CLEAN TECHNOLOGY FUND ELIGIBILITY OF GUARANTEES FINANCED FROM THE CLEAN TECHNOLOGY FUND FOR SCORING AS OFFICIAL DEVELOPMENT ASSISTANCE

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1 CTF/TFC.3/4 April 24, 2009 Meeting of the CTF Trust Fund Committee Washington, D.C. May 11, 2009 Agenda Item 4 CLEAN TECHNOLOGY FUND ELIGIBILITY OF GUARANTEES FINANCED FROM THE CLEAN TECHNOLOGY FUND FOR SCORING AS OFFICIAL DEVELOPMENT ASSISTANCE 0

2 Proposed Trust Fund Committee Decision The Trust Fund Committee reviewed document CTF/TFC.3/4, Eligibility of Guarantees Financed from the Clean Technology Fund for Scoring as Official Development Assistance, and notes the conclusion that donor contributions to the CTF should qualify as ODA since such funds meet the ODA criteria. The Trust Fund Committee agrees that [name of one of its Members from an OECD country] will work with the Development Assistance Committee(DAC) Working Party on Statistics to have a code established for the CIF under the World Bank Group so that contributions to the CIF can be reported as ODA. 1

3 Background 1. This note responds to the Clean Technology Fund (CTF) Trust Fund Committee s request to determine whether guarantees financed from the CTF are eligible for scoring as Official Development Assistance (ODA) 1. In preparing the note reference was made to the OECD-DAC Statistical Reporting Directives which provide detailed guidance on the ODA eligibility of aid expenditures. Furthermore, the DAC Statistics Division was consulted on the interpretations made and conclusions drawn in this note. 2. This short note outlines the DAC definition of Official Development Assistance -- bilateral and multilateral; describes the key characteristics of the CTF, a multi-donor trust fund for which the World Bank is a trustee; addresses whether the envisaged use of CTF to provide concessional guarantees gives rise to any issues of ODA eligibility; reports on the consultations with the DAC and provides a concluding summary. ODA Eligibility Criteria 3. Official Development Assistance is defined as those flows to countries and territories on the DAC list of ODA Recipients 2 and to multilateral development institutions which are provided by official agencies, including state and local governments, or by their executive agencies, and each transaction of which: (a) is administered with the promotion of the economic development and welfare of developing countries as its main objective; and (b) is concessional in character and conveys a grant element of at least 25 percent (calculated at a rate of discount of 10 percent) Eligible multilateral contributions are those made to a recipient institution which: (a) conducts all or part of its activities in favor of development; (b) is an international agency, institution or organization whose members are governments, or a fund managed autonomously by such an agency; (c) pools contributions so that they lose their identity and become an integral part of its financial assets. 1 See Paragraph 14 of the summary of the First Meeting of the Trust Fund Committee for the Clean Technology Fund, November 30 2 See attached list of DAC ODA recipients in Appendix 1 3 This calculation helps determine whether a loan is concessional. If the loan satisfies the ODA criteria, then the whole amount is reported as ODA. The grant element itself is not reportable as a flow. Reporting is on a cash (nominal basis), except for Paris Club debt service reduction 2

4 The Climate Investment Funds (CIF) 5. The Climate Investment Funds are an important new source of interim funding 4 through which the Multilateral Development Banks (MDBs) will provide scaled up financing to developing countries to address climate actions. 6. CIF funds will be used to invest in projects and programs in developing countries that contribute to the demonstration, deployment and transfer of low-carbon technologies, and to test innovative approaches to climate change, for example by increasing climate resilience in developing countries. Access to these funds is open to developing countries which are ODA-eligible and have an active MDB country program. 7. Donor contributions to the CIF will be: (a) new and constitute additional resources supplementing existing ODA flows otherwise available for developing countries; and (b) pooled under a multi-donor trust fund which the World Bank will manage as a trustee. 8. The Clean Technology Fund, which is one of the two funds under the CIF (the other being the Strategic Climate Fund), will aim to finance transformational actions by investing in projects and programs in developing countries that contribute to the demonstration, deployment, and transfer of low-carbon technologies. (a) A key feature of the CTF would be its ability to tailor terms to a target level of concessionality through blending of its funds with MDB financing, as well as with bilateral and other sources of finance. (b) Its objective is to provide incentives for low carbon development consistent with the broader sustainable development and poverty reduction objectives. 9. The Strategic Climate Fund (SCF) has been developed to demonstrate new approaches and provide lessons on climate challenges and includes targeted programs: (a) the Pilot Program for Climate Resilience (PPCR): The PPCR explores practical ways to mainstream climate resilience into core development planning and budgeting, building on National Adaptation Programs of Action (NAPAs); (b) the Forest Investment Program (FIP): The FIP finances investments in developing countries to reduce GHG emissions from deforestation and forest degradation; (c) the Scaling Up Renewable Energy Program (SREP): SREP helps low income countries make a transformational change to use of renewable energy, creates greater public and private confidence in renewable energy, and improves market and financial conditions and lead to large scale replication. 4 The CIF were approved by the World Bank s Board of Executive Directors on July 1, On September 26, 2009 ten donors pledged $6.1 billion to the CIF. Today, there are twelve donors that have made pledges to the CIF. 3

5 Assessment of ODA Eligibility of CIF 10. There is every reason to believe that incoming contributions by donors to the CIF, given its characteristics, is fully consistent with the eligibility criteria for ODA articulated by the DAC in paragraphs 3-4 above. Since CIF is a pooled multi-donor trust fund managed by the World Bank, an international development institution recognized as such by the DAC for the purpose of ODA eligibility, these contributions can be scored as multilateral ODA. 11. The outgoing use of CTF resources as concessional loans, grants, and guarantees through the MDBs can be reported by each MDB as ODA if: (a) it meets the criterion of promoting economic development and welfare; b) the grant element is at least 25 percent; and c) funds are to be used in a country included in DAC list of ODA eligible countries. 12. Guarantees using CTF resources are therefore treated no differently from concessional loans and grants but are counted as ODA only when they are called, not when they are committed. The use of financing for the CTF for guarantees will be a concern for the statistical reporting by the MDB in question and is an issue separate from, and has no bearing on, the ODA eligibility of donor contributions to the Fund itself. Consultations with the DAC 13. In preparing this note, officials from the DAC Statistics Division, which serves as the Secretariat for the Working Party on Statistics, the oversight authority for determining ODA eligibility, were consulted. The assessment in paragraphs above draws on their guidance. 14. The DAC, however, has observed that a practical issue which remains to be addressed is there is as yet no code set up for CIF unlike, for example, the codes that exist for Advance Market Commitments (AMCs), IDA-HIPC, and IDA-MDRI, all of which are managed by the World Bank Group to record donor contributions as multilateral ODA. The process for setting up a code will require a DAC member of the CIF to propose to the DAC Working Party on Statistics that the list of agencies to which contributions may be reported as official development assistance (ODA) be amended to include the CIF under the World Bank Group so that official contributions to the CIF can be reported as ODA. Conclusions 15. Donor contributions to the CTF should qualify as ODA since such funds meet the ODA criteria. The use of CTF funds in the form of guarantees only affects how the concerned MDB reports on the specifics of these funds as part of its ODA statistics to the DAC. The use of CIF funds to finance guarantees has no affect on ODA scoring of donors contributions to the CTF. 4

6 Appendix 1: DAC List of ODA Recipients Effective for reporting on 2008, 2009 and 2010 flows Least Developed Other Low Income (per capita GNI < $935 in 2007) Afghanistan Côte d ' Ivoire Angola Ghana Bangladesh Kenya Benin Korea, Dem. Rep. Bhutan Kyrgyz Rep. Burkina Faso Nigeria Burundi Pakistan Cambodia Papua New Guinea Central African Rep. Tajikistan Chad Uzbekistan Comoros Viet Nam Congo, Dem. Rep. Zimbabwe Djibouti Equatorial Guinea Eritrea Ethiopia Gambia Guinea Guinea-Bissau Haiti Kiribati Laos Lesotho Liberia Madagascar Malawi Maldives Mali Mauritania Mozambique Myanmar Nepal Niger Rwanda Samoa São Tomé and Príncipe Senegal Sierra Leone Solomon Islands Somalia Sudan Tanzania Timor-Leste Togo Tuvalu Uganda Vanuatu Yemen Zambia Lower Middle Income and Territories (per capita GNI $936-$3 705 in 2007) Albania Algeria Armenia Azerbaijan Bolivia Bosnia and Herzegovina Cameroon Cape Verde China Colombia Congo, Rep. Dominican Republic Ecuador Egypt El Salvador Georgia Guatemala Guyana Honduras India Indonesia Iran Iraq Jordan Macedonia, Former Yugoslav Republic of Marshall Islands Micronesia, Federated States Moldova Mongolia Morocco Namibia Nicaragua Niue Palestinian Administered Areas Paraguay Peru Philippines Sri Lanka Swaziland Syria Thailand *Tokelau Tonga Tunisia Turkmenistan Ukraine *Wallis and Futuna Upper Middle Income and Territories (per capita GNI $3 706-$ *Anguilla Antigua and Barbuda 1 Argentina Barbados 2 Belarus Belize Botswana Brazil Chile Cook Islands Costa Rica Croatia Cuba Dominica Fiji Gabon Grenada Jamaica Kazakhstan Lebanon Libya Malaysia Mauritius *Mayotte Mexico Montenegro *Montserrat Nauru Oman 1 Palau Panama Serbia 3 Seychelles South Africa *St. Helena St. Kitts-Nevis St. Lucia St. Vincent and Grenadines Suriname Trinidad and Tobago 2 Turkey Uruguay Venezuela 5

7 (1) Antigua & Barbuda and Oman exceeded the high income country threshold in In accordance with the DAC rules for revision of this List, both will graduate from the List in 2011 if they remain high income countries until (2) Barbados and Trinidad & Tobago exceeded the high income country threshold in 2006 and In accordance with the DAC rules for revision of this List, both will graduate from the List in 2011 if they remain high income countries until (3) At present aid to Kosovo is recorded under aid to Serbia. Kosovo will be listed separately if and when it is recognized by the UN. As of April 2008, the Heavily Indebted Poor (HIPCs) are : Afghanistan, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoros, Congo (Dem. Rep.), Congo (Rep.), Côte d Ivoire, Eritrea, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Haiti, Honduras, Kyrgyz Republic, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nepal, Nicaragua, Niger, Rwanda, São Tomé and Príncipe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda and Zambia. 6