Communication from the Commission to the Council and the European Parliament on the future development of the EU Energy Initiative and the modalities for the establishment of an Energy Facility for ACP countries
Date: 2004-10-26
Institutions: European Commission
Subjects: ACP countries, EU initiative, aid policy, cooperation policy, development aid, energy grid, energy policy

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 26.10.2004 
COM(2004) 711 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE 
EUROPEAN PARLIAMENT 

on the future development of the EU Energy Initiative and the modalities for the 
establishment of an Energy Facility for ACP countries 

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1. 

INTRODUCTION 

Energy  is  critical  for  all  human  activity,  and  access  to  modern  energy  services  is  a 
prerequisite  for  social  and  economic  development.  However,  in  today’s  world  access  to 
energy is not evenly and fairly distributed. 

While OECD countries, representing 70% of global energy consumption, have decreased their 
exposure  to  energy  shocks,  developing  countries  are  more  and  more  exposed.  They  are 
generally  more  dependent  on  imported  oil  and  use  twice  as  much  oil  per  unit  of  economic 
output. In addition, energy price fluctuations have a higher impact on their economies due to 
their  fragile  financial  situation.  Finally,  access  to  modern  energy  services  is  most  often 
limited to urban and industrial centres. Limited access to high quality, reliable energy services 
is  a  strong  barrier  to  the  economic  and  social  development  of  the  poor.  In  addition,  air 
pollution  from  traditional  energy  sources  and  poor  standards  of  modern  energy  installations 
affect the health particularly of the poor. 

Recognising the importance of improving energy access for the poor, the EU launched the EU 
Energy  Initiative  for  poverty  eradication  and  sustainable  development  (EUEI)  at  the  World 
Summit on Sustainable Development (WSSD). The objective of the EUEI is to contribute to 
the  achievement  of  the  Millennium  Development  Goals  (MDGs)  through  the  provision  of 
adequate,  affordable,  sustainable  energy  services  to  the  poor.  Ownership  by  beneficiaries  is 
critical to success.  

The  EUEI  is  a  joint  effort  of  the  Commission  and  the  Member  States  creating  synergies 
between  their  respective  development  policies  and  activities.  It  is  implemented  through 
dialogue and specific partnerships with developing countries, including cooperation with civil 
society,  the  private  sector  and  financial  institutions.  The  EUEI  has  made  progress  since 
Johannesburg. The EUEI “Energy for Africa” conference, held in Nairobi in November 2003, 
contributed  to  African  ownership  while  outlining  key  priorities.  Dialogue  with  developing 
countries has revealed a need for the EU to invest considerably more resources in this area. 

The  purpose  of  the  present  Communication  is  to  explain  how  the  EUEI  can  be  made  more 
operational in the future and respond to requests by ACP countries. To sharpen the focus and 
visibility of the energy and poverty agenda, the Commission proposes the establishment of a 
€250 million ACP-EU Energy Facility, subject to a co-decision by the relevant EU and ACP 
bodies. 

2. 

THE ENERGY AND POVERTY CHALLENGES 

At  present,  nearly  two  billion  people  in  the  world  –  concentrated  mainly  in  rural  and  peri-
urban  areas  of  developing  countries  -  do  not  have  access  to  modern  energy  services.  Sub-
Sahara Africa is a dramatic example of inequality in the energy field, with over 80% of the 
population  having  limited  access  to  modern  forms  of  energy.  The  social  and  economic 
development of poor communities is limited or even deadlocked by the present unsustainable 
use of wood and other forms of biomass for energy purposes, over and above the difficult and 
expensive access to other forms or energy, such as electricity and liquid fuels.  

Energy  and  poverty  reduction:  Access  to  adequate,  affordable  and  sustainable  energy 
services  is  necessary  to  fulfil  most  development  objectives,  e.g.  within  health,  education, 

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transport,  agriculture, 

light,  heating, 
industrial  production  and  modern  means  of 
communication. This connection was recognised by the WSSD in the Johannesburg Plan of 
Implementation that established the link between access to energy and the MDGs, noting that 
access to energy facilitates the eradication of poverty. 

Energy access: Ensuring access to energy services is a complex challenge which cannot be 
left  to  market  forces  alone  to  resolve.  Concerted  action  of  the  public  sector  is  required.  In 
addition, there is a large variety of stakeholders, ranging from poor communities to local and 
national  governments  and  trans-national  companies,  energy  sources  and  technology  options 
which  vary  according  to  location.  There  is  no  “one  size  fits  all”  recipe  for  energy  service 
provision.  

The global character of energy markets: While OECD countries have managed to decrease 
their  exposure  to  oil  shocks,  developing  countries  have  increased  theirs.  On  average, 
developing  countries  use  more  than  twice  as  much  oil  per  unit  of  economic  output  than 
OECD countries. Moreover, their financial situation means that they are less able to weather 
turmoil on oil markets. 

Energy finance: Almost half of the global investment required to improve and replace supply 
capacity up to 2030 is attributed to developing country needs. More than ever before, capital 
needed in the energy sector will have to be raised from private and foreign sources. However, 
the  investment  risk  is  perceived  to  be  prohibitive,  in  particular  when  it  comes  to  improving 
access  to  energy  for  poor  consumers.  Public  and  ODA  funding  must  explore  new  ways  to 
catalyse and facilitate a sufficient flow of investment in this sector. 

See Annex for further details. 

3. 

THE EU POLICY BACKGROUND 

It  is  time  to  give  increased  attention  to  the  critical  role  of  energy  in  poverty  eradication  in 
development  assistance.  While  WSSD  achieved  much  in  putting  energy  back  into 
international development debates, the energy needs have not been sufficiently addressed at a 
practical level. Energy sector commitments have been decreasing for the past decade and the 
present trend is not upwards. Grants to the energy sector of developing countries have halved 
in the last few years, compared with the amounts of the nineties. 

Nevertheless,  several  EU  Member  States  engage  in  energy  in  bilateral  development 
cooperation  programmes,  based  on  policies  that  are  currently  in  line  with  the  aims  of  the 
EUEI. 

While  energy  itself  does  not  figure  among  the  six  sectoral  priorities  of  the  Community’s 
development policy, it is linked directly or indirectly to every one of them. The Commission’s 
Communication  “The  European  Community's  Development  Policy”1  acknowledges  the 
importance  of  energy  while  focusing  on  the  reduction  of  poverty.  With  regard  to  ACP 
countries,  no  African  or  Caribbean  country  directly  addresses  energy  under  the  9th  EDF, 
while  five  ACP  Pacific  countries  have  energy  identified  as  a  focal  sector  of  cooperation  in 
their Country Strategy Papers. 

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COM(2000) 212 

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The  EUEI  was  announced  for  the  first  time  in  the  Commission’s  Communication  on  the 
external  dimension  of  sustainable  development  (COM(2002)  82).  EU  Member  States  have 
confirmed their support in various decisions of the Council of the European Union and in the 
European  Council,  leading  to  the  successful  launch  of  the  Energy  Initiative  for  Poverty 
Eradication and Sustainable Development (EUEI) at the WSSD. 

The  Commission’s  Communication  “Energy  Cooperation  with  the  Developing  Countries”2 
established a framework for energy cooperation with developing countries, focusing on issues 
such as the necessary reforms of the energy sector, technology transfer, demand and supply-
side  cooperation,  promotion  of  energy  diversification,  facilitation  of  grid  extensions  and 
interconnections,  etc.  The  Communication  highlighted  the  role  of  the  EUEI  in  this 
cooperation. 

After  Johannesburg,  the  Communication  “The  World  Summit  on  Sustainable  Development 
one  year  on:  implementing  our  commitments”3  took  stock  of  the  EUEI  development  in  late 
2003. The Communication recognised the progress of the EUEI and acknowledged the need 
for adequate financing for the Initiative. The scope for creating synergies between the EUEI 
and the Johannesburg Renewable Energy Coalition (JREC)4 was also recognised. 

In  the  Conclusions  of  the  General  Affairs  Council  (8566/04),  April  2004,  the  EU  Member 
States  confirmed  the  need  to  provide  adequate  financing  for  the  Initiative.  The  Council 
furthermore recognised that greater involvement of the Commission and the Member States is 
needed  to  respond  to  the  developing  countries’ priorities  as  expressed  at  the  EUEI  “Energy 
for  Africa”  conference  in  Nairobi,  and  requested  the  Commission  to  take  the  lead  in  the 
follow-up to this conference. 

The proposal for establishing an Energy Facility for ACP countries reflects this policy context 
and intends to bring the EU’s commitments further towards implementation. It is suggested 
that the funds for the Energy Facility should be allocated from the “conditional billion” of the 
9th European Development Fund (EDF), pending a final decision at the Council meeting in 
March 2005. 

4. 

PROGRESS TO DATE - TRANSLATING POLICY INTO ACTION 

The  EUEI  has  established  a  secretariat  within  DG  Development  to  stimulate  synergy  and 
cooperation.  The  Advisory  Group,  composed  of  Member  States,  Commission  officials  and 
experts, is the main forum for European dialogue and coordination. In the European context, 
the  EUEI  dialogue  has  been  undertaken  with  the  active  involvement  of  EU  Member  States 
and the European Commission, and has also included the European Investment Bank (EIB). 
EIB has expressed interest in exploring possibilities for combining EDF grants and EIB loans. 

Strong ownership from beneficiaries being a key to success, the EUEI’s priority after WSSD 
has been to engage in a dialogue with developing countries and regions. 

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COM(2002) 408 
COM(2003) 829 
As of June 2004, JREC counted 88 member governments, including 54 developing countries. Members 
signed up to the JREC Declaration committing to co-operate to“…with a sense of urgency, substantially 
increase the global share of renewable energy sources …”. 

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Africa: an urgent priority 

It  seems  clear  that  Sub-Saharan  Africa  will  have  difficulty  in  reaching  the  MDGs  unless 
substantial extra efforts are undertaken, including in the energy field. A number of Member 
States  are  active  in  the  energy  sector  in  Sub-Saharan  Africa,  and  have  built  up  valuable 
experience  and  capacity,  both  in  the  policy  and  strategy  development  as  well  as  in 
implementation.  In  these  countries  they  act  as  EUEI  facilitators.  African  governments  are 
gradually  addressing  energy  issues  into  their  poverty  reduction  strategies,  increasing  their 
capacity to plan and implement energy-related activities. 

The  EUEI  “Energy  for  Africa”  conference  held  in  Nairobi  in  November  2003  represents  a 
milestone  in  EUEI  dialogue  with  Africa  and  was  attended  by  government  representatives 
from  about  40  Sub-Saharan  African  countries.  The  main  objective  was  to  identify  priority 
actions  at  national  and  sub-regional  level.  Conference  recommendations  reflect  African 
country ownership of this agenda and suggested the following priorities: 

–  Rural energy in general and in particular rural electrification 

–  Energy for households, biomass and substitutes 

–  Strategies and policies for the sector, both at national and at regional level 

–  Capacity building at all levels. 

Follow-up  EUEI  workshops  will  be  organised  to  help  identify  successful  energy  service 
delivery  models  and  how  they  can  be  financed  and  implemented  on  a  wider  scale.  Other 
Commission-funded activities will further stimulate dialogue and contribute to the creation of 
a framework for action: 

–  Regional projects are to be financed by the intra-ACP allocation to energy. 

–  The  COOPENER  component  of  the  Intelligent  Energy-Europe  programme,  managed  by 
DG  Energy  and  Transport,  co-finances  projects  aiming  at  creating  the  institutional 
conditions for improved access to energy in Sub-Saharan Africa. 

–  Similarly,  DG  Research  supports  a  renewable  energy  partnership  for  poverty  eradication 
and  sustainable  development  in  Africa  (“Partners  for  Africa”)  involving  a  number  of 
European and African partners. 

–  DG Environment sponsors several projects in the context of the Johannesburg Renewable 
Energy  Coalition  which  support  and  enhance  the  EUEI  dialogue,  including  the  work  on 
innovative financing mechanisms (i.e. the Patient Capital Initiative), and on databases for 
renewable energy policies and measures and databases. 

The Caribbean and Pacific 

Small  island  countries  are  particularly  sensitive  to  energy  issues.  The  high  cost  of  shipping 
fuels to dispersed islands means that electricity costs an average 20–50 €c/kWh, compared to 
international  costs  of  5 €c/kWh  while  there  is  untapped  potential  for  increased  energy 
efficiency and renewable energy use. 

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The  island  states  in  the  Caribbean  and  the  Pacific  took  an  early  interest  in  the  EUEI,  and 
participated actively in the dialogue before WSSD. Follow-up EC and Denmark engagement 
with  regional  organisations  in  ACP  Pacific  island  states  led  to  the  establishment  of  a 
partnership  with  the  Pacific  Island  Countries,  while  the  EC  and  Germany  initiated  similar 
activities in the Caribbean. 

See Annex for further details. 

5. 

THE FINANCIAL CHALLENGE AND THE NEED FOR INNOVATIVE MECHANISMS 

Since WSSD there has been a recognised need for a significant increase in funding for energy 
and  poverty  in  order  to  achieve  the  Millennium  Development  Goals.  So  far,  provision  of 
energy  services  to  the  poor  has  been  able  to  attract  only  marginal  private  investment. 
Innovative and flexible funding mechanisms are urgently required to use the leverage effect of 
public  resources  and  ODA  and  attract  more  resources  from  the  private  sector,  development 
banks  and  financial  institutions.  Public-private  partnerships  (PPPs)  are  a  core  instrument  in 
the  EUEI  strategy,  and  the  energy  sector  offers  numerous  possibilities  for  the  EU  and  its 
developing  country  partners  to  work  together  in  such  partnerships  with  the  private  sector, 
financial  institutions  and  civil  society.  However,  greater  efforts  are  needed  at  the  political 
level  to  provide  adequate,  faster  and  more  flexible  resources  and  instruments,  including  the 
provision of seed capital. 

Since Johannesburg the EUEI has built a solid base for specific actions and is now ready for a 
quantum leap. To maintain the momentum and to actually deliver on the ground, substantial 
additional  resources  are  needed.  Such  resources  should  be  provided  by  the  EU  as  a 
demonstration  of 
the  Johannesburg  Plan  of 
Implementation. 

its  commitments 

the  MDGs  and 

to 

See Annex for further details. 

6. 

AN ENERGY FACILITY FOR ACP COUNTRIES 

The  Commission  proposes  that  the  first  step  in  this  direction  should  be  the  allocation  of 
significant  funds  for  an  ACP-EU  Energy  Facility.  It  is  suggested  that,  in  a  first  phase,  an 
amount  of  €250 million  would  be  appropriate,  considering  the  available  EDF  resources  and 
the first results of the dialogue with stakeholders. The Facility will be a flexible instrument, 
open  to  joint  financing  with  Member  States  and  other  donors  and  capable  of  adopting 
innovative  ways  of  implementation.  The  Facility  will  be,  on  the  one  hand,  a  catalyst 
promoting initiatives, providing information, acting as a clearing-house, building research and 
management  capacity  in  ACP  countries  and,  on  the  other  hand,  an  instrument  which  can 
provide the missing link in financing sustainable projects and activities. 

6.1. 

Key Principles 

Targets: The Energy Facility should be directed towards the achievement of the WSSD and 
MDG targets and should concentrate its activities in those ACP countries which already have 
a sound national energy policy or those which are strongly committed to developing such a 
policy, based on good governance principles and as part of a Poverty Reduction Strategy or 
similar.  The  Energy  Facility  will,  among  other  things,  assist  countries  to  establish  their 
institutional and regulatory framework and to attract additional financial resources for public-

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private  partnerships.  The  active  participation  and  parallel  contribution  by  Member  States 
already working in the country would strengthen the Facility. 

Ownership:  The  concept  of  ownership  is  central  to  the  approach  of  the  Energy  Facility.  A 
number of ACP countries give priority to the energy and poverty agenda and have asked to 
become  partners  in  the  EUEI.  EUEI  actions  should  be  coherent  with  national  policies  and 
commitments, and ideally result from the ongoing Poverty Reduction Strategy process. Some 
countries  are  fairly  advanced  in  developing  the  policy  framework  and  would  be  ready  for 
implementation. In other countries there is still a need for policy  and strategy development. 
There is a growing awareness of the fact that energy has not been sufficiently recognised as 
an important element in the poverty reduction process and that there is a need to incorporate 
the  energy  dimension  in  Poverty  Reduction  Strategies.  At  national  level,  actions  will  be 
geared  towards  delivering  energy  services  to  the  poor.  At  cross-boundary-ACP  level  the 
Facility will foster dialogue with African institutions and initiatives of a global nature, such as 
New  Partnership  for  African  Development  (NEPAD)  and  African  Union  (AU).  Similar 
processes are being developed in the ACP Island regions. 

Flexibility: In order to be effective, it is essential that the Facility has a flexible approach to 
financing and is open to joint financing with Member States active in the sector, and is able to 
cooperate with lending institutions, the private sector, public utilities and civil society. 

The  Facility  would  primarily  provide  grant  funding,  which,  by  nature,  has  a  high  leverage 
factor,  and  could  attract  additional  capital  from  the  EIB  and  other  EDFIs  and  International 
Financial Institutions (IFIs), in particular the African Development Bank (AfDB), the World 
Bank  Group  (including  International  Financial  Corporation  and  Multilateral  Investment 
Guarantee Agency) and other regional international financial institutions. 

A  maximum  leverage  effect  should  be  obtained  through  combinations  of  grants  and  other 
sources, supporting preparation of projects and development of an enabling environment for 
investment,  playing  a  dynamic  role  in  creating  new  partnerships  between  communities, 
NGOs,  public  and  private  sectors,  and  providing  information  and  support  to  local  and 
European energy service providers interested in investing in the sector. 

Innovation:  The  Facility  intends  to  give  innovative  answers  to  the  challenges  of  delivering 
sustainable energy services to the poor, including new types of financing with various sources 
of  funding  (local/international,  private/public),  special  attention  to  the  use  of  energy  for 
production and income generation, and new and cross-sectoral approaches applying a menu of 
institutional  and  technical  options,  adapted  to  the  specific  target  area.  These  include  rural 
electrification;  decentralised  energy  systems;  increased  use  of  renewable  energy;  and 
enhanced  energy  efficiency,  including  cleaner  and  more  efficient  use  of  fossil  fuel 
technologies, efficient appliances and more efficient use of traditional biomass. In this context 
possible  synergies  between  the  Energy  Facility  and  the  Water  Facility  will  be  thoroughly 
explored,  as  will any opportunities of synergies  with other initiatives in the field of energy. 
The synergies with the Water Facility are particularly interesting, since both facilities address 
the poor, and there is ample scope for combined energy-water programmes. 

6.2. 

Priority Activity Areas to be funded under the Energy Facility 

The  long-term  objective  of  the  Facility  is  a  significant  increase  in  the  use  of  sustainable 
energy  services  for  productive  and  social  purposes  for  the  targeted  population  in  ACP 
countries,  and  that  significant  and  measurable  steps  towards  achieving  the  Millennium 

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Development  Goals,  in  particular  the  goal  on  poverty,  have  been  taken.  In  line  with  the 
outcomes of the EUEI dialogue with ACP countries, the backbone of the Facility will support 
activities focusing on increasing the access to modern energy services in rural areas in Africa. 
In the Island ACP states, the Facility will deliver outputs in the fields of energy efficiency and 
renewable energy. The distribution of funds between the ACP regions will follow the general 
principles of the Cotonou Agreement. 

6.2.1.  Priority Activity Area 1: Delivery of Energy Services 

The  largest  financial  contribution  from  the  Facility  will  be  designed  to  reach  a  substantial 
number of rural people and to improve their access to modern energy services. Priority will be 
given to those currently un-served, living in scattered settlements, villages, rural towns, peri-
urban  areas  and  remote  islands.  The  Facility  will  support  the  joint  financing  of  delivery-
oriented  investment  projects,  leveraging  funds  from  Member  States,  other  donors,  IFIs  and 
the  private  sector.  This  component  of  the  Facility  is  intended  to  assist  those  countries  and 
regions  which  have  in  place  or  are  in  the  process  of  implementing  a  sound  national  energy 
policy, based  on  good governance principles  and giving priority to energy  and poverty,  e.g. 
within  their  poverty  reduction  strategy.  Proposals  should  ensure  the  economic,  social  and 
environmental  sustainability  of  the  investment,  if  needed,  through  possible  financing  of 
institutional support and strengthening of management skills measures. Innovative approaches 
could be triggered, in order to address energy needs, for example, in an integrated and cross-
sectoral  way.  Proposals  will  have  to  be  particularly  mindful  that  investment  into  long-term 
energy infrastructure will lock partner countries over the next decades into a certain path in 
terms  of  energy  mix  determining  their  future  security  and  their  greenhouse  gas  emission 
paths. 

6.2.2.  Priority Activity Area 2: Creating an Enabling Environment 

Where governance conditions are not in place for delivery-oriented intervention in the field, 
up  to  20%  of  the  Facility  will  support  the  development  of  an  enabling  environment  for  the 
energy  sector  based  on  good  governance  principles.  Activities  will  depend  on  the  level  of 
policy development and institutional framework, which vary among ACP States. The Facility 
will  assist  countries  in  which  improvements  are  needed  to  develop  or  implement  sound 
national  energy  policies  and  strategies,  e.g.  in  support  of  poverty  reduction  strategies,  to 
improve  the  institutional,  legal and  regulatory  framework,  to  strengthen  the  capacity  of  key 
stakeholders,  in  particular  for  the  implementation  and  management  of  delivery-oriented 
energy programmes, and to improve monitoring and evaluation capacity. 

6.2.3.  Priority Activity Area 3: Facilitating Future Large-Scale Investment Programmes 

Up to 20% of the Facility will be devoted to preparatory activities required to facilitate future 
essential  investment  plans  for  cross-border  interconnections,  grid  extensions  and  rural 
distribution, preparing them for financing by IFIs, in particular the EIB and EDFIs as well as 
working together with the World Bank, the African Development Bank and the private sector. 
In the African context, due consideration will be given to African Union/NEPAD priorities. In 
this  way,  the  Facility  can  contribute  to  the  future  mobilisation  of  significant  additional 
investment in the energy sector of Sub-Sahara Africa and the Island regions. There is ample 
scope for the Facility to act as leverage to increase net amount of capital going to energy and 
development. 

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7. 

MANAGEMENT OF THE ACP-EU ENERGY FACILITY 

The management will have to reflect the overall political approach underpinning the Energy 
Facility. In the first place, ownership of the ACP partners and their right of initiative is crucial 
in  this  process.  Secondly,  the  implementation  procedure  should  adhere  to  the  overriding 
objective  of  promoting  access  of  the  poor  to  modern  energy  services.  This  requires  that, 
thirdly, optimum use be made of grant funding and that a maximum leverage effect be aimed 
at, including utilising innovative mechanisms of blending financial resources. 

Management of the Energy Facility will be within the Commission, staffed with officials and 
with  the  possibility  of  attracting  outside  expertise,  such  as  Seconded  National  Experts, 
Contract Agents or similar. The existing decision-making processes established between the 
EU and ACP institutions will apply. 

Member States will be involved in the development and overall guidance of the Facility and 
will be able to ensure the necessary coordination of their own bilateral activities with those of 
the Facility. The present governance structure of the EUEI, including its Advisory Group, will 
be further developed into a main advisory body of the Facility, to which Member States will 
send their representatives. Member States will also be involved through the work of the EDF 
Committee. As for water, a multi-stakeholder forum, providing interactive information to the 
wider constituencies of all the participants in the functioning of the Facility and channelling 
their inputs into the process, will be formalised under the umbrella of the EUEI. 

Modalities for the implementation of the Energy Facility will be developed along the lines of 
the  Water  Facility.  Principles  will  have  to  include  sustainability  of  actions,  leverage  factor, 
support  available  from  stakeholders  already  present  in  the  field  (MS,  other  initiatives,  etc.). 
The instruments to be used will include: 

–  Calls for proposals (mainly for investment projects on a national and sub-national level). 
The EDF Committee will be consulted on calls for proposals before their launch. Selected 
projects and programmes will have to be coherent with national sector policies where they 
exist. It is expected that Member States already present in the field, the private sector and 
other initiatives on energy will assist either in the facilitation of project proposals or in the 
necessary  accompanying  activities.  EC  Delegations  will  have  to  advise  on  the  project 
proposals and take charge of the monitoring of implementation. 

–  TA  projects,  mainly  for  studies  and  capacity  and  institution  building  projects.  Requests 
from ACP countries will be analysed with the assistance of partners in the field. Requests 
aimed  at  enabling  a  proper  environment  for  a  subsequent  focus  on  delivery-oriented 
projects will have priority. 

–  Studies and other activities required for increasing the future pipeline of financial flows by 
EIB, EDFIs, WB and the private sector will be undertaken following requests by the IFIs 
and agreement of the beneficiary countries. 

A  small  percentage  of  the  Energy  Facility  will  be  used  to  contribute  to  the  financing  of 
administrative  expenditures  for  the  management  of  the  ACP/EU  Energy  Facility,  including 
recruitment  of  external  experts  and  promotion  activities,  organisation  of  seminars  and 
workshops, monitoring and evaluation, etc. 

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8. 

CONCLUSION 

With a view to the decision of the Council on the mobilisation of the remaining €500 million 
of  the  “conditional  billion”  of  the  9th  EDF,  and  in  order  to  ensure  delivery  of  the  EU’s 
Johannesburg  commitments,  the  Commission  asks  the  Council  of  the  European  Union  to 
agree  to  the  creation  of  a  €250 million  ACP-EU  Energy  Facility,  and  on  the  position  to  be 
taken in the future by the Community in the ACP-EC Council of Ministers on the creation of 
an ACP-EU Energy Facility. 

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ANNEX 

THE ENERGY AND POVERTY CHALLENGES 

At  present,  nearly  two  billion  people  in  the  world  –  concentrated  mainly  in  rural  and  peri-
urban  areas  of  developing  countries  -  do  not  have  access  to  modern  energy  services.  A 
modern, sustainable energy service means that the energy needed to deliver essential services, 
such as lighting, cooling, heating, cooking, pumping, motive power, telecommunication etc., 
is provided in a way that is safe, affordable, efficient, reliable, equitable and environmentally 
sound. On average, per capita electricity consumption in developing countries is barely one-
tenth of the consumption in the EU. Sub-Sahara Africa is a dramatic example of inequality in 
the energy field, with over 80% of the population having limited access to modern forms of 
energy. Large populations in Asia, particularly South Asia, and in Latin America live under 
similar conditions. The social and economic development of poor communities is limited or 
even  deadlocked  by  the  present  unsustainable  use  of  wood  and  other  forms  of  biomass  for 
energy purposes, over and above the difficult and expensive access to other forms or energy, 
such as electricity and liquid fuels. 

Energy  and  poverty  reduction: Energy is  a sine qua  non of  the action to combat poverty. 
Access to adequate, affordable and sustainable energy services is necessary for a good life and 
to  fulfil  most  development  objectives  -  within  health,  education,  light,  heating,  transport, 
agriculture, industrial production and modern means of communication.  

The  critical  connection  between  energy  and  poverty  alleviation  was  recognised  by  the 
international  community  at  the  WSSD  in  2002  in  Johannesburg.  More  specifically,  the 
Johannesburg  Plan  of  Implementation  (JPOI)  established  the  link  between  access  to  energy 
and the Millennium Development Goals, including the goal on poverty, noting that access to 
energy facilitates the eradication of poverty. Among the most important links are: 

–  MDGs  1  and  7:  Reduce  poverty  and  hunger,  and  improve  access  to  safe  drinking  water. 
Access  to  energy  services  facilitates  economic  development  and  creates  incomes  and 
employment e.g. in agriculture, shops and small enterprises. Energy services can improve 
access  to  pumped  water  for  drinking  and  irrigation  of  gardens  and  fields.  And  energy  is 
needed to cook nearly all human food. 

–  MDGs 2 and 3: Achieve universal primary education and eliminate gender disparity at all 
levels  of  education.  Improved  access  to  energy  services  allows  women  and  children 
(especially girls) to reduce time on gathering firewood, fetching water and cooking food. 
Electric lighting enables home study and evening classes, and electricity is needed to use 
educational media and modern communication (ICT) in schools and homes. 

–  MDGs  4,  5  and  6:  Reduce  child  mortality,  improve  maternal  health  and  combat  major 
diseases. Access to energy is needed for a modern health system, e.g. for refrigeration of 
vaccines, sterilisation and lighting operating theatres. Cleaner fuels for cooking will reduce 
indoor air-pollution and the related respiratory diseases, that, according to WHO, kills 1.5 - 
2 million women and children every year. 

–  MDG  7:  Ensure  environmental  sustainability.  Improved  energy  efficiency  and  the  use  of 
cleaner  and  renewable  sources  of  energy  can  help  to  achieve  a  more  sustainable  use  of 

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natural  resources,  such  as  woodlands  and  other  types  of  biomass,  and  reduce  emissions, 
thus protecting the local and the global environment. 

The important role of energy in poverty alleviation is increasingly recognised also by African 
governments, e.g. in the context of poverty reduction strategies. 

Energy  access:  Ensuring  access  to  energy  services  to  poor  communities  is  a  complex 
challenge, and, as experience over the past years has shown, it cannot be left to market forces 
alone to resolve. Concerted action of the public sector is required. Energy, like water, is not a 
commodity  comparable  to,  for  example,  industrial  or  agricultural  products.  Provision  of 
energy  services  depends  on  a  multitude  of  economic  and  social  preconditions,  policy 
frameworks,  political  circumstances  and  international,  national  or  local  market  situations. 
Many  stakeholders  are  involved,  ranging  from  poor  communities  to  local  and  national 
governments  and  trans-national  companies.  Energy  services  can  be  delivered  from  many 
sources and technologies. Geographical conditions are different, even within a country. There 
is no ‘one size fits all’ recipe to provide energy services to a particular community.  

The global character of energy markets: Internationally traded hydrocarbons have been and 
still  remain  the  overwhelming  mainstay  of  energy  economies  of  most  developed  and 
developing countries. While OECD countries have managed to decrease their exposure to oil 
shocks,  developing  countries  are  more  directly  exposed  to  their  negative  macroeconomic 
impacts. In addition to being dependent on imported hydrocarbons, their economies are also 
more  energy-intensive  than  those  of  developed  economies.  On  average,  oil-importing 
developing countries use more than twice as much oil to produce a unit of economic output as 
do OECD countries. Moreover, their financial situation (high levels of debt, fragile balances 
of payment) means that they are less able to weather turmoil on oil markets. Current sustained 
high prices on oil markets, price volatility and insecurity of supply affect developing countries 
more than others. Some of these countries spend up to 50% of their trade surpluses on energy 
imports – with devastating results for their national economies. A mere 10 US$ per oil barrel 
price increase can result in a 3% loss of GDP in some Sub-Saharan countries in the first year 
after the hike. 

Energy  finance:  Energy  demand  is  rising  fast  in  developing  countries.  Almost  half  of  the 
global  investment  required  for  improving  supply  capacity  and  replacing  existing  and  future 
supply  facilities  in  the  period  up  to  the  year  2030  is  attributed  to  the  needs  of  developing 
countries (including China and India). The required investment for Africa alone is approx. 1.2 
trillion US$, as calculated by the IEA. And this is a conservative estimate which would still 
leave  1.4  billion  people  without  access  to  electricity  in  the  year  2030.  Financing  is  a  huge 
challenge for the sector, with a marked trend away from financing energy investments from 
public and ODA budgets. More than ever before, the capital needed in the energy sector will 
have to be raised from private and foreign sources. However, most investors perceive the risks 
of energy investment in developing countries as being prohibitive, in particular when it comes 
to  improving  access  to  energy  for  poor  consumers.  Public  and  ODA  funding  must  explore 
new dimensions and design new approaches if they are to catalyse and facilitate a sufficient 
flow of investment including the risk capital. 

PROGRESS TO DATE - TRANSLATING POLICY INTO ACTION 

Since WSSD, the EUEI has made progress on the organisational front and in establishing a 
dialogue with key stakeholders, in particular developing countries. 

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The  EUEI  has  established  a  secretariat  within  DG  Development  to  stimulate  synergy  and 
cooperation.  The  EUEI  Advisory  Group,  made  up  of  Member  States  and  Commission 
officials  and  experts  in  energy  and  development,  is  the  main  forum  for  dialogue  and 
coordination of the Initiative. Working groups are established under the Advisory Group, such 
as the Finance Working Group, which has compiled the strategic paper “Development Capital 
for Energy Access: Opportunities to Reach the Energy-Poor”. 

In the European context, the EUEI dialogue has been undertaken with the active involvement 
of  EU  Member  States  and  the  European  Commission,  and  has  also  included  the  European 
Investment Bank (EIB). 

In  this  dialogue,  EIB  has  expressed  interest  in  exploring  possibilities  with  the  EUEI  for 
combining  EDF  grants  and  EIB  loans,  e.g.  where  the  grant  element  would  be  used  for 
identification  and  preparation  of  projects,  and/or  for  the  drafting  of  Master  Plans  and 
provision  of  Technical  Assistance  in  support  of  local  administration  for  the  management  of 
EIB financed projects. 

In  line  with  the  partnership  approach  and  recognising  the  importance  of  strong  local 
ownership, the immediate priority for the EUEI after WSSD has been to engage in a dialogue 
with  developing  countries  and  regions  that  have  expressed  an  interest  in  the  EUEI.  A  short 
summary of the progress of the EUEI in different developing country regions is given below. 

Africa: an urgent priority 

Nearly ten years before the MDG time target, it seems clear that Sub-Saharan Africa will have 
difficulty in reaching the MDGs unless substantial extra efforts are undertaken, including in 
the energy field. 

ACP  Africa  is  a  major  priority  area  for  the  EUEI,  and  conditions  for  increased  action  are 
improving. A number of Member States are active in the energy sector in Sub-Saharan Africa, 
and have built up valuable experience and capacity, both in the development of policies and 
strategies and in actual implementation. Some of these Member States play the role of EUEI 
facilitators in the countries where they have energy programmes. Likewise, the World Bank 
and  non-EU  donors  are  active  in  a  number  of  countries,  also  with  a  poverty  focus.  After 
Johannesburg, African governments are gradually integrating energy issues into their poverty 
reduction  strategies.  And  there  is  an  increasing,  albeit  still  limited,  capacity  in  African 
institutions, NGOs and private sector to plan and implement energy-related activities. 

The EUEI “Energy for Africa” conference held in Nairobi, Kenya, in November 2003 was a 
milestone  in  EUEI  dialogue  between  Africa  and  the  EU,  and  was  attended  by  government 
representatives  from  about  40  countries  from  Sub-Sahara  Africa.  The  main  objective  of  the 
event  was  to  identify  priorities  for  actions  at  national  or  sub-regional  level  in  Africa.  In 
preparation  for  the  conference,  the  EUEI  undertook  scouting  missions  or  desk  studies  in 
several African countries, which prepared the ground for further action. The debate in Nairobi 
was stimulated by a keynote statement by Commissioner Nielson, linking energy to poverty 
alleviation and development, and highlighting the problems relating to the traditional use of 
biomass and the need for rural electrification.  

In  the  Nairobi  recommendations,  adopted  at  the  conclusion  of  the  conference,  the  African 
countries took ownership of this agenda and suggested the following priorities for the EUEI: 

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–  Rural energy in general and rural electrification in particular 

–  Energy for households, biomass and substitutes 

–  Strategies and policies for the sector, both at national and at regional level 

–  Capacity building at all levels. 

In  order  to  continue  the  dialogue  and  make  the  Nairobi  recommendations  operational  in  a 
number of countries, sub-regional EUEI workshops will take place in Southern Africa and in 
West Africa during the coming months. The workshops will focus on successful models for 
delivery  of  energy  services  to  rural  areas  and  on  how  such  models  can  be  financed  and 
implemented on a wider scale. 

A  number  of  Commission-funded  activities  further  stimulate  the  EUEI  dialogue  and 
contribute to the creation of a framework for action in Africa. These include regional projects 
to  be  financed  by  the  intra-ACP  allocation  to  energy  with  SADC  and  ECOWAS,  as  well 
EUEI-linked projects supported by other Commission services. The COOPENER component 
of  the  Intelligent  Energy-Europe  programme,  managed  by  DG Energy  and  Transport,  co-
finances projects aiming at creating the institutional conditions for improved access to energy 
in  Sub-Saharan  Africa  with  a  special  emphasis  on  renewable  energy  and  demand 
management.  COOPENER  projects  are  implemented  by  consortia  of  African  and  European 
partners. Similarly, RTD supports a renewable energy partnership for poverty eradication and 
sustainable development in Africa (‘Partners for Africa’) involving a number of European and 
African partners. 

The Caribbean and Pacific 

Their remoteness and small markets make small island countries particularly vulnerable in the 
energy field. The further development of their societies depends to a large extent on access to 
transportation, ICT and energy. The high cost of shipping diesel oil to dispersed islands brings 
electricity  production  costs  up  to  an  average  of  0.2–0.5 €/kWh,  compared  to  international 
costs of 0.05 €/kWh. Some islands spend over 75% of their foreign currency earnings on fuel 
imports. At the same time there is untapped potential for increased energy efficiency and the 
use of renewable energy. 

The  island  states  in  the  Caribbean  and  the  Pacific  took  an  early  interest  in  the  EUEI,  and 
participated actively in the dialogue before WSSD. The “Sustainable energy seminar for ACP 
Island  States  within  the  framework  of  EC  development  co-operation”,  held  in  June  2001  in 
the Dominican Republic was an early opportunity to exchange views and establish dialogue. 

After  WSSD  the  EC  and  Denmark  engaged  in  active  and  positive  follow-up  dialogue  with 
regional organisations in ACP Pacific island states, leading to the establishment of an EUEI 
partnership with the Pacific Island Countries. Parallel-financed activities by Denmark and the 
Commission (the Danish part is already under implementation) will help to establish national 
energy  policies  and  action  plans  and  will  improve  the  efficiency  of  national  electricity 
utilities. 

A  dialogue  with  the  Caribbean  Island  Countries,  through  their  regional  organisation 
CARICOM,  was  also  initiated,  in  cooperation  between  the  EC  and  Germany.  The 
development  of  a  regional  energy  policy  and  support  for  the  execution  of  the  Caribbean 

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Renewable Energy Development Programme, co-financed by Germany, are the targets of this 
cooperation, which is currently under preparation. There is also increased interest to convert 
existing  central  energy  generation  systems  towards  a  decentralized  renewable-based  energy 
system to reduce islands’ vulnerability. 

Other Regional Components in the EU Energy Initiative 

The EUEI is also generating interest outside the ACP area. In the Sustainable Energy Systems 
programme,  DG RTD  stimulated  a  strong  North  African  participation  in  research  related  to 
the quantification and awareness raising of energy external costs, particularly concerning the 
impacts of energy pollution on human health. The Finnish-sponsored programme “Energy and 
Environment  Partnership  with  Central  America”  is  the  first  EUEI  activity  outside  the  ACP 
area,  and  Austria,  through  cooperation  with  the  Austrian-sponsored  “Global  Forum  on 
Sustainable  Energy”,  has  involved  the  EUEI  in  district  heating  activities  in  the  Western 
Balkans.  The  Global  Forum  is  also  involving  the  EUEI  in  its  activities  in  Himalayan 
countries. 

THE FINANCIAL CHALLENGE AND THE NEED FOR INNOVATIVE MECHANISMS 

Since WSSD there has been a recognised need for a significant increase in funding for energy 
and  poverty  in  order  to  achieve  the  Millennium  Development  Goals.  Work  done  by  the 
International  Energy  Agency  and  the  EUEI  Finance  Working  Group  has  shown  that  public 
funding  from  governments  and  the  international  donor  community  is  not  sufficient  to  cover 
investment needs. And so far, the provision of energy services to the poor has not been able to 
attract private investment. Innovative and flexible funding mechanisms are urgently required 
to  use  the  leverage  effect  of  ODA  and  attract  more  resources  from  the  private  sector, 
development banks and financial institutions. While the creation of an enabling environment 
through, for example, regulatory reform and government capacity building remains a key to 
attracting  more  energy  investment,  there  are  already  concrete  opportunities  to  blend  public 
and private capital and make delivery of energy services for the poor happen. These include: 
energy  infrastructure  funds,  SME  support  and/or  consumer  credit  programmes,  smart 
subsidies, rural energy funds, market and product development, etc. Furthermore, developing 
renewable  energy  sources  and  transfer  of  state-of-the-art  technologies  will  considerably 
contribute to the financial sustainability of actions. 

Public-private partnerships (PPPs) are considered to be a promising instrument for growth and 
economic  development  in  developing  countries,  and  are  a  core  instrument  in  the  EUEI 
strategy.  Infrastructure  and  especially  the  energy  sector  offer  numerous  possibilities  for 
blending public and private funds. A feasibility study for the creation of an innovative public-
private  financing  mechanism  is  being  finalized  by  the  Commission  together  with  interested 
Member States and other stakeholders5. PPPs will enable the EU and its developing country 
partners to work together in partnership with the private sector, financial institutions and civil 
society towards effective delivery of energy services to the poor. 

However,  with  no  resources  of  its  own  and  no  significant  energy-sector  allocations  in  the 
development cooperation budgets of the Community, the roll-out of the EUEI may prove too 
slow to maintain momentum and make a real contribution towards the MDGs. Unless greater 

5 

This feasibility study is commonly referred to as the JREC Patient Capital Initiative 

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efforts  are  undertaken  at  the  political  level  to  provide  adequate,  faster  and  more  flexible 
resources  and  instruments,  the  impact  of  the  EUEI  will  be  limited  to  the  possibilities  for 
tapping into resources already allocated to other sectors. This will prevent it from reaching its 
objectives in the foreseeable future. 

Since Johannesburg the EUEI has built a solid base for specific actions and is now ready for a 
quantum leap. To maintain the momentum and to actually deliver on the ground, substantial 
additional  resources  are  needed.  Such  resources  should  be  provided  by  the  EU  as  a 
the  Johannesburg  Plan  of 
demonstration  of 
Implementation. 

its  commitments 

the  MDGs  and 

to 

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