Mr. Chairman; Honorable Ministers; Excellencies; Distinguished Delegates; Ladies and Gentlemen:
Allow me to begin with a note of thanks: It is with great pleasure that we are attending this Seminar at the kind invitation of the OPEC Secretariat. I, thus, would like to express our gratitude, in particular to His Excellency, Dr. Daukoru; His Excellency, Mr. Barkindo; and, indeed, all Staff of the Secretariat, who, in one way or another, have been involved in the preparation of this impressive gathering. And while at it, I also should quickly delineate, early on, that my presentation today will touch upon three distinct topics with a view to highlighting their inter-relatedness: Sustainable Development; Energy; and my institution, OFID, the OPEC Fund for International Development. I should demonstrate how OFID contributes to sustainable development and energy.
Mr. Chairman; Ladies and Gentlemen :
Sustainability: The Real Challenge
It is important to start with understanding the meaning of sustainable development. We have two concepts here: ‘’development,’’ itself, and ‘’ sustainability.’’ As Jeffery Sachs says in a recent speech, “merging the two concepts is the real challenge.” Development alone - i.e. raising the material conditions of countries - is not that difficult, as many parts of the world (notably East Asia) are showing us. But development on a sustainable basis is difficult and represents the true challenge facing human kind.
So, what do we mean by “sustainable?
John Mitchell of the British Royal Institute of International Affairs highlights a key difficulty in sustainable development to which I very much subscribe: “sustainable development, as terminology, poses more questions than it answers. Do we leave natural capital alone and intact?” Or, do we “substitute” for material we consume in the lifetime of our generation, in the hope that succeeding generations would have other needs and other requirements?
Another, perhaps more popular view of sustainable development stems from the widely respected and highly acclaimed Dr. Gro-Harlem Brundtland; a former Norwegian prime minister and Director-General of the World Health Organization. Dr. Brundtland defined sustainable development as “development that meets the needs of the present, without compromising the ability of future generations to meet their own needs.”
I certainly find it difficult to subscribe to this view. Only recently I was in the West African country of Burkina Faso, where I found a “present generation” that had hardly anything to consume, let alone worry about leaving something behind for “succeeding generations.” And there are many such poor countries across the world today.
Mr. Chairman :
I believe that, in the context of economic development of nations, sustainability has four key components:
- First, is the need and ability to economically grow and continue to grow - i. e., the ability to perpetually reproduce and regenerate economic growth.
- Second, is a concern that is increasingly becoming hot (quite literally) - environmental sustainability.
- Third, is social sustainability - the impact of economic growth on income distribution and social relations (urban/rural, peasant/landowner; worker/owner; regional/national etc.).
- And, fourth, is the issue of international sustainability - the impact of development on international and geopolitical relations.
Sustainable development is thus a very complex challenge; but we have learnt from history and from simply observing our own world, that we can ignore either of these issues only at our own peril.
Mr. Chairman; Ladies and Gentlemen:
Energy and Sustainable Development
There is no more important (and often no more controversial) issue relating to development and sustainable development today than energy. Any effort to forge an economy that is self perpetuating, if not based on sound energy planning from the outset, is bound to fail. Growth depends on energy and sustainable growth on sustainable energy - meaning, in this case, affordable and reliable energy in their purest economic sense.
As will be shown later on in my presentation, the poorest societies need sufficient energy to help lift their citizens out of the poverty they face. And the fastest growing economies, as well as the most developed, would grind to a halt without sufficient energy.
The oil and gas producers who set up OFID have borne the burden to produce sufficient energy supplies to keep the world economy fueled. In fact, this burden has become much larger in the past few years. The challenge of the energy producers is a paradoxical one: to substantially increase their investment in their energy sectors in order to meet the rising global demand for energy, and, at the same time, to build sustainable economies of their own that do not depend as much on hydrocarbons production and revenues.
Mr. Chairman; Ladies and Gentlemen:
Finding Solutions is Everyone’s Responsibility
The most urgently needy are the poor countries of the world and energy is an essential solution to their problems. Recently, the UN-Energy group produced a paper entitled The Energy Challenge for Achieving the Millennium Development Goals. I would like to repeat the eight goals and how they saw energy would help meet the challenge. And incidentally, reviewing these goals it is clear that poor energy producing and consuming countries face these challenges and we should all help encourage them to meet these goals.
The first one is the need to eradicate extreme poverty and hunger. Clearly, energy is essential to the achievement of this goal - energy fuels economic growth, creates jobs, produces and prepares foods and helps transport goods and people. Without this basic need being met we can’t even start on achieving the other seven goals.
The second, provision of universal primary education, is totally dependent on energy, both in the form of lighting schools and housing so students can read but also relieving children from searching for fuel and water to meet the households’ basic needs.
Similarly, if the third goal is to be met - promoting gender equality and empowering women - energy is an essential input. Lack of access to modern fuels and electricity contributes to gender inequality. As in the case of the children, searching for fuels, the use of low yield inefficient fuels prevents women from partaking in more productive educational and social activities.
The fourth goal - reducing child mortality - also is deeply energy dependent. The UN report cites diseases caused by contaminated water and respiratory illnesses caused by indoor air pollution can be reduced through use of modern fuels.
Energy is essential to meet the fifth goal - improving maternal health - notably because of the need to power health clinics.
Other disease prevention, primarily HIV/AIDS and malaria, the sixth goal, can be enhanced with effective deployment of energy to fuel health facilities and to communicate important disease prevention information to the population at large.
Modern energy, especially for the very poor, will help achieve the 7th goal - ensuring environmental sustainability.
And finally the 8th goal is to achieve all of the above through international cooperation for the provision of sustainable and environmentally sound energy services. Funding the latter can be achieved on the local and international levels.
Mr. Chairman; Ladies and Gentlemen:
Challenges for Energy Producers, Consumers, the Rich and the Poor
Energy is critical to economic viability and building sustainable societies. As Jeffery Sachs has shown, using energy to help meet the basic needs of the poorest in the world will entail increasing total economic activity by 4% of total global GDP, lead to an increase of 6% of carbon emissions but potentially raise average life expectancy from 46 to 67 years and lower child mortality rates from 183 deaths per 1000 births to 60 per 1000. This is a judicious use of energy to solve serious global economic problems and make our world more sustainable.
As for middle and high income countries, the question is: is their model of development sustainable?
In answering this question, we must make a distinction between energy producer and consumer countries. The energy producers, in general, have not formulated sustainable economic development models. This is largely due to the fact that they have depended on oil and gas revenues to fund government budgets, which in turn have handed out jobs and incomes to most of their citizens. Wild swings in income derived from volatile commodity prices have periodically weakened the government’s capacity to support income levels.
Energy, while serving as the backbone of these economies, has also acted as the cause of the problem here. But it needn’t be so. Prudent use of funds, such as expenditures on education and training, can create the necessary human and physical infrastructure for development. The use of the energy sector itself as an engine of growth for other parts of the industrial and service sectors can help develop and sustain a non-oil economy. It certainly has been a challenge for these producer countries, but there are some notable successes. The use of energy can be turned on its head - re-channeled from creating an unsustainable society to a productive sustainable model of development.
One encouraging trend in some oil exporting countries has been the “commissioning” of the national oil companies (NOCs) to transfer some of the managerial and technical skills that they have acquired over the past decade to the rest of the economy. This is definitely the case in Saudi Arabia, where Saudi Aramco, as the largest and most accomplished public enterprise, has been requested to help other sectors of the economy by applying its experience and expertise in human resource development to other areas.
This approach should be used more widely; it was very natural for the major oil and gas producers to invest heavily in their NOCs first, and it is equally natural for them to now ask these same NOCs to share their experience and competencies so as to raise the overall capabilities of their nations.
The industrialized world, whether established or emerging, has hit upon a model that has led to long term income growth. Although all economies will face cyclical slowdowns and even downturn, as long as they have the technical and mineral inputs and sufficient demand, their economic systems are fundamentally viable. But as economists like to say this model is fraught with externalities. The most critical one faced by consuming countries appears to be less the cost of energy (although that is a concern) and more the prospects of the sustainability of the environment.
Government and private partnerships have led to a stabilization of carbon emissions. However, significant change needs to come in the US at the policy level but also at the societal level. If the US, which consumes 25% of the world’s oil and gas and produces nearly 40% of the carbon emissions, does not join Europe and Japan, we will not make the most preliminary progress. China and India represent major challenges as well. Their sustainable development requires early adoption of cleaner technology – leapfrog technology – as much as possible eliminating the old and inefficient energy systems inherited from the past. While the emerging countries eschewed Kyoto, they are now coming to the realization that without becoming more environmentally conscious, their aspirations will not be met and growth will falter.
Mr. Chairman; Ladies and Gentlemen:
To sum up, the challenges faced by various countries can be summarized as follows :
The main challenge of Oil Importing Poor Countries is poverty reduction and meeting of the Millennium Development Goals, a responsibility of the global community;
The main challenge of Oil Importing Industrialized and Industrializing Countries is not so much oil prices, but environmental sustainability and energy security;
And the main challenge to Oil Exporting Countries is to outgrow their dependence on oil revenues, while at the same time continuing to invest heavily in their hydrocarbon sectors in order to meet global demand.
Mr. Chairman:
OFID and Energy:
I would now like to return to my organization, OFID, and outline some of our broad policies and approaches to the issues just covered.
OFID's' traditional focus on poverty alleviation has become a corner stone of its mandate, and an unfailing base of its dialogue with its partner countries. OFID shares the concern for prompt access to "adequate, affordable and sustainable energy" services. OFID believes that this access is achieved most promptly and most efficiently by a focus on tested and readily available resources. Through its experience in several poor countries, it has established that a focus on rural electrification and introduction of substitutes to inefficient biomass -such as LPG- and some proven renewable energy sources such as solar energy is the surest and fastest route to enhancing poor people's access to energy services.
In this matter of energy, OFID has contributed to over 120 projects which encompass the whole spectrum of energy production, transformation and distribution and 90 projects (75%) were in the low-income countries.
It is broadly accepted that focus on readily available sources of energy for the poor does not conflict with the concern for the environment, particularly CO² emissions.
Globally, developed countries consume ten times more energy per capita than developing countries. The inequities in access to and consumption of energy constitute a serious impediment to sustainable development in a globalized world.
Mr. Chairman; Ladies and Gentlemen:
Let us briefly look at what OFID has cumulatively accomplished in the field of energy financing:
OFID’s total commitments over the past three decades are in excess of US$ 8.0 billion, of which US$ 4.98 billion has been committed to public sector projects.
- 19% of the total commitments of the public sector projects went to 120 schemes in the energy sector, including production, transformation and distribution of energy.
- OFID’s energy sector financing has helped in bridging the gap to successfully implement investment projects with co-financiers totaling US$ 14.5 billion over the last 30 years.
- To exhibit OFID’s adherence to its mandate, which calls for the greater share of its resources going to the poorer countries, the lion’s share (75% of the energy sector total commitments) has been commit to low income countries.
- The global commitments of our sister organizations over the past four decades, are well over US$ 68 billion, of which 8% is from OFID contributions.
Ladies and Gentlemen:
We should recall that some one and half billion people live with less than one dollar a day and half the world population - nearly three billion people - live on less than two dollars a day. Let us also recall that some 20% of the World population consumes eighty percent (80%) of the planet's wealth and that the poorest 20 percent consumes no more than three and half percent (3.5%). Let us finally note that the proportions are also the same for many other goods as is for example the case of the world's vehicle fleet.
The UN Human Development Report confirms that the world inequalities have been rising for the last two centuries and continue to rise nowadays at an accelerated rate. The report establishes the "distance" between the richest and poorest country was about 3 to 1 in 1820 and 72 to 1 in 1992. That is to say that we cannot afford to be complacent in dealing with those factors, which have proven to be the source of wealth.
These factors can be brought down, in a rather summary way, to education, technology and energy. For the developing countries, improving access to modern energy services- such as electricity, motive power and other- will boost growth and help eliminate poverty, improve health, expand access to education, whilst safeguarding the environment.
Mr. Chairman; Ladies and Gentlemen:
In conclusion, I would like to state that OFID stands ready to share its experience with its Partner countries and the development aid community to accelerate the development of energy services in the poor countries in which it operates. In so doing OFID continues a history of support for the development of economic infrastructure. In the field of energy, we note that levels of investments in the electricity sub-sector are about 50 percent of the needs. OFID will thus continue to fund thermal as well as hydroelectricity generation and distribution as well as making biomass energy more efficient. It stands ready to cooperate with partner countries to develop country specific energy models and contribute to their implementation. OFID is inherently committed to cooperation and coordination with its sister organizations and the donor community at large. OFID works with the public as well as the private sector and encourages transparent and well- conceived public-private partnerships.
Thus, in recognition of the variety of situations and different economic capacities, OFID has developed a series of new products and financing windows which, when combined, allow an adequate response to the pressing need for energy development particularly in favor of the poor.
Thank you very much, Ladies and Gentlemen, for your kind attention.