Thank you, Your Excellency, for that kind introduction
Excellencies;
Ladies and Gentlemen:
It is always a pleasure for me to address experts and decision-makers interested in energy matters. This is all the more so when it coincides with the OPEC Seminar. OPEC is an organization I have been involved with since my early days in the energy business, back in the late sixties.
My organization, – OFID – The OPEC Fund for International Development, has at the heart of its mandate the spurring of sustainable development in non-OPEC developing countries. I would therefore like, during my allotted time, to focus on energy poverty and more specifically on energy for the poor in developing countries and, in particular, in least developed countries. First, by highlighting the experience gained and the lessons learned in this area by OFID and second by outlining some new initiatives underway to combat energy poverty.
To begin with, I would like to say a few words about poverty in general. From the many ways to illustrate this subject, I have chosen the picture displayed here, which captures the concept of poverty. When we speak of poverty, we speak of nothing new; the poor have been with us since history began.
In some cultures, poverty is associated with certain stigmas. As an Arab Muslim, I learned from the Holy Koran that if we are born poor, we are not destined to remain so, and I quote from Surah 6 Al-An’am: "..kill not your children because of poverty- We provide sustenance for you and for them..." Indeed, our planet has been endowed with enough resources to live without poverty and yet the bottom billion of the world population lives on less than a dollar a day.
In the year 2000, the Heads of States of OPEC Member Countries in Caracas, Venezuela urged the industrialized countries to recognize that "the biggest environmental tragedy facing the globe is human poverty".
Now let me turn to the topic of energy for the poor. Undoubtedly, energy is fundamental to nearly all economic activities and modern standards of living.
Unfortunately today one-fourth of the world’s population living in rural and poor urban areas still does not have access to electricity and more than one-third of humanity relies on biomass as its principal source of energy for cooking and heating.
Fighting energy poverty is to ensure continuous access by the poor to affordable modern energy services, which means among other things, lighting, cooking and transportation. Energy is not just about electricity, it is also about fuel, electricity is not always the most appropriate energy source for all needs. Petroleum products are needed for transportation, cooking and heating, as well as to produce electricity.
This is why fighting energy poverty has been recognised by the Heads of States of OPEC Member Countries during their last meeting in Riyadh in November 2007 to be essential for poverty eradication, sustainable development and the achievement of the Millennium Development Goals. In this context, as reflected in Chapter 2 Item 6 of the declaration, the OPEC Member countries pledged to work through their aid institutions, as well as through OFID, to achieve these ends.
If indeed access to energy underpins the eight MDGs, my opinion is that, and I have often said it, combating energy poverty is so crucial that it should be declared the ninth Millennium Development Goal.
OFID is tackling energy poverty within a coherent development framework which is based on sustainable development principles, which as you know, rely on three inter-dependent and mutually supportive pillars, namely economic development, social progress and the protection of the environment. In line with this framework, OFID, through its assistance to development, supports the advancement of the three pillars in a balanced way. This means in particular, that OFID believes that environmental issues should not impede human poverty alleviation.
The primary energy mix for the poor can only rely on diversified fossil fuels as well as renewables, such as hydro, wind, and solar energy. As it is well known, fossil fuels will continue in the foreseeable future to play a major role in the energy mix of developed nations. This predominance of fossil fuel should similarly be reflected in the energy mix of the poor. Nevertheless, OFID is also involved in supporting projects in renewable energy, such as our latest intervention in Haiti for the rehabilitation of the Péligre Hydro-Electric Plant for which OFID’s Governing Board has last week approved a loan in the amount of US$ 15 million. The project will restore and preserve Haiti’s capacity to generate electric power with renewable energy sources in Port-au-Prince. As a result, the project will help to reduce poverty by improving productivity in households and enhancing the delivery of social services.
The task of eradicating energy poverty is immense. The required capital investment is significantly high. To reach the MDGs, 500 million more people need to have access to electricity at an additional estimated investment of USD 16 billion per year (IEA, 2004)
Excellencies, ladies and gentlemen
OFID has gained extensive experience in combating energy poverty, close to 20% of all its activity is related to energy projects. OFID’s vision regarding energy poverty has been further confirmed in a workshop organized a few months ago in Abuja, Nigeria on the very theme of Energy poverty in Africa, a continent where only a quarter of its people have electricity. A clear conclusion of the workshop was to make concrete proposals to break the vicious circle: no energy development because of no real demand due to low population income, explained by a lack of energy.
Basically the OFID approach aims at tackling the problem of energy poverty in an integrated and inclusive manner and at triggering the appropriate synergies with other institutions in order to face the huge financial requirements. On the ground, this approach is translated by building human capacity, institutional capacity and infrastructure capacity.
Paying for energy services entails enabling poor people to increase and diversify their income by providing them with appropriate financial services such as microfinance among other mechanisms. Currently, according to the World Bank, over 3 billion people around the world do not have access to financial services, leaving them with virtually no chance of improving their incomes.
The bottom line here is to implement sustainable pro-poor policies to empower people by making them less vulnerable. This entails, among other things, designing and implementing targeted subsidies, as well as incentives and innovative mechanisms, to help enterprises facing large up-front costs of energy projects in poor developing countries.
Excellencies, ladies and gentlemen
In June 2008, King Abdallah of Saudi Arabia placed Energy Poverty on the global agenda, by calling on the World Bank to launch an initiative for impoverished countries known as the Energy for the Poor Initiative. This initiative, by mobilizing the donor community, aims at providing assistance to help the poor and low-income people to access energy in a affordable way.
OFID is helping to coordinate the stakeholders’ actions regarding this initiative in which the World Bank and the Saudi Fund are actively participating. We have contributed to the conceptualization of this initiative. OFID has proposed a financial mechanism to reach the dual objective of first, increasing the level of concessionality to make it accessible to the poor countries and second, to achieve a scope and a volume of funding commensurate with the scale of the financial challenge in this domain. OFID has played a catalyst role and suggested blending grants and loans to reach this dual objective. Furthermore, we have already identified concrete energy poverty alleviation projects totaling US$500 millions.
Excellencies, ladies and gentlemen
It is our sincere hope that this initiative will not suffer from the current economic and financial tsunami. The International Labour Organization (ILO) predicts large increases in unemployment and in the number of people living below poverty levels (40 millions more people fall below 1 US dollar/day and 80 millions below 2 dollars /day), making our efforts at poverty alleviation now more important than ever. Indeed, the social impact of the crises is likely to roll back gains made in the last few years at least in the developing countries which, in general, do not have much room for social safety nets.
The Energy for the Poor Initiative could make a real difference for millions of poor people around the world in dire need of energy services.
Since actions really do speak louder than words, let me conclude by illustrating OFID’s continued commitment to the alleviation of energy poverty through some figures. Since inception, OFID has supported 113 energy-related projects, with a total commitment of over US$1 billion. The latest among these interventions is a project for rural electrification in Ethiopia, where 85% of the population is rural. The project will connect 131 small villages scattered in a vast area and currently without electricity to the grid. The project involves the construction of a network consisting of 350 km of distribution lines and 2 substations. A further example of OFID’s support to the electricity subsector is through the US$ 30 million loan to the Dominican Republic approved by OFID’s Governing Board last week, together with the project in Haiti I referred to earlier. The project involves the rehabilitation of electricity distribution networks in selected areas of the country and will enable high poverty reduction. What a difference these projects will make in the lives of these marginal populations!
Excellencies, ladies and gentlemen
OFID will continue to combat energy poverty and to foster pro-poor policies as part of its global mandate, and welcomes collaboration with the energy industry and other financial institutions, along the line spelled out in the Riyadh Declaration.
Thank you for your attention.