ABSTRACT Ukraine's energy-intensive urban services systems were built in the 1960s and 1970s, when the Soviet Union heavily subsidized electrical power and natural gas. With the rise of energy prices to international market levels, these systems are now very expensive to operate. The large majority of Ukrainian water, wastewater, and districting heating utilities are therefore operating at a financial loss. However, because of the high potential for reducing energy costs, almost all enterprises can readily identify capital investment projects in energy-efficiency equipment such as water pumps and gas boilers that have high financial rates of return. This operating environment poses a unique mix of opportunities and challenges for the application of performance contracting for energy services. The high financial returns on projects are attractive to private capital and emerging energy services companies. With their low tariffs and outstanding debts to creditors, however, utilities have difficulty channelin...