Exploring the Establishment of a Climate Project Preparation Facility (PPF) in the West African Region
The significant lack of financial resources and the difficulty to access them are among the greatest challenges that Local Governments in the West African region face in delivering their climate actions and projects. To address these problems, the UEMOA, through the assistance of FMDV, is currently creating a regional financial mechanism in order to provide support and facilitate finance flows to its constituency of more than 3000 local governments in 8 countries.
In July 2016, within the framework of this regional financial mechanism, FMDV, in partnership with ICLEI and through the support of Climate-KIC’s Low Carbon City Lab (LoCaL) program, responded to the call of UEMOA to explore the opportunity to design a Project Preparation Facility at local levels in the Region focused on the growing financing needs of low-carbon, climate resilient infrastructure.
2. Roadmap to initiate a PPF in the UEMOA
Prior to the establishment of the Facility, the following necessary steps are to be taken in order for all stakeholders to gain a comprehensive understanding of project preparation needs and opportunities in the Region.
Step 1: Identification of the contexts and opportunities
Step 2: Analysis of the demand side
Step 3: Analysis of the supply side
Step 4: Consultative process to create a PPF
A prefeasibility phase developed by FMDV with ICLEI analysed the existing experiences of several PPFs at global level, the regional legal and institutional context enabling climate action in the Region, the type of services needed and provided by financial actors of the Region related to project preparation, and how UEMOA could fill in the gap should no one is proposing such support.
3. Objectives of the PPF
The proposed PPF primarily aims to support local governments and project implementers to present sustainable and resilient projects that meet the eligibility criteria and conditions of international finance and private investors (i.e. bankability, creditworthiness, and social, economic, and environmental sustainability and performance of the projects). Specifically, the proposed PPF will have the following objectives:
At regional level, select and use the adequate sustainable and resilience standards for infrastructure investments to create a pipeline of fundable, low-carbon and resilient projects
Allow Local Governments and their project leaders access to the necessary assistance (mainly technical support and financial engineering) to formulate and prepare projects that integrate appropriate standards to respond to climate challenges, to secure funds and attract investments;
Empower local and regional governments to pilot and coordinate climate resilient projects that are defined locally while ensuring the strategic investment plans are in line with the UEMOA objectives and national climate strategies (acting as a vertical integration facilitator)
Catalyse and harmonize international and regional funds for climate action;
Support Local Financial Institutions (LFIs) to develop and reinforce the climate-related project preparation services and their access to International Climate Finance in order to extend support to project leaders and accelerate climate action.
Over time, it is envisaged that the Facility will serve to harmonize other already existing dynamics on project preparation in the Region, and that the improved capacity of financial institutions at different levels will create an ecosystem of effective project preparation, and foster climate finance flows at the different levels in UEMOA (local, domestic, national and regional).
4. Financing the PPF
In line with the existing dynamic led by the Commission around the Regional Financial Mechanism, the PPF will be funded through UEMOA's budget and will seek additional funds from donors and international climate funds. The funds coming from UEMOA could serve as seed money to raise extra funds from donors and climate preparation activities. For that reason, those two streams of funding - from the Commission and from donors - will operate at first through grants provided to selected projects.
The possibility to organize a more complex business model based, partially or totally, through revolving funds (success fees, commissions fees on financial transaction for example) shall be considered after a first period of operation of the PPF where its operating and financial model will be tested.
5. Key services
The Facility will be able to offer a wide spectrum of services and resources for project preparation support to local governments including, but not limited to, the following:
Financial, legal, and technical advisory services necessary to prepare and structure projects at the early stage;
- Policy advisory services to enable reforms and build endogenous capacity of client countries, including local authorities, targeted towards legislation and regulation frameworks;
Training on investor due diligence procedures, transaction and bidding formulation, project documentation, etc.
The Facility may potentially serve as a platform to develop its own project pipeline or function as a link for future external investment, and harmonize multiple existing project preparation activities in the region. These services and their structuring within UEMOA will be explored and defined during the pilot and transition phase of the proposed regional climate Facility.
6. Roadmap for action
The establishment of the PPF will be integrated in the creation process of the Regional mechanism, and will begin by test piloting 4 projects. It is strongly recommended that those first pilot projects shall be selected within existing project dynamics such as the Global Covenant for Africa that supports to develop the organization of business models of projects, including in the UEMOA region or the TAP initiated by ICLEI that counts a large diversity of climate projects in the region.