President Jagdeo was obviously pleased about the Memorandum of Understanding (MOU) signed by him and Norway’s Minister of the Environment and International Development Erik Solheim under which Norway agrees to provide defined financing for Guyana’s evolving Low Carbon Development Strategy (LCDS). For the President it is vindication of his huge investment in time and money pursuing LCDS funding, in exchange for a commitment to drastically restrict the exploitation of the country’s forests, described by him as the country’s most valuable resource. The signing comes within three weeks of a United Nations Conference scheduled for Copenhagen, Denmark to consider a replacement for the international treaty on the environment called the Kyoto Protocol. In fact President Jagdeo was so excited at a post-signing press conference that he called the MOU “our Copenhagen.”
Under the MOU, Norway will pay US$30 million (approximately $6.2 billion) next year and potentially up to US$250 million ($51.7 billion) by 2015 for Guyana to preserve its forests. According to the President the figure committed by Norway “is more than the combined loans and grants Guyana receives on an annual basis from the World Bank, the Inter-American Development Bank, the Caribbean Development Bank and the European Union.” If not inaccurate, that statement is terribly misleading since it compares an annual amount with a five-year sum. We have also had debt write-offs, loans and grants from countries and institutions in some years, in net present terms, in excess of the total amount committed by the Norwegians. Notwithstanding this, the agreement is indeed an achievement and needs no exaggeration or misrepresentation, even if it comes at a huge cost to the country. Some time soon we will need a thorough evaluation by the experts, academics and economists to assess the cost/benefit of the agreement to the country.
McKinsey and the US$580 million
In response to the President’s comparison between Norway and the rest of the donor community – excluding significantly individual countries and the International Monetary Fund (IMF) – his critics might add that the agreement comes with more strings than those that have ever been imposed by the International Monetary Fund, the World Bank, the Inter-American Development Bank, the Caribbean Development Bank and the European Union, all combined. More significantly, the critics might suggest that a far more meaningful comparison is between what the Norwegians have committed and what McKinsey, the government’s LCDS consulting guru, has told them, quite unrealistically, that our forests are worth to the world.
Essentially the LCDS is arguing that since the world benefits, according to McKinsey, by US$40 billion dollars per year from the conservation of our forests, and since to Guyana the annual worth of the forest in economic terms is US$580 million, then the world must pay us that sum. Accordingly McKinsey, in a document which has not been released despite calls for this to be done, has appears to have convinced the government of the country’s entitlement of annual payments by the international community in the following four phases.
Phase 1 (2009) – No sum indicated but the Draft LCDS refers to interim payments to launch the LCDS and funding for Monitoring, Reporting and Verification (MRV).
Phase 2 (2010 – 2012) – US$60 million to US$350 million annually for capacity building, human capital development and the investment required to build a low carbon economy.
Phase 3 (2013 – 2020) – US$350 million to US$580 million annually for essentially the same purposes in Phase 2 and for payments to avoid deforestation and climate change adaptation.
Phase 4 (2020 [sic] and onwards) – Greater than US$580 million annually, providing incentives at or above the McKinsey’s annual economic valuation of the country’s forests.
Who will join Norway?
Critics should not however jump to the conclusion or their calculator to prove that the amount committed by Norway is negligible and a mere fraction of what McKinsey had led the government to believe it should receive from the world in return for strict limits on forestry exploitation. The total amount committed by the Norwegians through to 2015 is indeed US$100 million less than the amount of the lower range McKinsey told the government it should expect during the seven-year Phase 3. In fairness, however, the LCDS is premised not only on inflows from Norway but from other countries that either historically caused much of the world’s pollution, such as the US, Europe, Japan and Russia or the newer, large-scale polluters such as China and India.
That is why I think President Jagdeo is wrong to have exulted that the deal with Norway is “our Copenhagen.” Perhaps the President is not optimistic that much will come out of Copenhagen and in any case for the first time he told the nation this week that even if agreement is secured in Denmark, it would take almost four years before funds would flow to countries like Guyana. What that means is that unless there are other ‘bi-laterals’ such as the Guyana-Norway deal, Guyana cannot look forward to similar funding for at least another four years.
Under the Draft LCDS, Guyana had identified more than US$1 billion in “essential capital projects” that can be fully or partially funded through private investment assisted by an in-country infrastructure investment fund built from forest compensation payments. The Norwegians are clearly not interested in any such in-country fund, and if we accept the President’s four year prediction, then there is a huge financing gap to be filled. Now that the Norwegians have put down their marker, the Government of Guyana has a lot of work to revise the LCDS and make it more realistic. Hydro-power which appears as a centre-piece of the LCDS will now have to be financed from other sources, the private sector will have to come up with quite a lot of money and the government too can do its part. The money pledged in the first year equates to less than 6% of the national budget for 2009 and with proper financial management and a commitment to collect the taxes legally due by the army of tax evaders out there, we can easily raise more than what the Norwegians have committed in the first year of their programme.
The options for achieving that are available, but are not new, neither has there been any commitment to a national response to global warming or to responsible financial management. Only this week we saw the Minister of Finance presenting his mid-year report that was due at the end of August but conveniently misdated. We have never been an environmentally conscious people and the economy is based on the most inefficient and unfriendly use of energy whether in vehicle fuel consumption or electricity; we have no policy on recycling and fail to manage our water resources efficiently or exercise proper flood control measures.
In return for the less than required funding for the LCDS the country is giving up a lot, including control over the money we receive and sovereignty over our forests, contrary to what the government had been assuring Guyanese. The Norwegians have obviously been tougher in their negotiations than many feared they might be, and may have taken on board several of the concerns raised by the groups and individuals from the political parties and civil society whom they canvassed or who canvassed them. While the documents they have signed stay clear of the domestic issues such as the improper and unlawful use of funds, it is quite likely that those issues have informed some of the conditions they have imposed, conditions that show that the Norwegians are not taking any chances with the money they are prepared to give to Guyana.
The deal is a carrot and stick arrangement but with more emphasis on stick than carrot. The maximum we can receive under the MOU is fixed but the stick is that the amounts which we will receive are results-based according to how well we measure up to the terms and conditions set out in the document which themselves require considerable resources to ensure compliance. In fact, in the early stages of the implementation of the deal, a disproportionate amount of the funds will be used to set up the administrative and oversight arrangements which could see huge sums going to consultants. The costs to be met in the first two years include those for the establishment of the Project Management Office; the Office of Climate Change (operational costs); the multi-stakeholder consultation process and annual verification by neutral experts that the enabling activities have been completed.
What is particularly noticeable are the financial conditions set out in the Joint Concept Note (JCN), conditions that might otherwise be considered draconian but which many Guyanese bloggers seem to welcome. The JCN covers not only the Norwegian funds but other similar funds as well, raising the possibility that the Norwegian conditions are baseline, to be supplemented by any conditions imposed by other donors. The funds will go into a Guyana REDD-plus Investment Fund (GRIF), managed by a reputable international organisation and responsible for ensuring full oversight of the GRIF’s operations, including fiduciary obligation as trustee, and providing technical support as agreed with Guyana. Significantly the Joint Concept Note specifies that the GRIF must be operational before any contributions can be disbursed from Norway (emphasis mine). Safeguards, including social, economic and environmental safeguards, as well as the fiduciary and operational policies of the organisation selected, will apply, as appropriate, to all activities to be financed by the GRIF.
The conditions applying to the technical, forest-related issues are no less stringent. Before any money is disbursed Guyana will have to take formal steps to establish independent forest monitoring by a credible, independent entity. Almost immediately the government is required to prepare an outline of Guyana’s REDD-plus governance development and no later than October 2010, a more detailed plan setting out clear requirements and timelines for its implementation. Additionally the country is required to show evidence of entering a formal dialogue with the European Union with the intent of joining its Forest Law Enforcement, Governance and Trade (FLEGT) processes towards a Voluntary Partnership Agreement (VPA), with its resonance with the EU EPA which the President had railed about. Government also has to show evidence of its decision to enter a formal dialogue with the Extractive Industries Transparency Initiative (EITI) or an alternative mechanism agreed by Guyana and Norway to further the same aim as EITI.
Transparency and accountability underpin the entire arrangement and the JCN requires that information regarding the initiative be publicly available. As if to show its immediate commitment to these concepts, the government has posted both the MOU and the JCN on the Guyana LCDS website.
One of the questions that none of our journalists appears to have raised with the President is whether he consulted with anyone – including his Cabinet, the Leader of the Opposition and the LCDS Steering Committee – before agreeing to the terms set by the Norwegians. That of course is not the President’s style and he might have considered that given how much he had invested in the LCDS, he needed something – anything – to show for his efforts. He has expressed confidence that Guyana will be able to meet its obligations both under the technical as well as the financial provisions of the deal. Recent experiences with the UK on security sector reform and the EU on funding to agriculture suggest that more than words will be necessary.