TWN Info Service on Climate Change (Oct17/02)
16 October 2017
Third World Network

Conundrum over process for selection of GCF permanent trustee

Delhi, 16 October (Indrajit Bose) — The Board of the Green Climate Fund (GCF) faced a conundrum over the selection process for the permanent trustee of the Fund at its most recent 18th meeting, held in Cairo, Egypt, from 30 September to 2 October.

The conundrum arose over how to treat the World Bank, which is the interim trustee of the Fund, in the selection process.

The challenge was whether the World Bank should be automatically considered as an applicant or not and whether it should submit an application (if it so wished) in an open bidding process.

Although it was not mentioned explicitly, according to sources, the underlying issue was that the World Bank did not want to participate in a competitive bidding process.

The Board also discussed matters related to the process for the first formal replenishment of further resources for the GCF.

Both the issues proved contentious and the Board could not adopt a decision on these matters.

Below are highlights of the discussions on the two issues.

Selection of the Permanent Trustee

In 2011, the Conference of Parties to the UNFCCC invited the GCF Board to select a trustee through an open, transparent and competitive process.

Consequently, the Board in 2014, agreed that the process to appoint the permanent trustee should be concluded no later than the end of 2017, so that the trustee can start its contractual agreement with GCF no later than April 2018.

At the 18th Board meeting, the bone of contention over the selection of the permanent trustee was over a criterion in the selection process in relation to the World Bank.

Zaheer Fakir (South Africa), as the Chair of the Ad-hoc committee on the selection of permanent trustee, informed the Board that there were three potential scenarios around the conundrum.

“Scenario one was to issue an advertisement for the bid-only, which would mean considering only those applicants that respond to the advertisement and participate in the bidding process. In this scenario, the interim trustee would not automatically become an applicant and it would be the interim trustee’s prerogative to participate in the bidding process or not”, he explained.

“The second scenario would be to issue an advertisement and an invitation from the GCF Secretariat to apply and applicants that respond to the bid and the invitation, would be considered. The interim trustee in this scenario too would not be automatically considered as an applicant and it would be their prerogative to respond to either the advertisement or the Secretariat’s invitation”, added Fakir further.

“The third scenario was to issue an advertisement and automatically include the interim trustee as an applicant,” he added further.

Fakir brought these matters to the Board’s attention and presented to the Board for consideration matters arising out of the third scenario.

One issue raised was if the World Bank is considered as an applicant, would it still need to bid like the other applicants?

“If they did not submit a bid, would the Ad-hoc committee base its evaluation on whether the interim trustee met the criteria in the terms of reference of the selection process, on the assumption that because they are the interim trustee, they de facto meet all the requirements? Should the interim trustee be considered to meet all the requirements of the terms of reference based on the initial assumption, how will we evaluate the interim trustee in relation to other bidders?” Fakir raised these questions to the Board.

He also said that it was not entirely clear whether the interim trustee would bid or not or respond to an invitation.

Another question was whether the COP would consider such a process (of automatic inclusion) as a fair, transparent open competitive bidding process?

Fakir also said that the selection committee had taken a call to exclude private sector entities from the bidding process to accommodate public international financial institutions (IFIs) whose policies did not allow them to compete with the private sector IFIs in bidding processes.

Fakir also informed the Board that the committee had agreed on the draft terms of reference for the permanent trustee.

In response, Paul Oquist (Nicaragua) recalled the history of the appointment of the World Bank as the interim trustee and the decision at COP 17 for a free, open and transparent competitive process. He added that it is a drawback to have two procedures, one for the interim trustee and one for everyone else, which means there is no level playing field for the open, free competitive process.

Oquist stressed that there was no justification to not respond to the mandate of COP17. He also said that if the interim trustee would have to be invited, then all the public international financial institutions should be invited too. He also said that it would not be fair if the interim trustee “got a free pass, while the others had to go through a series of steps, and that an invitation to all may not violate COP guidance.”

Cyril Rousseau (France) suggested a contingency plan, given the roadblock in the selection process.

Co-chair Ayman Shashly (Saudi Arabia) wanted to know if there would be a violation of the COP guidance if the Board would adopt the third scenario.

Larry McDonald (US) said he was attracted to the proposal of all public international financial institutions being considered de-facto candidates.

Tamaki Tsukada (Japan) clarified that the third scenario arose because the service provided by a permanent trustee should not be inferior to the interim trustee’s service and the past record of the interim trustee needed to be taken into account.

Omar El Arini (Egypt) said the Board should not devise an approach simply because a financial institution did not want to apply or did not want to bid and added that the Board should not make any concession for such entities.

Oquist added that there was consensus on public international financial institutions. He added that an announcement should go out along with invitations, with a deadline and those who wanted to apply could apply and those who did not want to apply would not.

Karsten Sach (Germany) supported the proposal and added that public institutions should be sent an invitation.

However, after further consultations and more proposals around outreach activities, a draft decision was proposed. The draft decision merely reaffirmed the Board’s invitation to the interim trustee to continue serving as the interim trustee until a permanent trustee was appointed; and authorized the Executive Director of the Fund to negotiate legal agreements with the World Bank to extend its role as the interim trustee for 24 months or until such a time a permanent trustee was appointed.

According to Arini, the draft decision did not reflect what the ad hoc committee reported, nor did it reflect the discussions the Board had on the issue. He could not therefore agree with the proposed decision. With no consensus on the proposed decision, Co-chair Shashly proposed that they consider the matter in between the meetings of the Board.

Matters related to the first formal replenishment

Discussions around the first formal replenishment centered around the trigger for when replenishment process should begin and whether the Secretariat should be tasked to issue a policy paper on the issue.

(According to a previous decision, the Board had decided to initiate the formal replenishment process when the cumulative funding approvals of the GCF exceeded 60 per cent of the total contributions received during the initial resource mobilization).

Co-chair Ayman Shashly (Saudi Arabia) said that the agenda item on the first formal replenishment period had not been opened in previous meetings, as the Co-chairs were consulting with the Board offline. (Ewen McDonald, Australia, is the other Co-chair of the GCF.) Shashly sought further guidance of the Board on how to proceed with the discussions and whether the Secretariat should be mandated to study the matter and present a proposal to the Board.

Paul Oquist (Nicaragua) underscored the importance of replenishment given the magnitude of climate change challenge which would require a lot of resources, and said that in the proposals that would be put together by the Secretariat, private sector mobilization should be one of the components.

Omar El Arini (Egypt) said that he could go along with requesting the Secretariat to prepare a paper provided the Board agreed on the terms of reference of such a study.

He also said that the terms of reference could be prepared and circulated in-between meetings, “otherwise we will leave the Secretariat to second guess and then we will never agree on anything after that”.

Larry McDonald (US) sought clarification on whether they were talking about initiating replenishment discussions at the 19th Board meeting (which will take place in Feb. 2018) and if that was the case he was not comfortable with the idea. He added that if the Board wanted to keep track of where it stood with respect to availability of funding, he was comfortable discussing that at the 19th Board meeting.

Karsten Sach (Germany) also said that he was not expecting discussion on replenishment to begin at the 19th Board meeting, since there would be “political considerations” on when to begin those discussions.

Ludovica Soderini (Italy) said that without clarification on the trigger, she was not ready to initiate a discussion on replenishment.

Yang Weifeng (China) said replenishment was very important for the GCF. “We know that we have a trigger for replenishment. But due to uncertainties of encashment of some contributions, and exchange rates, what will be the impact on the trigger for replenishment?” he asked.

Zaheer Fakir (South Africa) also said that the trigger for replenishment is related to the amount of resources the GCF has. “In one report the Secretariat informed us that we have USD 8 billion (due to foreign exchange losses). The Secretariat announces on its website that we have USD 10 billion. If I consult the interim trustee’s website on the GCF, we (find that we) have USD 6.6 billion available. What is the trigger associated with? Do we factor in USD 10 billion, USD 8 billion or USD 6.6 billion? We need clarity. Whenever the trigger happens, a process needs to happen and this is what we are asking for as ideas on how to embark on a process. We are not triggering the process,” said Fakir.

(The actual status of the resources committed to the GCF became an issue at the 17th Board meeting, as there was no clarity on how much resources the GCF really has. See TWN Update on the issue.)

In response, Shashly reiterated the complexity of the matter at hand, which played out at different levels: trigger and its basis; how to account for foreign exchange losses; availability of funds; funds disbursed etc. He also clarified that the Board was not triggering a process for replenishment, but was just asking for a paper from the Secretariat. As a way forward, and in line with Arini’s suggestion, Shashly said the terms of reference for a study on the issue could be developed in-between meetings, which would convey the Board’s expectation to the Secretariat on the study.

However, due to lack of time, no decision was presented to the Board on the matter, and it is not clear if the terms of reference for the study would still be developed in-between meetings.

Edited by Meena Raman