Initiative intends to help the poor adjust to shocks and reduce vulnerability to volatile fuel prices
One component would provide social safety nets for the poorest in the most affected countries
Other component would scale up financing for energy projects
November 13, 2008— Donor nations are scheduled to meet in Paris next week to discuss a new initiative to help developing countries provide relief to the poor as they deal with high and volatile energy prices.
The Bank’s Energy, Transport, and Water Department (ETW), within the Sustainable Development Network, has been leading the formulation of an “Energy for the Poor Initiative” since the Government of Saudi Arabia convened an international energy conference, where the issue was discussed, in Jeddah last June.
The initiative was given a boost at the Annual Meetings when the Development Committee, in its final communiqué (pdf), “encouraged the Bank and its partners to move forward with a planned new program – Energy for the Poor – that would provide rapid support for countries’ efforts to strengthen social safety nets to protect the poor against the impact of high fuel bills.”
www.worldbank.org spoke with Jamal Saghir, World Bank Director of Energy, Transport, and Water Department, to get more insight into the work underway.
What is the background to the current situation?
The world is facing three crises at the same time: food, fuel, and finance. This initiative is designed to deal with the second of those challenges, just as the Global Food Response Program earlier this year was created to deal with the first.
Higher energy prices, and their impacts on goods and services, have reduced real incomes of low-income households. In particular, rising oil prices have increased the cost of transporting goods, which has led to higher prices for virtually all commodities, including food. This has led to increased inflation and rising unemployment, compounding the problems of low income households.
Even today, with oil prices at about US$60 per barrel (down from their peak of US$147 per barrel in July 2008), they are still double their 2005 prices. This high volatility is expected to continue and the negative impacts will accumulate at country and household levels as the macroeconomic impact of the present financial crisis unfolds.
What are the aims of this initiative?
The Energy for the Poor Initiative is intended to help the poor in developing countries adjust to shocks and reduce their vulnerability to high and volatile fuel prices. It consists of two components. A short-term component would finance social safety nets for the poorest people in the most affected countries through the establishment of a multi-donor trust fund, called Energy Price Crisis Response.
A second component, for the medium-term, would scale up financing of energy projects to reduce a country’s longer-term vulnerability to high and volatile fuel prices. This scaling up will be achieved through co- and parallel financing with donors to leverage more effectively their limited resources.
Why is there a two-pronged approach?
The two components are complementary. Most countries need short term assistance to be able to undertake the policies and investments necessary in the medium to long-term to move away from a high reliance on traditional forms of energy. If we fail to respond quickly to what the poor are experiencing today, there can be lasting effects that will undermine our efforts to reduce vulnerability over the medium term.
What do you mean by that?
When energy prices rise dramatically, the poor are forced to come up with more money. How do they do that? By skipping meals or switching to lower-quality, less nutritional foods. By eliminating spending on school or on fertilizers. By selling critical household assets they may depend on for their livelihoods. Or by shifting to cheaper fuels that are a bigger threat to their health or the environment.
Jamal Saghir is Director, Energy, Transport and Water, in the Sustainable Vice Presidency (SDNVP) of the World Bank
If the international community can mobilize and quickly disburse targeted support, we can help the poor manage the immediate consequences of their vulnerability, while also providing the opportunity for longer-term efforts to take root.
How would each component work?
The short-term component will work in parallel with the social protection component of the Food Price Crisis Response under the Global Food Response Program. The Energy Price Crisis Response multi-donor trust fund will finance social safety net programs through project financing or direct budget support.
The programs will be tailored to the needs of individual countries to help reduce the fall in household income caused—directly and indirectly—by high and volatile oil prices. Measures we’re looking at include targeted cash transfers, workfare programs, targeted measures that reduce expenditures by poor households, and technical advice to set up the associated delivery mechanisms.
For the medium term, we would work with other bilateral and multilateral donors and beneficiary countries, either through co-financing or parallel financing arrangements, to scale up financing for energy projects. The financing would help develop and implement multi-year programs (energy investment projects and enabling sector policies) initiatives of beneficiary countries.
How would the Bank go about implementing the second component?
We believe that the program could mobilize support for a programmatic approach in a number of countries. For example, financing could be arranged for countries over a three-year period to:
Expand access of the poor to sustainable energy services;
Deploy alternative, renewable energy systems where the increase in fuel prices suggests that a shift in supply options is economically prudent; and
Develop energy efficiency interventions that have become economically attractive under higher energy prices.
For example, we could increase our efforts to deploy renewable energy technology, including hydropower, which would expand energy access (by extending the grid, but also through off-grid and mini-grid applications). This would also diversify sources of energy supply. We could also look at supporting inter-modal shifts in transportation, promoting cross-border energy trade, and complementing end-use improvements in energy efficiency.