Development banks need to focus on energy projects

Posted on 15 October 2013

The World Bank is too small for the scale of problems it needs to address, said Michael Eckhart, Managing Director & Global Head of Environmental Finance and Sustainability at Citigroup.

“Why do we allow the World Bank to be so small? A friend at the World Bank said they are doing up to $30 billion a year … at Citi bank we do $30 billion of debt transactions every three days. Why is this acceptable?” Eckhart believes much greater commitment is required by development banks to provide electricity to every person on earth, “I believe that you don’t do rural electrification because people have extra money to spend on electricity, you do it because they’ll have extra money after you’ve installed electricity. It’s the whole magic of electricity.” But he added “this thought does not exist in the development finance institutions.” Illustrating this point, he quoted the Gandhi statement that “the most expensive electricity is no electricity,” explaining that whereas the cost of electricity can be measured in cents per kilowatt hour, candle light costs upward of $10 per kilowatt hour.

In response, Farrukh Mian, Division Manager of Energy and ICT at the Islamic Development Bank, said that “You say that Citi bank has a capitalization of  $2.5 trillion, but how much of this money is in developing countries?” adding “that is the vacuum that development banks come in and fill.” Mian insisted on the need to bring private sector funds into specific development situations, while admitting that this was challenging.

Seethapathy Chandar, Director of Regional Sustainable Development Department (RSDD) at the Asian Development Bank, concurred, indicating that although he wholly supported Eckhart’s objective sometimes, the reality is different. “For us, if we put in cash, it stays there for 25 years,” a timeframe often too long for the private sector. Chander placed the emphasis on steady sustainable investment. “The intention has to be to electrify everyone. If it is frustrating not to have an electricity line to your house, it is even more frustrating when that line doesn’t provide power.”

 

This news story is based on the session What Does It Take?, “Is development finance delivering inclusive green growth?” at 2013 World Energy Congress.