Viewpoints from the Board Room: International Finance Corporation

The International Finance Corp. (IFC), part of the World Bank Group, seeks to invest in responsibly developed and operated hydropower projects worldwide to grant energy access to impoverished people in developing nations. In this interview, Morgan Landy discusses IFC’s involvement in sustainable hydro development.

Morgan Landy
Morgan Landy

The World Bank Group was established in 1944 and provides financial and technical assistance to developing countries. Its mission is straightforward: “Fight poverty with passion and professionalism, for lasting results.” To accomplish its mission, the World Bank Group consists of five distinct organizations:

  • International Bank for Reconstruction and Development;
  • International Development Association;
  • International Finance Corporation;
  • Multilateral Investment Guarantee Agency; and
  • International Centre for Settlement of Investment Disputes.

HRW-Hydro Review Worldwide recently interviewed Morgan Landy, co- director of the Transactional Risk-solutions Department for IFC, to learn about efforts to make hydropower more sustainable in Asia. Landy leads IFC in fulfilling its strategic commitments to sustainable development. He also helps ensure IFC operational growth is achieved through prudent environmental and social governance risk management and fosters sustainable practices for improved performance in key sectors, including hydropower.

The following is a transcript of that interview.

Q: Briefly outline the structure of IFC and its principal role in the hydropower sector.

Landy: Let’s first emphasize why IFC invests in sustainable hydropower development: Worldwide according to the World Bank Group, about 1.4 billion people lack access to electricity. Of these, 700 million are in Asia. Hydroelectricity accounts for one-fifth of the world’s electricity supply but remains severely underexploited in many developing countries and regions with strong hydro potential. For example, in Africa, less than 10% of the continent’s hydropower potential has been tapped.

IFC has a long track record of investing in the hydropower sector. Since the early 1990s, IFC has invested more than US$1 billion in 25 countries, which include: Chile, Guatemala, Nepal, India, the Philippines, Uganda, Turkey, Georgia and Pakistan. IFC now has 43 active hydropower projects in its portfolio with a total installed capacity of 9,942 MW.

IFC plays a key role in bringing hydro projects to fruition, providing long tenors to match the lives of the assets and taking on risks that traditional banks are reluctant to even contemplate. We offer innovative ways of providing support to hydropower companies, including early-stage risk capital to help projects get off the ground.

As a member of the World Bank Group, IFC is the largest multilateral source of debt and equity financing for companies in emerging economies worldwide. Our industry experts provide clients with solutions to strategic financing, blending investment with advice and resource mobilization.

With the right approaches in place, hydropower can be sustainable. This is where IFC comes in. Our environmental and social experts are based across the globe and provide hydropower clients with the tools they need to make this happen. By investing in sustainable operations upfront, our clients learn how to improve their business outcomes.

Q: Could you highlight some key activities in which IFC is currently engaged within the Asian hydropower sector?

Landy: In Asia, IFC is working in key hydropower markets that are challenging environments but also have the potential to have the most development impact. Our active portfolio includes a pipeline of five projects in Nepal, followed by four in India, four in Pakistan, three in China, two in Indonesia, and two in Fiji.

IFC is also looking at opportunities to develop small hydropower projects in Asia, including supporting platform companies for small hydropower development in Indonesia and other markets where relevant. For example, IFC recently made its first investment in Vietnam’s largest private-sector independent small hydroelectric company – Gia Lai Electricity JSC – helping to support renewable energy development to provide critical power to the domestic market.

We’re working to untangle the environmental and social challenges that IFC faces when developing hydropower – including how to develop sector sustainability. This is where IFC plays a unique role, especially when working with governments. For example, in Myanmar, we are working with officials to prepare a countrywide strategic environmental assessment for the hydropower sector. In Nepal, we are helping develop guidelines for environmental impact assessments. In Lao PDR, we are assisting with guidelines on cumulative impact assessments. By helping strengthen policies and regulations, we aim to lay the foundation for better investments to enter the market.

Q: What role do institutional investors play in the sustainable development of hydropower in Asia? How has this role changed over time?

Landy: Developing hydropower in Asia is especially challenging with regard to cross-border projects. IFC often engages in markets with serious environmental and social issues, political sensitivity, financing challenges and lack of government capacity to implement. IFC is tackling these challenges but can’t do this alone. We need to work with strategic sponsors and good EPC [engineering-procurement-construction] contractors and ensure commitments address environmental and social challenges. We require the companies we invest in and their sub-contractors to adhere to IFC’s Performance Standards, which are our guiding framework on achieving environmental and social sustainability.

Recently, banking regulators are taking more proactive roles. In China, they have established green-lending guidelines, encouraging the financing of new projects to help manage environmental and social risks. Vietnam, Indonesia and the Philippines have also adopted green credit policies. However, we have to continue to work with the state-owned enterprises as they invest abroad to ensure they follow both these policies, set up domestically, and international standards.

Q: How does IFC work with national governments to establish support for sustainable hydropower in Asia?

Landy: IFC advises government agencies on environmental and social standards in the hydropower sector. In Asia, this begins with intensive capacity-building to help officials gain an understanding of environmental and social risks in hydropower development and how they can mitigate risks, followed by policy and regulatory development to lay the foundation to secure good investments.

Q: How else can IFC positively influence Asian hydropower development, for example, through advisory services, education, etc.?

Landy: If you want hydropower to be sustainable, you need to get the private sector into the debate. In late 2013, IFC, with government support from Australia and Japan, established the Hydropower Developers’ Working Group in Lao PDR. Many of the members of this group also develop small hydro projects, and they provided the government with feedback on the country’s then-draft regulations on small hydropower development. This feedback was well received; it was the first time the Lao PDR government involved the private sector in policy formulation. We are looking forward in the near future to similar groups being set up in Myanmar, Pakistan and Nepal.

IFC, together with our clients, can influence how stakeholders are engaged in the hydropower sector. Our continued experience demonstrates that meaningful engagement is invaluable and central to a company’s performance.

Q: How can IFC help address cross-border resource-use issues?

Landy: From the energy perspective, cross-border hydropower projects can help stabilize regional electricity grids and reduce costs through coordination with thermal plants. While we believe in the benefits cross-border projects bring, they face many challenges. Cross-border projects often have serious environmental and social issues, political sensitivities, and financing and implementation challenges.

One example is the 185 MW Shuakhevi hydroelectric plant in Georgia. Shuakhevi is planned to meet electricity demand during the winter, reduce dependence on imported fuel and increase renewable energy output. It will also foster cross-border electricity trading at other times of the year by exporting electricity to Turkey through a transmission line financed by the European Bank for Reconstruction and Development. The project demonstrates that non-recourse cross-border financing is available for green projects in Georgia and is an example of hydropower strengthening regional cooperation.

Another example of cross-border power engagement closely tied to hydropower is in Nepal. In Nepal, IFC is supporting the first real movement to harness potentials to export power to India and Bangladesh.

Q: What are some of the key challenges IFC faces in executing its objectives with regard to hydropower development in Asia?

Landy: The challenges we face are two-fold. First, we must ensure that we choose the right projects. This is one reason we pursue sector-wide strategic environmental assessments, for example, in Myanmar. Then, we must ensure that we support projects in the right manner, which includes applying IFC’s Performance Standards.

In Myanmar, we’re working to help clients “walk the talk” and address complex environmental and social issues. Complexities include managing river basins where multiple projects are planned; conserving biodiversity; and stakeholder engagement. As our experience elsewhere has shown us, stakeholder engagement is key if we want to build a sustainable hydropower sector in Myanmar. With this in mind, we plan to engage through forums and platforms where internal and external stakeholders can exchange perspectives. The government is supporting our efforts and has a true commitment to learning, enabling our experts to build officials’ knowledge.

Q: What is IFC’s perspective on future hydropower development in the region and the future role of IFC in achieving that vision?

Landy: IFC’s vision includes a more sustainable hydropower sector in Asia beyond what is currently in place. By tapping hydropower resources sustainably, we plan to deliver energy to the people who most need it in the region, thus helping to alleviate poverty. We want to be able to look back 20 years from now and see a measurable surge created in access to electricity that’s affordable and generated in the cleanest and most renewable manner possible.

IFC now has 43 active hydropower projects in its portfolio with a total installed capacity of 9,942 MW.

IFC action notes

IFC, a member of the World Bank Group, is the largest global development institution focused on the private sector in emerging markets. Working with 2,000 businesses worldwide, we use our six decades of experience to create opportunity where it’s needed most. In Fiscal Year 2016, our long-term investments in developing countries rose to nearly US$19 billion, leveraging our capital, expertise and influence to help the private sector end extreme poverty and boost shared prosperity. For more information, visit www.ifc.org.

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