2.2.3 Foreign Lending
Issues
Foreign loans for technology acquisition are provided by both governments (partly
through multilateral lending institutions) and private sector financial institutions,
with loan recipients falling into both categories as well
1.
Loans come with an obligation to repay interest and principal. If loan principal
and interest are not repaid on schedule the credit worthiness of the borrower
can be downgraded, making access to new capital difficult. Unless hedged, loans
also create foreign currency exposure, with its attendant risks (WBCSD, 1998).
Historically, much of MDB lending has gone for large projects, including those
in the energy sector or with some other link to climate change (more on MDB
in Section 5.2.4).
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| Figure 2.2: Number of Approved Projects and Commitments under
the Montreal Protocol Multilateral Fund; (Multilateral Fund Secretariat, 1998.) |
Lending Trends
Lending by multilateral development banks to climate change relevant sectors
has declined during the past decade. Loans for industrial development, for instance,
decreased from US$8 billion in 1990 to US$4 billion in 1994 (UNIDO, 1997) due
to the reduced emphasis on project lending by these banks and better access
by developing countries to international capital markets. After a steep rise
in the 1990s, the financial crisis in East and Southeast Asia brought about
a sharp decrease in private external capital flows to most developing countries
in that region. Net private foreign bank lending turned negative for the group
of countries most affected by the crisis (ICC, 1998), and total global international
bank lending to developing countries went from US$86 billion in 1996 to US$12
billion in 1997 to negative US$65 billion in 1998 (OECD, 1999c). Lending from
multilateral development banks, however, did not change significantly during
the same period. Bond lending to the same countries, which had increased rapidly
in the 1990s, fell as well, dropping from US$83 billion in 1997 to US$37 billion
a year later (OECD, 1999c).
World Bank Group lending for energy investments is about one-fifth to one-sixth
of the Group's total commitments, or an average of $3 billion per year during
1995 to 1999 (World Bank, 1999). Over roughly the same period, World Bank lending
for renewable energy (excluding large-scale hydropower and traditional geothermal)
was $275 million in loans, credits and grants, or less than 10 per cent of the
sector total. The trend, however, is more encouraging. During a period where
lending for energy projects generally decreased, the Bank's commitments for
energy efficiency and renewable energy increased. The number of projects that
can be considered climate-friendly is projected to increase from 80 during the
period 1996 to 1998 ($1.9 billion) to 160 during the period 1999 to 2001 ($2.3
billion), as shown in Table 2.2 (World Bank, 1998b
and 1999).
| Table 2.2 World Bank Group Environmental
Strategies Record: Energy Sector |
| CATEGORY |
ACTUAL LENDING
THREE-YEAR TOTAL 1996-1998 |
PIPELINE
THREE-YEAR TOTAL1999-2001 |
| |
NUMBER OF
PROJECTS |
FUNDING - ALL WBG SOURCES
($ MILLION)
|
NUMBER OF PROJECTS |
FUNDING - ALL WBG SOURCES ($ MILLION) |
| End-use efficiency |
13 |
571 |
11 |
280 |
| District heating |
4 |
261 |
7 |
471 |
| Supply side efficiency and T&D loss reduction |
7 |
410 |
10 |
536 |
| Environmentally innovative energy projects |
6 |
201 |
6 |
100 |
| Renewable energy (on and off grid) |
11 |
274 |
23 |
902 |
| Oil and gas (environmentally innovative only) |
4 |
174 |
4 |
86 |
| Power sector reform |
31 |
N/A |
94 |
N/A |
| Coal sector reform |
4 |
N/A |
5 |
N/A |
| Total |
80 |
1,891 |
160 |
2,375 |
The World Bank Group's lending commitments in the renewable energy and energy
efficiency areas have risen concomitantly with financing provided through the
Global Environment Facility (GEF, 1998b) (see Box 2.1
and also Section 5.2.4 and Box 5.2).
The financing trends provide strong evidence that GEF funds have not displaced
or substituted for World Bank financing, but may instead have helped redirect
it. New renewable and energy efficiency projects are still very few in number
and to a large extent can be traced to programmes supported by donor governments
in specific countries, mostly in South and East Asia. The need to bring these
types of projects into the mainstream is recognised in the World Bank's new
energy strategy.
Apart from the IBRD and regional development banks, other multilateral development-finance
institutions lend for projects in areas related to climate change issues. The
OPEC Fund for International Development, an example of a South-South lending-development-finance
institution, has committed loans and grants totalling US$5.1 billion since it
was founded in 1976 (OPEC, 1999). Almost 50 per cent of loans have gone for
projects in the energy, industry, and transportation sectors. The Fund also
provides grants to support technical assistance, research, and similar activities,
and has a focus on the least developed and other low-income countries.
| BOX 2.1: DEDICATED FUNDS PROMOTING TECHNOLOGY
TRANSFER |
|
Two multilateral funding mechanisms promote the transfer of technologies
to developing countries in order to address global environmental problems:
the Global Environment Facility and the Montreal Protocol Multilateral
Fund2
(see also Section 5.2.4 and Box 5.2 for GEF and
Section 3.3.3 for the Montreal Protocol).
The Global Environment Facility (GEF) has since 1992 promoted technology
transfer of energy efficiency and renewable energy technologies to developing
countries3
. The early focus was on government-driven efforts, but the aim of current
GEF programmes is to catalyse sustainable markets and enable the private
sector to transfer technologies. An initial three-year pilot phase focused
on cost-effectiveness of greenhouse-gas emissions reductions. Following
the pilot phase, the GEF in 1996 adopted specific operational programmes
for promoting energy efficiency and renewable energy technologies by reducing
barriers, implementation costs, and long-term technology costs (GEF 1996,
1997). Additional programmes for energy-efficient transport and carbon
sequestration are being developed.
From 1991 to 1999 the GEF approved $700 million for 80 energy efficiency
and renewable energy projects in 40 countries (GEF 1999). The total cost
of these projects is $5.0 billion, as the GEF has leveraged financing
through loans and other resources from governments, other donor agencies,
the private sector, and the three GEF project-implementing agencies. An
additional $200 million in grant financing has been provided for enabling
activities and short term response measures; the total number of recipient
countries is 120.
GEF projects are testing and demonstrating a variety of financing and
institutional models for promoting technology transfer (GEF, 1999 and
GEF, 1998a). Fourteen projects diffuse photovoltaic technologies in rural
areas through local community organisations, financial intermediaries,
local photovoltaic dealers/entrepreneurs, and rural energy-service concessions.
Several projects assist public and private project developers to install
grid-based wind, biomass and geothermal technologies. For energy-efficiency
technologies, projects promote technology diffusion through energy-service
companies, utility-based demand-side management, private-sector sales
of efficient lighting products, regulatory frameworks for municipal heating
markets, and development and marketing of more efficient refrigerators
and industrial boilers through foreign technology transfer.
The Multilateral Fund helps developing countries eliminate their use
of ozone-depleting substances. Since the Fund was established in 1991,
over $775 million has been approved for 2,565 projects in developing countries
that are Parties to the Protocol. Some 85 per cent of the total (over
US$660 million) has been used for investment projects, in which ODS-based
technologies have been replaced by more environmentally benign alternatives,
or is directly related to investment project preparation (Figure
2.2).
The Fund has also supported a variety of non-investment projects, including
the preparation of country programmes, demonstration projects involving
ODS-alternative technologies or best practices to reduce ODS emissions,
strengthening of national institutions, technical assistance, and training.
Total funds approved for the 825 projects in the non-investment category
have amounted to US$113 million since the Fund's inception.
A UNEP survey of Implementing Agencies conducted in 1997 (UNEP, 1997)
determined that of 863 investment projects approved through mid-1997,
only 10 per cent had any sort of formal technology transfer agreement.
Although all funded projects involved technology transfer in some form,
much of the technology transferred was well established and in the public
domain. Most projects did not require a private contractual agreement
to proceed because they either involved unpatented technology or the patent
had expired (Multilateral Fund Secretariat, 1998)
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