Norway pay-outs delayed until financing mechanisms improved

Norway has not deposited the US$45 million that Guyana qualified for in 2012 under the two countries’ forests protection plan and a top official says that a consensual decision has been made to delay the pay-out while working on improving the financial mechanisms for funding projects.

Georgetown and Olso are examining whether the Guyana REDD+ Investment Fund (GRIF) or the Inter-American Development Bank (IDB) should take the lead on funding projects under the Guyana-Norway forests partnership. The GRIF is a fund for the financing of activities identified under the Government of Guyana’s Low Carbon Development Strategy (LCDS).

The fund will receive up to US$250 million from Norway in performance-based payments for the period up until 2017, based on an independent verification of Guyana’s deforestation and forest degradation rates and progress on REDD+ enabling activities. The World Bank is the trustee and is responsible for providing financial intermediary services to the GRIF. Guyana has complained of slow disbursements from the GRIF and the two countries are looking to reform the mechanism.

The latest report from the World Bank said that up to the end of June Norway has not deposited the US$45 million into the GRIF.

“Given the uncertainty to the further funding mechanism of the partnership, we have made a consensual decision to delay the pay-out while working on improving the financial mechanisms,” Per Fredrik Pharo, Director of the Norway’s International Climate and Forest Initiative told Stabroek News.

He noted that it has been a challenge that the GRIF has experienced significantly slower progress than anticipated. “However, important lessons have been learned and we believe that it is possible to find good solutions. We don’t have any plans towards phasing out the GRIF,” Pharo said. “That said, we are working towards a solution that in greater extent includes cooperation with the IDB. IDB has extensive experience of being present in Guyana and is considered as a relevant and natural cooperation partner,” he added.

Norway late last year had announced that it would contribute US$45 million to the GRIF bringing the total contribution from Oslo under the Norway-Guyana climate and forest partnership to US$115 million since 2009. However, the latest report from the World Bank revealed that as of June 30, 2013, cumulative contributions to the GRIF amounted to US$69.8 million – the same as in 2011. Up to that point, based on the GRIF Steering Committee funding decisions, the trustee recorded a total of US$14.4 million in funding decisions and transferred the same amount for projects up to June 30.

The largest transfers were to the IDB with US$5.94 million and US$5 million for the Institutional Strengthening Project Micro and Small Enterprise Development Fund project respectively. Funds Held in Trust as of June 30, 2013 amounted to US$56.2 million.

Guyana and Norway, in the 2011 revision of the Joint Concept Note (JCN) under the partnership, agreed to work with the World Bank and Partner Entities (PEs) of the GRIF “to identify how the GRIF mechanism can function in a way that is fit for the purpose of channelling results-based international support to the implementation of Guyana’s low carbon development strategy in an effective, efficient and equitable manner.”

GRIF reform is intended to streamline the funding of projects, reduce administrative burdens, employ a fee-for-service mechanism that may expedite project development, especially for small and medium sized projects that are below a certain safeguard level, and generally provide a mechanism that better fits the purpose of payment for climate services versus the existing mechanism.

In the fourth annual progress report on REDD+ Enabling Activities which covers the period July 1, 2012 to June 15, 2013, released this month, government noted that in April 2012, both governments, along with the Trustee, began to examine the possibility of modifying the current GRIF structure to allow PEs to leverage all financial instruments currently at their disposal (with some exceptions based on specific Norwegian rules, regulations and policies for grants).

In addition, with the help of the IDB, the group began exploring a potential fee-for-service mechanism (Financial and Safeguard Intermediary (FSI)). “A fee-for-service mechanism would offer the ability to select the most appropriate products from the development institution (here the IDB) to govern the project. It is expected to be more efficient than the current mechanism. It can only be utilized for low safeguard projects,” the report said.

Amaila Falls
It recalled that in September 2012, the Norwegian government sent a communication to the Trustee proposing: to “allow for the PE to leverage all financing instruments at their disposal; Changes  that would ensure that the GoG can utilize GRIF funds as equity in the Amaila Falls hydropower project that is to be financed as part of an IDB sponsored project; the World Bank to consider the appropriate changes in the Administration Agreement to include a more flexible timing schedule for contributions and the feasibility of including the GoG as a signatory to the Administration Agree-ment;” and seek permission to allow “the IDB to pilot the FSI instrument outside of the current GRIF structure, as a supplementary financial vehicle for the partnership.”

The report recounted that in October 2012, the GoN and GoG wrote the IDB to request the IDB consider piloting a new FSI role to channel results-based funding as part of the Guyana Norway REDD+ Partnership. On March 6, 2013 Guyana and Norway emailed the IDB proposing an agenda for meetings on FSI, GRIF reform and a potential Amaila equity transfer.

In addition, Norway met with the World Bank in early March 2013 to discuss and provide an update on GRIF reform.

Government said that in a meeting in Washington DC in early March 2013, the IDB informed Norway and Guyana that it had developed a generic fee-for-service mechanism to provide fee-for-service functionality. The IDB shared the proposal for this mechanism ‒ Fee-Based Advisory and Knowledge Services (AKS). IDB notified Guyana and Norway on May 9 that the AKS mechanism had been approved by the IDB Board, the report said. Guyana is prepared to pursue a pilot project under the AKS mechanism, it added.

In terms of a potential IDB role in larger GRIF reform, the IDB stated that if the organization were to play a role in administering GRIF funds outside of the fee-for-service mechanism, it would likely be in the form of an IDB Trust Fund. “As a result, there would be the corresponding requirements, including, for example only IDB projects could be funded through the account. The Governments of Norway and Guyana may explore this possibility.

“Next steps will likely include a formal request from Norway and Guyana to understand the rules that would apply to a potential GRIF Trust Fund Account at the IDB,” the report said.

It noted that the teams across organizations ‒ the IDB, Norway and Guyana ‒ that would work on the implementation of GRIF reform are “currently focused” on the GRIF Amaila transfer. “The Amaila transfer process may also inform the GRIF reform process. As a result, once the Amaila transfer process is finalized or near final, it is expected that the work towards larger GRIF reform will continue,” the report said.
In light of the debacle on Amaila recently, the way forward is not clear.

Earlier this month, President Donald Ramotar warned that the country could lose US$80 million meant to be used as Guyana’s equity in the Amaila Falls Hydropower Project (AFHP). His statement followed an announcement by the developer of the AFHP, Sithe Global that it was withdrawing from the project after it failed to win political consensus.

This US$80 million was to have come from the GRIF and according to Ramotar, this amount “is in real danger of being lost.” How the president reached this conclusion is not clear.

However, thus far, almost four years after the partnership was inked, only two projects have been approved by the Steering Committee and since 2011, Norway has not disbursed any additional sums to the GRIF because its parliamentary rules forbid further disbursements until the majority of the money currently in the GRIF is used.

Former minister of the Environment and International Development of Norway, Erik Solheim had said that Guyana must justify the need for the funding of new projects in order to trigger the release of additional tranches of funds under the Norway-Guyana agreement and the money already disbursed must be spent before more could be released.

Pharo had also said previously that money already disbursed to the GRIF must be spent before more could be released. “It is correct that according to general rules for disbursement of funds set by the parliament, money cannot be disbursed until a significant portion of the money in the GRIF is utilized,” Pharo had said. “This is a technical aspect of the parliament’s general rules, and not special for Guyana,” he added.

Guyana had initially proposed seven projects to be funded via the GRIF including an Institutional Strengthening project, an Amerindian Development Fund (ADF), the Amerindian Land Titling project, the Micro and Small Enterprise Development and Building Alternative Livelihoods for Vulnerable Groups project, the Cunha Canal Rehabilitation project, the Biodiversity Research Centre and the Amaila Falls Hydroelectric Project.

These projects are in various stages of implementation and several other projects have been proposed.

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