Private Sector Information Kiosk

Engaging the Private Sector

It is abundantly clear that global environmental problems like climate change and biodiversity loss will be solved only if the private sector also weighs in with its vast technical, managerial and financial resources and expertise. The private sector's perspective is shifting as the long-term cost savings of environmentally benign processes become clear, and as consumers demand environmental products and services which result in global benefits.

The private sector is recognized as an important stakeholder in GEF activities and has a critical role to play in addressing global environmental challenges in partnership with the GEF. The GEF encourages the private sector to seek opportunities to collaboratively engage in the identification of project concepts and objectives as well as in the financing, and monitoring and evaluation of GEF projects.

The importance of engaging the private sector in GEF activities was reaffirmed during the process of restructuring the GEF. The Instrument for the Establishment of the Restructured GEF (the Instrument) lists the private sector among the various partners which the GEF is expected to engage (para 28): " .. The Implementing Agencies may make arrangements for GEF project preparation and execution by multilateral development banks, specialized agencies and programs of the United Nations, other international organizations, bilateral development agencies, national institutions non-governmental organizations, private sector entities and academic institutions, taking into account their comparative advantages in efficient and cost-effective project execution."

The Instrument for the Establishment of the Restructured GEF emphasizes that the World Bank, in its role as a GEF implementing agency, should play the primary role in ensuring the development and management of investment projects. The World Bank draws upon the investment experience of its affiliate, the International Finance Corporation (IFC), in eligible countries to promote investment opportunities and to mobilize private sector resources that are consistent with GEF objectives and national sustainable development strategies.

Country Eligibility for GEF funding

Countries may be eligible for GEF funds in one of two ways: (1) if they are eligible for financial assistance through the financial mechanism of either the Climate Change Convention or the Convention on Biological Diversity; or (2) if they are eligible to borrow from the World Bank (IBRD and/or IDA) or receive technical assistance grants from UNDP through a Country Programme. A country must be a party to the Climate Change Convention or the Convention of Biological Diversity to receive funds from the GEF in the relevant focal area.

Getting Involved

Project Development - Idea to Implementation.

Any individual or group may propose a project idea directly to the GEF Implementing Agencies if the host countries in which the activities are to occur are eligible for funding (see country eligibility criteria). The initial proposal must reflect the national or regional development priorities of the country or countries involved. All GEF projects must be country driven and should be developed in full consultation with the GEF representative (the operational focal point) in the recipient country and that GEF financing is strictly for projects that either improve the global environment or advance the prospect of reducing risks to it.

Project ideas that meet initial criteria are further processed by the proposers and UNDP, UNEP, or the World Bank. A joint review by all three agencies, the Scientific and Technical Advisory Panel (STAP) and, when appropriate, the convention secretariats, will precede inclusion of a project proposal within a work program. The GEF's work programs are approved by the facility's 32-member council, which meets at least every six months.

Operational examples of Private Sector Involvement

Examples range from strategic or policy advice on GEF-funded projects through attendance at workshops and meetings with project executing agencies, to technical input and studies. Several projects engage private firms, private industries, and associations in one or more components of the project. More than 12 climate change projects funded by the GEF involve participation of energy service companies (or ESCOs) for the delivery and maintenance of electricity in both grid and non-grid types of systems. There are 7 rural energy projects which make use of local electricity cooperatives, many of whom are owned and managed by small-scale entrepreneurs.

Examples of selected GEF projects involving the private sector are provided below.

IFC/GEF Poland Efficient Lighting Project

GEF provided IFC with $5 million for a three-year pilot demand-side management (DSM) program to accelerate the development of the Polish market for energy efficient lighting technologies to realize global and national environmental benefits. The project, now in it's second year of operation, gives financial incentives to Polish consumer and small business purchasers of compact fluorescent lamps (CFLs) and related products through a private sector approach. The mechanism used is a manufacturer wholesale price reduction approach pioneered by a U.S. investor-owned utility. Some 1.3 million CFLs are expected to be distributed and sold to consumers at reduced prices through the project. Funds for the first year program were competitively awarded among four Polish lighting manufacturers who were required to pass on the full value of the price incentive throughout the wholesale and retail sales process. The approach aims to achieve greater cost-effectiveness and administrative efficiency than what is commonly achieved through CFL financial incentives employed in utility DSM programs. The project is also undertaking pilot DSM activities at Polish electric utilities being privatized as well as consumer/lighting professional education programs. A Dutch private utility company is responsible for administering the project with support from a Polish energy efficiency NGO.

IFC/GEF Small & Medium Enterprise Program

GEF provided $4.3 million to this program administered by IFC to stimulate greater involvement of private small and medium scale (SME) enterprises in addressing GEF's biodiversity and greenhouse gas mitigation objectives. The program has been designed to gain experience in several areas: a) the ability of SMEs to implement projects that address GEF objectives, b) the financial viability of these activities and the potential for commercial financing of these activities, and c) the ability of financial intermediaries to deliver GEF program funds to SMEs. Six experienced SME institutions (e.g., banks, venture capital companies, or NGOs) selected by IFC to act as intermediaries for the program have received or will receive a low interest loan of $500,000 to $1 million from the program. The intermediaries in turn will provide debt or equity financing of about $20,000 to $200,000 to SMEs for the incremental costs of GEF eligible projects. The total capitalization of SME projects leveraged by the program may be in the range of $ 6 million. To encourage the intermediaries to participate in the program and to consider GEF-eligible SME projects, the intermediaries may be able to retain up to 50% of all capital recovered from the SMEs. The intermediaries and IFC will monitor and evaluate financial and global environmental aspects of the program. The GEF approved a $16.5 million replenishment and expansion of the SME projgram in 1997.

Biodiversity Enterprise Fund

IFC is examining the use of investment or venture capital funds to encourage the private sector to invest in "sustainable" or environmentally sensitive businesses. Businesses that sustainably use or protect natural resources may include renewable energy, energy efficiency, sustainable forestry, alternative/organic agriculture and aquaculture, ecotourism, and recycling. These businesses in developing countries often encounter difficulties in obtaining financing for a variety reasons: small size, newer technology, lack of access to debt at reasonable interest rates, and project development or transactions risks and costs. Through a fund, IFC and private sector investors would bring together investment management expertise, advanced sector know-how, and local and foreign capital and make these resources available to businesses in these sectors of interest to the GEF. IFC is considering an investment of up to US$5 million in a $20-50 million Biodiversity Enterprise Fund to invest in forestry, agriculture, and ecotourism projects in Latin America. In addition, $5 million in grant funding from the GEF for the higher than normal project and review and biodiversity screening costs, the costs of an advisory board, and monitoring and evaluation activities was approved by the GEF Council in October 1995. The fund will invest in projects with a capitalization of $40 to $100 million.

Renewable Energy and Energy Efficiency Fund

A $100-200 million global Renewable Energy and Energy Efficiency Fund is in development to catalyze and finance investments (of generally less than 20 MW) in developing countries that use GEF-eligible technologies. New sources of largely private capital must be found to meet an estimated $160 billion in demand for energy supply projects financing in developing countries by the Year 2000. A feasibility study indicates a fast growing "pipeline" of renewable energy and energy efficiency projects providing the proposed fund with adequate investment opportunities However, it is presently difficult for these projects to attract interest from investors because they tend to be small transactions, require more time and support to bring them to investment quality than large conventional projects, and often involve newer technologies or new markets. The proposed Fund will offer an opportunity to explore how commercial funding and a smaller amount of concessional funds might be integrated. The GEF endorsed the use of $30 million in grant and concessional funds by the Fund in 1996 for eligible incremental costs for promising new technologies.

Hungary Energy Efficiency Co-Financing Facility

IFC will administer a US$5 million co-financing facility dedicated to energy efficiency project financing in Hungary utilizing GEF funds. The Facility, to start in 1997, will support financing activities of qualified domestic financial intermediaries such as commercial banks and bank-owned leasing companies by providing credit enhancement, co-financing and targeted technical assistance to energy efficiency investments. Its goals are to implement cost-effective projects, promote development of the energy efficiency market and build domestic energy efficiency financing capacity. The three target subsectors will be (i) lighting; (ii) district heating; and (iii) industrial motors and processes. GEF resources would be used to facilitate and leverage private sector capital, (including domestic bank capital and credit lines supplied to local FIs by IFC, EBRD, EIB, KfW and other international financial institutions or IFIs). Over its proposed five year life, the HEECF would facilitate total energy efficiency investments of an estimated US$25 to 30 million or more. Funds would be used for three purposes: (i) direct energy efficiency project financing support; (ii) technical assistance; and (iii) Facility establishment and administration. Direct energy efficiency project financing support would be provided via: (i) credit guarantees, whereby Facility funds would be reserved to cover the guarantee liability; and (ii) medium-to-long term co-financing loans. Technical assistance funds would support marketing and delivery of energy efficiency financial services and preparation of specific energy efficiency investments. The Facility would use financing methods that seek to preserve and leverage the capital of the Facility to the maximum extent.

UNDP Mauritania: Decentralized Wind Electric Power for Social and Economic Development

This project uses both government and private sector capital for setting up small-scale decentralized wind power generation units. The project brings together local companies and international wind electric equipment suppliers to establish collaborative ventures. Participating communities will have equity investments in the systems. There are 14 villages currently equipped with aerogenerators, and 13 of which have engines of 1,000 W and 2,500 W capacities. Another 20 to 40 villages are targetted for installation of 70 W engines. The larger units are to be supplied by a consortium of local business companies, called AFRIVENT, while the smaller 1,000 W units will be marketed by another local company, SOMEQUIP. Another private company, EL ABEID, is the major supplier for the batteries. Representatives of these companies are members of the project's Steering Committee.

UNDP Chile: Reduction of Greenhouse Gas Emissions

This project includes a component designed to help stimulate formation of private Chilean energy service companies (ESCOs) to help commercialize energy efficiency activities within Chilean industry. One of the objectives of the project is to develop energy efficient programs in two companies in the Chilean mining industry. Among the private companies involved in the project are CODELCO, ENAMI, Disputada, Mantos Blancos, and many other small energy service companies. The project initially provided technical assistance to these companies by providing opportunities for networking and link-up with the National Association of Energy Services Companies (NAESCO) of the United States. Training of company technical staff were held in local universities in the area of measurement of energy efficiency of electric motors. Meetings were also organized by the project to introduce the companies to potential funding sources, such as the Inter-American Development Bank, and national state funding institutions like FONTEC and FONDEF, and regional institutions from Mexico (FIDE), Brazil (PROCEL), and Peru (CENERGIA).

UNDP India: Optimizing Development of Small Hydel Resources in the Hilly Regions

This project, executed through the Ministry of Non-conventional Energy Sources (MNES), facilitates greater private sector participation in the small hydel sector in the hilly regions of India. Aside from investment subsidies given by MNES, the project supports applicants for soft loans from a parastatal, the Indian Renewable Energy Development Agency (IREDA), the Rural Electrification Corporation (REC), and the Power Finance Corporation (PFC). The project has agreements with a few state governments to allow the leasing of sites for renewable energy projects. In addition, several electricity boards have introduced packages which allow wheeling and banking, and have fixed remunerative tariffs for the purchase of energy. A tax break for power projects will be applied, on top of the 100 percent depreciation and exemption from taxes and duties on equipment for small hydel projects. At present, the project is collaborating with the private sector in developing standardization and updating of technology.

World Bank - Poland Coal-to-Gas Conversion Project

Among the project beneficiaries to which the Polish Environmental Protection Bank is providing GEF-assisted financing are enterprises in the process of privatization or which are already private.

World Bank - India Alternate Energy Project

The principal project beneficiaries, to which the Indian Renewable Energy Development Agency (IREDA) has provided GEF-assisted financing, are private sector sponsored wind farm, hydroelectric, and photovoltaic developments.

World Bank - Thailand Promotion of Electricity Energy Efficiency

The Electricity Generating Authority of Thailand (EGAT) and its newly formed Demand-Side Management Organization (DSMO) are actively working through GEF funding to encourage local private companies to manufacture more energy efficient lighting, refrigerators, motors and other key energy-consuming devices and consumer appliances.

World Bank - Tunisia Solar Water Heating Project

Tunisia's Agence pour la Maitrise de L'Energie has obtained commitments of $13.6 million in private sector co-financing to accompany the $4 million in GEF financing.

World Bank - Brazil Biodiversity Project

Brazil's Ministry of the Environment has been actively discussing mechanisms to ensure that private sector businesses and business foundations with an interest in biodiversity protection can participate in GEF-funded project activities.

UNDP - Brazil Biomass Integrated Gasification/Gas Turbine Project

A public-private sector consortium was formed to further development of BIG/GT technology. An application for GEF support of a $70 million commercial demonstration BIG/GT plant under World Bank sponsorship is likely. In this follow-on stage private equity would be invested alongside GEF funds.

UNDP - Pakistan Fuel Efficiency in the Road Transport Sector

The project aims to enhance private-sector garage owners to engage in instrumented tune-ups of gasoline vehicles and diesel buses, as a means to increase the energy efficiency of the road transport sector.

UNDP - Cote d'Ivoire/Senegal Control of Greenhouse gas Emissions through Energy - Efficient Building Technology in West Africa

The project aims to establish with the help of policy measures and financing mechanisms the local capacity to attract private sector participation in energy-efficient building projects, both for retrofit and in new buildings, thus helping to develop private sector markets in this area.

World Bank/Inter-American Development Bank - Costa Rica Tejona Wind Power Project

The project was originally prepared by a private wind energy developer as an independent power project (IPP). Subsequent to the decision of the Instituto Costaricense de Electricidad (ICE) to develop the GEF project as a public sector project, the government decided to restart its IPP procurement program. Several private wind farm developers are now negotiating project financing arrangements for new wind power developments under power purchase agreements with ICE.

Recommended Reading

The following is a list of documents, also available on the GEF Web Site, which should be referred to for additional information on public involvement in GEF projects.

• GEF Strategy to Enhance Engagement with the Private Sector
• Additional Information to Support to the GEF Strategy to Enhance Engagement with the Private Sector
• GEF Operational Strategy
• Agency Contact information