Tag: world bank

On the afternoon of February 7, 2012, the Maldives was set to sign into existence a plan that would have revolutionised the country’s energy sector, immediately attracting US$200 million of risk-mitigated renewable energy investment.  It was proposed that investment would eventually reach US$2-3 billion – a gigantic step towards the country’s goal of carbon neutrality by 2020.

The Scaling-Up Renewable Energy Program (SREP) proposal was produced by the Renewable Energy Investment Office (REIO) under President Mohamed Nasheed’s administration, and driven by Nasheed’s Energy Advisor Mike Mason – an unpaid position.

Mason, a UK national, former mining engineer and expert on renewable energy, carbon finance and offsetting, collected and analysed data on energy use and the existing diesel infrastructure across the Maldives.

He discovered that the Maldives was facing an energy crisis that was as much economic as it was existential.

The greater Male’ region generates 30 MW, with a further 8-10 MW for industrial purposes, while government utilities across the island chain generate a further 18 MW. The tourist resorts privately produce and consume 70 MW.

All this power – and the fuel that propels the country’s fishing and transport fleet – is generated through imported oil. Importing that fuel cost approximately US$240 million in 2011, a figure projected to increase to US$350 million in 2012. That represents 20 percent of the country’s entire GDP, at a time the Maldives is facing a foreign currency shortage, plummeting investor confidence, spiraling expenditure, a drop off in foreign aid and a crippling budget deficit of 27 percent.

The SREP plan reveals the scale of the problem: “If the oil price rises to $150/bbl by 2020, and consumption grows by four percent per annum, oil imports are expected to reach around US$700 million – or almost US$2,000 per head of population.

“This is clearly unsustainable. Decarbonisation is at least as much a matter of national economic security and social welfare as it is a matter of environmental concern,” the report notes.

Energy revolution

Mason calculated that solar photovoltaic (PV) could be supplied directly to consumers at US$0.23 per kWh during the day, but only at US$0.44 per kWh from batteries at night. However an optimum mix of solar, battery and wind could supply 80 percent of power requirements at US$0.36 per kWh. Biomass could be supplied to Male at US$0.16 per kWh, or US$0.20 a kWh including capital.

Mason compared this to the volatile cost of import-dependent diesel generation, which ranged from US$0.28 per kWh hour in Male’, and up to US$0.70 per kWh on some of the most inefficient islands.

Existing solar initiatives in the Maldives, such as the Japan International Cooperation Agency (JICA)’s 675 kWh of solar panelling on schools and other public facilities across Male’, were “stupidly priced, uneconomic, symbolic, and don’t address the problem of energy storage,” Mason noted. He also proposed that large scale wind generation suffered from extreme seasonal variability and risked impacting the stability of the grid.

Mason concluded that the most realistic and commercially-viable renewable option was to run 90 percent of the country on solar supplemented by small-scale wind power, while a 24 megawatt biomass plant could provide the baseload of the greater Male’ region at more than 40 percent less than existing rates.

The pricing was attractive, but the challenge was attracting the significant upfront capital investment required: “with renewables, on day one you buy 20 years of electricity,” Mason explained.

Attracting this capital investment was therefore crucial, however “because of its political history and economic inheritance, the Government of Maldives is poorly placed to raise capital at normal ‘sovereign’ rates of interest,” the SREP report noted.

This was to be a key innovation in Mason’s proposal: rather than pour donor funding into myriad haphazard capital-intensive renewable energy projects, Mason’s plan was to instead use the available World Bank and Asia Development Bank funding to dramatically reduce the commercial and sovereign risks for foreign investors, lowering the cost of capital to attractive levels comparable to other countries.

“In practice, the guarantees may not be needed for all projects or by all developers, and once the Maldives becomes an established destination for renewable development finance the need for guarantees is expected to diminish,” the SREP proposal notes.

“Right now the cost of capital, if you are in Germany, is very low. In a country like the Maldives, it is stupidly high,” Mason explained to Minivan News.

“If [the Maldives] wants to get somewhere it has to take out the risk – at least risks not in control of the investor. If you can do that, then the cost of capital drops to 6-7 percent – about the same as a powerplant [in the West]. The whole thing becomes economic – the sensible thing to do – rather than a matter of subsidies,” he explained.

The World Bank team working on the project had given verbal approval for the plan, describing it as one of the most “exciting and transformative” projects of its kind in any country, according to Mason.

“It was a shoo-in. But the coup happened the day we were due to submit it – later that very day, in fact,” he said.

Amid the disintegrating political situation, the decision was made to suspend the submission.

“The whole point of the plan was to take out the instability. The thing about a coup is that it takes that model and turns it upside down,” Mason told Minivan News.

As the political instability increased, so did the cost of capital. Investors who had been “queuing up” made their excuses.

In an email exchange, incoming President Dr Mohamed Waheed Hassan requested that Mason continue with the submission and remain in his current position as Energy Advisor.

Mason chose to resign.

“I don’t think Dr Waheed is a bad man – actually I like him a lot personally,” he wrote, in an email to an official in the Trade Ministry obtained by Minivan News. “However, he has done nothing to assure me that this is really a democratic process. Rather, my intelligence tells me this is a Gayoom inspired coup with Dr. Waheed as an unfortunate puppet.”

Mason added that if the new government sought political accommodation with the MDP, made “a concerted attempt to remove the corrupt judiciary”, and ceased police brutality “so that people can walk the streets freely as in any other civilised country”, “then I will be back on side in the blink of an eye.”

“I have given the best part of my life to this over the last 18 months, but I fear I have a set of democratic and moral principles that override other considerations,” Mason stated.

President Waheed responded on March 23:

“It would be nice if you listened to something other than Nasheed’s propaganda. He is free to go anywhere he wants and say what ever he wants,” Waheed wrote.

“Have you ever thought that Nasheed could have made a stupid mistake under the influence of what ever he was on and blown everything away? I thought you had more intelligence than to think that I am someone’s puppet and Maldives is another dictatorship,” the President said.

Further emails obtained by Minivan News show that Waheed’s new government was interested in continuing with the submission of the SREP plan.

“I am certain that this is the wrong time to press ahead with the SREP IP. It relies at its heart on getting the cost of capital down by reducing risk,” wrote Mason, to a government official.

“That is not believable in an atmosphere in which [airport developer] GMR is being attacked as an investor in infrastructure; the legal system is, frankly, corrupt so contracts cannot be relied upon; the politics are (in the most charitable possible interpretation) a major risk factor; and the President has no parliamentary party of consequence. I also doubt that the SREP sub-committee will approve funding the plan as they too will see through the plan to the problems (or at least they should if they are any good),” he wrote.

“If things clear up, and faith in democracy and the rule of law is restored than a second go at this would be worth while – but meantime I am sceptical. A much more limited and less ambitious plan – say for the smaller islands only, might fly.”

The very premise of the plan – mitigating investor risk – had been scuttled by the political upheaval and both domestic and international challenges to the legitimacy of Waheed’s government, said Mason.

“Even if I did work with Waheed, I couldn’t deliver the plan now [because of falling] investor confidence,” he told Minivan News. “[The perpetrators] have destroyed US$2-3 billion worth of investment and condemned the country to an unstable economic future based upon diesel.”

Climate of crisis

Earlier this month President’s Office Spokesperson Abbas Adil Riza said the new government would “not completely” reverse the previous government’s zero carbon strategy: “What we are aiming to do is to elaborate more on individual sustainable issues and subject them to national debate. Previously, these discussions on sustainability were not subjected to a national debate, such as through parliament,” Riza said.

President Waheed last week attended the Rio +20 summit and announced the Maldives’ intentions to become the world’s largest marine reserve in five years.

During his speech in Rio, Waheed also pledged that the Maldives would “cover 60 percent of our electricity needs with solar power, and the rest with a combination of biofuels, other clean technologies and some conventional energy.”

“Progress towards achieving these goals is slow because of the huge financial and technological investments involved. If we are, as a global community, committed to the concept of transitioning to a green economy, then developing countries will need significant financial and technical support,” the President stated, going on to appeal for financial assistance.

“A small island state like the Maldives cannot, on its own, secure the future we want. We rely on our international partners to ensure that their development paths are sustainable and don’t negatively impact on vulnerable countries like the Maldives,” Waheed said.

Former President Nasheed’s Climate Change Advisor – UK-based author, journalist and environmental activist Mark Lynas, who drew a monthly stipend of Rf10,000 (US$648) for expenses – told Minivan News that the loss of democratic legitimacy in the Maldives had destroyed its ability to make a moral stand on climate change-related issues, and be taken seriously.

“I think that the Maldives is basically a has-been in international climate circles now,” Lynas said.

“The country is no longer a key player, and is no longer on the invite list to the meetings that matter. Partly this is a reflection of the political instability – other countries no longer have a negotiating partner that they know and understand,” he said.

“Partly, I think it is because of the lack of democratic legitimacy of the current regime – in the climate negotiations the entire ask of the small island and vulnerable countries is based on their moral authority to speak on behalf of those who are most suffering from the impacts of climate change.

“Yet Waheed and his representatives have no moral authority because they were not elected, have strong connections with corrupt and violent elements of the former dictatorship, and took power in the dubious circumstances of a police coup,” Lynas argued.

The government’s high expenditure on international public firms such as Ruder Finn – also responsible for the Philip Morris campaign disputing the health hazards of smoking – had further undermined its credibility with journalists across the world, Lynas said.

“Journalists and others are aware that the Waheed regime has hired PR agencies to act on its behalf – which makes them doubly suspicious. It is widely understood that the Maldives post-coup government has no real interest in the climate issue, but is instead trying to use it as a greenwashing tool in order to buff its credentials abroad and in order to obscure its undemocratic nature at home. I don’t think this will work, as it is hardly very subtle and journalists are not stupid,” said Lynas.

“The Maldives has lost many years of work already – it has little credibility left with donors or international investors. Investors and donors alike are looking for stability and strong governance – and they will not get either of those whilst the political system is essentially deadlocked between competing parties, with regular protests and ensuing police violence.

“In climate terms the Maldives is well on its way to becoming a failed state – I see no prospect of it achieving Nasheed’s 2020 carbon neutral goal, even if that goal is still official policy,” Lynas said. “I think time has basically run out now – unless there are early elections quickly and a legitimate government re-established there is no real prospect of resurrecting the Maldives’ leadership on climate change. By 2013, it will certainly be too late – other countries will have overtaken it and the Maldives will essentially be left behind.”

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