estimates, the investments for complex modernisation without state support will pay back in 30.5 years in case of universities and 27.2 years in case of colleges, while with 15% of sate support accordingly in 28 and 24.7 years. If only energy efficiency measures are implemented, the investments without state support will pay back in 16.8 years in case of universities and 16.9 years in case of colleges, while with 15% of sate support accordingly in 14.3 and 14.4 years. The total area of vocational education and training institutions - managed dormitories to be renovated is 262 thousand m. The energy consumption in the last season was 23,012.99 MWh. Table 14. Summary of total renovation works to be carried out and their breakdown into categories in the vocational and training education institutions - managed dormitories (complex renovation)
Unit of measurement Price per unit of Total amount measurement (in of works LTL) 21,242.94 46,356.06 4.13 52.00 95,407.75 71,287.00 28,708.41 24,324.08 283,608.74 7,082.57 3,646.81 4.00 3,194.32 518.46 192.78 1,620,677.20 35,618.95 188.64 200.00 120.00 120.00 35.00 450.00 450.00 100,000.00 100.00 Total: Total amount of funds required to carried out the work (in LTL) 11,013,614.67 8,936,521.25 6,693,396.84 1,852,185.40 17,997,717.96 14,257,400.00 3,445,009.20 2,918,889.60 9,926,305.90 3,187,156.50 1,641,064.50 400,000.00 319,432.00 82,588,693.82

Work to be carried out

Replacement of windows Roofing reconstruction and additional insulation Repair and insulation of outdoor heating circuits Modernisation of heating station Insulation of facade walls Rearrangement of heating and hot water systems Replacement of cold water system Replacement of sewage pipes Replacement of electrical installations and lighting system Repair of toilets and showers Repair of kitchens Replacement of lifts Repair of balconies

m m km set m m m m m m m pcs m

The total amount of funds required to carry out complex renovation works in vocational and training education institutions - managed dormitories is LTL 82,588,693.82. Investments into 1 m amount to LTL 315.22. The payback period without state support will be 27.5 years, while 48

with 15% of sate support 24.5 years. If only energy efficiency measures are implemented, the demand for investments will be as presented in the table below. Table 15. Summary of renovation works to be carried out and their breakdown into categories in the vocational and training education institutions - managed dormitories (only energy efficiency related renovation)
Unit of measurement Price per unit of Total amount measurement (in of works LTL) 21,242.94 46,356.06 4.13 52.00 95,407.75 71,287.00 518.46 192.78 1,620,677.20 35,618.95 188.64 200.00 Total: Total amount of funds required to carried out the work (in LTL) 11,013,614.67 8,936,521.25 6,693,396.84 1,852,185.40 17,997,717.96 14,257,400.00 60,750,836.12

Work to be carried out

Replacement of windows Roofing reconstruction and additional insulation Repair and insulation of outdoor heating circuits Modernisation of heating station Insulation of facade walls Rearrangement of heating and hot water systems

m m km set m m

The total amount of funds required to carry out only energy efficiency measures in vocational and training education institutions - managed dormitories is LTL 60,750,836.12. Investments into 1 m amount to LTL 231.87. The payback period without state support will be 20.2 years, while with 15% of sate support 17.2 years. The total amount required for the renovation of dormitories, managed by universities, colleges and vocational education and training institutions is presented in Table 16. Table 16. Total funds needed for complex renovation and energy efficiency measures
Institution Universities Colleges Vocational and training education institutions Total: Funds needed for complex renovation (in LTL) 110,198,288.02 45,876,777.18 82,588,694.00 238,663,759.20 Funds needed only for energy efficiency measures (in LTL) 60,642,151.31 28,461,198.54 60,750,835.00 149,854,184.85 Funds needed for 15% state support (in LTL) 9,096,322.70 4,269,179.78 9,112,625.25 22,478,127.73

According to the data provided by the Ministry of Education and Science, a total area of other buildings (excluding students dormitories), managed by vocational education and training 49

institutions, amounts 684.4 thousand m2. Taking in to account the fact that characteristics and condition of other buildings is similar to the dormitories and on the basis of dormitories investments into 1 m2 for energy efficiency measures (LTL 231.87), it can be argued that the total amount of funds required to carry out such works comprises LTL 158,697,325.6. It also should be mentioned, that one of the key energy saving sources could be the construction of co-generation power plants in the area of student dormitories. It would reduce the payback period of investments by 1.5 times at least. Such results are possible as the cost of electric energy produced in a co-generation power plan is 12.4 ct/kWh, and of heating 10.8 ct/kWh. The calculations are based on the presumption that one co-generation power plant, the capacity of which is 100 kW of output and 80 kW of electric power per hour, is built for a complex of five dormitories with the area of 2,000 m each. Such co-generation power plant, including installation works, costs LTL 480,000. However, this option would be possible only if the current district heating supply does not meet the established parameters (eg. energy losses in a long range circuit) and most likely would be opposed by district heating companies. It therefore would require further investigation.

3.5. Allocation of risk and return between private and public capital, and between stakeholders
The modernisation of dormitories of education institutions should be financed on the basis of the reduction in energy consumption so that savings could help to pay back loans irrespective of the borrower (the education institution, the authorised institution organising modernisation works or the contractor). The credit period should not be shorter than the payback period of the measures implemented. Similar to the programme for the modernisation of multi-apartment buildings, soft loans with the fixed annual interest rate of 3% should be granted. Another possible source of income for loan servicing is rent paid by students and pupils who live in dormitories. However, it is risky the increase in the rent for dormitory accommodation may result in the reduction of the number of students living in dormitories as the education institution will not be able to compete with the prices offered by the private sector. If the rent is left unchanged, some of the funds received could be used for loan servicing since a modernised dormitory requires fewer resources for the running repair during the first 5 years. Irrespective of the borrower, the loan payback should be ensured by: 1. The services paid by dormitory residents; 2. The energy savings and smaller demand for funds to pay for energy. Some of the savings (approx. 7580%) should be used for loan servicing. If, according to the calculations, the savings amount to LTL 11.46/m, LTL 8.69.2/m2 could be directed to loan servicing. The remaining amount required for loan servicing could comprise of the income received for the services provided to inhabitants. If funds are borrowed from banks, one of the main issues will be risk sharing and credit security measures. The risks should be assumed by the State as there are no legal possibilities to mortgage the buildings to be modernised. Furthermore, a list of priority buildings to be modernised should be drawn up in order to prioritise buildings which consume the most energy and the state of which is extremely poor.

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A loan should be granted only if the investment project provides for the implementation of energy-efficiency measures along with other modernisation measures, which ensure at least 20% energy savings per year. Two loan schemes are possible: 1. Similar to the case of multi-apartment buildings, loans are granted by the Holding Fund via banks operating in Lithuania; 2. Loans are granted by the institution authorised by the Holding Fund. To avoid new selection criteria or requirements, the coordination of which is very timeconsuming, it is proposed to leave the same eligibility and selection criteria as in the case of multi-apartment buildings. Further, given the financing situation of education institutions, it is also proposed not to request the co-financing of at least 5% of the project value, if it is an education institution that borrows. In this case, 100% of the project value should be financed. In all other cases, 95% of the project value would be financed. A loan with the fixed annual interest rate of 3% would be granted for a period of up to 20 years. 15% state support could be provided to the implemented projects under the same conditions as it is provided to multi-apartment buildings.

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4. TARGET BENEFICIARIES & FINANCING SCHEMES

The terms of references for this study require analysing the possibility to apply the JESSICA instruments for renovation of student dormitories and other buildings under the jurisdiction of the Ministry of Education and Science for purposes of increasing energy performance of these buildings. However, during the interviews with the stakeholders and from the data collected for the purposes of this study it appeared that improved energy performance is no longer the single biggest issue of renovation of student dormitories. This is so because some of the energysaving-related investments have been already made. In addition to the remaining energy efficiency measures to be applied, internal and external modernisation measures (which are not directly related to energy efficiency) for student dormitories are of equal and acute importance, namely, reconstruction of cold water supply pipelines, bathrooms, kitchens, renewal of furniture and reconstruction of room space in the interior, as well as renewal of car parking areas and other facilities in the exterior. In short, these additional necessary modernization measures would increase attractiveness of dormitories and could be called welfare measures. As noted above, it is very doubtful whether and to which extend measures, which are not designated as energy efficiency measures could be financed by the JESSICA instrument.68 Before embarking to five possible financial schemes, it is important to analyze the effect of lending operation to public debt and deficit. Our stakeholder analysis already identified a strong preference of the Ministry of Finance to a scheme which would have as minimal negative effect on public debt and deficit as possible.

4.1. The effect of lending by the Urban Development Fund on the public sector debt and deficit69
According to the applicable Lithuanian legislation and the explanation of the Ministry of Education and Science, currently higher education institutions cannot borrow at all as it is against Article 10.3 of the Law on Budgeting, which lays down Budget appropriation managers and budgetary institutions within their remit can neither borrow on their behalf nor assume any debt liabilities (according to Article 33.1(6) of this Law). Higher education institutions will be subject to the provision regarding borrowing limits only after they become public companies (before the end of 2011, at the latest). Only then they will automatically become subject to Article 83.4 of the Law on Science and Studies, which lays down the following Public higher education institutions shall have the right to borrow, that is to conclude loan agreements, lease agreements and other binding debt instruments, within the borrowing limit established to all public higher education institutions by the Law on the Approval of Financial Indicators of the State Budget and Municipal Budgets of the respective year. The Ministry of Education and Science shall distribute this borrowing limit to public higher education institutions. Public higher education institutions shall report on the debt liabilities assumed to the Ministry of Education and Science in accordance with the procedure
Measures not related to energy-efficiency could be financed, if a decision on the use of the resources of the JESSICA Holding Fund exceeding the minimum national co-financing rate is adopted. Given the fact that the practice of the JESSICA use in the European Union is limited, to our best knowledge, it would be expedient to get a clarification of the European Commission regarding the opportunities to finance measures not related to the energy efficiency in residential buildings. 69 This section was drafted on the basis of the explanations provided by the experts of the Ministry of Education and Science and the State Treasury Department of the Ministry of Finance.
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establish by it. A public higher education institution shall not mortgage more than 20 per cent of the tangible assets owned by it under the title of ownership in order to ensure the compliance with the debt liabilities. The mortgage of real estate shall be approved by the Government or the authority authorised by the Government in accordance with the procedure established by the Government. Higher education institutions are not subject to provisions of Article 83.4 of the Law on Science and Studies and other provisions on property management, use and disposal laid down in Section 8 as long as they are budgetary establishments. Thus, during the implementation of the higher education reform but not later than the end of 2011, higher education institutions will be reorganised into public companies and, according to the applicable legislation, be able to borrow, even though the loan size will be limited. The applicable Procedure of the Assigning of Economic Entities to Institutional Sectors and Sub-Sectors (approved by Order No D-172 of the Director General of the Department of Statistics under the Government of the Republic of Lithuania of 2 August 2005) assigns higher education institutions (universities) to the public sector (as they are budgetary establishments). The economic entity rather than the activity is assigned to the sector. Higher education institutions are likely to remain in the public sector even after being reorganised into public companies, and their borrowing together with the expenditure experienced during the loan use should be added to the debt of the public sector and to the deficit, respectively. The establishment of the JESSICA fund has increased the debt of the public sector and the fiscal deficit respectively only by the amount of national co-financing. It was one-off deficitincreasing action calculated during the transfer of the funds borrowed for co-financing to the JESSICA holding fund. Further borrowing from the JESSICA fund for the implementation of the goals set by the fund will increase the debt of the public sector and the deficit respectively, depending on the borrower (i.e. if the borrower is a public sector entity, the deficit and the debt will grow). However, there are no methodological explanations yet in this respect (for JESSICA instruments). Commercial loans (expenditure experienced during their use) to public sector entities should be added to the debt/deficit of the public sector (state higher education institutions). Modernisation works could be financed under a scheme similar to the one used for the programme for the modernisation of multi-apartment buildings financed by the JESSICA funds. Hence, a soft loan with the fixed annual interest rate of 3% would be granted together with 15per cent state support. In such a case, the total amount of the state support required for the implementation of energy-efficiency measures in all dormitories would aggregate LTL 22,478,127.73. With a help of the state support and without it, the investments (requiring loan funds) into 1 m (where the energy savings are LTL 11.46/1 m) would be as follows: Table 17. Full modernisation of dormitories
Payback Payback Funds period Investments State Interest per period with required for without into 1 m (in support to 1 year (in 15% state 1 m (in state LTL) m (in LTL) LTL) support (in LTL) support (in years) years) 349.17 312.09 28.82 29.04 320.35 283.04 4.83 4.26 28.0 24.7 30.5 27.2

Institution

Universities Colleges

53

Institution

Payback Payback Funds period Investments State Interest per period with required for without into 1 m (in support to 1 year (in 15% state 1 m (in state LTL) m (in LTL) LTL) support (in LTL) support (in years) years)

Vocational education and training institutions

315.22

34.78

280.44

4.22

24.5

27.5

Table 18. Implementation of energy efficiency measures only

Payback Payback Funds period Investments State Interest per period with required for without into 1 m (in support to 1 year (in 15% state 1 m (in state LTL) m (in LTL) LTL) support (in LTL) support (in years) years) 192.15 193.61 28.82 29.04 163.33 164.57 2.46 2.48 14.3 14.4 16.8 16.9

Institution

Universities Colleges Vocational education and training institutions

231.87

34.78

197.09

2.97

17.2

20.2

Annex 5 includes calculations showing how a fee for accommodation in a dormitory could change so that the investments pay back in 7 years. The calculations have been made on the basis of the data of particular dormitories. As noted above in Chapter 3.4, the payback of investments could be increased by construction of cogeneration power plants, solar batteries or biofuel boilers. This would increase the demand for investments by approx. LTL 164/m, however, the payback of investments would decrease by approximately 1.5 times. Thus this study analyzes five possible financing schemes, of which the first three would be possible for application of energy efficiency measures from the JESSICA instrument. The last two schemes, namely, the fourth and the fifth one could be used for more ambitious (complex) modernization which in addition to energy efficiency measures would also target welfare measures. The following parts of the study describe the main characteristics of the schemes, their advantages and disadvantages as well as existing legal context and/or restrictions.

4.2. Loan by the dormitory manager scheme

In this scheme the loan would be taken out by dormitory manager, who would carry out a renovation project on its own. As noted above, higher education establishments would be able to borrow (albeit still subject to capping) only when they change their current legal status of budgetary institutions to public companies. Municipalities could borrow for dormitories of 54

general education schools. Ministry of Education and Science of the Republic of Lithuania is not permitted to borrow money or to undertake any other debenture on its own behalf. It is provided by Article 10.3 of the Law on Budgeting of the Republic of Lithuania70. By derogation of this rule, according to Article 33.1.6 of the Law on Budgeting, the Government of the Republic of Lithuania or its authorized institution may entitle to borrow for the implementation of the projects financed by EU funds. However, to the best of our knowledge such right is granted neither to the Ministry of Education and Science nor to universities. Thus, the Ministry of Education and Science of the Republic of Lithuania is not eligible to borrow money directly for the modernisation of student dormitories and other buildings under the jurisdiction of Ministry Education and Science of the Republic of Lithuania (vocational training institutions, colleges, etc.). As it was noted in this study, the majority of student dormitories are possessed by universities. However, the abovementioned restriction to borrow money and undertake any other debenture on its own behalf is also applicable to the universities. It should be noted that different provisions on the borrowing by universities would be applied as of the change of a legal form of the universities from current budgetary institutions to public companies (Lith. vieoji staiga). After such a change, Article 83.4 of the Law on Science and Studies of the Republic of Lithuania 71 providing possibility for universities to borrow money would be applicable. However, such right for all universities collectively would be restricted by the borrowing limit set out in the respective Law on the Approval of State Budget and Municipal Budgets (prior to setting of such limit, borrowing is not permitted). Individual borrowing limit for each university should be allocated by the Ministry of Education and Science. Such transformation should take place by 31 December 2011 at the latest. To the best of our knowledge, no transformation has been completed yet. As it was mentioned, prior such transformation, universities are not eligible to borrow money for any purpose, including the modernisation of the student dormitories. This scheme seemed to be attractive to the higher education institutions interviewed. They also seem to be comfortable with the amounts of own co-financing to be injected to the renovation project. However, it is clear that, as indicated above, the ambition of renovation would be limited to energy efficiency measures only. Commercial loans for complex renovation would be difficult to achieve, not only because they would count towards public sector debt and deficit, but also because property managed under a trust agreement from the state can not be mortgaged. Since the borrowing for energy efficiency would be undertaken by a unit of the public sector from an institution (UDF) which does not fall into a category of public sector units, even the JESSICA funds would count towards the public sector debt and deficit in such a scheme. In this scheme, the borrowing limits to education institutions managing dormitories should be established in the amounts which would enable the renovation to be carried out. Conditions of lending could be similar to those applied for multi-apartment housing, and loans should be granted without mortgage. By virtue of Article 80.2 of the Law on Science and Studies after the changes of legal form of the universities the trust right to the buildings shall be transferred to the universities for the period not exceeding 20 years. It should be considered for the calculation of the term of the loan. The payback time for complex modernization of the student dormitories as calculated in this study clearly exceeds this term.
Law of the Republic of Lithuania on Budget Structure No IX-1647 of 24 June 2003 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 4-47, 2003)). 71 Law of the Republic of Lithuania on Science and Studies No XI-242 of 30 April 2009 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 54-2140, 2009)).
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4.3. Loan by the designated state owned limited liability legal entity
Considering the fact that the direct borrowing by the Ministry of Education and Science of the Republic of Lithuania and universities is restricted, establishment of state owned limited liability legal entity or an attribution of such function to an existing entity with the view of its responsibility for renovation of student dormitories should be analyzed. Under this scheme, the participating education institutions would enter into agreement with the designated entity and would undertake commitments, which would guarantee the paying back of the loan.72 As well as the scheme above, this arrangement could tackle the energy efficiency related renovation measures, and in order to bring the benefits of the economy of scale (up to 20 percent of investment savings) the participation of student dormitories in this centralized approach would have to be total or near total. In such a case, borrowing limits would not be applicable to such limited liability legal entity. However, further financing may be complicated. Firstly, direct lending to Ministry of Education and Science of the Republic of Lithuania and universities is restricted as described in the scheme above. Secondly, financing of renovation by such entity in exchange for energy savings contains regulatory problems as described bellow. A tender procedure should be involved. The limited liability entity would be deemed as the private entity and by virtue of Article 6 of the Law on Concessions73 granting special right to private entity as a general rule, requires tender. However, the requirement of tender procedure would not be applicable to AB Turto bankas since such right is granted by Article 161.4 of the Law on Possession, Use and Disposal of State and Municipal Property74. Moreover, since AB Turto bankas is a public limited liability company, by virtue of Rules on Attribution of the Entities to Institutional Sectors and Subsectors75 the debt of limited liability companies owned by the state does not fall within public debt. Considering special legal status of AB Turto bankas (the Articles of Association are approved by law) it is recommended to acquire position of the Ministry of Finance of the Republic of Lithuania on this issue. By virtue of Items 13, 14 and 15 of the Rules on Preparation and Implementation of Public Private Partnership Projects76, the major risks should be undertaken by such limited liability company, otherwise such financing could be construed as the financial lease and it would be included in public debt and deficit. The risk transfer is deemed as the transfer of major risks if (i) the construction risks and (ii) at least one of suitability or demand risks are undertaken.
The Law on Budgetary Institutions provides for, that the managers of the institutions acquiring budget funds are obliged to approve expenditure not exceeding approved budget funds. Ministry of Finance thinks that the problem of long term commitments related to the pay back of the loan would have to be solved by the decision of the Government of Lithuania for individual institutions or to a set of education institutions, which would enable them to engage into the long term schemes. Law of the Republic of Lithuania on Budgetary Institutions No I-1113 of 5 December 1995 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 104-2322, 1995)), with later amendments. 73 Law of the Republic of Lithuania on Concessions No IX-1647 of 24 June 2003 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 70-3163, 2003)). 74 Law of the Republic of Lithuania on Possession, Use and Disposal of State and Municipal Property No VIII-729 of 12 May 1998 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 54-1492, 1998)), with later amendments. 75 Rules on Attribution of the Entities to Institutional Sectors and Subsectors (adopted by Order No D-172 of the Chief of Department of Statistics under the Government of the Republic of Lithuania of 2 August 2005). 76 Rules on Preparation and Implementation of Public Private Partnership Projects (adopted by Decision No 1480 of the Government of the Republic of Lithuania of 11 November 2009 (Official Gazette No 137-5998, 2009)).
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4.4. ESCO (Energy Service Company) scheme

According to the ESCO (energy service company) scheme, energy-efficiency measures would be implemented in dormitories by an energy service company (or any third party), which would return the loan using savings and taking a certain margin. With a help of energy savings after the modernisation, the investments would pay back within the period specified in the calculations. Furthermore, an energy service company would have to produce less energy thus reducing fuel expenses, and the renovated heating circuits and heating systems would cut heating losses. This scheme would not increase the public debt as the energy service company would finance the amount necessary for the project co-financing. However, Lithuanian district heating utilities are not too interested in implementing energy-efficiency measures in student dormitories and their renovation since the Lithuanian District heating Association has not replies to the consultants request. The legal analysis below reveals that the involvement of third parties as possible ESCO companies is legally possible but would be too complicated and would receive too little interest.77 Energy supply licence is not required for an ESCO company. Thus service of implementation of energy saving measures may be provided by either the supplier of heating energy or any third party. According to Article 30.1 of the Law on Heating Infrastructure of the Republic of Lithuania 78 provision of energy supply services requires license. However, Article 2.39 of the Law on Heating Infrastructure of the Republic of Lithuania defines energy supply service as the delivery of centrally produced heating energy and sale for the customer. Thus, the services of ESCO company would not fall within this definition. In case ESCO company would also be supplier of the heating energy, additional regulatory requirements would be applied. By virtue of Article 30.13.4 of the Law on Heating Infrastructure of the Republic of Lithuania, heating energy supply company (holder of the licence to supply heating energy) is obliged to implement separate accounting of costs of energy supply. In such model energy should be supplied from the supplier to the manager of the building as it is in the present situation. However, the savings would be calculated and bill for the savings would be served by ESCO company to the manager of the buildings on the contractual basis. Since the actual savings of the energy also depend on the rational use of the energy, ESCO company may be entitled to appoint a company responsible for the proper exploitation of heating facilities (for such company attestation is required). The provision of the right to renovate public buildings for ESCO company generally depending on conditions may fall within the definition of concession. Thus, it is likely that the Law on Concessions would be applicable to this scheme. In such case, the requirements for the concession scheme and financing methods described bellow are also applicable.

4.5. Concession scheme

Interview with City Service AB of 10 December 2009. City Service AB is implementing a partial ESCO scheme with the Vilnius City Municipality. Its description is provided in Annex 6 of this study. 78 Law of the Republic of Lithuania on Heating Infrastructure No IX-1565 of 20 May 2003 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 51-2254, 2003)), with later amendments.
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57

In this scheme, the beneficiary of the JESSICA instrument (for energy efficiency measures) and further commercial loan (if own resources are not invested) to achieve complex modernization of dormitories is a concessionaire. The concessionaire in accordance with the terms of a concession agreement would acquire the right to manage the dormitories in all or certain functions. This transfer of management rights for the period of a concession agreement is a key difference from the ESCO model. A concessionaire would be entitled to an agreed share of energy savings achieved. Crucially, unlike in the previous three schemes, the concession agreement could actually demand from a concessionaire an achievement of certain agreed level of energy savings during an operation of renovated dormitories. Interviews with potential concessionaires made during the drafting of this study show that they would be ready to participate in the tendering of this scheme. Calculations of the investment needed, payback times and other indicators on the basis of three dormitory buildings of the Vilnius University are presented in the Annex 5 of this study. The concession under this scheme falls within the definition of the concession set forth in Article 2.1 of the Law on Concessions. By virtue of Article 2.1 of the Law on Concessions, the concession is defined as a permission of the granting institution under terms and conditions of concession agreement granted to the concessionaire to pursue activities, inter alia, related to renovation, construction, management and use of infrastructure objects, manage and use the state property, if all risks or major part hereof are undertaken by the concessionaire and the remuneration for the concessionaire consists only of granting such right and incomes of such activities and (if applicable) remuneration provided by granting institution. Article 3.3 of the Law on Concessions provides that under the concession agreement the possession of the assets owned by the state may be transferred to the concessionaire only for the limited period of the concession. The financing to the concessionaire could be channelled through one of the following ways, namely (a) a loan from UDF, and in such case stake in the concessionaire could be held by private investors and the state or one of them, or (b) by investing into the capital of the concessionaire. UDF funds may be used by the way of equity investments. Depending on the structure of financing and expression of interest of private entities to take part of the risk, the concessionaire could be of a private capital, mixed capital or UDF capital. It is important to note that a concessionaire should be chosen by public tender procedure laid down in the Law on Concessions. Risk transfer rule as described in the second scheme above also applicable for this scheme for calculation of public debt and deficit. Article 5.5 of the Law on Concessions provides that prior to announcing the tender for the concession, the granting institution must analyze the expedience and the benefit for the public interests, including detailed analysis of concrete economic and social benefit for the society. Article 281.1.1 sets forth the requirement of the approval from the Ministry of Finance of the Republic of Lithuania for the financial terms and conditions of the concession.

4.6. Factoring scheme

A factoring scheme consists of two agreements, namely (a) an agreement between the Ministry of Education and Science or an education institution and provider of modernisation services, and (b) an agreement between factoring service provider and provider of modernisation services. A higher education institution commissions a contractor to carry out renovations works and the 58

debt is factorised to the institution acting as a UDF (according to the legal analysis below, it can be a bank). A higher education institution returns the loan to the UDF by using savings (received with a help of energy-efficiency measures) and/or accommodation rent paid by students (which was used for welfare improvement). It has to be noted that this financing scheme contains certain legal risks as described bellow. Factoring services on the regular basis may be provided only by financial institution. According to the Law on Financial Institutions of the Republic of Lithuania provision of factoring services falls within the definition of lending and is deemed to be financial service. For entities providing financial services the requirements provided for by the Law on Financial Institutions and other laws and regulations, including on risk management, concerning financial institutions are applicable. Provider of factoring services must be profit oriented legal entity (bank or other profit oriented legal entity) as it is provided by Article 6.903 of the Civil Code of the Republic of Lithuania. This scheme involves the risks that financing would be construed as lending and would be included in public debt and deficit. Such conclusion is based on the presumption that in order for this scheme to be operational the agreement for factoring services should be concluded prior to provision of services. Typically by factoring the financing is provided for the supplier of goods or services. However, in this scheme, it would be noticeable that financing is provided for the Ministry of Education and Science or universities. This scheme involves the risk of the bankruptcy of the provider of modernisation services. Article 6.905.3 of the Civil Code of the Republic of Lithuania stipulates that in case of transfer of future claim (it is defined as the claim prior the maturity day) it is recognized that the right of claim passes to the provider of factoring services after the maturity. Under Article 10.7.3 of the Law on Bankruptcy of Entities79, following the day as of the entry in force of the decision to start bankruptcy proceedings of the entity, such entity is not permitted to execute any financial obligations. Considering the fact that no case law concerning such situation exists, such provisions may be interpreted that all claims the maturity of which commences after the initiation of bankruptcy proceeding are not transferred to the provider of factoring services. This could lead to the situation when the manager of the building has the obligation to pay to the provider of modernisation services, notwithstanding the fact that the provider of factoring services already paid to the provider of modernisation services. It may be recognized that provider of factoring services only has the claim right to the bankrupt company. The legal analysis of the laws and regulations concerning the disposal of the budget indicates that the agreement on trade credit for the period exceeding term of approved budget may be incompatible with mandatory provisions of the laws and regulations of the Republic of Lithuania. Article 5.1.3 of the Law on Budgeting provides for that managers of the institutions acquiring budget funds are obliged to set and approve programmes and estimates of the managed budgetary institution and subsidiary institutions and subjects not exceeding approved budget funds. As it was already mentioned, the Ministry of Education and Science of the Republic of Lithuania as well as universities prior transformation are not eligible to borrow money for the modernisation of the student dormitories and other buildings under the jurisdiction of Ministry Education and Science of the Republic of Lithuania. Moreover, the Law on Budgetary Institutions provides for that the managers of the institutions acquiring budget funds are obliged to approve expenditure not exceeding approved budget funds. In the opinion
Law of the Republic of Lithuania on Bankruptcy of the Entities No IX-216 of 20 March 2001 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 31-1010, 2001)), with later amendments.
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of the Ministry of Finance, a solution to this problem could be as described in the second scheme above (see footnote No 77). Provider of factoring services must ensure that the borrowing does not exceed the authorized capital. By virtue of Article 1 of the Law on Lending by Economic Entities to Natural and Legal Persons, the ability of non-credit institution to provide financing to natural and legal persons is limited by the amount of the authorized capital of the financing entity.

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MAIN CONCLUSIONS AND RECOMMENDATIONS

1. The study demonstrated that it is possible to extend the current scope of the JESSICA energy efficiency actions beyond traditional housing in order to include student dormitories and other public buildings under the jurisdiction of the Ministry of Education and Science. Extending the current scope would be the best way to start the renovation of dormitories as soon as possible. There are no restrictions for student dormitories to benefit from JESSICA instruments, and energy efficiency measures, financed through the loan schemes, can be implemented. Other (public) buildings would in principle be eligible to benefit from the JESSICA instrument as provisions of the appropriate EU legal acts do not establish restrictions for modernisation of public buildings as such from the funds of the ERDF. However, energy efficiency related renovation of these buildings through the loan schemes (such as the JESSICA instrument) must be a) correctly established in the documents regulating the use of EU financial assistance in Lithuania, and b) appropriately originate and be channelled from the ERDF source. The possibility to finance other than energy efficiency measures from JESSICA instrument in order to perform complex renovation of dormitories could at best be marginal and even then would still need further clarification from the European Commission. 2. However, successful use of the JESSICA mechanism for renovation of student dormitories and other public buildings would significantly depend on the irreversible entrenchment of the policy line by the Government, which should state that all public investments generating return should be channelled only through the loan schemes. A loan based approach is certainly worthwhile looking at in the future, and would be a proper thing to do for all energy related (repayable) renovation measures for all buildings and not just for housing. 3. The study suggests that the currently existing institutional set up for multi-apartment housing should be maintained also for student dormitories and other public buildings. Financial institutions (banks) can serve the function of the Urban Development Fund (UDF) as is the case for renovation of multi-apartment houses. The existing scheme will allow starting the renovation of dormitories as soon as possible. The call for expression of interest aiming to select financial intermediaries to channel the first tranche of funds to final beneficiaries has already ended, and therefore there is no possibility to extend the tender and change its terms and conditions in order to include dormitories. This will be possible at the time when the second tender is launched. For this tender documents should be appropriately amended. 4. The study assessed the scope of renovation. Detailed calculations were made in order to measure the magnitude of the renovation problem and primarily targeted student dormitories of three types, namely those of a) universities, b) colleges and c) vocational education and training (VET) institutions. These calculations were made for two scenarios, under which a) only energy efficiency measures (as defined in the applicable EU regulations) would be implemented or b) complex (full) renovations would be made. For all three types of dormitories, the total of investments needed for energy efficiency measures alone amounts to LTL 149.9 mio (an average of LTL 205.9 for 1 m). Complex renovation was estimated to cost LTL 238.7 mio (or an average of LTL 325.5 for 1 m). The total area of dormitories of higher education institutions to be renovated comprises 462.6 thousand m, of which university dormitories make up 315.6 thousand m and college dormitories 147 thousand m. In addition to this, the total area of dormitories of VET institutions to be renovated is 262 thousand m. 61

5. Due to the lack of detailed data about other (public) buildings, calculations were based on an average investment amount per 1 m of VET dormitories, which for energy efficiency measures is LTL 231.9. Total area of other public buildings of VET institutions is 684.4 thousand m and total amount of funds needed to implement energy efficiency measures would approximately be LTL 158.7 mio. When the data is available, the investment needed for public buildings of other educational and scientific institutions can be estimated by using the same method of extrapolation. 6. Modernisation of dormitories should be financed on the basis of the reduction in energy consumption so that the savings help the pay back of loans irrespective of the borrower. Loan payback could be ensured by: a) the rent paid by residents of dormitories; b) energy savings and smaller demand for funds to pay for energy approximately 7580% of savings should be used for loan servicing. If, according to the calculations, the savings amount to LTL 11.46/m, LTL 8.69.2/m annually could be directed to loan servicing. The remaining amount required for loan servicing could comprise of the income received for the services provided to inhabitants. 7. A soft loan with the fixed annual interest rate of 3% should be granted for a period of up to 20 years in case of energy efficiency measures. In case of complex renovation the credit period should not be shorter than payback period of the measures implemented. It is suggested that the maximum amount of the soft loan is 100% of the project value if education institutions borrow themselves, and 95% of the project value in all other cases (when borrowing is undertaken by concessionaire or contractor). 8. A loan should be granted only if the investment project provides for the implementation of energy efficiency measures along with other modernisation measures, which ensure at least 20% energy savings per year. Calculations show that after modernisation and implementation of energy efficiency measures, energy consumption will be reduced by 30% on average. 9. 15% of state support could be provided to the implemented projects (i. e. the corresponding amount of the payback would be waived) under the same conditions as it is provided to multi-apartment buildings, where state support is provided in case the renovated building achieves energy efficiency category C. The calculations of investments and payback periods were respectively made for a scenario without state support. 10. Five financing schemes were examined in the study, namely: 1) loan by the dormitory manager, 2) loan by the designated state owned limited liability legal entity, 3) ESCO (Energy Service Company) scheme, 4) concession scheme, and 5) factoring scheme. Strengths and weaknesses were examined for all schemes individually. The first three schemes would be possible only for application of energy efficiency measures from the JESSICA instrument, while the last two schemes could be used for more ambitious (complex) modernization which in addition to energy efficiency measures would also target complex renovation measures. Of the five schemes, loan by the dormitory manager and concession schemes seem to be most promising in achieving the aims of dormitory renovation. If renovation aims at solving the problems beyond energy efficiency measures, then the concession scheme should be advanced further.

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ANNEXES Annex 1. Current set up of the JESSICA instrument for energy efficiency in housing in Lithuania

Source: JESSICA Holding Fund Lithuania

63

Annex 2. Questionnaire for collection of data about student dormitories (used in this study)
This questionnaire was channelled through the Ministry of Education and Science and answered by managers of student dormitories of higher education institutions and vocational education and training schools during 110 December 2009. The answers were received from 27 higher education institutions and 69 vocational education and training schools (see electronic form in CD-ROM). Basic data Name of the higher education institution* Address of the dormitory* Year of construction* Information on the management of the dormitory Owner of the dormitory* Manager of the dormitory* Grounds for management (trust, contract for use, other [please indicate])* Contact person and contact information (tel., e-mail) Basic data about the dormitory Total area (m)* Total area of living premises (rooms) (m) Heating area (m)* Number of stairwells Height (number of floors) Hot water consumption (m) per calendar year Energy consumption for heating (MWh) during the heating season Electricity consumption (MWh) per calendar year Actual number of places of residence Number of residing persons Occupancy (%) Information on the renovation works needed Insulation of facade walls (m) Modernisation of the heating point (yes/no) Reconstruction of heating and hot water systems (m) Reconstruction of the roof by additional insulation (m) Replacement of windows (m) Replacement of cold water system (m) Replacement of sewage pipes (m) Replacement of the electricity installation (m) Replacement of the lift Renovation of balconies (m)

64

Main problems of the building [please indicate]

* only the questions marked by an asterisk should be answered for student dormitories other than belonging to state higher education institutions and other buildings under the jurisdiction of the Ministry of Education and Science (see description of the scope of the study in this report). For these buildings, the potential energy savings and costs of renovation will be calculated by using these aggregate data and extrapolations made from the individual calculations about the student dormitories of the state higher education institutions.

65

Annex 3. List of stakeholders interviewed and sources consulted for the purposes of this study
It benefited from the discussion with Mr Brian Field, Urban Planning and Development Adviser of the JESSICA Holding Fund Lithuania, and exchanges of the views with the Lithuanian beneficiaries, namely,
No 1. Name of institutions Ministry of Education and Science of the Republic of Lithuania Date of interview 24 November 2009 and 28 December 2009 Interviewee Mr Dainius Numgaudis, Chancellor of the Ministry of Education and Science Ms Laima Kvaraciejien, Head of Construction and Investment Unit of the Economics Department Ms Svetlana Krotkova, Senior Expert of Construction and Investment Unit of the Economics Department Mr Romualdas Pusvakis, Deputy Director of the Department of General Education and Vocational Training Ms Egidija Kasperinien, Senior Expert, EU Assistance Programme Implementation Division Ms Ieva Vilimien, Director of Operational Programmes Management Department Ms Loreta Maskaliovien, Deputy Director of Operational Programmes Management Department Mr Gvidas Darguas, Head of Unit for Management of the Operational Programme for Cohesion Promotion Mr Ignotas alavjus, Senior Expert of Unit for Management of the Operational Programme for Cohesion Promotion Mr Audrius elionis, Director of State Treasury Department Mr Gediminas Norknas, Deputy Director of State Treasury Department Ms Dalia ygien, Head of Finance Statistics Division Mr Darius Sadeckas, Deputy Director of Budget Department Ms Diana Vaitieknien,

2.

Ministry of Finance of the Republic of Lithuania

24 November 2009 and 7 January 2010

66

No

Name of institutions

Date of interview

3.

Vilnius University and public company Vilniaus universiteto bstas

4 December 2009

4. 5. 6.

Vilnius College Klaipda University City Service AB

18 December 2009 15 January 2010 10 December 2009 and 21 December 2009

7.

Lithuanian District Heating Association

5 January 2010 (telephone and e-mail)

Interviewee Deputy Director of Asset Management Department Ms Aura Vikakien, Director of Asset Management Department Miss ivil Pilkauskait, Senior Specialist of Operational Program for Promotion of Cohesion Division Dr. Aleksas Pikturna, Deputy Rector for Administrative Affairs of the University, Mr Lionginas Striganaviius, Director for General Afairs of the University Mr Nerijus Cicilionis, Director of a public company Vilniaus universiteto bstas Mr Virgilijus Varatinskas, Manager of Dormitories Mr Antanas Lukoeviius, Deputy Rector for Infrastructure Mr Vytautas Turonis, Managing Director for Lithuania, Mr Rimvydas Juodis, Manager of Renovation Projects Mr Vytautas Stasinas, President

67

Annex 4. Investment for renovation of student dormitories managed higher and vocational education institutions in 20002009
Table 4.1. Distribution of funds for renovation of student dormitories managed by higher education institutions in 20002009 (in thousand LTL)*
Allocations from State Investment Program (SIP) Investment project for renovation of higher education institutions managed students dormitories 2003

No

Higher education institution

Funds of Renovation program for higher education institutions managed students dormitories

Allocations from Privatization Fund

Total

20002006 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Alytus College Kaunas College Kaunas Forestry and Environment Engineering College Kaunas Technical College Klaipda College Klaipda Business and Technology College Lithuanian Maritime College Marijampol College Panevys College iauliai College Utena College Vilnius College Vilnius Technology and Design College Vilnius Technical College emaitija College

2006

2007 476 203 384

2008 93 459 180 116

2009 102 830 200 120 250 290 180 290 260 230 220 1.200 683 0 345

Total 671 1.492 764 236 958 1.089 768 995 500 970 636 2.774 1.671 295 1.153

2007 631

2008 63 313 123 79 153 183 110 180 164 142 138 749 312 74 217

LTL 734 2.436 887 315 1.111 1.272 878 1.175 664 1.112 774 3.523 1.983 369 1.370

% 3,95 13,09 4,77 1,69 5,97 6,84 4,72 6,32 3,57 5,98 4,16 18,94 10,66 1,98 7,36

483 531 427 441 531 214 475 531 187 489

225 268 161 264 240 209 202 1.099 457 108 319

Continuation of Table 4.1. Distribution of funds for renovation of student dormitories managed by higher education institutions in 20002009 (in thousand LTL)*
Allocations from State Investment Program (SIP) Investment project for renovation of higher education institutions managed students dormitories 2003 384 1.528 831 272 114 114 141 4.355 303 218 258 474 7.605 136 254 591 353 1.031 Total for Universities Total Source: Ministry of Education and Science * approved plan 13.962 13.962 5.000 5.000

No

Higher education institution

Funds of Renovation program for higher education institutions managed students dormitories

Allocations from Privatization Fund

Total

20002006 Total for Colleges 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Kaunas Medical University Kaunas Technology University Klaipda University Lithuanian Academy of Physical Education Lithuanian Music and Theatre Academy Lithuanian Veterinary Academy Lithuanian University of Agriculture Mykolas Riomeris University iauliai University Vilnius Academy of Fine Arts Vytautas Didysis University Vilnius Gedimino Technical University Vilnius Pedagogical University Vilnius University

2006 0 465 1.089 370 138 163 85 531 163 479 140 364 873 411 1.729 7.000 7.000

2007 5.372 1.781 615 109

2008 4.400 372 1.036 290 122 74 171 433 327 432 119 330 847 519

2009 5.200 443 1.324 0 141 88 205 512 376 503 142 396 1.084 610 1.976 7.800 13.000

Total 14.972 3.061 4.064 769 401 325 461 1.476 866 1.414 401 1.090 2.804 1.540 6.356 25.028 40.000

2007 631

2008 3.000 277 772 216 91 55 127 323 244

LTL 18.603 3.722 7.195 1.257 606 494 729 6.457 1.328 2.637 1.100 9.195 4.680 2.463 8.973 50.836 69.439

% 100 7,32 14,15 2,47 1,19 0,97 1,43 12,7 2,61 5,19 2,16 18,09 9,21 4,84 17,65 100

643

322 89 246

654 102 447 1.846 2.477

631 468 1.139 5.000 8.000

1.123 3.628 9.000

1.528 6.600 11.000

69

Table 4.2. Planned and actually spent investment for renovation of student dormitories in 20002009 (in thousand LTL)
2006 Investment programs Programme for Renovation of Student Dormitories of Higher Education Institutions Renovation of students dormitories managed by public vocational education institutions Approved plan 7.000 Actual implementation* 6.552 Approved plan 9.000 2007 Actual implementation* 11.476 Approved plan 11.000 2008 Actual implementation* 19.000 Approved plan 13.000 2009 Actual implementation* 12.992 2010 Plan 6.670

2.630

2.601

4.500

Source: Budget Department of the Ministry of Finance * actual costs include allocations from State Investment Program and Privatization fund

70

Annex 5. Detailed calculations for possible concession scheme for three (typical) student dormitories of the Vilnius University
Three typical student dormitory buildings design-wise of the Vilnius University were chosen in order to make individual calculations for the cost of renovation of the energy efficiency measures and complex measures based on the data supplied by the University and the public company Vilniaus universiteto bstas on the current conditions in the dormitories, rents paid by the students and design of the buildings. The calculations are based on the following assumptions: 1. The calculations were made to estimate the total investments required for energy-efficiency measures and other modernisation measures. The annual interest rate of 3% is applied to energy-efficiency measures and the annual interest rate of 5% to other modernisation measures. All investments are calculated for the 7-year period. 2. The calculations of the total area of facades, roofing, pipes, etc. to be modernised are based on the data on university dormitories provided by a public company Vilniaus universiteto bstas. 3. The calculations of prices of and investments into separate modernisation measures are based on the current market prices which may increase or decrease depending on the economic situation and situation in the construction industry. 4. The calculation of energy costs are based on the actual consumption of hot water, heating energy and electric energy within 1 year. The amount and savings of energy costs are calculated at the current market prices. 5. The calculations of savings of energy costs after the modernisation are based on the following coefficients: hot water 15%; heating energy 20%; electric energy 10%. 6. The total 7-year energy savings are not included in the project payback, therefore it is essential to take this factor into account as the actual savings in the final payment for the modernised dormitory may also change the amount to be paid by the student for the room rent. 7. The average annual funds allocated to the dormitory repair and renovation are not taken into account. It is important to note that the running and repair costs in the subsequent years after complex renovation will be much lower than before modernization. The margin of error in calculations is inevitable because of the following reasons: 1. Inaccurate calculations of the total area of facades, windows, roofing, pipes, etc. 2. Project administration costs are not taken into account. 3. There are no accurate data on the rent students pay for a certain room, i.e. how many students live in a certain type of rooms. The calculations are based on a double-room rent per person when two people live in it. 4. The modernisation of the heating system should consider the replacement of radiators into new ones with smaller water capacity.

Table 5.1. Calculations for possible concession scheme for student dormitories of Vilnius University (option 1)
Total area of living places, m2 Actual number of living places Amount currently paid for rent, in LTL/month Investments for energysaving measures, in LTL Investments for energysaving measures with interest of 3%, in LTL 583,342.22 Investments for other modernization measures, in LTL Investments for other modernizati on measures with interest rate 5%, in LTL 1,381,227.84

Address

Number of floors

Number of staircases

Total area, m2

Saultekio 49, Vilnius

2,144.85

999.47

172

170.00

527,315.00

1,173,432.50

448,217.75

495,840.89

Continuation of Table 5.1. Calculations for possible concession scheme for student dormitories of Vilnius University (option 1)
Total investments, in LTL Investments less 15% state support, in LTL Energy consumption savings, in LTL Hot water, in LTL/year Heat energy, in LTL/year Electricity, in LTL/year Energy savings per year, in LTL Energy savings per 7 years, in LTL Investments for total area, in LTL Investments for total living area, in LTL Investments for the number of actual living places, in LTL 10,913.19 Amount to be paid for rent and modernization, in LTL

1,964,570.06

1,877,068.72

10,285.94

6,972.00

6,278.00

23,535.94

164,751.55

875.15

1,878.06

299.92

Table 5.2. Calculations for possible concession scheme for student dormitories of Vilnius University (option 2)
Address Number of floors Number of staircases Total area, m2 Total area of living places, m2 Actual number of living places Amount currently paid for rent, in LTL/month 170.00 Investments for energysaving measures, in LTL 1,764,977.63 Interest rate 3%, in LTL Investments for other modernization measures, in LTL 3,490,521.50 Interest rate 5%, in LTL

Saultekio 8, Vilnius

16

6,498.67

3,398.15

504

3,490,521.50

4,108,634.68

1,500,230.98

Continuation of Table 5.2. Calculations for possible concession scheme for student dormitories of Vilnius University (option 2)
Total investments, in LTL Investments with 15% state support, in LTL Energy consumption savings, in LTL Hot water, in LTL/year Heat energy, in LTL/year Electricity, in LTL/year Energy savings per year, in LTL Energy savings per 7 years, in LTL Investments for total area, in LTL Investments for total living area, in LTL Investments for the number of actual living places, in LTL 11,128.70 Amount paid for rent and modernization, in LTL

5,873,612.31

5,608,865.66

23,318.99

20,003.00

23,688.83

67,010.81

469,075.70

863.08

1,650.56

302.48

73

Table 5.3. Calculations for possible concession scheme for student dormitories of Vilnius University (option 3)
Address Number of floors Number of staircases Total area, m2 Total area of living places, m2 Actual number of living places Amount paid for rent, in LTL/month Investments for energysaving measures, in LTL 2,063,204.00 Interest rate 3%, in LTL Investments for other modernization measures, in LTL 4,808,455.00 Interest rate 5%, in LTL

Didlaukio 59, Vilnius

12

9,127.9

4,338.6

638

170.00

2,282,419.43

5,659,952.24

1,753,723.40

1,940,056.51

Continuation of Table 5.3. Calculations for possible concession scheme for student dormitories of Vilnius University (option 3)
Total investments, in LTL Investments with 15% state support, in LTL Energy consumption savings, in LTL Hot water, in LTL/year Heat energy, in LTL/year Electricity, in LTL/year Energy savings per year, in LTL Energy savings per 7 years, in LTL Investments for total area, in LTL Investments for total living area, in LTL Investments for the number of actual living places, in LTL 11,912.24 Amount paid for rent and modernization, in LTL

7,942,371.66

7,600,008.75

29,915.45

31,623.00

23,773.93

85,312.38

597,186.65

832.61

1,751.72

311.81

74

Table 5.4. Calculations for possible concession scheme for student dormitories of Vilnius University (option 4)
Address Number of floors Number of staircases Total area, m2 Total area of living places, m2 Actual number of living places Amount paid for rent, in LTL/month Investments for energysaving measures, in LTL 975,348.50 Interest rate 3%, in LTL Investments for other modernization measures, in LTL 2,397,006.50 Interest rate 5%, in LTL

Saultekio 47, Vilnius

4,635.57

2,297.05

382

170.00

1,078,979.28

2,821,476.40

829,046.23

917,132.39

Continuation of Table 5.4. Calculations for possible concession scheme for student dormitories of Vilnius University (option 4)
Total investments, in LTL Investments with 15% state support, in LTL Energy consumption savings, in LTL Hot water, in LTL/year Heat energy, in LTL/year Electricity, in LTL/year Energy savings per year, in LTL Energy savings per 7 years, in LTL Investments for total area, in LTL Investments for total living area, in LTL Investments for the number of actual living places, in LTL 9,786.93 Amount paid for rent and modernization, in LTL

3,900,455.68

3,738,608.79

22,386.32

11,080.50

13,459.00

46,925.82

328,480.76

806.50

1,627.57

286.51

75

Annex 6. A short summary of partially implemented ESCO scheme for energy efficiency by the Vilnius City Municipality
The description of this scheme was supplied by City Service AB. The agreement described below most likely will not be renewed because of the changes in the national legislation. The description of this scheme was supplied by City Service AB. The agreement described below most likely will not be renewed because of the changes in the national legislation. Following the contract for partial ESCO scheme concluded with the Vilnius City Municipality in 2002, City Service AB has taken over the operation, repair and damage control of heating stations and heating systems, cold water and sewerage systems of 245 objects (education institutions) belonging to the Education Department. City Service AB also provides emergency call centre services 24/7. Heating and hot water are supplied to these objects on the fixed budget principle. The comparison of the actual heating consumption per year (approx. 133,907 MWh/year) in 19982001 and the heating consumption (119.549 MWh/year) established under the contract in 20022008 shows that 11% of the heating energy is saved (which is LTL 3.8 million, VAT included, at prices of 2009). City Service AB invested into the heating and hot water systems of the buildings, including the replaced of the worn valves, pipes, radiators and heaters, the mounting of balancing valves, thermometers and other equipment and devices. Education institutions were provided with remote control and monitoring system Rubisafe. The system monitors objects 24/7, hence, in case of any trouble, Rubisafe immediately detects it and responds respectively. The rate established by the contract for the operation of heating and hot water systems, accident localisation, repair and so called eternal warranty (which ensures the repair, replacement and renovation of parts of all the said systems for the operation fee) is LTL 0.22/m/month (VAT included). For instance, in 2004 the Vilnius City Council established a rate of LTL 0.24/m/month (VAT included) only for the maintenance of heating and hot water systems. City Service AB undertook to perform operation, repair and damage control works in 20022008 for LTL 12.6 million (VAT included), however it performed the aforementioned works for LTL 17.24 million (at public rates). The Vilnius City Municipality saved LTL 4.68 million (VAT included). Before the contract, the temperature in school premises was +17C and in kindergarten premises +18 C. Since 2006, the temperature at schools has been maintained at +18 C, in kindergartens at +21C, which meets Lithuanian hygiene standards. Although the contract provides for 189,146 m of hot water, education institutions pay for the actual hot water consumption. As a result, in 20022008 all education institutions consumed 92,020 m of hot water less and the Vilnius City Municipality saved LTL 1.3 million (VAT included). City Service AB assumed by the contract to exploit cold water and sewerage systems for free. In 20022008 the company invested LTL 1.28 million (VAT included) into the repair of these systems. The Vilnius City created additional 120 jobs related to this contract for the maintenance of education institutions. In the spring of 2008, the Vilnius City Municipality carried out the quality inspection of the services provided by City Service AB in heating seasons 20062007 and 20072008.

According to the inspection results, the breakdowns and accidents are conditioned by the wear of systems rather than by poor service quality. 88% of the institutions think that heating is of good quality, 99% are satisfied with the quality of the works performed, 89% are happy with the attention received and 100% consider the service culture to be of high quality. To promote heating energy efficiency, the Vilnius City Municipality, education institutions and City Service AB organise contests where institutions can contest their preparation for the heating season, e.g. insulation of windows or doors, sealing of screens behind heating devices, replacement of exterior doors, implementation of other energy efficiency measures. The annual prize fund amounts to approx. LTL 67,000 and the total value of prizes for preparation for the heating seasons comprises LTL 403,000. Education institutions use the funds won to acquire various training measures and equipment, kitchen appliances, etc.

77

Annex 7. Summarised financial calculations for renovation of students dormitories

Table 7.1. Investments, needed for complex renovation of students dormitories, and payback period
Renovated area (in thousand m2) 316 147 262 Total investments for complex renovation (in LTL) 110,198,288.02 45,876,777.18 82,588,694.00 Investments into 1 m2 (in LTL) 349.17 312.09 315.22 State support to 1 m2 (in LTL) 28.82 29.04 34.78 Funds required for 1 m2 (LTL) 320.35 283.04 280.44 Interest per year (in LTL) 4.83 4.26 4.22 Payback period with 15% state support (in years) 28.0 24.7 24.5 Payback period without state support (in years) 30.5 27.2 27.5

Institutions

Universities Colleges Vocational and training education institutions

Table 7.2. Investments, needed for energy efficiency measures in students dormitories, and payback period
Renovated area (in thousand m2) 316 147 262 Total investments for energy efficiency measures (in LTL) 60,642,151.31 28,461,198.54 60,750,835.00 Investments into 1 m2 (in LTL) 192.15 193.61 231.87 State support to 1 m2 (in LTL) 28.82 29.04 34.78 Funds required for 1 m2 (LTL) 163.33 164.57 197.09 Interest per year (in LTL) 2.46 2.48 2.97 Payback period with 15% state support (in years) 14.3 14.4 17.2 Payback period without state support (in years) 16.8 16.9 20.2

Institutions

Universities Colleges Vocational and training education institutions

Annex 8. Territorial distribution of students dormitories in Lithuania

Name of town/ small town/ village Vilnius Kaunas Klaipda iauliai Akademija Panevys Marijampol Utena Alytus Teliai Plung Rietavas Radvilikis Kdainiai Ukmerg
80

Number of student dormitories80 University 37 26 3 4 7 1 3 3 1 1 1 2 2 2 1 1 2 5 1 1 2 College 15 5 6 2 Vocational 8 8 5 3 Total 60 39 14 9 7 6 4 4 3 2 2 2 2 2 2

Data provided by the Ministry of Education and Science on 10 December 2009.

Name of town/ small town/ village ilut Raseiniai Skuodas Maeikiai Vilkija Simnas Taurag Varna Visaginas Rokikis Kupikis Birai Smalininkai Kaiiadorys Jonikis Kurnai Raudondvaris Kelm Daugai Girionys Mastaiiai Pajris Varniai Dieveniks Bukiks Vabalninkas Auktadvaris Laninava Viekniai Cirklikis Kailiniai Kretingsodis Dimitriks Auktieji Kapliai Bbeliai Budraiiai

Number of student dormitories80 University College Vocational 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 1 1 1 1 1 1 1 1 1 1 1 1 1 Total 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 1 1 1 1 1 1 1 1 1 1 1 1 1

80

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13. Law of the Republic of Lithuania on Budgetary Institutions No I-1113 of 5 December 1995 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 1042322, 1995)), with later amendments; 14. Law of the Republic of Lithuania on the Territorial Administrative Units of the Republic of Lithuania and Their Boundaries No I-558 of 19 July 1994 (adopted by the Seimas of the Republic of Lithuania (Official Gazette No 60-1183, 1994)), with later amendments; 15. Resolution of the Government of the Republic of Lithuania No 843 of 1 September 2006 on the Approval of the Programme for the Renovation of Student Dormitories of Higher Education Institutions (Official Gazette No 94-3699, 2006); 16. Resolution of the Government of the Republic of Lithuania No 559 of 10 June 2009 on the Approval of the Programme for the Renovation of Education Institutions (Official Gazette No 72-2916, 2009); 17. Resolution of the Government of the Republic of Lithuania No 696 of 17 May 1995 on the Classification of Economic Activities (Official Gazette No 43-1054, 1995); 18. Resolution of the Government of the Republic of Lithuania No 1139 of 9 September 2007 on Allocation of Functions and Responsibilities of Authorities for the Implementation of the Lithuanian Strategy for the use of EU Structural Assistance Strategy for 20072013 and Operational Programmes (Official Gazette No 114-4637, 2007); 19. Resolution of the Government of the Republic of Lithuania No 243 of 5 March 2008 on replacement of the Resolution No 1213 of 23 September 2004 on apartment-house modernization program (Official gazette No 36-1282, 2008); 20. Resolution of the Government of the Republic of Lithuania No 428 of 8 April 2003 on the Determination of Criteria for Problematic Territories (Official Gazette No 35-1483, 2003; No 14-479, 2006); 21. Technical regulation for construction STR 1.01.09:2003 on Classification of Buildings According to their purpose (adopted by Order No 289 of the Minister of Environment of the Republic of Lithuania of 11 June 2003 (Official Gazette No 582611, 2003)); 22. Technical regulations of construction STR 2.01.01(3):1999 on Essential Requirements for Buildings. Hygiene, Health and Environmental Protection (adopted by Order No 549 of the Minister of Environment of the Republic of Lithuania of 21 October 2002 (Official Gazette No 106-4776, 2002)); 23. Technical regulation of construction STR 2.09.02:1998 on Heating, Ventilation and Air Conditioning (adopted by Order No 19 of the Minister of Environment of the Republic of Lithuania of 18 January 1999 (Official Gazette No 13-333, 1999; No 39-1446, 2002; No 145-5552, 2006)); 24. Technical regulation of construction STR 2.01.01(6):2008 on Essential Requirements for Buildings. Energy Saving and Heat Retention (adopted by Order No D1-131 of the Minister of Environment of the Republic of Lithuania of 12 March 2008 (Official Gazette No 35-1255, 2008)); 25. Hygiene Norm HN 118:2002 on Health Safety Requirements for Accommodation Services (adopted by Order No V-2 of the Minister of Health Care of the Republic of Lithuania of 6 January 2003 (Official Gazette No 13-531, 2003)); 26. Hygiene Norm HN 35:2007 on Maximum Permitted Concentration of Chemical Substances (Pollutants) in Ambient Air of Residential Environment (adopted by Order No V-1191 of the Minister of Health Care of the Republic of Lithuania of 5 December 2008 (Official Gazette No 145-5858, 2008)); 27. Hygiene Norm HN 42:2004 on Microclimate in residential and public utility buildings (adopted by Order No V-479 of the Minister of Health Care of the Republic of Lithuania of 29 June 2004 (Official Gazette No 105-3911, 2004)); 28. Order of the Minister of Health Care of the Republic of Lithuania No V-791 of 5 October 2007 on Approval of the List and Permissions Hygiene Passports Rules for 82

Commercial Activities, for which Hygiene Passports are Mandatory (Official Gazette No 106-4352, 2007), with later amendments; 29. Rules on Preparation and Implementation of Public Private Partnership Projects (adopted by Decision No 1480 of the Government of the Republic of Lithuania of 11 November 2009 (Official Gazette No 137-5998, 2009)); 30. Rules on Attribution of the Entities to Institutional Sectors and Subsectors (adopted by Order No D-172 of the Chief of Department of Statistics under the Government of the Republic of Lithuania of 2 August 2005). Lithuanian programmes and strategies: 1. Investment project of renovation students dormitories managed by vocational education institutions, the Ministry of Education and Science of the Republic Lithuania, June 2008; 2. Renovation program for students dormitories, managed by higher education institutions (II stage), the Ministry of Education and Science of the Republic Lithuania, October 2009; 3. JESSICA Evaluation Study for Lithuania, January 2009; 4. Supplementary Study on JESSICA instruments for energy efficiency, April 2009. Other sources: 1. European Investment Bank website www.eib.org; 2. EU structural support for Lithuania 20072013 website www.esparama.lt; 3. Ministry of the Interior of the Republic of Lithuania website www.vrm.lt; 4. Ministry of Environment of the Republic of Lithuania website: www.am.lt; 5. Apartment-house modernization program website: www.atnaujinkbusta.lt; 6. Housing and Urban Development Agency (HUDA) website: www.bkagentura.lt; 7. Centre of Information Technologies for Education website: http://www.itc.smm.lt.

83