Nordic donors to discuss strengthening Nordic Development Fund
The Helsinki-based Nordic Development Fund (NDF) has acquired a niche as an effective provider of grants and loans for climate projects. The board has now asked the management to present options for strengthening the fund.
Since Denmark decided to stop replenishing NDF 12 years ago, Nordic donors have failed to agree on new joint capital injections for NDF. The fund is slowly chipping away at its reserves and will eventually run out of cash for grants and loans if something is not done. In an effort to break this deadlock, the board will meet in June to discuss possible scenarios for new directions and revitalising the fund, including possibilities for voluntary capital injections.
The Nordic Council is encouraging the Nordic governments to find a solution for NDF.
“Everything we have learned about NDF has been quite positive, but unless it gets more capital it will have to scale down its activity in the future,” says Tryggvi Felixson at the Nordic Council Secretariat to Development Today.
In the fall of 2005, Nordic development ministers decided to close down NDF following an announcement by then Development Minister Ulla Tørnæs that Denmark would give no more replenishments to the fund.
However, following pressure from Finland and theNordic Council, NDF’s mandate was instead changed. It was given the task of providing grants for climate projects in developing countries financed by the reflow from the fund’s EUR 1 billion loan portfolio for infrastructure projects in developing countries.
Since then, NDF has obtained a status as an effective provider of climate grants.
Managing Director Pasi Hellman, a Finnish diplomat who took over the helm at NDF five years ago, has led the efforts to revitalise NDF.
Last year the NDF board approved project number 100, and the fund’s climate project portfolio reached EUR 328 million by the end of the year. The remaining capital at NDF amounts to EUR 700 million.
If Nordic donors do not inject more capital, the fund’s resources will slowly be depleted. According to Hellman, NDF will have to start decreasing its volume of activities sometime in the 2020s at the current rate, though some reflows will continue to come in until at least 2045.
NDF has managed to slow down this process slightly by providing some loans and equity. Last year NDF’s board approved financing amounting to EUR 44 million, 29 per cent of which involved instruments other than grants.
Hellmann says the increasing use of loans and equity is part of a new strategy from 2015, which opens for NDF to use instruments other than grants.
NDF is also aiming to attract other activities within the climate field. For instance, this month it takes over management ofthe Environment and Energy Partnership (EEP) Programme which was initiated by the Finnish Foreign Ministry seven years ago.
Finland is putting in EUR 15 million in new funding and NDF will manage the programme as a trust fund, where other donors are invited in. Austria is expected to provide additional financing.
“We are working to attract complementary activities that create synergies and strengthen NDF,” Hellman says.
As part of the EEP deal, NDF is providing EUR 10 million in grants and loans to finance the initial phase of innovative climate projects.
Hellman notes that when such pilot projects have been developed it is hard to find financing to scale them up. “It is really difficult to scale up small projects and that is a gap we will try to fill,” Hellman says.
The EEP fund broadens NDF’s repertoire and there is a management fee to NDF for operating the fund.
“It is a vote of confidence in NDF that it has been asked to manage the trust fund,” he says.
Hellman points out that NDF’s portfolio of active projects have doubled since 2012, “while NDF’s administrative resources and budget have had close to a zero absolute growth.”
He confirms that the management has been asked to prepare a document outlining different options for future scenarios for NDF. Proposals in this document will be discussed at a board meeting in June.
Several sources confirm that there is disagreement about the way forward among Nordic donors. Denmark remains opposed to new replenishments, Norway and Sweden have a wait-and-see approach, while Finland and Iceland favour an expansion of NDF.
Since Nordic donors cannot agree upon a joint replenishment of NDF, voluntary donor contributions have been raised as an alternative way of providing more resources to NDF.
The Nordic Council has without success pushed for the Nordic countries to revitalise NDF. Felixson says a new avenue is now being explored; there is a discussion of the whole architecture of the Nordic climate institutions. In addition to NDF, this includes the Nordic Environment Finance Corporation (NEFCO) and the Nordic Investment Bank.