NDF Annual Report 2015 by Nordic Development Fund

NORDIC DEVELOPMENT FUND Annual Report 2015

INDEX Report of the Board of Directors 2015

Board of Directors 11 Control Committee 11 Management and Staff

Income Statement 13 Balance Sheet 14 Changes in Equity 15 Cash Flow Statement 15 Photo: SELF

Notes to the Financial Statements

Auditorsâ&#x20AC;&#x2122; Report 25 Grant Portfolio 27

NDF MILESTONES Summary In 2015, NDF consolidated its activities that combine addressing causes and consequences of climate change with the promotion of economic and social development, and poverty reduction in NDF partner countries in Africa, Asia and Latin America. A new NDF strategy, “Agile and innovative - NDF looking ahead,” was approved in November. The new strategy positions NDF in the broader climate finance architecture as the only joint Nordic finance institution focusing exclusively on climate change and development in low-income and certain lower middle income countries. During 2015, the Board approved grant financing for 14 projects for a total value of EUR 37.9 million. Disbursements of grants amounted to EUR 37.0 million (2014: EUR 30.5 million). The disbursements of credits amounted to EUR 2.3 million (2014: EUR 6.2 million) in 2015. In 2015, three climate projects reached completion, all of them with satisfactory ratings. One credit project, the Melamchi Water Supply Project in Nepal, was completed. NDF still has two active credits which were originated before the climate change and development mandate was agreed in 2009.

2015 As of 2015, NDF has 85 climate projects to a value of EUR 236 million. Five NDF-backed projects receive international recognition. 2014 NDF’s 25th Anniversary Two NDF-financed projects receive international recognition. 2012 An external evaluation of NDF’s progress under the climate mandate confirms that the reforms have paid off. 2010 During the first 18 months of operation under its new mandate, NDF allocates EUR 75 million to 22 new projects for climate change interventions. 2009 Based on analyses finding valid reasons for NDF to continue its activities, the member countries approve a new mandate, securing continued operations. NDF shifts focus from soft loans for social and economic development to grants for climate change interventions in low-income countries. NDF Board makes its first grant approvals under the new mandate.

A project performance rating was carried out for all on-going projects again in 2015, and the results indicate that the portfolio is in general performing well. Approximately 80% of the projects rated either highly satisfactory, satisfactory or just adequate concerning achievement of objectives, project progress and risk, i.e. they are classified as green.

2005 Nordic Development Cooperation Ministers recommend winding-up NDF after NDF’s member countries fail to agree on a fifth capital replenishment for the Fund.

In December, the Nordic Climate Facility (NCF) launched its sixth call for proposals, under the theme Green growth for sustainable livelihoods, to support innovative small-scale development projects that help low-income countries to mitigate and adapt to climate change. As NCF lies at the core of NDF’s strategic goals, it was decided that its administration be transferred from the Nordic Environment Finance Corporation (NEFCO) to NDF.

1996 67 projects in the credit portfolio. Capital replenishment of SDR 265 million.

NDF’s efforts to strengthen its innovative and catalytic role as a climate finance institution received external international recognition. The United Nations Framework Convention on Climate Change (UNFCCC) selected 16 “game-changing initiatives” as the most innovative or exemplary climate projects in 2015, and four of them were NDF-backed activities. Another international recognition was given to an NDF-funded activity when Africa investor selected African Water Facility (AWF) as the Project Preparation Facility of the Year 2015.

2000 SDR 238 million outstanding to 33 countries. Capital replenishment of EUR 330 million.

1995 SDR 74 million outstanding to 26 countries. NDF signs its first private sector loan agreement. 1993 31 projects in the credit portfolio. Capital replenishment of SDR 150 million. 1989 NDF begins its operations providing soft loans for social and economic development. 1988 First capital injection of SDR 100 million. 1988 Denmark, Finland, Iceland, Norway and Sweden sign an agreement regarding the establishment of NDF.

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Strategy and Policy Issues

Projects and Results

During 2015, NDF developed a new strategy, which was approved by NDF’s Board of Directors on 24 November 2015. The strategy review process included assessments of developments in NDF’s operating environment, NDF’s comparative advantages, past experiences gained through operations, as well as opportunities for enhancing NDF’s role as an impactful mechanism to channel financing to climate change-related interventions focused on development and poverty reduction in low-income and some lower middle income countries, with a particular focus on Africa.

During 2015, the Board of Directors approved grant financing for 14 projects for a total value of EUR 37.9 million. Since the adoption of the climate change-focused mandate in 2009, NDF has approved 85 projects for a total value of EUR 235.7 million for climate change projects in 16 countries. Nearly half of the total EUR volume is allocated to countries in Africa (45%). The rest is divided between Asia (21%), Latin America (29%) and multiple regions (5%).

NCF lies at the core of NDF’s strategic goals and has become an important and visible instrument of NDF. In 2015, it was decided that the administration of NCF, from NCF6 onwards, be transferred from NEFCO to NDF. NDF is working actively to prevent fraud and corruption in its operations. At the end of 2015, NDF signed a Memorandum of Understanding (MoU) with the Nordic Investment Bank (NIB) and NEFCO, with the purpose of strengthening cooperation in integrity matters and facilitate information-sharing. Similar MoUs have been signed with the integrity departments of the World Bank (WB) in 2012, as the Asian Development Bank (ADB) and the InterAmerican Development Bank (IDB) in 2014. NDF’s future financial resources have been discussed by the NDF Board of Directors on several occasions since 2011. The 2012 Nordic Council recommendation (which was renewed in 2013 and 2014) to the Nordic countries’ governments to allocate more capital to NDF to further enhance its climate change/ related activities was again renewed in 2015. It also included a recommendation to have a “political dialogue” on the matter. The Board agreed to revert to the issue after the Paris climate summit.

NDF is continuously striving to develop ways to better monitor project results. The project identification and screening methodology is used for selecting projects that are in line with NDF’s mandate and strategic priorities. The screening methodology will be revised in early 2016 to reflect the new NDF strategy approved in 2015. NDF’s climate change-focused portfolio has started to mature, and three projects have been completed during 2015. For each completed project, NDF prepares a project closing report which serves as an important tool for the assessment of the results of the project. All three projects completed during 2015 were, at the time of project completion, rated as satisfactory. All three projects were implemented as planned and they reached the intended objectives. The Project Performance Rating (PPR) system is a tool to monitor the performance of the project portfolio. It complements the project-specific monitoring activities and reporting received from individual projects. The PPR tracks a project’s progress in comparison to the intended objectives and results. The annual review report 2015 indicate that the portfolio is in general performing well. Approximately 80% of the projects rated either highly satisfactory, satisfactory or just adequate concerning achievement of objectives, project progress and risk. Around 4.5% of the projects were rated as unsatisfactory or highly unsatisfactory for one or more of these variables. NDF administration puts particular focus on challenging or underperforming project activities or issues, and ensured that action has been taken to remedy the situation.

Photo: Julian Harneis, CC 2.0.

The new strategy lists specific thematic areas which will guide the selection of interventions to be financed by NDF. These themes include: catalytic role and leverage, project preparatory funding, support for innovation, support for private sector development and linkages between the public and the private sectors, piloting of interventions with a high risk level and identification of emerging climate change issues.

The African Water Facility (AWF) was recognised as the “Project Preparation Facility of the Year” by the Africa investor in 2015. NDF has been a partner to AWF since 2014 when the two launched a joint call for proposals with the theme Preparation of Water and Climate Change Management and Investment Projects/Programmes. The purpose of the call was to prepare bankable water and climate change investment projects around Africa.

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In 2015, several NDF-funded activities received international recognition. The UNFCCC announced the winners of Momentum for Change Lighthouse Activity 2015 in a special ceremony at the United Nations Climate Change Conference COP21 in Paris, France. The Momentum for Change initiative is spearheaded by the UN Climate Change secretariat to shine a light on some of the most innovative and replicable examples of what people are doing to address climate change. Out of the 16 game-changing climate action initiatives, four went to NDF-backed activities.

In 2015, one credit project, the Melamchi Water Supply Project in Nepal, was completed. NDF still has two active credits which relate to the time before the climate change and development mandate was launched. One of the projects is in Ghana and the other one in Bangladesh. Both projects were given extensions in 2015, to enable the full implementation of the planned project activities during 2016. NDF’s Climate Change Projects in 2015 Since 2009, NDF has approved 85 projects for a total value of EUR 235.7 million for climate change projects in 16 countries (eight countries in Africa, five countries in Asia and three countries in Latin America). During 2015, the Board of Directors approved grant financing for 14 projects with a total value of EUR 37.9 million. Following the strategy, the aim of NDF has been to target 50% of the activities to Africa. For the projects approved in 2015, the regional distribution was as follows: Africa EUR 16.4 million (43%), Asia EUR 5.4 million (14%), Latin America and the Caribbean EUR 9.6 million (26%) and multiple regions EUR 6.5 million (17%).

17% Multiple regions

UNFCCC’s Momentum for Change Lighthouse Award 43% Africa Photo: UNFCCC

Another international recognition was given to an NDF-funded activity when Africa investor selected African Water Facility (AWF) as The Project Preparation Facility of the Year 2015. AWF is managed by the African Development Bank (AfDB), and NDF has funded a specific window within the facility to support preparation of bankable water and climate change investment projects in African countries.

Regional Distribution of Approved Financing in 2015 EUR 37.9 million

26% Latin America

14% Asia

SELF’s Solar Market Gardens in Benin combines solar-powered pumps with drip irrigation systems to provide for the reliable, year-round, production of high-value, nutritious produce.This allows girls and women to reallocate their time to educational and economic pursuit, rather than having to haul water long distances. NDF financed an earlier version of the SELF Solar Gardens project through the Nordic Climate Facility.

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Project Portfolio / Africa

Project Portfolio / Latin America

Country/Project Regional West Africa Coastal Area Erosion and Adaptation

Rwanda Climate-Resilient Road Transport Infrastructure Senegal Additional financing for Flood Risk Management

Total Africa

5.0

4.4

Green Climate Fund Readiness Support for Central America and Bolivia

0.5

EcoMicro 2.0

4.1

Total Latin America

9.6

5.25

16.4

Project Portfolio / Asia Country/Project

0.5

Monitoring, Reporting and Evaluation of Adaptation Investments

0.45

Strengthening Resilience to Climate Change in the Health Sector in GMS Total Asia

MEUR

Cambodia Integrating Gender Considerations in Climate Change Adaptation

Regional Additional financing for Gender and Climate Change

MEUR

Regional Climate-Smart Agriculture Fund for Latin America and the Caribbean

2.25

Country/Project

0.5

4.0

Uganda Farm Income Enhancement and Forest Conservation Project 2 (FIEFOC 2) Zambia Climate resilient procedures and standards in rural water supply and sanitation

MEUR

0.415 4.0 5.365

Project Portfolio / Multiple Regions Country/Project

MEUR

Multiple regions Market for Climate Resilience in Latin America, Africa and Asia

0.5

Nordic Climate Facility 6

6.0

Total Multiple Regions

6.5

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Key Thematic Areas of Emphasis

Transport sector and climate change market for climate resilience in different regions. Furthermore, NDF is supporting the Climate-Smart Agriculture Fund for Latin America and the Caribbean led by the IDB. The aim is to catalyse private sector investment in sustainable, climate-smart agriculture, forestry, and rangeland systems.

Private sector development: focus on SMEs, energy, agriculture, and market opportunities in climate resilience

Climate change and the water sector

During the year, NDF approved additional support to the EcoMicro technical cooperation program which trains microfinance institutions (MFIs) to provide new green finance instruments in order to capitalise on new opportunities in clean energy financing. The support will provide technical assistance, awareness-raising and training for at least 20 additional MFIs in the region. The expanded program aims at consolidating the green microfinance ecosystem through building on the market momentum achieved through the first phase. The program will play a key role in connecting private and public capital with those MFIs that are ready to scale up their green microfinance initiatives. The overall program focuses on Latin America and the Caribbean in general. NDF’s support is targeted mainly for Bolivia, Nicaragua and Honduras. NDF is also supporting an assessment of the market for climate resilience in two key sectors in Africa, Asia and Latin America. The assessment will generate learning and disseminate knowledge regarding the market for products and services that build climate resilience in these countries and related business opportunities. A main outcome will be the identification of a replicable methodology for estimating key aspects of the

With approval of the Farm Income Enhancement and Forest Conservation Project 2, NDF resources will assist small-scale farmers in Uganda to make the transition from predominantly rain-fed and climate-vulnerable subsistence agriculture to more sustainable, productive and climate-resilient agricultural models. The project is co-financed with the AfDB and includes a pilot of the ENABLE Youth challenge fund initiative for engaging the next generation of young entrepreneurs in the growth of the rural economy. The initiative aims at steering youth and women “agri-preneurs” into the agricultural sector by supporting the growth and establishment of sustainable agribusinesses.

Together with the AfDB, NDF is co-financing the second phase of the National Rural Water Supply and Sanitation Programme in Western Province, in Zambia. The project will be the first attempt in Zambia to do a complete analysis of climate impact on rural water and sanitation delivery systems. Local level water resources management, flood control measures, deforestation issues, early warning and climate-proofing of water supply and sanitation installations will all be examined. The results will be integrated into the planned national water and sanitation strategy and design standards in order to ensure long-term benefits for the sector and the entire country. NDF is supporting the storm-water management and climate resilient urban planning in Senegal. The objective of the initial PROGEP-project approved in 2012 was to improve storm-water drainage and flood prevention in peri-urban areas of Dakar for the benefit of local residents. Additional financing approved in 2015 goes to two new urban areas in Senegal.

UNFCCC’s Momentum for Change Lighthouse Award Photo: UNFCCC

NDF has accumulated a sizable portfolio of projects focusing on climate change adaptation in the transport sector. Of these projects, the most recently approved one in Rwanda will increase the road transport stakeholders’ capacity to integrate climate change considerations into the entire life-cycle of the transport sector, in particular for roads and bridges. NDF undertook a review of the transport and climate change adaptation project portfolio in 2015. Altogether, eight NDF-financed transport projects were reviewed. The aim was to bring together the experience gained and major lessons learned to identify emerging best practices and state of the art research results on how to adapt road transport infrastructure to the potential impacts of climate change and extreme weather events. Furthermore, the results also contributed to the dissemination of the NDF experience and best practice at COP21 through collaboration with the Partnership on Sustainable Low Carbon Transport (SLoCaT).

Grundfos LifeLink water solutions combine mobile phones and water systems. To collect water, people charge a smart card with credit bought on-site or via their mobile phones, they insert the card into the dispenser and pay for the water they need. LifeLink water solutions help build resilience to the effects of climate change by providing access to safe, sustainable and affordable water to people in developing countries. NDF financed an earlier project with the LifeLink in Kenya through the Nordic Climate Facility.

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Small-scale activities on climate change adaptation policy at the national level: focus on gender and capacity development Together with the ADB, NDF is supporting two projects in Cambodia and the Mekong region to boost gender-sensitive climate change adaptation and mitigation policies and project finance. Gender issues are mainstreamed into national and sub-national climate policies, and the participation of women in decision-making processes is being promoted.

Climate change and health As NDF has been active in looking for areas where climate change issues are emerging and only gradually gaining attention, activities focusing on climate change impacts on health were taken forward in 2015. The Mekong region is increasingly vulnerable to climate-induced health risks due to changes in temperature, and rainfall patterns that affect the incidence of vector-borne diseases (e.g. malaria and dengue) and extreme weather events that cause injuries, deaths, and water contamination. NDF supports technical assistance in the region contributing to reduced vulnerability to climate-induced health risks, especially for vulnerable populations including the poor, migrants and ethnic minority groups in the Mekong region. NDF already has an on-going project focusing on climate change and health in Mozambique, which is co-financed by the WB. The cooperation aims at developing an approach where the potential impacts of climate change on health are systematically and in a cross-sectoral manner reflected in development operations.

NDF continues to support climate finance readiness activities. Together with IDB, NDF is supporting six countries in their preparations for getting access to climate finance from the Green Climate Fund (GCF). This complements NDF’s on-going project together with the WB to strengthen climate finance readiness in Sub-Saharan Africa. These projects represent a deliberate effort to support also the possibilities for channelling GCF investments to these countries.

Nordic Climate Facility In December, NCF launched its sixth call for proposals. The theme was Green growth for sustainable livelihoods. NCF provides support up to EUR 500,000 for innovative development projects that help low-income countries to mitigate and adapt to climate change. Financing is to be provided to partnerships involving Nordic-based organisations and their partners in selected low-income countries. NCF-backed projects may involve the exchange of technology, knowhow and innovative ideas between the Nordic countries and developing countries. NCF has a strong strategic role for NDF given its full alignment with NDF’s strategic mission and objectives. An allocation of EUR 6.0 million was approved for the sixth call for proposals.

Small Grant Facility During the year, NDF continued to approve and implement activities under the Small Grant Facility (SGF). The facility is a financing frame to be used for small projects up to EUR 500,000. At the strategic and policy level, the SGF is aligned with the NDF strategy and advances further innovative, exploratory and transformative climate change solutions through financing of activities which are catalytic in paving the way for additional public and private sector financing. In 2015, a new allocation of EUR 5.0 million was approved for SGF. Since 2009, a total of EUR 14.0 million has been allocated to the SGF, of which total commitments amount to EUR 8.8 million.

UNFCCC’s Momentum for Change Lighthouse Award Photo: NDF/Pasi Hellman

Furthermore, ADB and NDF are increasing the capacity of Cambodian ministries to monitor and evaluate climate change adaptation investments. The expected outcomes are improved data collection, guidelines and hands-on manuals on monitoring and evaluation, and strengthened capacity also of NGOs and CSOs in this area. Monitoring and evaluation is important in order to learn from prior and on-going projects, and use lessons learned in the planning of new projects. The intended impact of this is more efficient and effective climate change adaptation projects, reaching those most in need in an efficient manner while keeping costs down.

Climate finance readiness

Solvatten® is an innovative but simple technology which utilises solar radiation (UV and heat) to purify water. NDF financed the introduction of these solar water purifiers in Kibera, a large slum area in Nairobi through the first call of the Nordic Climate Facility.

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Knowledge-Management and Outreach

Partner Institutions in Co-financing

As the climate-focused portfolio matures and results become available, knowledge-management and dissemination of results as well as knowledge products have become even more important for NDF. During 2015, NDF has participated and contributed in a number of international discussions and events focusing on financing for sustainable development and climate change.

NDF has continued its co-financing with the WB, AfDB, ADB, as well as the IDB. In addition, dialogue at the policy level, on thematic issues, as well as at operational level were continued.

NDF continues to be an active member of the Global Green Growth Knowledge Platform (GGKP) and participated in the third Annual Conference in January 2015. GGKP is a global partnership of international organisations and experts that identifies and addresses major knowledge gaps in green growth theory and practice. Moreover, NDF is a member in the Sustainable Low Carbon Transport Network (SLoCaT), which promotes the integration of sustainable transport in global policies on sustainable development and climate change. In addition, NDF has arranged climate-focused seminars and workshops on specific themes in the context of visits made to NDF by experts from partner institutions and other relevant organisations. For example, in November 2015, a joint integrity awareness-raising event was organised for NDF, NEFCO and NIB. During 2015, NDF produced three newsletters in English (and one in Spanish and French). In addition, an electronic newsletter was published four times during the year.

UNFCCC’s Momentum for Change Lighthouse Award

NDF has followed the establishment of the GCF and is an accredited observer to the Board of Directors of the GCF. NDF is supporting activities which enhance countries’ readiness to access climate financing from the GCF. These activities are expected to lead to a mobilisation of GCF funds into follow-up activities and bankable projects. NDF is also partnering with some Nordic development organisations through bilateral co-financing arrangements (with ICEIDA) and in broader collaborative co-financing schemes (with Sida and the Ministry for Foreign Affairs of Finland). Cooperation with Nordic Institutions NDF has maintained a dialogue with both the Nordic Council and the Nordic Council of Ministers in issues related to climate change and development. The aim is to exchange information and discuss NDF’s role in this context. The Nordic Council renewed in November 2015 its earlier recommendation to the Nordic Countries’ governments that more capital be allocated to NDF to further enhance its climate change-related activities. It also included a recommendation to have a “political dialogue” on the matter.

Photo: UNFCCC

The most visible event was the twenty-first Conference of Parties (COP21) to the UNFCCC in December 2015 in Paris, France. NDF contributed and shared its experiences and lessons learned in over fifteen events during the two weeks. Moreover, NDF hosted several well-attended events at the Nordic Pavilion, which was organised by the Nordic Council of Ministers.

NDF concluded a MoU on collaboration with the African Guarantee Fund (AGF) in May 2015. The MoU enables concrete co-financing activities to be developed. Discussions in 2015 focused on catalysing lending to small and medium-sized enterprises in the green economy and to build knowledge and capacity of banks in Africa to support businesses investing in climate change mitigation and adaptation activities.

Emerging and Sustainable Cities Initiative (ESCI) supports sustainable development in Latin American and Caribbean cities. The project covers more than 50 cities to take action on climate resilience. NDF support is for Cochabamba in Bolivia, Managua in Nicaragua, and Tegucigalpa in Honduras. After a successful first phase, the NDF support is now in its second phase.

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Cooperation with NEFCO was continued through the NCF. During the year, it was agreed that the administration of future calls, from NCF6 onwards, will be transferred to NDF. Grant agreements for NCF5 is being signed by NDF, while NEFCO will continue to administer NCF1-4 until the end of 2017. NDF also cooperates closely with NIB mainly through shared office premises, HR, IT and accounting services. Cooperation and contacts in all these matters between NIB and NDF are regular and frequent, and provide synergies for the two institutions. In connection to the COP21, the cooperation between the Nordic Council of Ministers, NEFCO, NIB and NDF was even more visible. All the different institutions hosted several side events at the Nordic Pavilion, which was organised and set up by the Nordic Council of Ministers. Institutional Issues

Board of Directors The Chair of the Board for the period 1 January to 30 April 2015 was Lars Roth (Sweden), with Jakob Haugaard (Denmark) as Deputy Chair. As of 1 May, Jakob Haugaard took over the Chair with Riikka Laatu (Finland) as Deputy Chair. Niels Hedegaard Jørgensen (Denmark) was appointed as the new Danish member as of 15 August and took over as Chair from that date. In addition, the following changes took place in the board membership in 2015. As of 19 November 2015, Linda Nilsson was appointed alternate (Sweden) succeeding Lena Kövamees. A list of NDF Board members and their alternates can be found on page 11.

Control Committee The Control Committee ensures that the Fund’s operations are conducted in accordance with its Statutes and is responsible for its audit. The Committee presented its annual auditor’s report to the Nordic Council of Ministers in March 2015 (which the Council approved in the autumn 2015). The Control Committee met twice in 2015. A list of the members of the Committee can be found on page 11.

Administration A new organisational structure was introduced as of 1 October 2015. The coordination of operations as well as administration and support functions were assigned to two vice presidents, who report to the managing director.

The objective of the reorganisation is to facilitate closer interaction between officers within the administration, and to have clearer division of labour and a more effective administration. The NDF office has, along with the NIB headquarters, been certified as a Green Office by WWF Finland since 2009. NDF’s carbon footprint in 2015 amounted to 155 tons of CO². The biggest share of the carbon footprint comes from air travel, which in 2015 amounted to 130 tons of CO² equivalents. The reduction of greenhouse gases for the NDF mitigation projects approved during 2015 has been estimated at 577,000 tons of CO² equivalents per year. As of 31 December 2015, 13 people were employed by NDF (2014:13 employees). A list of the employees can be found on page 11. One staff member spent part of the year on secondment to the ADB, with the purpose of enhancing collaboration between the two organisations and to gain first-hand experience from within a partner institution. Financial Issues Disbursements of grants amounted to EUR 37.0 million (2014: EUR 30.5 million). At the end of the year, accumulated disbursements on grants since 2009 amounted to EUR 150.6 million (2014: EUR 113.6 million). The disbursements of credits amounted to EUR 2.3 million (2014: EUR 6.2 million) in 2015. The net result for the year before adjustments for currency exchange fluctuations and after disbursements of grant aid totalled EUR -30.1 million in comparison with EUR -25.3 million the previous year. The effects of currency fluctuations showed a result of EUR 20.2 million (2014: EUR 19.0 million). After hedging measures, the effects from currency fluctuations are EUR 15.8 million (2014: EUR 15.5 million). The 2012 Nordic Council recommendation (which was renewed in 2013 and 2014) to the Nordic countries’ governments to allocate more capital to NDF to further enhance its climate change-related activities was again renewed in 2015. It also included a recommendation to have a “political dialogue” on the matter. The Board agreed to revert to the issue after the Paris climate summit.

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Credits NDF entered into 188 credit agreements between 1989 and 2006, the total value of which, including additional financing and adjusted for cancellations and calculating the EUR/SDR currency exchange rate as at 31 December 2015, amounted to EUR 934.1 million (2014: EUR 911.9 million). Of these agreements, 160 were credits to public sector projects (EUR 892.6 million), 25 were loans with equity features or equity investments (EUR 29.3 million) and three were other loans (EUR 12.1 million). As of 31 December 2015, disbursements under credit agreements amounted to EUR 845.8 million; approximately 39.2% of this amount is denominated in SDR. As a result of the strengthening of the SDR against the EUR, the value of the outstanding SDR credits increased by EUR 20.2 million. After hedging measures, the increase in value is EUR 15.8 million.

Capital and accounting currency NDF changed its capital and accounting currency from SDR to EUR on 1 January 2001. Fluctuations in the SDR/EUR exchange rate lead to variations in financial results, positive or negative, from one year to another. Therefore, since 2012, hedging measures have been taken to decrease the effect from the exchange rate fluctuations. About 50% of the credits denominated in SDR are hedged against these effects. The Fund’s financial result for 2015 shows a foreign exchange difference of EUR 20.2 million before hedging and EUR 15.8 million after hedging (2014: EUR 19.0 million before hedging and EUR 15.5 after hedging). This difference is to a large extent due to the fact that the US dollar, which represents 41.9% of the SDR currency basket, strengthened during 2015 against NDF’s capital and accounting currency, the euro.

Liquidity and capital The liquid assets of NDF were managed by commercial banks on behalf of NDF. The average interest rate has been approximately 0.2% (2014: 0.2%). NDF’s deposits are placed on 9-12 month intervals. The liquidity as per 31 December 2015 was EUR 121.0 million (2014: EUR 104.9 million). Upon request by the Board, member countries paid in a total of EUR 19.6 million of Fund capital in 2015 (2014: EUR 19.5 million). The payments in 2015 constitute the end of the replenishment (NDF IV). Future operations will build on the existing liquidity and the reflows coming from the outstanding credits. As NDF’s operations are grant based the capital will decrease over time and will eventually be exhausted

unless there are no future replenishments or changes in the operations towards a more financially sustainable approach. During 2015, NDF received repayments under disbursed credits amounting to EUR 23.9 million.

Financial results and allocation NDF’s total assets as of 31 December 2015 amounted to EUR 878,551,650 (2014: EUR 873,070,268). This amount includes outstanding credits to public sector projects, other loans with equity features and equity investments to the amount of EUR 750,491,398 (2014: EUR 756,706,121) and placements with credit institutions to the amount of EUR 120,966,007 (2014: EUR 104,941,679). The total net loan losses, write-down on loans and reversals during 2015 totalled EUR -55,677 (2014: EUR 235,112). Realised loan losses amounted to EUR 0 in 2015 (2014: EUR 447,947). Commitments under credits, signed but not yet disbursed, were distributed as follows: Year 2015 2014 MEUR 3.7 6.0

As of 31 December 2015, NDF’s capital consisted of SDR 515 million and EUR 330 million in paid-in fund capital (2014: SDR 515 million and EUR 310.4 million) and EUR -143,320,960 (2014: EUR -129,371,787) in accumulated net income after adjustments for currency exchange fluctuations and grant financing. The Fund’s income during 2015, amounting to EUR 9,328,379 (2014: EUR 8,335,253), consisted of income from credits to the public sector to the amount of EUR 5,637,225 (2014: EUR 5,584,928), interest on placements with credit institutions of EUR 305,163 (2014: EUR 259,558) and EUR 3,385,991 (2014: EUR 2,490,767) as remuneration on equity loans and other loans. Zimbabwe continues to be in arrears to NDF. All of its accrued, outstanding obligations towards NDF have therefore been placed in non-accrual status. Administrative expenses were EUR 2,913,506 (2014: EUR 2,843,252). The largest single item of expenditure consists of salaries and ancillary expenses of EUR 2,144,247 (2014: EUR 2,129,309). The net income for the year, which after adjustments for currency exchange fluctuations and hedging measures of EUR 15,754,500 (2014: EUR 15,501,788), amounts to EUR -14,370,370 (2014: EUR -9,812,519), is carried forward to the new account. The income statement, balance sheet, changes in equity, cash flow and notes can be found on pages 13-15.

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BOARD OF DIRECTORS *)

CONTROL COMMITTEE *)

MANAGEMENT AND STAFF *)

DENMARK Niels Hedegaard Jørgensen, Chief Advisor, Ministry of Foreign Affairs, Chair of the Board Deputy: Flemming Winther Olsen, Senior Adviser, Ministry of Foreign Affairs

CHAIRMAN Bill Fransson, Managing Director DENMARK Karin Gaardsted, Member of Parliament FINLAND Arto Pirttilahti, Member of Parliament ICELAND Höskuldur Þórhallson, Member of Parliament NORWAY Michael Tetzschner, Member of Parliament SWEDEN Penilla Gunther, Member of Parliament

Pasi Hellman, Managing Director

FINLAND Riikka Laatu, Deputy Director General, Ministry for Foreign Affairs, Deputy Chair of the Board Deputy: Laura Torvinen, Director, Ministry for Foreign Affairs ICELAND Egill Heiðar Gislason, Advisor Deputy: Sigfús Ólafsson, VP Aircraft Marketing, Castlelake NORWAY Ingrid Hordvei Dana, Senior Adviser, Ministry of Foreign Affairs Deputy: Hans Olav Ibrekk, Policy Director, Ministry of Foreign Affairs SWEDEN Lars Roth, Senior Advisor, Ministry for Foreign Affairs Deputy: Linda Nilsson, Desk Officer, Ministry for Foreign Affairs

Leena Klossner, Vice President, Deputy Managing Director Hannu Eerola, Country Program Manager Martina Jägerhorn, Country Program Manager Aage Jørgensen, Country Program Manager Emeli Möller, Country Program Manager Charles Wetherill, Country Program Manager

AUDITORS APPOINTED BY THE CONTROL COMMITTEE Sixten Nyman, Authorised Public Accountant, KPMG, Finland Hans Åkervall, Authorised Public Accountant KPMG, Sweden

Linda Lundqvist, Vice President, Chief Counsel Elin Blomqvist, Temporary Project Assistant Erik Holmqvist, Procurement Specialist Ann-Christin Lundin, Assistant Mats Slotte, Manager, Financial Administration Jessica Suominen, Financial Administrator Maria Talari, Administration and Communications Officer *) As of 31 December 2015

Secretary to the Control Committee Marcus Tötterman, KPMG, Finland *) As of 31 December 2015

Helsinki, 2 March 2016

Observer: Johan Ljungberg, Senior Director, Nordic Investment Bank *) As of 31 December 2015

NIELS HEDEGAARD JØRGENSEN

EGILL HEIDAR GISLASON

Chair of the Board

INGRID HORDVEI DANA LARS ROTH

PASI HELLMAN RIIKKA LAATU

Management and staff

Managing Director

Photo: Joakim Ă&#x2013;stling

I N C O M E S TAT E M E N T ( a m o u n t s i n E U R )

1 January to 31 December Note 2015 Income Service charges from credits 5,611,087.48 Income from loans with equity features 3,385,990.66 Fee and commission income 26,137.18 Interest income from placements with credit institutions 305,163.31 Total income 9,328,378.63

Expenses Grant financing for climate projects (9) Refund of grant financing Fee and commission expenses Commission expenses, derivative instruments General administrative expenses (10) Depreciation/amortisation on tangible and intangible assets (7) Changes in provision for credit losses, write-down of loans and reversals (6) Total expenses Net result for the year before foreign exchange differences and unreal./real. g/l derivatives Foreign exchange differences Unrealised gains/losses on fair value of derivative instruments (2) Realised gains/losses on derivative instruments Foreign exchange differences, net Unrealised gains/losses on fair value of forward contracts Unrealised/realised gains/losses on forward contracts Net result for the year

1 January to 31 December 2014 5,530,112.34 2,490,766.66 54,815.52 259,558.44 8,335,252.96

36,998,620.76 -419,511.52 801.19 27,776.24 2 913,505.61

30,496,544.20 1,021.05 22,658.49 2,843,251.81

6,753.94

8,688.36

-55,676.90 39,472,269.32

235,111.95 33,607,275.86

-30,143,890.69

-25,272,022.90

20,192,173.62

19,043,581.30

-4,286,574.00 -151,100.00 15,754,499.62

-3,414,093.00 -127,700.00 15,501,788.30

19,021.10 19,021.10

-42,284.14 -42,284.14

-14,370,369.97

-9,812,518.74

BALANCE SHEET (amounts in EUR)

Note 31 December 2015 31 December 2014 ASSETS Cash and cash equivalents (1) 9,839,457.64 54,434,380.79 Other long-term financial placements (1) 111,126,549.20 50,507,297.78 120,966,006.84 104,941,678.57 Other assets Forward contracts Derivative instruments (2) Accrued income Credits with government guarantee outstanding (3) Other loans outstanding (4) Loans with equity features and equity investments outstanding (5) Intangible assets (7) Tangible assets (7)

5,264,159.26 58,770.35 385,917.00 1,324,625.21 744,903,024.72 5,192,532.80

5,425,026.02 4,672,491.00 1,304,204.77 747,764,912.84 5,465,824.00

395,840.40 - 60,773.65

3,475,383.72 42.05 20,704.56

Total assets

878,551,650.23

873,070,267.53

Liabilities Other liabilities Forward contracts

467,129.91 -

574,988.62 30,585.05

Equity (8) Fund capital SDR 515 000 000 Fund capital EUR 330 000 000 Paid-in fund capital

1,021,405,480.71

1,001,836,480.71

Accumulated net result

-143,320,960.38

-129,371,786.84

Total equity

878,084,520.33

872,464,693.87

Total liabilities and equity

878,551,650.23

873,070,267.53

LIABILITIES AND EQUITY

CHANGES IN EQUITY (amounts in EUR 1,000)

Paid-in fund capital Accumulated net result Result for the year Equity as of 1 January 2014 982,336 -119,559 0 Result for the year -9,813 Paid-in fund capital 19,500 Transfers between equity items -9,813 9,813 Equity as of 31 December 2014 1,001,836 -129,372 0 Result for the year -14,370 Paid-in fund capital 19,569 HIPC refund 421 Transfers between equity items -14,370 14,370 Equity as of 31 December 2015 1,021,405 -143,321 0

Total 862,777 -9,813 19,500 0 872,465 -14,370 19,569 421 0 878,085

CASH FLOW STATEMENT (amounts in EUR 1,000) 31 Dec. 2015 31 Dec. 2014 Cash flow from operating activities: Net result for the year -14,370 Depreciation/amortisation on tangible and intangible assets 7 Foreign exchange differences -20,193 Fair value of derivative instruments 4,268 Changes in accrued income -20 Changes in provision for credit losses and write-down of loans -56 Cash flow from operating activities -30,365

-9,813 9 -19,044 3,456 139 235 -25,017

Cash flow from investing activities: Credits disbursed -2,328 Repayments of credits 23,868 Repayments of equity loans and equity investments 3,135 Repayments of other loans 273 HIPS refund 421 Changes in placements with a maturity longer than 6 months -60,619 Changes in other assets and liabilities 53 Changes in derivative instruments -70 Changes in tangible and intangible assets -47 Net cash flow from investing activities -35,314

-6,192 17,126 403 137 0 -15,101 181 54 -3 -3,395

Cash flow from financing activities: Paid-in fund capital Foreign exchange differences

Changes in cash and cash equivalents Cash and cash equivalents consist of:

19,569

19,500

1,515

919

-44,595 -7,993 31 Dec. 2015

31 Dec. 2014

Cash and balances with banks

9,839

54,434

Total cash and cash equivalents

9,839

54,434

The cash flow statement has been prepared using the indirect method and cash flow items cannot be directly concluded from the balance sheet and income statement.

Photo: NDF/Linda Lundqvist

A representative from Ministry of Agriculture, Forestry and Fisheries (MAFF) is visiting Teuk Hout village, Kampong Chhnang Province, Cambodia to see an example of practical small-scale climate change mitigation work. The clean cook stoves distributed through trained female sales agents under the project reduces black carbon emissions and fuel costs while providing a cleaner and safer home environment for the clean cook stove users and a source of income for the sales agents. The stove battery is charged by a solar panel and the stove can also be used for charging a phones and power a LED-light. C26 Gender and Climate Change (ADB RETA 7914 Harnessing Climate Change Mitigation Initiatives to Benefit Women) 16

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S

General Operating Policies The purpose of the Nordic Development Fund (NDF, “the Fund”) is to promote economic and social development in developing countries through participation in financing, on concessional terms, of projects of interest to the Nordic countries.

The Fund’s Financial Statements are presented in EUR. With the exceptions noted below, they are based on historical cost.

NDF was established by an agreement between the Nordic governments signed on 3 November 1988 and the Fund’s operations commenced in February 1989. A new Agreement on the Nordic Development Fund was signed in 1998, replacing the agreement of 1988. The Fund has the legal status of an international legal person, with full legal capacity.

The preparation of financial statements requires management to make assessments and estimates that affect the result, financial position and additional disclosures. Such assessments and estimates are based on available information. Actual results may differ materially from the assessments made.

The headquarters of the Fund are in Helsinki, Finland, at the premises of the Nordic Investment Bank. A Host Country Agreement between NDF and the Government of Finland was signed on 15 October 2013, which entered into force on 11 May 2014. This agreement replaced the Host Country Agreement of 1998. Pursuant to the recommendation of the NDF Board of Directors to the Nordic Council of Ministers, the Nordic Cooperation Ministers approved the amendments to NDF’s bylaws in 2009 making it possible for NDF to provide financing also in the form of grants, in addition to interest-free loans, subordinated loans and equity capital. The capital of NDF is currently utilised in the form of grant aid for climate-related interventions in low-income countries and lower-middle income countries. This capital, approximately one billion euros over a period of 30 years consists of repayments from the 188 credits NDF granted during 1989-2005. The last repayment is due in 2045. Summary of Significant Accounting Policies

Basis of preparation of financial statements The Financial Statements have been prepared in accordance with methods of valuation and recognition of income and expenses as described below. As from 1 January 2001, the Fund’s Financial Statements are presented in EUR in accordance with the decision of the Nordic Council of Ministers of 24 August 2000 to replace SDR with EUR. The paid-in fund capital has been converted into EUR.

Assessments in preparation of financial statements

Foreign currency translation Monetary assets and liabilities denominated in currencies other than EUR are translated into EUR at the rate quoted by the European Central Bank (see Note 12). Any gain or loss arising from the valuation appears in the Income Statement as “Foreign exchange differences” and are mainly related to the SDR rate. As NDF will for many years to come have outstanding credits denominated in SDR, changes in the SDR-EUR rate may lead to the Income Statement showing substantial foreign exchange differences since these currency positions are not 100% hedged against changes in foreign exchange rates. However, measures have been taken to reduce the effects from the foreign exchange differences by hedging 50% of the credits denominated in SDR. Non-monetary assets are recorded in EUR at the EUR rate prevailing on the date of their acquisition.

Cash and cash equivalents Cash and Cash Equivalents consist of monetary assets and placements with an original maturity of up to 6 months.

Derivative instruments Approximately 50% of the SDR portfolio is protected against exchange rate effects through currency options. The derivative instruments are valued at fair value at the end of the year and the change in fair value is recognised in the income statement. In order to increase the return on the liquidity, starting in 2013, NDF has entered into forward and deposition contracts with a commercial bank.

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S

Placements with credit institutions

Other loans outstanding

NDF has during 2015 invested the monetary assets with commercial banks at current market interest rates. The placements are initially recognised at cost (normally nominal value) at settlement date. Placements are also recorded at cost in the Annual Report. Accrued interest on placements is recorded within Accrued Income in the Balance Sheet.

Other loans outstanding consist of loans with financial liability features to the private sector. The loans are initially recognised at cost at settlement day. In the Balance Sheet, other loans outstanding are recorded net of provisions for actual and possible loan losses. A provision for possible loan losses is established based on the assessment of the nature and maturity structure of the loan portfolio.

Placements with credit institutions longer than 6 months are shown as investments in the Cash Flow Statement. The amount is included in the Balance Sheet as Other long-term financial placements.

Credits with government guarantee outstanding The recipient countries for NDF credits are low-income developing countries. The credit period for credits with government guarantee is 40 years, including a 10-year grace period. The loans are interest-free. The credits are initially recognised at cost at settlement date. For payments which are more than 180 days overdue, the Fund places all credits to the borrower in question in non-accrual status, whereupon the Fund stops recording accrued service charges and fee and commission revenue as income on the Income Statement. All accrued but unpaid income in respect of the borrower in question that had been recorded as income is then deducted from the Income Statement. As of 31 December 2015, Zimbabwe was more than 180 days overdue with payments. There is a considerable concessionality in the credits from NDF as they are interest-free and have very long maturities.

Provision for loan losses NDFâ&#x20AC;&#x2122;s lending conditions allow for a long-term view to be taken of the repayment capacity of recipient countries. In the event of debt consolidation, it is assumed that credits from NDF will be treated in the same manner as loans from other multilateral institutions. Credits outstanding are recognised in the Balance Sheet at their recoverable amount. Loans with government guarantee outstanding are recorded net of provisions for possible loan losses and actual loan losses. Provision for possible loan losses is established based on the assessment of the nature and maturity structure of the credit portfolio.

Loans with equity features and equity investments The statutes of NDF enable the Fund, as an integrated and permanent part of its operations, to provide financing to private sector activities in developing countries without government guarantee. Loans with equity features and equity investments are recognised in the Balance Sheet at cost after write-down. The value of outstanding loans with equity features and equity investments are continuously revalued by the Fund. If the book value exceeds the valuation made, a corresponding write-down is made. Write-downs are presented separately in the Income Statement.

Intangible assets Intangible assets mainly consist of investments in software and software licenses for IT-systems. The investments are carried at historical cost and are amortised over the assessed useful life of the assets, which is estimated to be between 3 and 5 years. The amortisations are made on a straight-line basis.

Tangible assets Tangible assets are recognised at historical cost, less any accumulated depreciation based on their assessed useful life. The depreciation period for tangible assets is determined by assessing the individual item, usually 3 to 5 years.

Write-downs and impairment of intangible and tangible assets The Fundâ&#x20AC;&#x2122;s assets are reviewed annually for impairment. If there is any objective evidence of impairment, the impairment loss is determined based on the recoverable amount of the assets.

N O T E S T O T H E F I N A N C I A L S TAT E M E N T S

Equity In August 2000, the Nordic Council of Ministers passed a resolution to increase the capital of NDF by EUR 330 million. After this replenishment, the capital of the Nordic Development Fund amounted to SDR 515 million and EUR 330 million. As of 31 December 2015, SDR 515 million - the equivalent of EUR 691.4 million- and EUR 330.0 million, totalling EUR 1.021 billion has been paid in by the owners. The payments in 2015 constitute the end of the replenishment (NDF IV). Future operations will build on the existing liquidity and the reflows coming from the outstanding credits. As NDF’s operations are grant based the capital will decrease over time and will eventually be exhausted unless there are no future replenishments or changes in the operations towards a more financially sustainable approach.

Income from service charges on lending and income from loans with equity features and equity investments are presented as separate items in the Income Statement. Commitment charges are presented within Fee and commission income.

Grant financing As a disbursement is made to a climate project, the cost is accounted under “Grant financing for climate projects” in the income statement. Upon completion of a project or cancellation of a grant, any refund is written back as a reduction of the total costs for the year under “Refund of grant financing.”

General administrative expenses HIPC Since the World Bank and the International Monetary Fund (IMF) initiated the “Debt Initiative for Heavily Indebted Poor Countries” (HIPC) in 1996, NDF has participated in this debt relief initiative through the HIPC Trust Fund, which is administered by IDA. The enhancement of the initiative carried out in 1999 called for further financial commitments by NDF. To this end, the Nordic Council of Ministers in 2000 approved the amendment of NDF’s statutes in order to provide a general authorisation for the Fund to provide its part of shared contributions under debt relief initiatives in the framework of internationally co-ordinated initiatives in which other multilateral organisations participate. The allocated funds for HIPC were a total of EUR 29.6 million. These funds have been paid in to the HIPC Trust Fund between 1999 and 2010. A refund of EUR 0.4 million was received from the HIPC Trust Fund during 2015.

Income from service and commitment charges, loans with equity features and equity investments The Fund’s long-term lending with government guarantee is interest-free, but a service charge of 0.75% per annum is collected on outstanding amounts. A commitment charge of 0.5 % per annum is collected on any undisbursed balance one year after the loan agreement has been signed. Income from other loans is presented within Service charges from credits in the Income Statement. Income from loans with equity features is normally related to the return received by the shareholders of the company.

NDF receives a host country payment from the Finnish government equal to the tax levied on the salaries of the Fund’s employees. The host country payment, which the Fund received in 2015, amounted to EUR 571,203 (2014: EUR 560,714). The payment is accounted for as a reduction in the Fund’s administrative expenses.

Employees’ pensions and insurance The Fund is responsible for offering pension security to its personnel. In accordance with the host country agreement between the Fund and the Finnish Government, the Fund has adopted the Finnish government employee pension plan for the Fund’s personnel. The Fund’s liability in respect to pension rights is completely covered. Contributions to the pension plan, which are paid to the State Pension Fund, are calculated as a percentage of the salaries. The Ministry of Finance in Finland determines the basis for the contributions and establishes the actual amount of the contributions by recommendation of the local government pensions institution Keva. Under the Finnish pension system at present, the usual age of retirement is 63-68. NDF has also introduced an additional pension system for its permanent employees. The additional pension insurance is a group pension insurance plan that is based on a defined contribution plan. In addition to the Finnish social security system for its employees, NDF has subscribed to a comprehensive life, accident, health, disability and travel insurance programme.

N O T E S T O T H E I N C O M E S TAT E M E N T A N D T H E B A L A N C E S H E E T

(Note 1) Cash and cash equivalents and other long-term financial placements

Credits outstanding:

(EUR 1,000) 31 Dec. 2015 31 Dec. 2014 (EUR 1,000): 31 Dec. 2015 31 Dec. 2014 Bangladesh 33,271 33,104 Cash and cash equivalents Benin 18,539 18,613 Bolivia 29,902 29,431 Cash and balances with banks 9,840 54,434 Botswana 4,085 4,325 Placements with credit institution - Burkina Faso 10,102 10,204 Total, cash and cash equivalents 9,840 54,434 Cambodia 8,892 9,077 Cape Verde 1,982 1,956 Other long-term financial placements China 4,012 4,234 Colombia 1,198 1,151 Other long-term financial placements 111,127 50,507 Dominican Republic 7,452 7,293 Total, other long-term financial placements 111,127 50,507 Ethiopia 26,353 25,790 Ghana 49,428 48,231 Total, cash and cash equivalents and Honduras 31,003 30,947 other long-term financial placements 120,966 104,942 Indonesia 10,814 10,683 Jamaica 5,577 5,460 Kenya 25,449 25,969 The remaining maturity of placements, counted from the balance sheet date to maturity, Kyrgyz Republic 4,194 4,295 is as follows: Lao PDR 49,514 50,551 Malawi 21,867 21,431 (EUR 1,000) 31 Dec. 2015 31 Dec. 2014 Maldives 8,316 8,664 Up to and including 3 months 44,486 15,034 Mauritius 2,274 2,436 More than 3 months and up to and including 6 months 45,966 20,013 Mozambique 58,224 58,930 More than 6 months and up to and including 12 months 20,493 15,035 Mongolia 24,600 24,570 Total 110,945 50,081 Namibia 1,499 1,577 Nepal 19,921 19,987 (Note 2) Derivative instruments Nicaragua 44,663 44,173 Pakistan 8,694 9,209 (EUR 1,000) 31 Dec. 2015 31 Dec. 2014 Philippines 11,202 14,087 Fair value of option contracts at beginning of year 4,672 8,078 Rwanda 12,349 12,499 Purchased option contracts 0 8 Senegal 48,953 47,602 Fair value of option contracts at end of year 386 4672 Sri Lanka 20,304 19,761 Change in fair value -4,287 -3,414 Tanzania 22,523 22,765 Tunisia 4,683 4,893 NDF has received adequate collateral that covers the derivative instrumentsâ&#x20AC;&#x2122; market value. Uganda 52,836 53,335 Vietnam 25,189 25,259 (Note 3) Credits with government guarantee outstanding Zambia 22,659 23,147 Zimbabwe 17,480 16,388 Credits according to lending currency: Credits outstanding 750,001 752,029 (Face value in EUR 1,000) 31 Dec. 2015 31 Dec. 2014 Credits in default (Zimbabwe) 5,098 4,264 EUR-credits 453,013 466,198 Total, credits outstanding 744,903 747,765 SDR-credits 291,890 281,567 Total, outstanding credits 744,903 747,765 In addition, agreements have been signed on a further EUR 3.7 million (2014: EUR 6 million) in credits not yet disbursed.

N O T E S T O T H E I N C O M E S TAT E M E N T A N D T H E B A L A N C E S H E E T

Amortisations on credits outstanding as at 31 December 2015 show the following maturity profile:

(Note 5) Loans with equity features and equity investments outstanding

(EUR 1,000) 31 Dec. 2015 31 Dec. 2014 2015 20,868 2016-2020 125,361 122,579 2021-2025 157,370 153,439 2026-2030 174,055 170,029 2031-2035 150,002 146,275 2036-2040 99,605 97,066 2041-2045 38,510 37,510 Total, credits outstanding 744,903 747,765

Loans with equity features and equity investments are distributed as follows:

(Note 4) Other loans outstanding Other loans outstanding are distributed as follows: (EUR 1,000) 31 Dec. 2015 East African Development Bank 5,193 Total, other loans outstanding 5,193

31 Dec. 2014 5,466 5,466

Amortisations on other loans outstanding as at 31 December 2015 show the following maturity profile: (EUR 1,000) 31 Dec. 2015 31 Dec. 2014 2015 273 2016-2020 1,366 1,366 2021-2025 1,366 1,366 2026-2030 1,366 1,366 2031-2035 1,093 1,093 Total, other loans outstanding 5,193 5,466

(EUR 1,000) 31 Dec. 2015 31 Dec. 2014 Mekong Enterprise Fund 528 528 Nepal 0 2,913 Aureos Southern Africa Fund 0 223 Total, loans with equity features and equity investments outstanding 528 3,663 Write-down -132 -188 Total, loans with equity features and equity investments outstanding after write-down 396 3,475 As at 31 December 2015, the write-down for impairment totalled EUR 131,947 (2014: EUR 187,624) based on assessment of the risk of losses which exists or may exist. The reversals for 2015 of previously made provisions for credit losses amounted to a total of EUR 55,677.

(Note 6) Loan losses, write-down of loans and reversals The total net loan losses, write-down on loans and reversals during 2015 totalled EUR -55,677 (2014: EUR 235,112). No realised loan losses occurred during 2015 (2014: EUR 447,947).

(Note 7) Intangible and tangible assets (Amounts in EUR) 2015 2014 Intangible assets Computer Computer software software Acquisition value at beginning of year 5,797 5,797 Acquisitions during the year 0 0 Acquisition value at end of year 5,797 5,797 Accumulated amortisation at beginning of year 5,755 5,665 Amortisation according to plan for the year 42 90 Accumulated amortisation at end of year 5,797 5,755 Net book value 0 42 Tangible assets Office Office equipment equipment Acquisition value at beginning of year 60,166 57,492 Acquisitions during the year 46,806 2,674 Acquisition value at end of year 106,972 60,166 Accumulated depreciation at beginning of year 3 9,461 30,863 Depreciation according to plan for the year 6,737 8,598 Accumulated depreciation at end of year 46,198 39,461 Net book value 60,774 20,705 Intangible and tangible assets total 60,774 20,747

N O T E S T O T H E I N C O M E S TAT E M E N T A N D T H E B A L A N C E S H E E T

(Note 8) Equity The member countries have subscribed the following amounts of the total Fund capital: Subscribed fund capital as at 31 December 2015 (EUR 1,000) SDR % EUR % Denmark 115,067 22 82,500 25 Finland 96,726 19 58,740 18 Iceland 5,453 1 3,300 1 Norway 101,591 20 74,250 23 Sweden 196,163 38 111,210 34 Subscribed fund capital 515,000 100% 330,000 100% he member countries have paid in the following amounts of the total fund capital: T Fund capital Fund capital Fund capital Paid-in Fund capital (EUR 1,000) 31 Dec. 2014 in SDR Translated into EUR 31 Dec. 2014 in EUR 31 Dec. 2014 Total Denmark 115,067 153,858 77,608 231,466 Finland 96,726 130,592 55,257 185,849 Iceland 5,453 7,303 3,103 10,406 Norway 101,591 136,354 69,848 206,202 Sweden 196,163 263,299 104,615 367,914 Paid-in fund capital 515,000 691,405 310,431 1,001,836

% 23% 19% 1% 21% 37% 100%

Paid-in Paid-in Paid-in Paid-in fund capital (EUR 1,000) during 2015 in SDR Translated into EUR during 2015 in EUR total during 2015 Denmark 4,892 4,892 Finland 3,483 3,483 Iceland 197 197 Norway 4,402 4,402 Sweden 6,595 6,595 Paid-in fund capital 19,569 19,569 Paid-in fund capital (EUR 1,000) Denmark Finland Iceland Norway Sweden Paid-in fund capital

Fund capital 31 Dec. 2015 in SDR Translated into EUR 115,067 153,858 96,726 130,592 5,453 7,303 101,591 136,354 196,163 263,299 515,000 691,405

Fund capital 31 Dec. 2015 in EUR 82,500 58,740 3,300 74,250 111,210 330,000

Fund capital 31 Dec. 2015 Total 236,358 189,332 10,603 210,604 374,509 1,021,405

N O T E S T O T H E I N C O M E S TAT E M E N T A N D T H E B A L A N C E S H E E T

(Note 9) Grant financing for climate projects Disbursements for grant financing for climate projects amounted to EUR 37.0 million in 2015 (2014: EUR 30.5 million). The geographic distribution is as follows: (EUR 1,000) Africa Asia Multiple regions Latin America

31 Dec. 2015 31 Dec. 2014 15,241 14,097 6,556 5,856 4,011 93 11,191 10,450 36,999 30,497

In addition, projects have been approved on a further EUR 85.1 million (2014: EUR 101.6 million) in grant financing but not yet disbursed.

(Note 10) General administrative expenses including compensation for the Board of Directors, the Control Committee and the Managing Director

Professional staff (including the Managing Director) who move to Finland for the sole purpose of taking up employment in the Fund, are entitled to certain expatriate benefits, such as an expatriate allowance and a spouse allowance. In addition, NDF assists the expatriate in finding a residence and in other practical arrangements. Such staff members are required to reimburse the Fund part of the rent equivalent to the minimum tax value of the accommodation benefit received. The tax value is determined annually by the Finnish tax authorities. Compensation for the Chairman of the Board of Directors, the Board, the Control Committee and the Managing Director appears in the table below:

(amounts in EUR) Chairman of the Board of Directors Other members of the Board Managing Director Control Committee

2015 2014 Compensation/ Compensation/ taxable income taxable income 5,149 5,144 18,491 18,222 294,618 291,058 1,500 1,500

During 2015, NDF paid a total of EUR 90,948 (2014: EUR 90,519) in pension premiums for the Managing Director.

General administrative expenses 2015 2014 (EUR 1,000) (Note 11) Transactions between closely related partners Personnel costs 1,749 1,723 Pension premiums in accordance with the NDF receives services and enters into transactions with NIB. The outstanding claims and debts Finnish state pension system 404 401 between NDF and NIB as well as interest charged during the year are presented in the table below. Other pension premiums 91 87 The interest charged corresponds to the normal market rate (EUR 1,000): Office premises costs 91 171 Other general administrative expenses 839 709 Interest NDF’s outstanding NDF’s outstanding Rental Cost coverage, NIB 311 313 income debt to NIB claim on NIB expenses Total 3,485 3,404 2015 0 2 3 52 2014 3 9 5 141 Host country reimbursement according to agreement with the Finnish Government -571 -561 (Note 12) Currency exchange rates Net 2,914 2,843 EUR rate on 31 Dec. 2015 EUR rate on 31 Dec. 2014 Compensation for the Board of Directors and the Control Committee is set by the Nordic Council of DKK Danish krone 7.4626 7.4453 Ministers. Compensation for the Fund’s Managing Director is set by the Board of Directors and is paid ISK Icelandic króna 141.15* 154.15* in the form of a fixed annual salary and usual salary-based benefits. NOK Norwegian krone 9.603 9.042 SEK Swedish krona 9.1895 9.393 The Managing Director is permitted to borrow from a commercial bank at interest rates that are the USD US dollar 1.0887 1.2141 same for all of the Fund’s employees. The rates are set with reference to the so-called base rate SDR Special Drawing Rights 0.78565** 0.838** determined periodically by Finland’s Ministry of Finance. * Reuters closing. ** IMF (International Monetary Fund) closing per 31 December 2015 and per 31 December 2014. The pension benefits for the Managing Director are based on the Finnish State pension system, with certain additions.

Photo: NDF/Aage JĂ¸rgensen

A U D I T O R S ’ R E P O RT

INDEPENDENT AUDITORS’ REPORT To the Control Committee

judgment, including the assessment of the risks of material misstatement of the financial statements,

of the Nordic Development Fund

whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements

Independent Auditors’ report on the financial statements

in order to design audit procedures that are appropriate in the circumstances, but not for the

In our capacity as auditors appointed by the Control Committee of the Nordic Development Fund we have audited the accompanying financial statements of the Fund, which comprise the balance sheet as at 31 December 2015, and the income statement, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.

purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a

The Board of Directors’ and the Managing Director’s responsibility for the financial statements The Board of Directors and the Managing Director are responsible for the preparation of the financial statements in accordance with the accounting principles described in the notes to the financial statements and for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

basis for our audit opinion.

Opinion In our opinion, the financial statements, which comprise the balance sheet as at 31 December 2015, and the income statement, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes, are prepared in all material respects in accordance with the accounting principles described in the notes to the financial statements.

Auditors’ responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s

Report on the other requirements In accordance with the Terms of Engagement our audit also included a review of whether the Board of Directors’ and the Managing Director’s administration have complied with the Statutes of the Fund. It is our opinion that the administration of the Board of Directors and the Managing Director complied with the Statutes of the Fund.

Helsinki, 3 March 2016

SIXTEN NYMAN

Hans Åkervall

Authorised Public Accountant

KPMG Oy Ab

KPMG AB

Töölönlahdenkatu 3A

Tegelbacken 4A

00100 Helsinki

103 23 Stockholm

Finland

Sweden

A U D I T O R S ’ R E P O RT

Statement by the Control Committee of the Nordic Development Fund on

Following the audit performed, we note that:

the audit of the administration and accounts of the Fund

• the Fund’s operations during the financial year have been conducted in accordance with the Statutes, and that

To the Nordic Council of Ministers

• the financial statements, which comprise the balance sheet as at 31 December 2015, and the income statement, statement of changes in equity and statement of cash flows for the

In accordance with section 9 of the statutes of the Nordic Development Fund, we have been

year then ended, and a summary of significant accounting policies and other explanatory

appointed to ensure that the operations of the Fund are conducted in accordance with the

notes, are prepared in all material respects in accordance with the accounting principles

Statutes and to bear responsibility for the audit of the Fund. Having completed our

described in the notes to the financial statements. The financial statements show a loss of

assignment for the year 2015, we hereby submit the following report.

EUR 14,370,369.97 which will be carried forward to new account.

The Control Committee met during the financial year as well as after the Fund’s financial

We recommend to the Nordic Council of Ministers that:

statements had been prepared, whereupon the necessary control and examination measures

• the income statement and the balance sheet be adopted, and

were performed. The Fund’s Annual Report was examined at a meeting in Helsinki on 3

• the Board of Directors and Managing Director be discharged from liability for the

March 2016, at which time we also received the Auditors’ Report submitted on 3 March 2016

administration of the Fund’s operations during the accounting period examined by us.

by the authorised public accountants appointed by the Control Committee.

Helsinki, 3 March 2016 BILL FRANSSON Karin Gaardsted Michael Tetzschner Penilla Gunther Arto Pirttilahti Höskuldur Þórhallsson

22 26

G R A N T P O RT F O L I O

AFRICA Country/ Project

Partner Agency

Million

Year of signing

Benin Increased Access to Modern Energy Project Modernizing Biomass Energy Services

1.5 EUR

2010

Kenya Electricity Expansion Off-Grid Project Training in Geothermal Drilling

WB WB

4.0 EUR 1.5 EUR

2012 2015

WB WB

3.8 EUR 4.5 EUR

2012 2013

WB AfDB WB

4.0 EUR 3.8 EUR 5.0 EUR

2013 2014 2015

Rwanda Investment Subsidies for Solar Water Heaters Climate-Resilient Road Transport Infrastructure

WB WB

4.0 EUR 4.4 EUR

2011 2016*

Senegal Water and Sanitation Millennium Project Cambérène Climate Change Biomass (PROGEDE II) Flood Risk Management

WB WB WB

4.0 EUR 3.0 EUR 7.0 EUR

2011 2011 2013

Mozambique Coastal Cities and Climate Change Transforming Hydro-Meteorological Services Scalable Community-Managed Climate Change Adaptive Solutions Developing Capacity for a Climate Resilient Road Sector Aquaculture and Climate Change

Country/ Project Tanzania Impacts of Climate Change in Coastal Areas Hydropower Sustainability Assessment Climate Smart Solutions for Water and Energy - Lifelink Institutional Strengthening for Urban Climate Adaptation and Mitigation Uganda Increasing Access to Modern Energy Packages in Rural Areas Farm Income Enhancement and Forest Conservation Project 2 (FIEFOC 2) Zambia Developing Climate resilient Infrastructure and Capacity Climate Resilient Procedures and Standards in Rural Water Supply and Sanitation Regional Addressing the Vulnerability of Africa’s Infrastructure Insurance Instruments for Africa Climate Adaptation Sub-Saharan Drylands - Towards Enhanced Resilience Geothermal Exploration Project in East Africa ClimDev Special Fund Call for Proposals for Preparations of Water and Climate Change Investment Programs and Projects Climate Financing Readiness Climate Change and Health West Africa Coastal Area Erosion and Adaptation *) tentative

Regional Distribution of Approved Financing EUR 235.7 million 5% Multiple regions

29% Latin America 45% Africa

21% Asia

Partner Agency Million

Year of signing

WB WB WB

0.8 EUR 0.5 EUR 0.5 EUR

2012 2013 2015

5.0 EUR

2015

3.0 EUR

2010

AfDB

5.3 EUR

2016*

4.0 EUR

2014

AfDB

2.3 EUR

2015

WB WB WB Iceida AfDB

0.6 0.5 0.5 5.0 5.0

EUR EUR EUR EUR EUR

2012 2012 2012 2012 2014

AfDB WB WB WB

6.0 EUR 0.5 EUR 0.5 EUR 0.5 EUR

2014 2015 2015 2015

G R A N T P O RT F O L I O

ASIA Country/ Project

Partner Agency Million

Bangladesh NAMA Proposal for Railway

Year of signing

Country/ Project Vietnam Support for the National Target Program on Climate Change Integrating Climate Change Adaptation to Transport Pilot Programme for Mitigation Action in the Cement Sector Innovative and Climate Resilient Housing in the Mekong Delta

ADB

0.3 EUR

2014

ADB ADB ADB

4.2 EUR 3.0 EUR 4.0 EUR

2011 2011 2014

Cambodia Adaptation Approaches for the Transport Sector Water Resources Management Rural Roads Improvement Project II Integrating Gender Considerations in Climate Change Adaptation Monitoring, Reporting and Evaluation of Adaptation Investments

ADB

0.5 EUR

2016*

ADB

0.5 EUR

2016*

Lao PDR Pakse Urban Environmental Improvement Project Capacity Enhancement for Coping with Climate Change

ADB ADB

0.3 EUR 2.0 EUR

2009 2010

Nepal Pilot Project to Test the Climate Change Benefits of Biochar Building Climate Resilience of Watersheds in Mountain Eco-Regions

ADB

0.5 EUR

2013

ADB

3.6 EUR

2014

Regional Energy and Environment Partnership (EEP) UM Climate-Friendly Bioenergy Gender and Climate Change Resilient Cities in the GMS: Adapting Cities to Climate Change Climate Resilience and Low Carbon Strategies in the GMS Improving Nitrogen Use Efficiency for Climate Change Mitigation and Adaptation Transport NAMA Facility Strengthening Resilience to Climate Change in the Health Sector in GMS

Partner Agency Million

Year of signing

ADB ADB

1.9 2.0 NOAK/Nefco 1.5 ADB 0.5

EUR EUR EUR EUR

2011 2012 2013 2015

Finland ADB ADB ADB ADB

3.0 3.1 2.4 0.4 4.0

EUR EUR EUR EUR EUR

2010 2011 2011 2012 2013

ADB ADB

3.7 EUR 0.5 EUR

2013 2015

ADB

4.0 EUR

2015

*) tentative

Distribution by Partner Agency

18% Nordics and bilateral 2 7 % Wo r l d B a n k 9% AfDB

28% IDB

18% ADB

G R A N T P O RT F O L I O

L AT I N A M E R I C A Country/ Project

Partner Agency

Bolivia Rural Electrification with Renewable Energy Pilot Adaptation Plan of Action for High Inter-Valley Communities

Million

Year of signing

Country/ Project

Adaptation to Climate Change in Honduras and Nicaragua IDB Microfinance and Climate Change Programme IDB/MIF Geothermal Training Programme IDB Economics of Climate Change IDB GreenPYME II IIC Climate Change and Sustainable Cities IDB Energy Efficiency Technical Assistance and Guarantee Fund IDB Building Climate Resilience in MSMEs IDB IDEAS Energy Innovation Contest IDB Emerging and Sustainable Cities Initiative (ESCI) II IDB EcoMicro 2 IDB Green Climate Fund Readiness Support for Central America and Bolivia IDB Climate-Smart Agriculture Fund for Latin America and the Caribbean IDB

IDB

4.0 EUR

2015

IDB

4.0 EUR

2014

Honduras Indigenous People and Climate Change Asset Adaptation to Climate Change Renewable Energy Development in the Bay Islands Conservation of Mangrove Ecosystems and Sustainable Livelihoods for Coastal Communities

IDB IDB IDB

3.5 EUR 0.2 EUR 0.5 EUR

2012 2013 2014

IDB

3.1 EUR

2016*

Nicaragua Sustainable Electrification and Renewable Energy Program Programme for Disaster Management and Climate Change Biogas Market Facilitation Program Adaptation to Climate Change in Road Transport Sector

IDB IDB IDB/MIF IDB

4.5 2.5 1.5 4.4

2011 2011 2011 2012

Regional GreenPYME: Energy Efficiency for Small and Medium-Sized Enterprises Climate Proofing and Review of Infrastructure Investments

IIC IDB

EUR EUR EUR EUR

2.2 EUR 1.5 EUR

2010 2011

Partner Agency

Nordic Climate Facility 1 Nordic Climate Facility 2 Nordic Climate Facility 3 Nordic Climate Facility 4 Nordic Climate Facility 5 Nordic Climate Facility 6 Social Analysis and Adaptation to Climate Change Market for Climate Resilience in LAC, Africa and Asia

250

200 180 160 140 120 100 80 60 40 20 0

70 60 50 40 30 20 10 2011

Cumulative signed volume

2012

2013

2014

2015

Cumulative signed amount

Number of Agreements

MEUR

Signed Grant Agreements; Vo l u m e M E U R a n d n u m b e r ( c u m u l a t i v e )

2010

Year of signing

0.5 EUR 1.5 EUR 1.5 EUR 0.5 EUR 3.0 EUR 2.1 EUR 8.0 EUR 3.5 EUR 0.2 EUR 4.0 EUR 4.1 EUR

2011 2011 2012 2012 2012 2012 2013 2013 2013 2014 2015

0.5 EUR

2015

5.0 EUR

2016*

6.0 EUR 6.0 EUR 6.0 EUR 4.0 EUR 4.0 EUR 6.0 EUR 0.2 EUR 0.5 EUR

2010 2011 2011 2013 2015 2015 2012 2016*

region

*) tentative

2009

Million

NEFCO NEFCO NEFCO NEFCO NDF NDF None IDB

Photo: Jacib Dall

Nordic Development Fund • Annual Report 2015 • Lay-out: Kubik advertising • Printed by Lönnberg, Finland 30

Photo: Jake Lyell / Alamy Stock Photo

Nordic Development Fund (NDF) P.O. Box 185 FIN-00171 Helsinki, Finland Offices: Fabianinkatu 34 Telephone +358 10 618 002 Telefax +358 9 622 1491 E-mail: info.ndf@ndf.fi Internet: http://www.ndf.fi