After the Velvet Revolution, Marek Černocký wanted to start a non-profit project popularising science in the Czech Republic. Occasionally, he would gain some funds but they always dried up very quickly. He kept looking for answers such as: How to assure that sponsors´ donations serve a good cause constantly? How to invest the sponsors´ donations coming in to bring long-term benefit? And how to combine business and charity under one organisation?
In 1999, he came up with the idea of filling the space between donors and charitable donations with an investment opportunity into a hydroelectric power plant. He was convinced that he would be able to build a hydroelectric power plant with the full or at least partial help of sponsors. He envisaged not only a functional business and a sustainable energy source but also a sustainable source of money for publicly beneficial purposes.
As Marek points out, he had no inspiration from abroad and tried to go unexplored ways. First he tried to gain individual donors; companies joined the project only later on. In the end, he obtained donations totalling CZK 71 million from sponsors and philanthropists.
“We call these donors “pro bono -investors”, i.e. people who decide to invest their money into a project which will bring profit not for their own enrichment but to finance publicly beneficial activities,“ explains Marek Černocký,
director of Energeia. „The donors understand our way of financing charity. They know that thanks to water energy their one-off donation will become a renewable donation with the perspective of increasing in the future.”
Energeia’s aim is to invest at least 10%, (i.e. CZK 7.1 million) of the overall volume of the donations received into publicly beneficial projects. The amount should increase once the loan is paid off, as in compliance with the law, this type of company must spend all available profit on publicly beneficial activities.
„In the first years it will probably be the above mentioned 10% of donations
received. However, I believe that the amount will keep growing in the future, “ says Marek Černocký, while pointing out that a lot will depend on nature and hydrological conditions, i.e. the water flow rate.
Donations from sponsors would have by far not been sufficient to cover the construction costs of the power plant as the whole investment amounted to CZK 964 million. Problems came when banks refused to provide a loan for the construction because of Energeia’s status as a public benefit association. In the end, the company initiated its own tender containing the condition that the general contractor would need to fund the constructionuntil a use permit had been issued and would receive payment only once a fully operating power plant had been handed over.
A consortium of Metrostav a. s. and Zakládání staveb, a. s. eventually won the tender for the construction of the Štětí small hydroelectric power plant. The project was significantly helped by a subsidy of CZK 250 million from the Ministry of Industry and Trade, which was, however, to become due only after proper pay-off and takeover of the work by Energeia.
Hence, immediately after receiving the use permit of the power plant, Energeia needed to draw a loan to pay for the construction. This was the very end of the financing process, ensured for Energeia by KPMG. The key task lay in convincing banks that a public benefit association may indeed own and operate a power plant and obtain a loan for its acquisition (as the direct debtor).
The total volume of provided funds came to CZK 871 million and consisted of two parts. The main portion is represented by a long-term loan of CZK 621 million due in 15 years. The outstanding amount of CZK 250 million is covered by a bridging loan provided until the ministry pays out the subsidy. Komerční banka eventually won the tender to finance the construction and Energeia drew the funds from the loan and subsequently paid the construction supplier.
You can find the whole story about power plant in Štětí in KPMG magazine Marwich, issue 1/2016, which can be downloaded from www.marwick.cz.