Commission on Sustainable Development

Ninth Session

7^th Meeting (PM)

SUSTAINABLE DEVELOPMENT COMMISSION TAKES UP ENERGY AND TRANSPORT

IN ITS HIGH-LEVEL SEGMENT

The Commission on Sustainable Development opened its high-level segment this afternoon, with government and international officials addressing such important questions as financing opportunities for energy and transport systems’ development; new mechanisms for direct financing; barriers encountered by governments in securing financing and financial assistance they receive; and innovative arrangements for energy and transport financing.

The World Bank’s approach was to increase access to modern services, to promote good governance and to ensure access to clean technologies, Vice-Chairman of that body, Ian Johnson said.  The Bank was not only looking at lending instruments for energy and transport, but also at equity investments through the private sector.  Focusing on enabling frameworks and on greater accountability within systems, it had moved towards working with client countries on organizational issues within the energy sector, including structural changes.  The decline in its lending for energy was the result of a focus on technology transfer areas.  There was also less demand for lending for electricity supplies.

He added that the transport sector had been an important part of the Bank’s lending.  There had been a major shift towards lending for maintenance and rehabilitation.  A major growth area would be sustainable rural development and infrastructures.  In all its sectors, the Bank was driven by government demand in the countries it served.

The Minister of Energy and Mineral Development of Uganda, Syda Bbumba, spoke about the barriers her Government had encountered in trying to obtain financing. In particular, financing of energy supply infrastructure was very cost-intensive, with returns only coming over long periods, and international financial institutions would not provide loans easily.  They also set tough conditions for particular projects.  There was a diminishing opportunity for developing countries to access the World Bank, for example.  Commercial banks were even less interested in providing financing for third-world countries.  Despite Uganda’s massive natural resources, its energy infrastructure was not adequately developed as a consequence.

Special financial arrangements were needed to bring energy to poor people, the Managing Director of Grameen Bank of Bangladesh, Mohammed Yunus pointed out.  Experience showed that such people were able to pay back loans, but it was hard to secure credit for them.  Poor people should not depend on subsidized facilities. 

Instead, economically and financially sustainable enterprises were needed.  It was important to increase poor people’s income, so that they could enter the market without being dependent on subsidies.

Summarizing the panel discussion, the Under-Secretary-General for Economic and Social Affairs, Nitin Desai, who acted as a moderator this afternoon, said that there had been a strong focus on decentralized rural energy with local mini-grids becoming more viable.  To illustrate the impact of energy on development, he said that poverty was disappearing in remote villages because of rural electrification, roads and education.  Roads opened up market possibilities in nearby cities. 

The importance of both private and public financing was recognized in the debate, he said, and funding of large-scale transit systems, using a mix of venture capital and loans was also discussed.  Several speakers stressed the importance of developing solar and wind energy.  However, additional financing and research were needed, because those sources of energy were not immediately competitive with traditional energy sources.

High-level government officials were represented by the Minister of the Environment of the Czech Republic, Milos Kuzvart, and the Governor of Jakarta, Indonesia, Mr. Sutiyoso.  Presentation was made by the Chief Executive Officer and Chairman of the Global Environment Facility, Mohammed el-Ashry.  Among the speakers representing private industry executives were the Chairman of the Royal Dutch/Shell Group Companies, Mark Moody-Stuart, and the Regional Director for the Americas of Scania of Sweden, Rolf Hedberg.

The Commission will continue its high-level general debate at 10:30 a.m. tomorrow, 19 April.

Background

The Commission on Sustainable Development met this afternoon to open its high-level segment and to hold a panel discussion on financing energy and transport for sustainable development.  (For background information on the Commission’s session, which started on 16 April, see press release ENV/DEV/563 of 12 April.) 

Statements

Opening the panel discussion, NITIN DESAI, Under-Secretary-General for Economic and Social Affairs, said that the discussion would take place in three parts.  Efforts should be made to move the discussion from stage to stage.  He hoped that the discussion would be more of a conversation then a set of statements.

IAN JOHNSON, Vice-President of the World Bank, said that the Bank’s policies, priorities and instruments had changed over time.  On the issue of energy, the Bank was increasingly moving from projects towards programmes.  The Bank had moved towards working with client countries on organizational issues, including structural changes and the role of the private sector.  The decline in its lending for energy was the result of a focus on technology transfer areas.   The Bank had also seen less demand for lending for electricity supplies.  The Bank did very little lending for the oil sector, which traditionally had been the domain of the private sector.  The Bank's approach was to increase access to modern services, to promote good governance and to make a positive contribution to the environment by ensuring access to clean technologies. 

He said that the transport sector had been an important part of Bank lending in the past few years.  There had been a major shift towards lending for maintainance and rehabilitation.  The Bank had a number of financing mechanisms for road and rail maintenance in some 20 countries.  A major growth area would be sustainable rural development and infrastructure for rural development.  The poverty impact of inadequate rural infrastructure would also be a major focus.  On financing for energy and transport, the Bank was not only looking at lending instruments but also to equity investments through the private sector arm.  Focus had been placed on enabling frameworks and on greater accountability within systems.  The Bank had had a long-standing relationship with the Global Environment Facility.  The Bank’s approach for all its sectors was driven by government demand in the countries it served.  Part of the shift in emphasis had been driven by the needs of clients.

MOHAMMED EL-ASHRY, Chief Executive Officer and Chairman of Global Environment Facility, Washington, United States, said that 10 years ago, a small group of far-sighted officials had established the Global Environment Facility to act in the interests of developing countries.  With relatively modest resources, the facility was developing instruments and strategies, consistent with national goals of sustainable development.  He presented some examples of clean energy projects implemented by the Facility in Africa and South America.  Total funds of over $500 million had been used to support commercial enterprises in several countries, and it was expected that profitable enterprises would increase the amount of funds available for further action.  

As credit was hard to find for alternative sources of energy, he continued, the Facility was providing credits for several projects, including a solar energy one.  Lighting projects in 10 countries were working to increase demand and lower costs of electricity.  Support was also being provided for other local environmentally-friendly projects.  Several projects, involving transport and solar-power plants, were being implemented in cooperation with local companies. Finding financing for environmentally sustainable projects presented many challenges, but the examples provided demonstrated how modest investments could expand the range of projects and ensure future returns.

MOHAMMED YUNUS, Managing Director of the Grameen Bank, said that sustainable development should be looked at from the criteria of environmental, social and economic sustainability.  The Grameen Bank had targeted poor women and engaged them in business activities.  Some 95 per cent of Grameen’s borrowers were women.  Grameen’s work took place in Bangladesh, where around 75 per cent of the population had no access to electricity.  At the same time, globalization was picking up speed every day.  Globalization would be economically and socially disastrous if the poor continued to lack access to basic facilities, such as electricity. 

Information technology offered an unprecedented opportunity to overcome poverty, he continued.  Grameen had brought mobile telephones to the villages of Bangladesh.  “Telephone ladies”, many of whom had never seen electricity, were doing great business.  The mobile phones ran on solar panels.  Information technology, microcredit and renewable energy had great synergy when brought together.  If one piece of that puzzle was missing, however, the poorest women would not be reached.  Grameen had created Grameen Energy, which sought to bring renewable energy sources to the poor.  Over 5,000 solar home systems had been sold commercially in residential areas.  The problem in bringing renewable energy sources to the poor was partly technical.  For example, solar energy cost

$5.00 per watt.  If that price could be reduced to $2.50, solar energy could be purchased throughout Bangladesh.  Energy was needed for income generation, information technology, health and participation in globalization.  Financing initiatives to bring energy to the poor should receive high priority.

Responding to a question from the floor, Mr. Johnson said that the World Bank had obligations with the Global Environment Facility and intended to work with that organization.  There had been less demand in commercial energy supply, partly because the private sector was taking a lead role in providing equity for it.

Mr. SUTIYOSO, Governor of Jakarta, Indonesia, said Jakarta was highly centralized, with the central part of the city providing around 30 per cent of the total jobs.  Subsequently, traffic congestion imposed an economic burden on the city, costing the national economy $900 million a year. Over the last 15 years, travel undertaken by public transport had fallen, while relative use of private transportation had risen. Capital expenditures for transportation infrastructure in Jakarta were directed at the road and suburban rail sectors.  However, since the economic crisis in 1997, there were significant shortfalls in funding.

For a city like Jakarta, development was not just about an increase in size, but also a growth in wealth, with a corresponding demand for high-quality transport services, he said.  It would not be possible to sustain the planned growth in size and wealth if those transport systems were not in place.  A metro system was a fundamental part of the city's “Structure Plan".  However, before a metro system could be put in place, policies were needed to enhance the role of public transport in the city, in order to provide a strong platform on which a metro system could operate effectively.

Over the next 20 years, $9 billion will be needed to fulfil planned targets in transport infrastructure projects, she said.  That would ensure that the transport infrastructure of Jakarta would be strong enough to meet demand for movement and be consistent with the expected level of development.  “How can the Jakarta City Government best realize these needs of the people of Jakarta?” he asked in conclusion.

Under-Secretary-General Desai informed the delegates that on an experimental basis, translation was being provided by remote means.

A representative wondered if the Commission had been able to reduce the speed of the sound, because the translation was coming in with a delay.

Under-Secretary-General Desai reiterated that remote translation was being provided on an experimental basis, saying that technical difficulties should be overcome in the future.

SYDA BBUMBA, Minister of Energy and Mineral Development of Uganda, said that her Government had encountered some barriers in trying to obtain financing, both on the supply and consumer sides.  Financing had been problematic.  In particular, financing of energy supply infrastructure was very cost-intensive, with a long period for returns, and international financial institutions could not provide such financing easily.  In many cases, the conditions set for such financing could not be easily reached, because they were so tough.  There was a diminishing opportunity for developing countries to access the World Bank, for example. 

Commercial banks were even less interested in providing financing to third-world countries, she continued.  Despite Uganda’s massive natural resources, its energy infrastructure was not adequately developed as a consequence.  Short-term consumer lending at high rates resulted in heavy monthly installments, which were not matched to the abilities of the consumers.  Many banks demanded collateral in the form of land, which many consumers, especially women, did not possess. 

It was important to overcome the barriers in the way of renewable energy, she said.  Micro-finance operators should have special rules for poor people to allow them access to financing.  To cut the frustration, long-term lenders should focus more on rural electrification, which was very important for rural economies.

MILOS KUZVART, Minister of Environment of the Czech Republic, said that transport and energy systems in Central and Eastern European countries had come to an important juncture.  Transportation must become more environmentally sustainable.  Financing should be tailored to specific country conditions.  Focusing only on large projects was risky.  Public transport was key to lowering emissions.  Construction and improvement of pedestrian infrastructures was an effective and inexpensive means of improving the environment and should be promoted urgently.  Promotion of environmentally-sustainable transportation pilot projects would allow information about technical innovations to find its way to financial markets.  International financial institutions should finance projects that were subject to environmental assessment.  Governments should ensure that environmental analyses were carried out before undertaking major infrastructure programmes.  Investments in alternative modes of energy should also be given consideration.  International financial institutions and governments should coordinate their economic and financial methodologies.

A representative asked how energy issues were being incorporated into national strategies in the context of sustainable development.  She also wanted to know about specific conditions set by banks for renewable energy projects, and measures to satisfy those conditions to promote sustainable sources of energy.

Mr. YUNUS replied that it was important to bring energy to the poor people, but they could not pay up-front and needed special financial arrangements.  Experience showed that such people were able to pay back the loans, but it was hard to secure credit for them.  Solar and wind energy must be developed, but financing and research were needed because those sources of energy were not immediately competitive with traditional energy sources.  As for bringing institutional facilities to the poor people, he saw a role for soft loans, but from the beginning everything should function in a sustainable way.  Poor people should not depend on subsidized facilities.  Instead, economically and financially sustainable enterprises were needed.  It was important to increase poor people’s income, so that they could enter the market without being dependent on subsidies.

Ms. BBUMBA then said that Uganda was an agricultural country, and so attached great importance to relevant programmes in that field.  Education, health, roads and energy for poor people were also priorities.  The Government was implementing energy programmes with support from the World Bank.  Electrification was also taking place, and that was expected to attract investment.  Micro-credit and smart subsidies towards capital cost of projects were also being implemented.  The Government was supporting large hydro-stations, by providing them with subsidies.

Mr. El-ASHRY said that about 80 per cent of Global Environment Facility support was directed towards rural areas.  There were many divides between North and South, and energy was no exception.  Information technology could not be provided for those areas without electricity.  However, such technology was a key to eliminating poverty.  He invited those who provided public and private financing and were interested in closing the digital divide to join the Facility in its efforts to bring solar energy to poor villages.  He hoped to find partners for that.

MARK MOODY-STUART, Chairman of the Royal Dutch/Shell Group of Companies, said that the challenge was to get the volume up.  However, that was difficult, because developing countries did not have the financial capacity to develop energy markets.  Businesses had to take that into account.  Another challenge was to concentrate not only on developing countries, but on the developed ones, as well.

Mr. YUNUS said it was a “chicken and egg” issue because the private sector was waiting for the market.  Many billions of people were waiting for prices to come down.  Then they would come to the market.

Mr. JOHNSON said that rural infrastructure was essential to poverty reduction because its absence posed a great barrier to economic growth.  The World Bank was currently looking at that area.  There had been dramatic changes in costs of off-grid technologies.  The issue was not absolute but relative prices.  There had also been great changes in oil prices.  There was a need for a more strategic approach.  It was an issue of using grants judiciously to lower long-term costs of technologies.  Many of the costs of off-grid technology were coming down. 

The representative of China applauded the work of the Global Environment Facility and the Grameen Bank.  It was not just a question of providing favourable terms but also of providing sustainable loans to the poor.  He asked what the difference was between World Bank terms and commercial bank terms for loans.

Mr. YUNUS said that non-subsidized loans were the best solutions for reaching people with microcredit.  Micro-credit was a non-commercial loan.  It was the easiest way to reach out to the poorest people.  Grameen had demonstrated that repayment of micro-credit loans was excellent.

On the issue of transport sustainability, Mr. JOHNSON said that adequate resources for transport maintenance were necessary.  World Bank lending rates were significantly below commercial rates for the poorest countries.  Lending was also long term.  Social and environmental dimensions were also taken into consideration.

In response to a question, Mr. EL-ASHRY said one of the issues in calculating incremental costs was the price of electricity.  When dealing with four countries, the Global Environment Facility could not address incremental costs in one country differently from another country.  In such a case, the country, not the Facility, would have to mobilize funds to absorb the difference.  The only way to make it economical was for the Facility to pay more.  That had been a major limitation.  In the case of renewable energy, they had tried to demonstrate how to remove barriers to transfer technology.  The cost of the technology was relative to the cost of other sources of energy in the country.

The representative of Brazil said that good quality public transport was needed to reduce urban pollution.  The World Bank insisted on social and environmental conditions.  Ten years ago, Brazil had adopted a law which required a change from diesel to gas engines for public transport.  That had not been possible because of fuel costs.  What could they do to enable for-sale vehicles to be offered at reasonable cost with new technologies?

Mr. JOHNSON said that he did not know the specifics of Brazil, but he would be happy to follow up on several questions.  Major urban programmes were being pursued by the World Bank.  The Bank did look at the environmental and social aspects of its programmes, as required by its Board.  There were compelling arguments for providing incentives for relevant programmes.  The Global Environment Facility had also played a significant role in the energy sector.  He believed it was important to find lower-cost financing for energy and transport programmes, provided they were socially and environmentally acceptable.

Mr. DESAI said that he doubted if there were any commercially-viable public transit system anywhere in the world, but mass transportation must be developed, anyway.

Mr. MOODY-STUART said that he appreciated the opportunity to participate in the discussion.  Businesses should have a chance to address the issues that composed sustainable development, including those of energy, transport, health and water.  Turning to Shell’s experience in the financing of energy projects, he said that for some projects, shareholder financing was needed.  There were also projects which the company itself should finance through loans and those it found difficult to finance. 

Turning to shareholder financing, he said that such a form of financing was provided to projects for conversion of gas to liquids, for example.  For some programmes, loan finance could not be found without shareholder guarantees.  That was true for a project in China, which would allow the country to use its coal resources in a more sustainable way, for example.  It may have been possible to finance such projects through public markets before the stockmarket had taken a nosedive.

 Some recent projects involving credits included those in Nigeria, he said.  Export credit guarantees for the equipment should be secured for several projects.  Regarding renewable energy programmes, he said the company was investing in offshore wind energy in several countries, where wind was almost competitive with traditional sources of energy.

The cost of some solar programmes was high, he said.  The problem was how to finance those projects up-front.  In many areas, that was very difficult.  To address that issue, mechanisms were needed to split large loan finance into smaller loans.  Much depended on experience and habit.  The company had also recognized that some projects, in which it had no commercial interest, could be developed through not-for-profit organizations with the help of the Shell trust fund.

ROLF HEDBERG, Regional Director for the Americas of Scania Buses and Coaches, said that like most major companies, Scania had an environmental policy.  It monitored the entire process from design to production to recycling of old vehicles.  Their products were quite expensive and could not be sold without financing.  The objective of its financing was to facilitate investment in its products and services.  They were not providing risk capital.  Scania operated in a similar way to banks in its financing activities.  The different types of financing it offered included loans for customer-owned vehicles, financial leases, and operational leases, in which case customers returned vehicle when contracts expired.  That was the most popular type of loan.  The company required customer information, such as audited annual reports and bank references.  They also wanted to know the reason for the investment.  An important part of Scania’s business was its software products.  Repair and maintenance contracts were also important.  In some cases, old vehicles were given new engines.  Scania had repowered more than 100 of London’s double-decker buses.  Another important aspect of its philosophy was to grow together with customers.

Panel Discussion

A representative of Tunisia said that assessment before implementing a project allowed financial institutions to better evaluate its success in the long run.  Her country’s successful setting up of a national solidarity fund would help to resolve many problems of access to energy in rural areas.  She believed that its experience could prove useful to other countries.  Successful experiments needed to be emulated.  Enhancing capacity of developing countries could be achieved through transfer of technology and institution-building.

Access to computers and lighting should be emphasized, a speaker from the floor said.  Ensuring electrical supply through solar energy would help to avoid greenhouse emissions.  He wanted to hear the Panel’s views about it.

The moderator said that the focus had been on the financing of energy, in particular renewable energy.

A panellist from the Czech Republic said that financing of sustainable transport was of utmost importance.  Bicycle paths were built in his country to encourage non-motorized means of transportation.  Costs of 1 kilometre of cycling path totalled about $25,000.  To build 1 kilometre of a new highway, the cost would be approximately $25 million.  Turning to the renewable energy sources, he said that they represented up to 35 per cent of total use.  The most important problem was the distortion of energy prices.  Accessibility and prices needed to be incorporated into policy-making for the near future.  Financing of sustainable transport must be achieved through combined efforts of the private and public sectors, with the help of the World Bank.  Specific instruments, including soft loans, were very important for activating private business money.  His country’s experiences were important for other countries in transition.

A question was then asked about the distortion mentioned by the speaker.

Another speaker wanted to know the policy of the World Bank concerning developing massive transit systems.

Mr. JOHNSON said that while the Bank had no specific policy concerning mass transit, an important policy point had been raised about the need to encourage development of that form of transportation.  The Bank looked for a financial rate of return for its projects.  It had financed the upgrading of several transport systems in developing countries, but it was not typically involved in mass transit.  It was important to find creative approaches, combining various sources of financing.  Environmental benefits of new projects should be taken into account.  Options for smaller-scale investments should also be research along with large-scale credits.  The Global Environment Facility had proven itself in many areas, and it could be the right organization to look into that.

The moderator said that there was a need to promote public transport systems, for practical experience showed that exactly the opposite was actually happening, with cities developing road systems and supporting private forms of transportation.  It was also important to consider how to secure investments, to address the problem of high up-front costs, and to ensure incremental financing.

A representative of the United States asked the World Bank representative about the long-term aspects of transport financing, as well as financing for water-treatment plants and other facilities.  In his country, financing mechanisms were in place for such purposes, such as municipal bonds structures.  There were some tax advantages to purchasing such bonds.  There was no established structure to ensure such financing in the developing countries.

The World Bank representative said that particularly in the water supply sector, bonds and guarantees and other financial instruments held great promise.  Mass transit systems carried significant benefits, and that needed to be further creatively researched.  The benefits were often not expressed in monetary terms, however, and not immediately available. 

A business representative said that there was also an issue of transit buses which were not very useful when stuck in traffic.  Viable solutions were needed in order to make bus systems faster and more appealing to the public.

Another panellist said that, in Bangladesh, recycled cars produced a lot of pollution, which led to health problems.  Traditionally, river transport was used.  With gasoline engines on boats, the problem of pollution was exacerbated.  The country’s transport system also included rickshaws.  Thus, on the transport side, the country was far from being environmentally and socially sustainable.

A panellist said that land-use planning should improve with the growth of the cities.  Newer technologies and mass transport systems were being approved and tested.

The moderator, summarizing the discussion, said that there had been strong focus on the issue of decentralized rural energy.  If renewable energy were to work, it would have to go to scale.  There were ways to do that, including a shift in focus from technical to business analysis.  The greatest energy supplies in most developing countries were highly vulnerable.  Off-grid sources were important.  The big change in recent years was the viability of local mini-grids.  It was no longer true that you had to keep increasing turbines.  Decentralized grids were now viable.

On the issue of energy for development, he said that poverty had disappeared in his village in India over the past five years because of rural electrification, roads and education.  Rural electrification made it possible to use technology to improve productivity.  Roads connected the village with nearby cities and opened up market possibilities.  New employment opportunities had the largest impact on

other villages and helped the landless poor.  Education, both primary and secondary, was crucial.  High school education was especially important as it opened up children's career choices.

Several themes had come up in the discussion, including the long-term nature of returns, the gap between public and private returns and the importance of recognizing the role of both types of funding.  There had been discussion of funding of large-scale transit systems, and the mixture of venture capital and loans.  The distinction between venture capital and loans had to be incorporated into the mindset of planning for public investment. 

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