NDF Newsletter 4/2012

NEWSLETTER Nordic

Development

Fund

4 4

/ 2012

NDF intensifies its anti-corruption cooperation with other international finance institutions includes joint definitions on fraudulent and corrupt practices as well as common principles and guidelines for investigations.

The deterrent effect of a debarment by one of the IFI’s was strengthened in 2010, when an Agreement on Mutual Recognition of Debarment Decisions was signed by several of the leading IFIs. This “cross debarment” means that if an entity is debarred by The international financial one IFI, it may be sancinstitutions (IFIs), includ- tioned for the same misconduct by other partiing the World Bank, the Asian Development Bank, cipating institutions.

NDF is committed to the Inter-American Deveworking proactively to lopment Bank and the prevent fraud and corrupAfrican Development tion in its operations.

Bank, have in recent years intensified their co- Risks related to fraud and corruption, and available operation in combating mitigation measures are fraud and corruption. A analysed in all project Uniform Framework for stages. NDF continuously Preventing and Combating Fraud and Corruption works to raise awareness among its staff; NDF also was signed in 2006 and Corruption and fraudulent behaviour undermine the outcomes of investment projects around the world.

Climate change related projects in developing countries are no exception. By acknowledging the most plausible weak links in the projects and understanding the basic incentives for corruptive behaviour, NDF can achieve its desired outcomes.

arranges training in order to learn, for example, how to spot “red flags” and how to handle information on fraud and corruption.

During the last two years, NDF has reviewed and updated its policies and work processes. Since NDF has close cooperation with the above mentioned IFIs, it was natural to aim for harmonisation of the anti-corruption policies with these institutions. Although not part of the joint agreements of the IFIs, NDF has incorporated to a large extent the same principles and definitions into its own anti-corruption policy and guidelines.

NDF’s new Policy on Anti-corruption and Integrity and Anti-corruption Guidelines were approved by the Board of Directors in September 2012. Both documents can be found under Publications on NDF’s web page (www.ndf.fi).

“Fighting fraud and corruption is top priority.

Cross debarment, increased information sharing and coordinated investigations provide powerful tools for the international finance institutions to address fraud and corruption. I welcome NDF’s efforts to contribute to the international cooperation in this area which ultimately will have a big impact on development effectiveness too,” says Mr. Heikki Holmås, the Norwegian Minister of International Development.

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2012

Providing support to the initial stages of geothermal development in East Africa Agency (ICEIDA) and NDF, is the initial phase of the Geothermal Compact program. The objective of the project is to assist the countries in completing the exploratory phase of geothermal development and building required capacity in the field. The proposed activities, reconnaissance and exploration, are the most risky stages of geothermal development, as the potential is uncertain. Therefore, it is generally difficult to find financing for geothermal exploration activities.

Subject to ICEIDA’ s positive financing decision, both ICEIDA and NDF will each provide EUR 5 million to the project. NDF is primarily supporting the exploration component,

which includes geological, geothermal and structural mapping, chemical analyses of geothermal springs, and geophysical investigations. ICEIDA, who will act as the Lead Agency, have several years of experience in working with geothermal development in the region.

Geothermal exploration is subject to great uncertainties. The outcome of exploration is never foreseen. Conditions can be very different from one geothermal area to another. Nevertheless, both positive and negative exploration results have a certain value. Negative exploration results will allow the EARS countries to make more informed

Burundi, Comoros, Democratic Republic of Congo, Djibouti, Eritrea, Ethiopia, Kenya, Malawi, Mozambique, Rwanda, Tanzania, Uganda, Zambia

decisions regarding their energy planning, while positive explorations results may leverage additional geothermal investments to the region.

Photo: Juhani Annanpalo

The East African Rift Valley States (EARS) covering 13 countries – from Eritrea in the north to Mozambique in the south - suffer from poor access to electricity.

Several countries in the region suffer from power shortages due to a combination of periodic droughts linked to climate change effects on hydropower generation, rapid population growth and volatile oil prices. According to the World Bank, on average, only 14.5 % of the population in the region have access to electricity. Yet, the need and demand for electrical energy is growing rapidly.

Geothermal energy is an environmentally friendly and abundant renewable energy source. It can help increase the populations’ access to energy and at the same time reduce the growth rate of greenhouse gas emission in the region by replacing fossil fuels and traditional biomass. The geothermal potential in Africa mainly lies in the EARS region. The total geothermal potential in the area is uncertain, but some estimates suggest up to 14,000 MW. Most of the countries have not yet started exploring their geothermal potential, since there are some severe barriers; mainly high upfront investment costs, drilling/ reservoir risk and long development time. To mitigate these barriers, the World Bank and Iceland have joined forces and developed a partnership program called the Geothermal Compact. The main objective of the program is to increase the countries’ access to environmentally friendly geothermal energy.

The Geothermal Exploration Project, which is proposed to be financed by the Icelandic Development

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Evaluation of the Nordic Climate Facility

Bolivia increases the use of renewable energy The energy need in Bolivia is growing and the access to energy in rural areas is very limited. There are several off-grid localities especially in the northern and eastern parts of the country that rely on isolated diesel power plants.

In 2008, the Government of Bolivia approved the electricity program Programa Electricidad para Vivir con Dignidad (PEVD), whose objective is to achieve universal access to electricity in urban areas by 2015 and in rural areas by 2025. Currently, the majority of Bolivia’s electricity generation is based on fossil fuels, mainly natural gas. The PEVD will include a variety of technological options, such as extension of medium- and low-voltage electricity networks, wind generators, and small hydroelectric plants.Under the PEVD programme and in connection to an on-going Inter-American Development Bank electricity access project, NDF intends to finance several climaterelevant –activities.

One of the activities aims to replace or hybridise diesel generation units in rural electricity systems with renewable energy such as solar, wind or micro hydro generation.

There are currently about ten potential locations identified for this type of hybrid systems outside the national grid currently supplied by diesel generators. Bolivia has exceptionally favourable conditions for solar energy. The country is located near the Equator, and there is also potential for wind and hydro generation. In contrast, fuel for existing power plants needs to be transported over long distances, and it is subsidised by the central Government. By installing renewable energy sources next to existing diesel power stations, the use of diesel fuel will be reduced and thus lead to a reduction in greenhouse gas emissions. Furthermore, the fuel transportation as well as cost of subsidies paid by the Government will be reduced.

The other activity intends to provide electricity and water heating to public buildings in rural areas using solar photovoltaic and solar water heater systems. The targeted buildings will be schools, clinics and government buildings. In addition, 250 solar charging systems will be installed for the charging of portable lanterns to be used by nearby households.

Efficient portable LED lanterns will be provided to the households. This will reduce the use of kerosene lamps and candles, lead to reduction in CO2 emissions, and improve indoor air quality.

NDF will provide EUR 4 million for the financing of these activities.

The overall objective of the NDF-financed activities is to mitigate climate change by replacing fossil fuels by renewable energy in rural areas, and at the same time increase the access to energy and the reliability of energy supply.

The Board of Directors of NDF has agreed to undertake an independent evaluation of the Nordic Climate Facility (NCF).

The evaluation, which is expected to start in early 2013, will document lessons learned from the three calls for proposals launched under the facility. The evaluation report is foreseen to be delivered in the third quarter of 2013.

The Nordic Climate Facility is financed by NDF and jointly administered with the Nordic Environment Finance Corporation (NEFCO).

The facility provides partial grants to development projects that have the potential to combat climate change, decrease emissions and reduce poverty in low-income countries in Africa, Asia and Latin America. It encourages innovation and promotes technological transfers in sectors susceptible to climate change. Financing is granted to Nordic institutions, organisations, companies and authorities which have established cooperation with a partner in low-income countries.

The facility is based on calls for proposals.

Each call focuses on specific themes relating to climate change. Since the start, three calls for proposals have been launched and in total 442 proposals have been received. Fourteen contracts were signed under the first call and twelve under the second.

Thirteen projects have been selected for final negotiations under the third call for proposals.

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NDF is financing a hydropower sustainability assessment in Tanzania The power sector in Tanzania has a huge impact on the country’s economy as power security is essential for economic growth. Loadshedding and especially black-outs cause increased costs for households and businesses, which are forced to produce electricity at high cost from diesel generators as a back-up. In addition, shortage of fuel to the diesel generators implies further uncertainty in the electricity supply, even with generators in place.

Electricity generation in Tanzania is to a large extent based on fossil fuels, mainly natural gas and diesel, and the situation is expected to remain the same. Very little attention has been given to the country’s abundant hydropower resources, although the potential hydropower sites have lower or equal levelised costs per energy produced compared to natural gas and coal-based power plants. However, due to problems with power supply from the hydropower systems during a number of low rainfall years, there has been a strong perception that climate change has made hydropower a risky source of energy. Thus, there is a great need to clarify whether the risks asscociated with hydropower development are because of climate change or poor watershed management and operation or both.

It is also important to clarify if such risk can be mitigated and how a balance could be found between multi-purpose uses of water. There is also a need to clarify what the real potential hydropower could have in the future power generation mix.

No comprehensive climate change predictions have been conducted for Tanzania. The Government of Tanzania is responding to the country’s climate change vulnerability and is in the process of finalising a National Climate Change Strategy and Action Plan. The strategy

emphasises the need to continue to assess any additional possible impacts of climate change on Tanzania, regularly review the sufficiency of existing adaptation measures, identify new measures as necessary and establish national systems to actively monitor and manage these impacts. Therefore, the World Bank, the UK Department for International Development and NDF intend to finance a EUR 1.6 million hydropower sustainability assessment, of which NDF will finance EUR 0.5 million. Such assessment will provide important guidance to develop and implement power master plans for the next 30 years and will provide concrete suggestions for necessary investment in climate change adaptation measures.

The project has the potential to change the current fossil fuel-based energy generation practice towards more hydrobased system by providing facts and advice on how to adapt to future change in hydrological conditions. The assessment has the potential to establish a growth pathway for the country that is resilient to climate change and able to adapt to future change.

FINANCING FOR CLIMATE CHANGE PROJECTS IN LOW-INCOME COUNTRIES The Nordic Development Fund (NDF) provides financing for climate change interventions in low-income developing countries. NDF is the joint development finance institution of the Nordic countries—Denmark, Finland, Iceland, Norway and Sweden—and finances projects in cooperation with other development institutions.

Nordic Development Fund NORDIC DEVELOPMENT FUND, P.O. Box 185, FIN-00171 Helsinki, Finland (Visiting address: Fabianinkatu 34), Tel: +358 10 618 002, Fax: +358 9 622 1491, E-mail: info.ndf@ndf.fi, www.ndf.fi NDF Newsletter presents NDF's operations. The newsletter is published as needed. Layout Kubik, print Libris Oy.