GEF Engagement with the Private Sector

1
GEF Engagement with the Private Sector
2
Overview of the Session

• Why engage with the private sector?
• GEF strategy for engagement
• Definition of the private sector in GEF projects
• Profile of private sector participation
• Types of stakeholders (multi-national groups,
  national companies, trade associations)
• Typical Focal Area interventions
• Sectoral approach - links to global environmental
  benefits
• Financial instruments used
• Project examples
• Final Thoughts

3
What are the Benefits of Engaging with Private
Sector?

• For GEF
• Private investment flows gt ODA
• Transfer state of the art technology
• Sustainability and Replication often depend on
  functioning markets
• For the private sector
• GEF funds can reduce risk
• GEF funds enable access to new markets
• Raise business environmental image
• GEF leverages partner cofinancing

4
GEF Strategy for Engagement

• Indirectly through removal of barriers to promote
  market transactions
• Creating market conditions for certain activities
  (eg. firms now able to sell SHS or ELP)
• Helping firms enter an untested market (eg.
  Providing guarantees to FI who make credit
  available)
• Directly as eligible project proponents or direct
  beneficiaries (eg. Incremental cost financing to
  firms investing in ecotourism businesses)
• Through procurement allowing private firms to bid
  on supply of GEF equipment and services

5
Definition of GEF Private Sector Projects

• Private sector enterprises with commercial
  viability as goal mainly involved in project
  component, sometimes overall project proponents
• Public sector led project that creates more
  effective market conditions for attainment of
  global environment benefits
• Projects to assist private landowners establish
  private reserves or protected areas on their land
  for conservation/sustainable use of forests
  (presently only in Latin America and the
  Caribbean)

6
Profile of GEF Private Sector Projects (Findings
from ME Study)

• 10 of GEF projects, 17 of GEF grants allocated
• Co-financing ratio of 3.7 but private sector
  contribution only 0.67
• IFC claims 5 11 times leverage of GEF funds and
  average World Bank co-financing ratio is 61
• In only half of projects does private sector
  contribute significant resources or assume
  substantial risk
• Projects are almost entirely climate change and
  biodiversity, in 21 ratio

7
Typical Focal Area Interventions

• Climate Change
• EE ESCOs Efficient Lighting Products
• RE Solar PV
• Transport Fuel cell buses (new)
• Biodiversity
• Ecotourism and mass tourism
• Agro-forestry commodities, agriculture,
  fisheries, non-timber forest products, banking
• Certification for coffee and cocoa
• Private lands conservation
• Payment for environmental services
• IW Ship waste Water conservation
• POPs Alternative Pesticides PCB substitutes

8
Financial Instruments in GEF Projects

• Grants To stimulate markets
• Promote certification, standard setting and
  labeling (eg. Logos for ELP, labels for
  biodiversity friendly products.
• Consumer or producer awareness campaigns
  (workshops, surveys, media, etc.)
• TA to promote new market mechanism such as ESCOs
  and cover other development costs.
• To provide a degree of subsidy to some
  investments.

9
Financial Instruments in GEF Projects

• Non-Grants
• Partial credit guarantees eg. to an FI to
  provide credit for ESCOs or PV end users
• Contingent financing where repayment depends on
  certain financial and performance targets, eg.
  Ecotourism.
• Loans at concessional or market rates
• Equity funds similar to traditional
  equity/venture capital fund where GEF cofinancing
  used to leverage private investment in potential
  profitable project.

10
Project Examples (will vary according to
national circumstances) Climate Change

• Kenya, India, Morocco PVMTI (IFC)
• To accelerate sustainable commercialization of PV
  technology.
• TA provided to develop sustainable and replicable
  business models with proponents, grants (up to
  10), soft loans, partial guarantee and equity
  financing provided to finance projects.

11
Project Examples (will vary according to
national circumstances) Climate Change

• Kenya Removal of Barriers to Energy Conservation
  and EE in SMEs (UNDP)
• Financed capacity building and awareness of EE
  among business owners, develop business plans for
  EE investments, implement demonstration projects.
  EE investments expected to follow.
• Efficient Lighting Initiative (IFC)
• In 7 countries including South Africa to
  accelerate development of the market for EE
  lighting technologies.
• Financed consumer awareness of CFL, educational
  programs in schools, capacity building in energy
  industry, pilot projects, ME, and project
  development
• Similar previous projects successfully
  implemented in Poland, Mexico, Thailand and
  Jamaica.

12
Project Examples (will vary according to
national circumstances) Climate Change

• Uganda Energy for Rural Transformation (World
  Bank)
• Part of a larger program of private sector led
  rural electrification and and ICT sector
  development
• GEF to strengthen private sector capacity to
  develop and undertake RE projects and FI to
  evaluate financing proposals.
• Financing to project sponsors through investment
  subsidies and debt/equity from FI.
• Grid related power from small RE sources eg.
  Sugar mills for sale to third parties
• Installation of PV systems in homes public
  health, educational, water insitutions and rural
  enterprises

13
Project Examples (will vary according to
national circumstances) Biodiversity

• Payments for Environmental Services
• Costa Rica Ecomarkets (World Bank)
• Incentives to private landowners to conserve
  biodiversity through payments for environmental
  services
• Payments for forest conservation that achieve
  GHG mitigation through carbon storage
  hydrological services biodiversity conservation
  scenic beauty.
• GEF contributed to national Fund from which
  payments made and for strengthening supporting
  organizations. Govt contributes dedicated tax
  revenues to Fund.
• SME FUNDECOR (IFC) GEF provides loans to Fund
  for advanced payments to landowners for wood
  harvested in forests and plantations certified
  under the Greenseal program.

14
Project Examples (will vary according to
national circumstances) Biodiversity

• SME Program (IFC)
• Supports ecotourism operations in Honduras,
  Guatemala, Tanzania and Zimbabwe
• Provides concessionary loan financing through
  financial intermediaries who on lend to SMEs.

15
Project Examples (will vary according to
national circumstances) Biodiversity

• Coffee and Cacao certification schemes mainly in
  Latin America but also in Uganda (Kibale Coffee).
• Creation of a label such as organic fair
  trade biodiversity friendly through which
  producers would obtain a premium price on world
  markets.
• Achieve biodiversity goals, eg. maintenance of
  biodiversity shade, adopt or maintain
  biodiversity conservation friendly practices.
• GEF grants financed technical assistance to
  farmers and creation of the labeling scheme.

16
Final Thoughts

• Role of government? ? critical
• Enabling environment for private sector
  development must be in place
• Legal and regulatory framework, pricing and
  incentives, financial and banking systems
• Careful, clear and transparent selection of
  financial partners as well as provision of
  incentives to achieve GEF objectives.
• Importance of the private sector itself providing
  co-financing .