Info Service on Climate Change (Oct17/01)
GCF Board approves 11 funding proposals, with no consensus on 2 others
5 October, Cairo (Indrajit Bose) — The Green Climate Fund (GCF) Board at its 18th meeting held in Cairo, Egypt, approved 11 projects worth USD 392.86 million.
The Board met from 30 September to 2 October, 2017 and could not approve two projects that were from Paraguay and Argentina due to opposition from the Board member from the United Kingdom (UK).
The Paraguay project that did not get approved was on ‘Poverty, Reforestation, Energy and Climate Change’ (referred to as the PROEZA project), while the Argentinian project was on ‘Climate Action for Rural Development: community-based adaptation and mitigation.’
The request in the Paraguayan project was for a GCF grant of USD 44.5 million, while in the case of the Argentinian project, the grant request was for the sum of USD 22.1 million.
One of the objections raised by the UK Board member, Josceline Wheatley, was over the “level of concessionality sought” and “the rationale for GCF funding” given the “development and income status” of Paraguay and Argentina. (See further details below).
The UK objection drew a storm of objections from several developing country Board members who appealed for the projects to be approved, as both the GCF Secretariat and the Independent Technical Advisory Panel had recommended the projects for approval and that the projects were targeting the poor in these countries.
The UK maintained its opposition to the projects and as the Board’s decision-making process requires the consensus of all Board members, the UK’s veto prevented the projects from getting GCF support.
In the general discussions during the meeting of the Board, the United States raised concerns over the “level of concessionality” being requested by “middle-income countries,” which drew stern remarks from several developing country Board members who emphasized that that the GCF’s Governing Instrument entitles all developing countries to access concessional finance from the Fund and that there was no categorization of developing countries according to their income levels.
One other project from Guatemala and Mexico had proved problematic initially given its title that was ‘Climate-Smart Agriculture Risk Sharing Facility for micro, small and medium sized enterprises’. The project was approved following a change in its title to ‘Low Emissions and Climate Resilient Agriculture Risk Sharing Facility’.
Egyptian Board member, Omar El Arini had expressed reservations on the use of the term ‘climate-smart agriculture’. (See further details below).
Among the projects that were approved are:
· USD 8.65 million for the ‘Renewable Energy Programme #1 – Solar in Mongolia’ with XacBank as the accredited entity (AE);
· USD 110 million for the ‘GCF- European Bank for Reconstruction and Development (EBRD) Kazakhstan Renewables Framework programme’ in Kazakhstan with the EBRD as the AE;
· USD 20 million for ‘Low Emissions and Climate Resilient Agriculture Risk Sharing Facility’ in Guatemala and Mexico with the Inter-American Development Bank as the AE;
· USD 9.98 million for ‘Building the Climate Resilience of Food Insecure Smallholder Farmers Through Integrated Management of Climate Risk project in Senegal with the United Nations World Food Programme as the AE;
· USD 26.56 million for the ‘Bhutan for Life project’ in Bhutan with the World Wildlife Fund as the AE;
· USD 17.35 million for the ‘Scaling-up Investment in Low-Carbon Public Buildings project in Bosnia and Herzegovina’ with the United Nations Development Programme (UNDP) as the AE.
· USD 26.91 million for the ‘Sustainable and Climate Resilient Connectivity for Nauru project’ involving the construction of a port in Nauru, with the Asian Development Bank as the AE;
· USD 31.39 million for ‘Enhancing Climate Change Adaptation in the North Coast and Nile Delta Regions’ in Egypt project with UNDP as the AE;
· USD 58.53 million for the ‘Implementation Project for the Management Plan of the Lujan River Basin’ in Argentina with the Development Bank of Latin America as the AE;
· USD 38.5 million for the ‘Scaling up Climate Resilient Water Management Practices for Vulnerable Communities in La Mojana,’ project in Colombia with UNDP as the AE; and
· USD 45 million for the ‘Responding to the Increasing Risk of Drought: Building Gender-responsive Resilience of the Most Vulnerable Communities project’, in Ethiopia with the Ethiopian Ministry of Finance and Economic Cooperation as the AE.
The Paraguayan project
The Food and Agriculture Organisation (FAO) was the accredited entity that submitted the PROZEA project. The objective of the project was to achieve mitigation and adaptation results, while reducing poverty of the poor and extreme poor communities in eastern Paraguay. The project had a number of proposed activities under three components, targeting three different groups viz. socially vulnerable populations and their involvement in a programme to reduce deforestation; private farmers and strengthening the sustainability of their involvement in the afforestation process; and the public sector for strengthening the country’s capacity to implement climate change related programmes and projects at the local level.
Josceline Wheatley (UK) among other things, said that it was not clear “why the Paraguayan government who has a stated development and income status rather different from some of the other projects we are considering here… are not in a position to take on this burden themselves.”
He said further that the UK’s understanding of “concessionality” is that “the subsidy element provided through grants or concessional lending be the minimum amount necessary to make the project or programme viable. Viability for us encompasses the people for whom the project is designed to serve, and their government…We are not persuaded that the GCF needs to be involved in this project,” said Wheatley.
Following this, developing country board members made interventions stressing that the project is to help the poorest of the poor and that country ownership and replicability aspects of the project were quite strong.
Diann Black-Layne (Antigua and Barbuda) further said that the project satisfied the GCF criteria and that both the Secretariat and the ITAP had recommended that the project be approved.
Board members from Democratic Republic of Congo, Uruguay and Malawi also echoed similar views.
However, after further consultations when the project was presented for the Board’s consideration, Wheatley objected to its approval.
Following the decision not to approve the funding proposal, Co-chair Ayman Shashly (Saudi Arabia) said the proponent could resubmit the proposal or approach the Independent Redress Mechanism of the GCF.
The Argentinian project
The objective of the proposed project, with Unidad Para El Cambio Rural (Unit for Rural Change, UCAR) as the accredited entity, was to promote the low-carbon and resilient development of the northern region of Argentina by promoting the incorporation of adaptation and mitigation measures in planning. The programme was expected to benefit about 5,750 families (around 28,750 beneficiaries. The proposal was submitted in response to the GCF request for proposal (RFP) on enhanced direct access, which was launched by the Fund in July 2016.
Wheatley (UK) among other things said that the GCF resources sought did not reflect the overall economic situation in Argentina and added that he did not agree with the concessionality sought, especially since some components of the project were revenue generating.
Other board members, both from developed and developing country constituencies, expressed support for the project and stressed on the importance of the project being an enhanced direct access (EDA) project which arose through an RFP by the GCF.
(An EDA project refers to decision-making on the specific projects/ programmes to be funded that will be made at the country/entity level, and such direct access is a means to increase the level of country ownership.)
Zaheer Fakir (South Africa) said that part of the idea for the RFP was to present to the world an understanding that the GCF would do things differently. “So we are looking at sub national levels, rural communities. We are looking at working with direct access entities who, potentially for the first time, engage with a multilateral fund…We (should) support and implement the project. It has the potential to embark on an area that has not been traditionally touched by multilateral funds,” stressed Fakir.
Black-Layne (Antigua and Barbuda) also emphasized on the RFP aspect of the proposal and urged the Board to take risks and learn lessons.
Ignacio Lorenzo (Uruguay) said that the GCF would learn from the experiences that direct access entities would bring and the idea of the EDA RFP was to take a more riskier approach.
Despite all the clarifications by the Secretariat and the ITAP and further consultations, when the project was placed for the consideration of the Board, Wheatley said that he was unable to join the consensus.
Various Board members expressed disappointment as a result of the project not being approved.
Ludovica Soderini (Italy) said she was very disappointed that the funding proposal was not approved and even if they had serious concerns about the project, they did not oppose it in the spirit of consensus. She also urged the Board to look into an outstanding policy matter on decision-making in the absence of consensus.
She also said that the two funding proposals that could not be approved should be considered again once the issues raised by members had been addressed.
Fakir also expressed his displeasure and said it was “a sad day”.
“This proposal was done as an RFP for EDA. The idea of doing this proposal was to show that we can engage at a level these funds don’t engage much, and that is at rural areas, the so-called poorest of the poor. It’s a proposal that is dealing with a direct access entity. It is part of priorities and pillars of this Fund and it is rather tragic that this is the kind of message we are sending. I don’t think this will enthuse or motivate other direct access entities to want to do EDA. It’s a wrong signal we are sending,” said Fakir.
In response, Wheatley asked the Board to “get on with having a voting procedure, as the UK has also requested repeatedly from the beginning of this institution”.
Co-chair Shashly also said that the Board needs to resolve the issue of decision-making when there was no consensus. He added that it may not be voting necessarily, but that they could explore other mechanisms.
The Mexico-Guatemala project – contention over ‘climate smart agriculture’
Arini (Egypt) in his general remarks on the funding proposals, said that the Board should not be engaged in negotiating issues that are under negotiations in the United Nations Framework Convention on Climate Change (UNFCCC) or are controversial in the Convention.
He said he was alarmed to see a reference to “climate-smart agriculture”. He said that there was no universal definition for what is climate-smart agriculture and it can mean different things to different people. Arini called on the Secretariat to remove references to this term in the funding proposal.
Following the intervention, in the proposal that got approved, all references to climate smart agriculture were removed, and the project was renamed.
Contention over level of concessionality to middle-income countries
Referring to the funding proposals that came before the Board, Larry McDonald (US) said he was concerned about the issue of the level of concessional finance to middle-income developing countries. He noted that a number of requests for pure grants from the GCF particularly for middle income countries. He hoped that the Board would do better to achieve its mandate of ensuring least concessionality for funding proposals, and for a greater focus on poorer countries.
Karsten Sach (Germany) also expressed concerns regarding the principle of minimum concessionality not being adhered to and that the Fund was focusing a lot on grants.
References to market distortion were made by Merete Pedersen (Denmark), Cyril Rousseau (France), and Sally Truong (Australia). Pedersen said that the Fund needs to exercise caution while providing technical assistance to accredited entities, in particular to private players, and ensure that the Fund was not distorting the market as such by developing the technical capacity of only one private player.
Rousseau also said that the Board should carefully evaluate proposals that seek concessional financing for the private sector and not distort markets. Truong in her remarks said that the Fund should support market based approaches and not distort markets.
Responding to comments on these, Zaheer Fakir (South Africa) said that on the issue of “middle-income” countries, this was a definition coined by the World Bank, for its own purposes. There is no reference to middle-income countries in the Governing Instrument of the Fund, the Convention, the Kyoto Protocol or the Paris Agreement. Fakir cautioned the Board from going into such political discussions and remain “politically neutral” as this is for Parties under the UNFCCC and not for the GCF, which is an operating entity of the financial mechanism of the Convention.
On the issue of market distortion, Fakir said they were trying to create an environment within which projects or investments or programmes get implemented because these programmes will have a meaningful contribution towards addressing climate change and this objective took priority over distorting the market. “The issue of distorting the market should not take precedence over dealing with the climate challenge that we need to address,” said Fakir.
Weifeng Yang (China) also said that the GCF is an operating entity of the financial mechanism of the Convention. “It is not a development bank. Differentiated financing based on the countries’ development stages is not consistent with the principles of the Convention, nor the Governing Instrument,” emphasized Yang.
He also said that concepts around minimum concessionality are also misleading. “The Fund is not a private sector agency. Its aim is not to minimize the cost and maximize the financial returns. Its aim is to achieve high transformational global impact and to enhance climate resilience. To achieve this, the Fund has to provide adequate grant and concessional financing to meet the incremental and full costs of climate activities. Some high-impact projects may not go forward without high or adequate grant financing. The Fund should consider what is the appropriate concessionality in its funding decisions,” said Yang.
Responding to the comments, McDonald (US) clarified that his comments on concessionality and middle-income countries was in “no way intended as a political statement or as favouring one set of countries over another”.
“I absolutely do not consider the GCF to be a bank, nor a profit-making institution by any means…We live in a world of some limited resources and to do the most we can with those resources. At some point, funding for one set of countries at least has an opportunity cost or implications for others,” added McDonald.
5 new entities accredited to the GCF
The Board also approved five new national entities as accredited entities, who will be able to access and disburse the Funds resources.
They were as follows: China Clean Development Mechanism Fund Management Centre, Department of Environment of Antigua and Barbuda, Fiji Development Bank, Palli Karma-Sahayak Foundation based in Bangladesh; and Sahara and Sahel Observatory (OSS) based in Tunisia.
The Board also took a number of key policy decisions in the areas of a process to simply approvals of funding proposals for certain small-scale activities; and approved an RFP for REDD+ projects (reducing emissions from deforestation and forest degradation). Matters such as the Readiness and Preparatory Support Programme, the selection of the permanent trustee for the GCF and the first formal replenishment process for the Fund proved contentious. (Further articles will follow).
The Board also agreed that it will meet next in Songdo, South Korea, from 27 February to 1 March 2018.
(Edited by Meena Raman)