Growing Sustainable Business For Poverty Reduction Initiative s Contribution to Identifying Rural Electrification Projects

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1 For Poverty Reduction Initiative s Contribution to Identifying Rural Electrification Projects Pascale Bonzom, UNDP Madagascar UNEP/e7 Workshop on Rural Electrification Bangkok February United Nations Development Programme UNDP is the UN's global development network, advocating for change and connecting countries to knowledge, experience and resources to help people build a better life. We are on the ground in 166 countries, working with them on their own solutions to global and national development challenges. As they develop local capacity, they draw on the people of UNDP and our wide range of partners. United Nations Development Programme

2 Presentation Overview Background Objectives A Multi-Stakeholder Approach The Role of UNDP The Scope of Engagement The GSB Process in Country The GSB Framework in Country Country Progress Project Lokoho Concluding Message The Global GSB Team Background The initiative Is anchored in the UN Global Compact and its principles; Grew out of the 2002 Global Compact Policy Dialogue on Business and Sustainable Development; Was conceptualized by the private sector, announced and launched at WSSD 2002 endorsed in high-level session; Is coordinated by UNDP in cooperation with the UN Global Compact Office and its supporting agencies (including UNEP);

3 Background: Founding Rationale The initiative recognizes that : The Millennium Development Goals will not be achieved without sustainable and commercial investment by the private sector; Multi-stakeholder & cross-sector partnerships will greatly assist responsible pro-poor business development and mitigation of investment risks by facilitating access to supplementary public finance, new markets, and information; Little of the increase in FDI goes to the least developed countries, while MNCs compete over saturated markets in the developed countries; Maximizing development and business benefits (social value + shareholder value) will be the key to poverty reduction; The opposite of poverty is prosperity not charity. Background: Market Opportunities The initiative recognizes that : Developing countries represent a difficult business environment: the foundations for private sector growth and the pillars of entrepreneurship are often inadequate, deterring both domestic and foreign investment. The challenges: the macro environment, physical and social infrastructure, the rule of law, fair competition, and access to financing, skills, and knowledge. The untapped business opportunities: affordable and appropriate products and services to the 4 billion people at the bottom of the economic pyramid, i.e. the more than 2/3 of the world s population earning under US$ 1,500 per year. The GSB initiative seeks to fill the gap between the challenges and the opportunities

4 Objectives (1) The objectives of the initiative are : To promote and facilitate business activities in developing countrues, which are aligned with the following criteria: Pro-poor and commercial by design: not philanthropic Related to a company s normal reported and audited measures Related to the company s core business or value chain Have positive economic, social and environmental impact and respect the Global Compact principles Ensure employment creation and local economic development Promote small and medium-sized enterprises (SMEs) Promote business linkages: value chain development Contribute to poverty reduction and the MDGs Objectives (2) The objectives of the initiative are : To broker partnerships that enable those business activities To facilitate the development of new business models/approaches for delivering goods and services to serve the bottom of the economic pyramid. To reduce risk and improve the contextual enabling environment for the business investments by demonstration and engaging in dialogue and drawing policy lessons from the specific GSB investment projects. To complement existing related initiatives and ensure alignment between private investments in developing countries and national development priorities (PRSPs, MDGs, ODA).

5 A Multi-Stakeholder Approach: Contributions Business: Innovative business models Managerial resources Technology, skills, standards Reach (MNCs) Access to finance GSB Initiative Governments: Leadership / strategy Transparency Policies & regulations Fiscal incentives Basic infrastructures Local communities & NGOs: Entrepreneurship Local knowledge & innovation Human capacity Understanding of local needs Support of Sustainable Dev. Development Partners: Facilitation / convening Support of Sustainable Dev. Attract international attention Local knowledge Finance (IFIs, bilaterals) The Role of UNDP: Brokerage UNDP provides impartial support to : Identify specific investment opportunities Identify partners and ensure complementarities Mediate to ensure business & development benefits Convene and facilitate dialogue to encourage the development of sustainable economic activity through risk mitigation Stimulate learning, advocate and catalyze replication & the scaling-up of successful models

6 The GSB Process in Country STEP 1 Identify companies interested in participating & leading Identify & consult other stakeholders Identify potential sustainable business opportunities Identify key policy & other constraints, and other relevant initiatives STEP 2 Convene multi-stakeholder working forum in country to: - Discuss role of private sector in overall development - Identify, review, endorse projects - Agree on next steps, e.g. - UNDP mandate - Establish GSB Framework STEP 3 Begin detailed design and implementation of investment projects Base projects on principles of transparency and sustainability Report progress, learn, advocate & broker additional projects The GSB Framework in Country (1) The GSB Framework in country comprises : The GSB Coordinating Group: a multi-stakeholder body set up at national level to oversee and guide the initiative; chaired initially by the UNDP Resident Representative; The GSB Secretariat: hosted within the UNDP Country Office to deliver brokering and administrative support, communication services, and to assist with identification of investment opportunities; The GSB Project Alliances: multi-stakeholder groups established to manage and guide the implementation of specific investments.

7 Country Progress (1) GSB Frameworks have been set up in Tanzania, Madagascar, & Ethiopia. Tanzania: Ericsson: provide rural communities, SMEs, and social service providers with access to telecommunication; ABB: provide rural electrification for household and SME use; Tetra Pak: develop the value chain for milk production from cow to consumer; Unilever: develop the value chain for Allanblackia Oil production. Madagascar: Total: improve the safety of hydro-carbon transport by building capacity in the SME transport sector; EDF and the E7 Fund: Project Aloatra and Lokoho - develop rural electrification investments to benefit SMEs, households, and social service providers; BFV-Société Générale: invest in microfinance and SME development. Country Progress (2) GSB Frameworks have been set up in Tanzania, Madagascar, and Ethiopia. Ethiopia: Shell: develop a commercial model for a rural irrigation scheme, which will enable private water companies to serve farmers; The EcoTourism Association of Ethiopia: facilitate investments in sustainable tourism operations; Dometic: investment in and promotion of locally produced ethanol-fuelled cooking stoves for daily household activities. The GSB initiative is currently being introduced in Kenya and Zambia. Additional countries under consideration include Cambodia, El Salvador, Fiji, Bangladesh, Egypt, Nigeria, Vietnam, Ghana, Mozambique, Uganda and others based on need and interest. Additional potential companies include BP, Thames Water, Del Monte, Holcim, Starbucks, and many others

8 Project Lokoho - Objectives Improve access to electricity for rural populations Improve access to basic services: water, education, health, telecoms Contribute to local economic growth and private sector development through enabling sustainable growth of revenuegenerating activities (Fruits and spices processing, tourism, etc.) Reduce dependency on Diesel Project Lokoho Description (1) Construction of a 4 MW hydro-power plant with its 120 km associated distribution network, in the North-East of Madagascar. In order to bring electricity to : The mid-sized town of ANDAPA, The coastal city of SAMBAVA About 30 isolated villages Local SMEs

9 Project Lokoho Description (3) SAMBAVA Sea National park Line double cables 63 kv & 20 kv 104 km National Road Dam 4 MW Power Plant Lokoho River ANDAPA Line 20 kv 14 km Project Lokoho Technical Characteristics Dam : Adduction : Flow : Fall : Weir 2 m by 75 m Right-hand side lateral water intake 1 km tunnel of 2,5 m diameter 130 m long penstock 10 m3 / second (average flow: 50 m3 /s) 50 m Power Plant : 4 MW 4 Francis Turbines of 1 MW each Lines : 14 km of 20kV to reach ANDAPA 104 km of 63kV/20kV (double) to reach SAMBAVA Network extension to about 30 villages and SMES

10 Project Lokoho Social Characteristics Current situation e7 Fund objectives Power plant 3.2 MW diesel 4 MW hydro Generation MWh diesel per year MWh hydro per year Households connected in Andapa & Sambava in Andapa & Sambava to in rural villages Electricity costs for: National company or diesel generator owners Electricity rate EUR 23 /kwh About EUR 10 /kwh Around EUR 10 /kwh To be determined with PPA Less than EUR 10 /kwh To be defined by government Investment costs (engineering costs excl.) - EUR 15 M Project Lokoho Financial Structure Establishment of an energy company - Energie de LOKOHO with two Partners/shareholders: The e7 51% Electricité De Madagascar (EDM) 49% Estimated cost of project: Needs Resources Civil works 6.0 m 4.5 m Capital (30% equity) Turbine 2.5 m 3.0 m Grant (Rural Elect) Lines 4.0 m 7.5 m Loans Rural Elect Net 2.5 m 15 m 15 m

11 Project Lokoho Partners Local Partner EDM EIB, WB Loans United Nations - Global Compact - UNDP/GSB Engineering Cos Support Engineering Contracts Énergie de LOKOHO Energy Contracts Domestic Clients, SMEs,, JIRAMA Concession O&M Contract Development PLan Governement ADER Local Operator Populations Project Lokoho Milestones Project first identified by e7 in July 2003 Presented by e7 to UNDP/GSB Met the GSB Criteria Presented at the GSB launch seminar in November 2003 Prefeasibility study from March to Sep 2004 including: Identification of potential partners, risks and obstacles Analysis of the energy sector Analysis of the juridic, administrative and economic environment Business Plan Approved for Feasibility study by e7 Board in Oct 2004

12 Project Lokoho Role of GSB Framework Broker partnerships with government, donors, NGOs, regulators, local authorities, private sector and communities. Identification of potential NGO partners Signature of an MOU between Ministry of Energy and Mining, ADER, e7, EDM and UNDP Participation of local authorities and communities in project prefeasibility and feasibility studies Engagement of potential donors the case of GTZ Facilitate problem-solving: Problem: ADER lack of funds. Solution: Energy Group creation to lobby for the priority of energy in public budget Problem: Changing regulatory framework leading to WB constraints. Solution: MOU and extensive discussions with WB Ensure alignment between development and business benefits Project Lokoho Planning Feasibility study : First semester 2005 Funding Finalization, Tendering & Contracting: 2005 Implementation : January 2006 December 2007 Production : January 2008

13 Concluding Message We encourage more energy companies to engage in the GSB operations - UNDP is there to assist you in making propoor yet commercial investments a reality. We encourage innovative partnership between the private, public and civil society sectors to provide more effective delivery of electriciy services in developing countries. The Global GSB Team The initiative is managed by : Director, Jeya Wilson: jeya.wilson@undp.org Global Coordinator, Jonas Giersing: jonas.giersing@undp.org Special Advisor, Richard Sandbrook: rsandbrook@aol.com Special Advisor, William Day: william.day@phonecoop.coop Policy Advisor, Sanjay Gandhi: sanjay.gandhi@undp.org Policy Advisor, Casper Sonesson: casper.sonesson@undp.org And GSB Brokers at the country level, including in Madagascar, Pascale Bonzom: pascale.bonzom@undp.org

14 Thank You