Energy for the Poor Initiative

1. Energy for the Poor Initiative Sustainable Development Network November 12, 2008

2. Outline I. Background II. Energy for the Poor Initiative (EFPI) • Short term component: Energy Price Crisis Response (EPCR) under the Vulnerability Financing Mechanism (VFM) • Medium term component III. Eligibility and Prioritization Criteria IV. Overall Structure and Governance V. Complementarity with Existing Initiatives VI. Consultation Process and Next Steps

3. I. Background • The energy and food price crises have had major economic effects on both poor countries and poor households, reversing years of progress in reducing poverty. • At the country level, higher oil prices have adversely affected the balance of payments, caused inflation to accelerate, and slowed growth. In some countries, ad-hoc pricing mechanisms or heavily-subsidized fuel prices have caused fiscal stress. • At the household level, higher prices for food, fuel, network electricity and transportation have reduced real incomes. • The food and energy price shocks are intertwined–high fuel prices increase the cost of producing and transporting food, leading to even higher food prices.

4. Even with recent declines, real oil prices remain above the 1970s crisis and triple the level of 4 years ago (US$/bbl) 2007 $ (US GDP Deflator) Nominal Source: DECPG Commodities Group

5. Combined food and oil prices are hurting, with energy having the largest impact on most countries’ balance of payments(January 2007 to August 2008, in percent of 2006 GDP) Impact of food price changes IDA IBRD Blend Impact of oil, gas, and coal price changes Source: DECPG, World Bank

6. The Food Crisis Response • To address the urgent needs stemming from high food prices, the Board endorsed the Global Food Crisis Response Program (GFRP) on May 29, 2008. • GFRP facilitates a rapid and flexible Bank response and provides a framework to coordinate its response to the food crisis. • GFRP includes, among other things, a Food Price Crisis Response (FPCR) multi-donor trust fund which provides for food and agriculture related interventions as well as support to social safety nets related to the food crisis.

7. Reducing Vulnerability to Shocks • Developing countries and the poor in particular are highly vulnerable, which means that the economy and/or individual households are not well equipped to weather the impact of an external shock. • But vulnerability, whether at the macro or micro level, can be reduced over time. • A number of measures can be taken to reduce vulnerability to increases in the prices of basic commodities like food and fuel. For fuel: • Where energy is available, households can improve energy efficiency. • Governments can adopt appropriately flexible macroeconomic policies, diversify energy supply and reduce fuel subsidies. • Improving household energy access can enhance productive capacity and thereby reduce vulnerability to both oil and food prices.

8. Importance of Addressing Immediate Needs • Failure to respond to immediate needs can undermine efforts to reduce vulnerability over the medium term. • The poor, who are least able to weather price shocks are forced to: • Skip meals or switch to lower-quality, less nutritional foods. • Eliminate spending on school or fertilizers. • Draw down critical household assets on which they depend for their livelihoods. • Shift to cheaper, but less health- and environmentally-friendly fuels. • Therefore, mobilizing fast disbursing targeted support can help the poor manage the immediate consequences of their vulnerability thereby providing the opportunity for longer-term efforts to take root.

9. Following the ideas discussed at the Jeddah Energy Conference, the EFPI includes two components: • A short-term component to address immediate needs • A medium-term component to increase the resilience of countries and households to high and volatile oil prices • Components complement each other: • Short-term support helps to secure time to undertake the medium-term structural reforms to reduce vulnerability to high and volatile oil prices II. Proposed Energy for the Poor Initiative (EFPI)

10. Objectives and Scope Short-term Component • Protect the poor and prevent the erosion of household and human capital in countries most seriously affected by high and volatile energy prices (or both energy and food). • Through the establishment of Energy Price Crisis Response (ECPR) multi-donor trust fund, target transparent financial support, such as cash transfers, workfare programs, lifeline rates or energy efficiency devices. The choice among different short term interventions will be based on individual country circumstances. • Complement the social protection window of the Food Price Crisis Response (FCPR) multi donor trust fund.

11. Vulnerability Financing Mechanism (VFM) • To quickly mobilize donor resources and support households in managing the consequences of high and volatile energy and food prices, a VFM will be created under the umbrella of the GFRP. • VFM will encompass the existing FPCR and the new EPCR multi-donor trust funds. It will also: • Facilitate coordination of donor support. • Transfer lessons from experience with FPCR. • VFM structure can easily be adapted to accommodate WBG and donors’ responses to unanticipated shocks from areas other than food and energy.

12. Objectives and Scope Medium Term Component Support public- and private-sector projects that increase the resilience of countries and households to high and volatile oil prices. Support countries’ own efforts at energy sector reform. Through arrangements with bilateral and multilateral institutions, scale up projects and activities in following areas: Sustainable energy access for the poor. Efficiency of energy consumption and/or supply. Energy source diversification. Promote programmatic approach for joint or parallel financing of projects from WBG or donor pipelines, as well as joint project design and selection. Conform to Bank practices, standards and guidelines for preparation and approval.

13. III. Eligibility and Prioritization Criteria

14. Food Price Crisis Response (FPCR) Eligibility Criteria For grant resources • IDA countries negatively affected by food price increases For policy analysis and technical assistance • IBRD/IDA blend and IBRD countries

15. Energy Price Crisis Response (EPCR) Short-term ComponentEligibility Criteria • IDA and IDA/IBRD blend countries • Post-conflict IBRD countries • Net oil-importing IBRD countries

16. Energy Price Crisis Response (EPCR) Short-term Component Prioritization Criteria Priority will reflect: • Relative severity of economic impact from increase in price of imported fuel. • Extent to which a country has already embraced or is pursuing fiscally-sustainable energy policies. • Relative cost effectiveness of a country’s social safety net or other support mechanisms. Allocation of resources to individual countries: • Maximum allocation to a single country will be set based on overall resource envelope (e.g., US$25-$40 million). • To reflect the relative severity of the fuel price shock. • To take into account extent to which a county has already received World Bank grant resources through GFRP.

17. The Medium Term Component All IDA and IBRD Borrowers would be eligible Emphasis on projects supporting • improvements in energy efficiency • energy supply diversification, particularly renewable energy including hydropower • energy access for the poor

18. IV. Overall Structure of the EFPI & Governance of the EPCR

19. Short-Term Component The Energy Price Crisis Response Trust Fund (EPCR) under the Vulnerability Financing Mechanism (VFM) Medium-Term Component Cooperative arrangement with bilateral and multilateral institutions to scale up energy projects Vulnerability Financing Mechanism DONORS COFINANCING/ IDA/IBRD PARALLEL FINANCING IFC COFINANCING Food Price Crisis Response Multi-Donor Trust Fund Energy Price Crisis Response Multi-Donor Trust Fund Others … Coordinated Direct Delivery Funding for Social Safety Nets for poor people most affected in vulnerable countries EFPI Structure

20. IBRD IDA VULNERABILITY FINANCING MECHANISM Global Food Response Program (GFRP) Framework Projects Pipeline SURPLUS BANK SINGLE DONOR TRUST FUND WBG $14 – 18 B/3 YEARS, OF WHICH: $200M IDA/IBRD EXPEDITED AGRICULTURE Food Price Crisis Response CORE Multi Donor Trust Fund BANK PIPELINE FOOD IDA/IBRD $12-18 B Food Price $1B FOOD and AGRICULTURE Pipeline Policy Increased Ag. Production FOOD Implementation IFC $2.2 B Support AGRIBUSINESS Pipeline SAFETY NETS Cash Transfers WBG Total Energy Project Pipeline/ 3YEARS: Workfare Programs IDA/IBRD US$12-16B … IFC/MIGA US$5-7 ENERGY DONORS COFINANCING/ IDA/IBRD PARALLEL FINANCING ENERGY $8 B $15 B Energy Price Crisis Response (EPCR) Multi Donor Trust Fund IFC COFINANCING $2 B $5 B Short Term Component Energy Price Crisis Response (EPCR) Multi Donor Trust Fund Medium Term Component Includes access, efficiency and diversification

21. EPCR Governance • Follows FPCR governance structure: similar Bank Steering Committee, Secretariat, and Advisory Council, with modifications if necessary. • Steering Committee chaired by a World Bank Managing Director. • Decisions on grants and work program to be made by Steering Committee based on input from the Secretariat and advice from an Advisory Committee of external stakeholders, including representatives of recipients.

22. V. Complementarity with Existing Initiatives

23. Short Term Component • The short-term component (EPCR multi donor trust fund) to operate in parallel to the social safety net window of the Food Price Crisis Response multi-donor trust fund. • Coordination between the two trust funds under the VFM will be critical for the success of the Initiative.

24. Medium Term ComponentClimate Investment Funds (CIF) • Expanding the poor’s access to sustainable energy to figure prominently in the EFPI. • Projects under the EFPI to be complementary to the objectives of the CIFs (i.e., renewable energies, energy efficiency, etc.) • EFPI to coordinate with bilateral donors and institutions under a programmatic approach.

25. IMF is providing balance of payments support through: Augmenting access for PRGF arrangements. Amending Exogenous Shocks Facility. Providing advice on fiscal, monetary and exchange rate policy responses. WBG EFPI Short term: supports social safety nets leveraging Bank knowledge and country experience. Medium term: engages in policy dialogue at sectoral level; develops, and provides additionality to, the Bank’s energy portfolio; builds on Bank’s international, sectoral and country knowledge. Complementarity Between WBG and IMF Responses

26. VI. Consultation Process and Next Steps Consultation Process • August: Design of the concept • September: Technical mission to discuss concept with potential donors • Feedback to date • Broad support for initiative’s objectives, design, and governance structure • Donor support should be broad based • Extent of financial support for EPCR still to be defined • Desire for genuine partnership for the medium term component – not just “gap filling”!