Methodological and Technological Issues in Technology Transfer

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2.2.3 Foreign Lending

Foreign loans for technology acquisition are provided by both governments (partly through multilateral lending institutions) and private sector financial institutions, with loan recipients falling into both categories as well 1. Loans come with an obligation to repay interest and principal. If loan principal and interest are not repaid on schedule the credit worthiness of the borrower can be downgraded, making access to new capital difficult. Unless hedged, loans also create foreign currency exposure, with its attendant risks (WBCSD, 1998). Historically, much of MDB lending has gone for large projects, including those in the energy sector or with some other link to climate change (more on MDB in Section 5.2.4).

Figure 2.2: Number of Approved Projects and Commitments under the Montreal Protocol Multilateral Fund; (Multilateral Fund Secretariat, 1998.)

Lending Trends
Lending by multilateral development banks to climate change relevant sectors has declined during the past decade. Loans for industrial development, for instance, decreased from US$8 billion in 1990 to US$4 billion in 1994 (UNIDO, 1997) due to the reduced emphasis on project lending by these banks and better access by developing countries to international capital markets. After a steep rise in the 1990s, the financial crisis in East and Southeast Asia brought about a sharp decrease in private external capital flows to most developing countries in that region. Net private foreign bank lending turned negative for the group of countries most affected by the crisis (ICC, 1998), and total global international bank lending to developing countries went from US$86 billion in 1996 to US$12 billion in 1997 to negative US$65 billion in 1998 (OECD, 1999c). Lending from multilateral development banks, however, did not change significantly during the same period. Bond lending to the same countries, which had increased rapidly in the 1990s, fell as well, dropping from US$83 billion in 1997 to US$37 billion a year later (OECD, 1999c).

World Bank Group lending for energy investments is about one-fifth to one-sixth of the Group's total commitments, or an average of $3 billion per year during 1995 to 1999 (World Bank, 1999). Over roughly the same period, World Bank lending for renewable energy (excluding large-scale hydropower and traditional geothermal) was $275 million in loans, credits and grants, or less than 10 per cent of the sector total. The trend, however, is more encouraging. During a period where lending for energy projects generally decreased, the Bank's commitments for energy efficiency and renewable energy increased. The number of projects that can be considered climate-friendly is projected to increase from 80 during the period 1996 to 1998 ($1.9 billion) to 160 during the period 1999 to 2001 ($2.3 billion), as shown in Table 2.2 (World Bank, 1998b and 1999).

Table 2.2 World Bank Group Environmental Strategies Record: Energy Sector
End-use efficiency 13 571 11 280
District heating 4 261 7 471
Supply side efficiency and T&D loss reduction 7 410 10 536
Environmentally innovative energy projects 6 201 6 100
Renewable energy (on and off grid) 11 274 23 902
Oil and gas (environmentally innovative only) 4 174 4 86
Power sector reform 31 N/A 94 N/A
Coal sector reform 4 N/A 5 N/A
Total 80 1,891 160 2,375

The World Bank Group's lending commitments in the renewable energy and energy efficiency areas have risen concomitantly with financing provided through the Global Environment Facility (GEF, 1998b) (see Box 2.1 and also Section 5.2.4 and Box 5.2). The financing trends provide strong evidence that GEF funds have not displaced or substituted for World Bank financing, but may instead have helped redirect it. New renewable and energy efficiency projects are still very few in number and to a large extent can be traced to programmes supported by donor governments in specific countries, mostly in South and East Asia. The need to bring these types of projects into the mainstream is recognised in the World Bank's new energy strategy.

Apart from the IBRD and regional development banks, other multilateral development-finance institutions lend for projects in areas related to climate change issues. The OPEC Fund for International Development, an example of a South-South lending-development-finance institution, has committed loans and grants totalling US$5.1 billion since it was founded in 1976 (OPEC, 1999). Almost 50 per cent of loans have gone for projects in the energy, industry, and transportation sectors. The Fund also provides grants to support technical assistance, research, and similar activities, and has a focus on the least developed and other low-income countries.


Two multilateral funding mechanisms promote the transfer of technologies to developing countries in order to address global environmental problems: the Global Environment Facility and the Montreal Protocol Multilateral Fund2 (see also Section 5.2.4 and Box 5.2 for GEF and Section 3.3.3 for the Montreal Protocol).

The Global Environment Facility (GEF) has since 1992 promoted technology transfer of energy efficiency and renewable energy technologies to developing countries3 . The early focus was on government-driven efforts, but the aim of current GEF programmes is to catalyse sustainable markets and enable the private sector to transfer technologies. An initial three-year pilot phase focused on cost-effectiveness of greenhouse-gas emissions reductions. Following the pilot phase, the GEF in 1996 adopted specific operational programmes for promoting energy efficiency and renewable energy technologies by reducing barriers, implementation costs, and long-term technology costs (GEF 1996, 1997). Additional programmes for energy-efficient transport and carbon sequestration are being developed.

From 1991 to 1999 the GEF approved $700 million for 80 energy efficiency and renewable energy projects in 40 countries (GEF 1999). The total cost of these projects is $5.0 billion, as the GEF has leveraged financing through loans and other resources from governments, other donor agencies, the private sector, and the three GEF project-implementing agencies. An additional $200 million in grant financing has been provided for enabling activities and short term response measures; the total number of recipient countries is 120.

GEF projects are testing and demonstrating a variety of financing and institutional models for promoting technology transfer (GEF, 1999 and GEF, 1998a). Fourteen projects diffuse photovoltaic technologies in rural areas through local community organisations, financial intermediaries, local photovoltaic dealers/entrepreneurs, and rural energy-service concessions. Several projects assist public and private project developers to install grid-based wind, biomass and geothermal technologies. For energy-efficiency technologies, projects promote technology diffusion through energy-service companies, utility-based demand-side management, private-sector sales of efficient lighting products, regulatory frameworks for municipal heating markets, and development and marketing of more efficient refrigerators and industrial boilers through foreign technology transfer.

The Multilateral Fund helps developing countries eliminate their use of ozone-depleting substances. Since the Fund was established in 1991, over $775 million has been approved for 2,565 projects in developing countries that are Parties to the Protocol. Some 85 per cent of the total (over US$660 million) has been used for investment projects, in which ODS-based technologies have been replaced by more environmentally benign alternatives, or is directly related to investment project preparation (Figure 2.2).

The Fund has also supported a variety of non-investment projects, including the preparation of country programmes, demonstration projects involving ODS-alternative technologies or best practices to reduce ODS emissions, strengthening of national institutions, technical assistance, and training. Total funds approved for the 825 projects in the non-investment category have amounted to US$113 million since the Fund's inception.

A UNEP survey of Implementing Agencies conducted in 1997 (UNEP, 1997) determined that of 863 investment projects approved through mid-1997, only 10 per cent had any sort of formal technology transfer agreement. Although all funded projects involved technology transfer in some form, much of the technology transferred was well established and in the public domain. Most projects did not require a private contractual agreement to proceed because they either involved unpatented technology or the patent had expired (Multilateral Fund Secretariat, 1998)

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