OPEC Fund for International Development (OFID) Director-General Suleiman J. Al-Herbish, talked to New Europe in an exclusive interview about the role of the fund in development and energy poverty alleviation, preserving the environment, its role in south-east Europe, the Balkans and Central Asia, and participating in the UN’s International Year for Sustainable Energy for All in 2012.
New Europe: Mr. Al-Herbish, even though a main role of the OPEC Fund for International Development is energy poverty alleviation, a lot of people confuse its mission with that of the Organization of the Petroleum Exporting Countries (OPEC), oil production and prices. Can you briefly describe the role of OFID and its main goals?
Al-Herbish: OFID, as you most likely are aware, aspires to a world where sustainable development, centred on human capacity building, is a reality for all. Our mission is to foster South-South partnership with fellow developing countries, worldwide, with the aim of eradicating poverty – which also embodies energy poverty alleviation.
Recall that OFID was established in 1976 with the mandate to promote co-operation between OPEC member countries and other developing countries as an expression of South-South solidarity. We are to help, in particular, the poorer, low-income countries in pursuit of social and economic advancement.
We extend concessionary financial assistance in the form of loans for development projects and programmes and for balance of payments support; we participate in the financing of private sector enterprises located in developing countries; we support developing countries’ trade with lines of credit and guarantees; and we provide grant financing for technical assistance, food aid, research and similar activities as well as humanitarian emergency relief. We also contribute to the resources of other development institutions whose work benefits developing countries.Briefly summarised, this is what we are all about.
The UN General Assembly has declared 2012 the International Year for Sustainable Energy for All. There is an estimated 1.4 billion people living without electricity across the globe. The UN put a priority on renewable energy, addressing job creation, climate change, women’s empowerment and food security. The UN’s aspiration is to double the capacity of global renewable energy sources and energy efficiency measures in order overcome a state of energy poverty in underdeveloped countries. Are the UN and OFID going to jointly address these challenges? Is there a joint strategy?
The simple answer is ‘Yes’.United Nations Secretary-General Ban Ki-moon invited me in my capacity as OFID director-general to be part of a high-level group of leaders from global corporations, financial institutions and foundations. The group will formulate a comprehensive and concrete sustainable energy action agenda leading up to the Rio+20 Conference next year which will guide and direct the Sustainable Energy for All Initiative (SE4All). The agenda will need to tackle three objectives: ensuring universal access to modern energy services; doubling the rate of improvement in energy efficiency; and doubling the share of renewable energy in the global energy mix. As a development organisation, ensuring universal access to modern energy services is OFID’s main priority.
The emphasis on energy access is due to the urgent need to raise living standards and economic opportunities among the poorest. None of the Millennium Development Goals (MDGs) can be achieved without substantial progress toward universal energy access. Together with the UN, our Member States and others, we are seeking to lift people out of poverty, advance their economic potential and remove the burden of dependence on fuel wood and other inefficient and unhealthy fuels. OFID’s priority is energy access for the poor. We also care about the environment and want to see progress made in a sustainable way that helps preserve natural resources. The UN Secretary-General Ban has mentioned many ways in which improved access to modern energy can contribute to a better life. Clean and efficient fuels can mitigate climate change; reduce indoor air pollution; and free women from the need to collect fuel wood. Electricity allows for longer working and study hours and makes possible the refrigeration of medicines in village clinics. The availability of affordable energy can boost agricultural productivity and improve the management of scarce water resources, making a direct contribution to better food security.
The formation of a High-Level Group that will advise and guide the SE4All Initiative shows the commitment of the UN to wide consultation with the international community. On behalf of OFID, I welcome the opportunity to contribute to the work of this group.
Let me quickly add that ongoing energy programmes are considered in the UN Initiative. In his vision statement on SE4All, Secretary-General Ban Ki-moon indicated: “The Sustainable Energy for All initiative will also provide a global platform for existing and planned initiatives to reinforce one another. Ongoing initiatives include Energy for All (Asian Development Bank), the Clean Energy Ministerial, the Low-Emissions Development Strategies (LEDS) Global Partnership, Lighting Africa (World Bank Group), Energy+ (Norway), Energy for the Poor (OPEC Fund for International Development), the Paris-Nairobi Climate Initiative, the Africa-EU Energy Partnership, the Small Island Developing States Sustainable Energy Initiative, the Global Alliance for Clean Cookstoves, as well as the EU’s decision to make access to sustainable energy a development priority through its Agenda for Change.”
The participation of OFID in the UN SE4All Initiative recognizes OFID’s long-standing efforts in the struggle against energy poverty. Our increased emphasis on energy in recent years stems from the ‘Riyadh Declaration’ endorsed by the Heads of State of OPEC Member Countries when they met in Saudi Arabia in November 2007.
Before the Riyadh Declaration, roughly 20% of our portfolio was in energy operations and since then we have increased that share to 26% of the Public Sector and Trade Finance portfolio. We have approved, through all operational windows, a total of more than US$800 million in soft loans for 37 energy projects and operations in 26 countries. By adding the co-financing share of other development institutions participating together with OFID in these energy projects, we reach a figure of US$8.4 billion.
Just to give you specific examples of the types of projects we have invested in: in 2010 we committed more than US$320 million in the energy sector, including US$20 million in a project aiming to expand the national grid and provide electricity to seven towns and 50 villages across Ethiopia. This year, among different projects, we have committed US$18.5 million to a project for the electrification of 591 load centers in Kenya and the provision of electricity access to about 35,460 households.
What causes energy poverty? Are there long-tem solutions?
There is no single explanation for energy poverty. Certainly, income poverty is a major factor. Energy poverty can only be understood against the background of the general economic conditions of poor people and the constraints that limit their opportunities. Many poor people do spend a substantial part of their income on inefficient energy solutions such as candles and batteries, because they cannot afford the initial cost of a solar power unit or an efficient cook stove. The high distribution cost of energy/electricity coupled with low incomes is a problem particularly in rural areas.
The infrastructure required to provide energy on a national basis requires a stable economic and political framework. Energy infrastructure is very expensive and needs to be financed over many years. The costs of transmission and distribution are high in countries with large, dispersed rural populations. In the past years we have seen major improvements in terms of governance and general stability in the poorest countries in the world, especially in Africa. Unfortunately, financing infrastructure remains a major bottleneck. Even when energy projects are implemented, insufficient financing prevents proper maintenance, leading to a deterioration in the technical performance of generating and transmission systems. In turn, these problems cause power shortages and blackouts, affecting agricultural and industrial users.
Providing the necessary resources to provide effective solutions requires substantial political commitment from governments and the international community. When the MDGs were agreed in 2000, better access to modern energy was not included as one of the goals. Governments devoted resources to other objectives and the issue of energy poverty was not a high priority. This omission has since been recognized, notably by the International Energy Forum (IEF) which is the world’s largest gathering of Energy Ministers. You may recall the Cancun Summit of 2010 and the subsequent 12th IEF where formal recognition was accorded the Energy for the Poor Initiative at the recommendation of OFID. Indeed the final communiqué of the 12th IEF (which brought 86 energy ministers together) actually declared that “reducing energy poverty should be added as the Ninth Millennium Development Goal”.
Today, momentum is building to push energy poverty toward the top of the international agenda, and the higher visibility of the issue should help improve access to finance. Secretary-General Ban is aware of the funding gap that exists between the infrastructure required and the available money. The latest estimate of the IEA indicates that US$48 billion will be required every year until 2030 to provide universal access to clean cooking facilities and a basic supply of electricity to households. By any standards, this is a large number to cope with; however, it is only 3% of the total spent on energy investments every year around the world. Currently, only around $9 billion is being spent on energy infrastructure in developing countries. To reach $48bn, so much more is needed than the traditional funding sources can provide. This is why the High-Level Group will look into ways to attract more private capital and examine the potential of public-private partnerships. And the potential for the private sector is there.
OFID is well aware that investment in energy infrastructure is a necessary (but not sufficient) condition for faster economic development. The economy-wide support from OFID includes finance for industry, banks and microfinance institutions; assistance for agriculture, markets and trade finance; and investments in transport, energy, health and education together with capacity development to improve public policy. These initiatives, when combined with an active pro-poor energy policy, already make a significant contribution to improving living conditions and life prospects in the poorest countries.
What’s OFID’s role in south-east Europe and especially the Balkans in order to achieve sustainable development? How can OFID help Bosnia-Herzegovina, Serbia, Kosovo, Albania and FYROM? Are you working in conjunction with EU institutions?
OFID currently operates in the State of Bosnia and Herzegovina and the Republic of Albania and coordinates with other development finance institutions (DFIs) operating in the sub-region, including the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), the International Fund for Agricultural Development (IFAD), the World Bank (WB), Japan International Cooperation Agency (JICA), the Islamic Development Bank (IsDB), the Kuwait Fund for Arab Economic Development (KFAED) and the Saudi Fund for Development (SFD):
Regarding Bosnia and Herzegovina, OFID has actively supported the country for almost 20 years now, through varied instruments and windows. During the country’s most difficult and sad times in recent memory, the Bosnian War, OFID approved five Emergency Aid Grants, totalling US$2.7 million, to alleviate the suffering faced by the country’s internally displaced persons and refugees, and to meet humanitarian needs. In 2007, OFID approved an additional grant in support of the poor people with severe disabilities.
OFID has also been actively and extensively engaged in the country’s post-conflict reconstruction, by approving a total of seven (7) concessional public sector loans, in close coordination, of course, with the other development partners, in particular the World Bank, EBRD, EIB, and IFAD. OFID assistance has targeted the reconstruction of educational facilities and the sustainability of the agriculture sector, as well as the enhancement of transport infrastructure, which is vital to the country’s economic development plans and EU ascension aspirations. In addition, OFID is contributing to a high priority programme that addresses the housing needs for returnees. Finally, OFID has also provided support to the private sector, by extending three lines of credit to non-governmental financial institutions. In summary, OFID has committed a total of $63 million through its public sector financing and €11m through its private sector financing window.
OFID will continue to be flexible in its support of the priorities of Bosnia and Herzegovina as defined by its Authorities, in particular those that focus on social inclusion, sustainable development and competitiveness.
In Albania, OFID has been engaged in development work since 1993, with nearly $100m in cumulative financial assistance. Projects financed by OFID cover a variety of sectors, including health, education, water supply, transport, agriculture, irrigation and rural development. OFID has worked in Albania in partnership with the World Bank and IFAD as well as the Arab and Islamic financial institutions as part of the Arab/Islamic and OFID Coordination Group and has actively supported the country to combat poverty and meet its development goals as defined in its current National Strategy for Socio-economic Development and Stabilization and Association Agreement established with the EU in 2006.
What’s OFID’s mission in Central Asia and energy-rich former Soviet republics? Do they have their own poverty-alleviation programmes? What’s OFID’s role in Ukraine and Moldova? Are you in talks with Russia in addressing these issues in its neighbourhood?
OFID co-operation is based on direct dialogue with partner countries and in response to the respective countries’ strategic development priorities and poverty alleviation programmes. Therefore, in the former Soviet republics, OFID has engaged in direct discussions with incumbent government authorities and also other development finance institutions, obviating the requirement of coordination with Russia.
Ukraine is currently not included among OFID priority countries. However, OFID is well aware of the serious constraints currently being faced by the Ukraine; in particular, the high incidence of poverty (26.4%), especially in rural areas, where 38.2% of the population is estimated to live below the poverty line. Despite anticipated economic recovery, food and oil price increases represent a source of vulnerability for the country and will continue to affect the most deprived segments of the population. OFID’s support to the country consists of two research grants for the construction of a family home for orphans (approved in April 2007) and the rehabilitation of a children’s camp (approved in September 2010), both in coordination with the NGO CARITAS. Currently, several OFID partners provide financial assistance in practically all economic sectors. These include the World Bank, European Bank for Reconstruction and Development, European Investment Bank, International Finance Corporation and several bilateral donors including the Kuwait Fund for Arab Economic Development.