Draft Caribbean Development Bank (Tenth replenishment of the Special Development Fund (Unified)) Order 2021
Draft Asian Development Bank (Twelfth replenishment of the Asian Development Fund) Order 2021
(3 years, 6 months ago)
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The Minister for Asia (Nigel Adams)
I beg to move,
That the Committee has considered the draft Caribbean Development Bank (Tenth Replenishment of the Special Development Fund (Unified)) Order 2021.
The Chair
With this it will be convenient to consider the draft Asian Development Bank (Twelfth Replenishment of the Asian Development Fund) Order 2021.
Nigel Adams
There is no greater pleasure than serving under your chairmanship, Mr Gray.
The two orders will permit the United Kingdom Government to make financial contributions up to the stated values to two multilateral development banks, namely the Caribbean Development Bank and the Asian Development Bank. I will set out the case for supporting those institutions and provide more details on the orders and the impact that our contributions will have.
The MDBs are at the heart of the international development system. They are important partners in delivering the UK’s development, prosperity and security objectives as a force for good in the world. The Caribbean and Asian Development Banks have deep local knowledge, and are highly trusted by the Governments who borrow from them. They play a key role in supporting nations to become more self-sufficient through economic growth and increased resilience, including by strengthening cross-border trade and regional integration. They also contribute to solving global challenges, such as climate change and health crises. Our proposed contributions to those banks demonstrate the UK’s deep and ongoing commitment to the multilateral system, as set out in the integrated review.
The first order under consideration permits the UK Government to provide up to £21 million over four years to the tenth replenishment of the special development fund, or SDF. The SDF is used by the Caribbean Development Bank to provide grants, low-interest loans and technical assistance to the Caribbean region’s poorest countries. The UK is one of the founding members of the bank, which is an important partner in the region. Nine of the 11 countries that receive SDF financing are Commonwealth nations.
Caribbean states are highly vulnerable to climate change and natural disasters. They are also heavily dependent on the tourism sector, which has been especially hit hard by the covid-19 pandemic, having accounted for 15.5% of GDP and 2.4 million jobs in 2018. Funding from the SDF will play a critical role in supporting economic recovery and strengthening resilience and preparedness for future crises. Over the next four years, 180,000 students are expected to benefit from educational projects, and more than 60,000 households are expected to have improved sanitation and water supply.
Negotiations for the tenth replenishment of the SDF concluded in February. Through the negotiations, the UK secured an agreement from the bank to set its first-ever climate finance target: to use 25% to 30% of its own resources for climate change mitigation and adaption. An overall financing envelope of $383 million over four years was agreed. Our pledge will maintain the UK’s position as the second largest donor to the SDF, with a burden share of 14%.
The second order under consideration permits the UK Government to provide up £117,640,000 over four years to the twelfth replenishment of the Asian Development Fund, or ADF. The ADF is used by the Asian Development Bank to provide grants and technical assistance to the poorest countries in the region. The UK has been a member of the bank since it was founded in 1966 and has contributed to every replenishment of the ADF since its establishment.
As set out previously in the House by the Foreign Secretary, the Asia-Pacific region is critically important to the UK. The Asian Development Bank is a key partner in that context. I met the bank’s president, Asakawa, only last week to discuss the bank’s work on climate change and financing for covid-19 vaccines. I also had the pleasure of meeting him in Manilla last year, where I heard first-hand about the bank’s economic response to covid-19.
Prior to the pandemic, the Asia-Pacific region was making good progress on sustaining economic growth and poverty reduction. However, many countries continue to face significant challenges. For example, at least 10% of people in the countries that receive grants from the ADF live in extreme poverty. Many of the countries supported by the ADF are small island developing states in the Pacific, whose reliance on tourism has led to significant economic setbacks as a result of the pandemic. They are also highly vulnerable to climate change. For example, rising sea levels could result in Kiribati, Tuvalu and the Marshall Islands becoming uninhabitable by 2050.
The ADF also provides significant levels of funding to fragile states, including Afghanistan. That funding is critical for ensuring stability and security across the region.
Over the past four years, the ADF has funded the construction of more than 1,000 km of roads. It has supported more than 900,000 women and children to benefit from new and improved infrastructure, and strengthened the resilience of more than 1.7 million people to climate change and natural disasters.
Negotiations for the twelfth replenishment of the ADF concluded last September. Through those negotiations, the UK secured important commitments, including an increase in the share of resources used for climate mitigation and adaptation from 23% to 35%, in direct support of our COP26 goals. An overall envelope of just over $4 billion over four years was agreed, and 42% of that will be financed by the bank’s own resources, with the remainder covered by pledges from donors. The UK’s pledge will maintain our position as the second largest non-regional donor to the ADF, with a burden share of 5.4%.
In conclusion, the Caribbean and Asian Development Banks remain important strategic partners for the UK. Our proposed contributions to the SDF and the ADF will allow those banks to support vulnerable countries to recover from the pandemic crisis, tackle climate change and reduce poverty. Those contributions will also strengthen the UK’s influence over those banks, which are well aligned with our objectives and values. They will support the delivery of the sustainable development goals and our ambitions as president of the G7 and COP26, and as Chair of the Commonwealth. I welcome this opportunity to hear Members’ views on the orders, which I commend to the Committee.
Yasmin Qureshi (Bolton South East) (Lab)
It is a pleasure to serve under your chairmanship, Mr Gray.
The Opposition support the transfer of funds to the Asian and Caribbean Development Banks, but I have some questions and points to put to the Minister.
We welcome the funds to the Caribbean Development Bank. Helpfully, the explanatory memorandum has set out what the sums of money will do. However, four years ago, during the previous replenishment, Ministers made it clear that they were approaching the bank with a degree of caution, and as such a quarter of the money was set aside as a performance incentive. Can the Minister explain whether those performances were met, that the money was disbursed and, looking to the future, does the new agreement contain any performance incentive? Given that the order provides for an increase on the previous replenishment, if only modest, can the Minister explain if that is part of a more concerted shift in priorities?
Funding to support the UK’s priorities, such as poverty reduction, girls’ education and climate change are welcome, particularly given the scale of the Government’s cuts to aid more generally. It would be useful to know from the Minister what specific improvements he intends the funds to achieve. How does that compare with previous contributions?
We know that a Department for International Development review into multilateral development in 2016 said that the Caribbean Development Bank, especially its special development fund was
“still performing well below the standard DFID expects, and below its own targets”.
It cited concerns about transparency and project delays, and said that a DFID team would be embedded in the bank to support future delivery and oversight. Now that DFID has been disbanded, can the Minister tell us how the UK will use its influence to ensure that the progress and development outcomes of the bank continue to be carried forward to future years and directed towards the world’s most marginalised?
On the draft Asian Development Bank (Twelfth Replenishment of the Asian Development Fund) Order 2021, we welcome the fact that funding will be used to support countries to meet international climate goals, such as the Paris agreement. Those are important objectives, because we know that many Asian coastal cities are exposed to flood and typhoon risk—caused by dramatic increases in heat and humidity. That means that, without adaptation and mitigation, societies and economies will be increasingly vulnerable to climate risk.
DFID’s review into multilateral aid in 2016 was positive about the bank, and judged that it performed well on risk management, anti-corruption and transparency. However, it highlighted a few areas of concern, in particular, it said that the bank could do more to ensure that poor and vulnerable groups benefit from its programmes and to support projects in fragile and conflict-affected areas. What have the Government done since the last replenishment to ensure that the bank improves in the areas where it fell short, and do they have any plans for further such reviews?
I was surprised to see mention of
“more resources for…girls’ education”
given that that long-term DFID commitment was recently reversed when it was discovered that the Government intend to make cuts of 40% to the UK aid budget for girls’ education. Does the Minister share my concern about the far-reaching consequences of that for the world’s most marginalised children, especially girls, at a time when they most need our support?
Both replenishments are increases made at a time when the aid budget for bilateral projects and programmes is being slashed. That seems to contradict a letter sent by the Foreign Secretary to the International Development Committee, which said
“bilateral programmes, with their advantages of effectiveness, local ownership and strategic impact will be the default”.
Can the Minister say whether that is still the position of the Department?
In the light of the Government’s devastating cuts to the aid budget, will the Minister consider reversing that decision or put it to a vote in Parliament?
Nigel Adams
I welcome the hon. Lady’s comments. As the world recovers from the covid-19 crisis, strong regional financial institutions, such as the Caribbean and Asian Development Banks, have never been more needed. Our contributions to the SDF and ADF will support the delivery of the UK’s development, prosperity and security objectives. As well as funding key development projects, those contributions will also reinforce the UK’s influence over the banks, which will allow us to drive them to be as efficient and effective as they can be. By supporting the orders, the Government maintain and further the UK’s position as a global leader in international efforts to achieve sustainable poverty reduction, climate resilience and international security.
The hon. Lady asked whether the recent temporary changes to the official development assistance budget will be reversed, and the answer to that is no. Those are temporary measures, and I assure that we will remain a world-leading aid donor and across Government we will spend more than £10 billion this year to fight poverty, tackle climate change and improve global health. The portfolio agreed by the Foreign Secretary will focus our investment and expertise on issues where the UK can make the most difference and achieve maximum strategic coherence, impact and value for money.
We will sustain our commitment to the world’s poorest people and, as the third biggest international donor, the UK will spend more on international aid in 2021 as a proportion of our national income than the majority of the G7. As the recent Statistics on International Development show, the UK is already one of the largest donors to the international covid-19 response. We have made £1.3 billion of new public commitments to counter the health, humanitarian and socioeconomic impacts of covid.
The hon. Lady asked how we assess the effectiveness of MDBs. We conduct annual reviews of all of our MDB contributions. The ADF and the SDF scored an “A” in 2020, which means they are assessed to be meeting expectations in terms of their outputs. The ADB was independently assessed by the Multilateral Organisation Performance Assessment Network in 2018 and was rated “highly satisfactory” or “satisfactory” across all eight organisational performance measures. A mid-term review will take place next year, when the banks will report on progress to all donors. The Foreign, Commonwealth and Development Office uses our country network to assess bank impact on the ground and to identify improvements where they are needed. The hon. Lady should rest assured that we hold the MDBs to account on budgetary efficiency and we take a strong line on staff and board member compensation, which drives for further efficiencies. The 2017-18 Multilateral Organisation Performance Assessment Network found ADB’s administrative expenses to be cost-effective and transparent compared to other MDBs. That oversight and scrutiny does work.
The CDB has higher administrative costs relative to its operations, which is partly due to its smaller size compared to other MDBs, but those costs have fallen significantly in recent years, and we expect that improvement to continue as the CDB continues to seek further efficiencies.
I commend the orders to the Committee.
Question put and agreed to.
Draft Asian Development Bank (Twelfth Replenishment of the Asian Development Fund) Order 2021
Resolved,
That the Committee has considered the draft Asian Development Bank (Twelfth Replenishment of the Asian Development Fund) Order 2021.—(Nigel Adams.)
Draft Electricity Trading (Development of Technical Procedures) (Day-Ahead Market Timeframe) Regulations 2021
(3 years, 6 months ago)
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The Chair
I remind Members to observe social distancing and to sit only in places that are clearly marked. I also remind Members that Mr Speaker has stated that masks should be worn in Committee. Hansard would be most grateful if Members send their speaking notes to hansardnotes@parliament.uk.
The Minister for Business, Energy and Clean Growth (Anne-Marie Trevelyan)
I beg to move,
That the Committee has considered the draft Electricity Trading (Development of Technical Procedures) (Day-Ahead Market Timeframe) Regulations 2021.
The draft regulations were laid before the House on 22 March this year. This statutory instrument was brought forward using powers under the European Union (Future Relationship) Act 2020.
The trade and co-operation agreement that we secured with the EU requires that new and efficient cross-border electricity trading arrangements be developed between the connected UK and EU markets. The new arrangements were a key objective of the UK during the negotiations for the agreement. Efficient cross-border trade can lower bills for UK consumers and support our decarbonisation and security-of-supply objectives.
The agreement sets out the principles for the design of the new trading arrangements, but the detailed technical procedures still need to be developed by the transmission system operators. Those, collectively, are the companies that own and operate electricity interconnectors that connect the UK to neighbouring markets, and the electricity system operator that runs our onshore electricity network. The development of the new arrangements will need to take place in co-operation with the relevant electricity market operators, which are organisations that operate marketplaces for the buying and selling of electricity.
The agreement details the timeframes for transmission system operators to develop technical procedures for the new arrangements, noting that new arrangements should be made operational by April 2022. It is therefore important that the development of the new arrangements takes place quickly and efficiently. To support that development, this draft statutory instrument imposes duties on electricity transmission system operators in Great Britain, with the co-operation of relevant electricity market operators, to develop the new cross-border electricity trading arrangements for the day-ahead market period.
The instrument will also grant the Office of Gas and Electricity Markets the ability to regulate transmission system operators and relevant electricity market operators in their development of the new trading arrangements, to ensure that they meet their obligations under the regulations. The instrument will further enable Ofgem to make decisions on the allocation and recovery of costs incurred in the development of the new arrangements.
The new arrangements will also be used for trade between Great Britain and the single electricity market on the island of Ireland. Energy is largely a devolved matter in Northern Ireland, but my Department has developed the draft instrument in close collaboration with officials in the Northern Ireland Department for the Economy and the Northern Ireland Authority for Utility Regulation. Input from our colleagues in Northern Ireland ensures that the instrument will support a UK-wide approach to the development of the new arrangements.
It is estimated that the new, efficient trading arrangements could bring significant benefit to consumers. Any delay will of course come at a cost to consumers. Therefore, it is important that the draft regulations are approved to ensure that the transmission system operators develop the new arrangements within the timeframe set by the agreement, so that the benefits can be realised as early as possible. The instrument is one part of a programme of works to deliver the new arrangements.
On 3 February 2021, the Secretary of State provided guidance to those organisations to encourage early action to support implementation of the agreement, while the draft regulations were still being prepared. This instrument follows that guidance to provide a regulatory underpinning for the initial development of the new cross-border electricity trading arrangements.
Since this statutory instrument was laid in both Houses, the numbering of the provisions in the trade and co-operation agreement has been updated following the final legal revision process. A correction slip has been laid in respect of the draft instrument to update the cross-references of the agreement.
If required, the Government will prepare further legislation for the operation of the new trading arrangements, once they are developed. I assure the Committee that such legislation will be laid before Parliament to ensure that it, too, may be scrutinised appropriately. Therefore, I commend the draft regulations to the Committee.
Dr Alan Whitehead (Southampton, Test) (Lab)
We have no issue with the thrust of the proposals in the draft SI. They are sensible in terms of the regulation and ordering of the passage of electricity both ways through interconnectors, so that the UK can trade across interconnectors, and all the countries associated with them, coherently. I might add that, of course, not all UK interconnectors go to EU countries. Although the arrangements are essentially a partnership between the UK and EU countries, one interconnector goes to Norway, which is not a member of the EU. I understand, however, that it falls within these rules as they stand for the purpose of its end of interconnectors for the future.
This SI, however, is shrouded in such a huge mosquito cloud of acronyms that it is difficult to understand exactly what is going on. I think I understand what the proposals purport to do overall, and I want to ask the Minister a couple of questions, on the basis of my understanding, about how other actions the UK may now be undertaking fit in with this particular proposal. To give hon. Members a brief example of what I am talking about, I shall take a paragraph at random from the explanatory memorandum, which states:
“Ahead of this, the United Kingdom secured the TCA with the European Union. Title VIII (Energy) and Annex ENER-4 of the TCA set out requirements for the development of new cross-border electricity trading arrangements at the day-ahead market timeframe that are distinct and separate from those established under CACM.”
I am sure we are all clear about that, are we not. What I take from that paragraph, and the rest of the explanatory memorandum, is that this SI is about cross-border trading. It is about ensuring that cross-border trading is regulated and organised in a way that is not only advantageous for prices, but is advantageous for the judicious use of capacity in interconnectors. It organises the day-ahead market in a much better way than would be possible were, for example, people to be auctioning both capacity and flow on different occasions.
As I am sure hon. Members will be aware, if a flow is secured, but not capacity, and capacity is then squeezed as the day-ahead market comes to closing point, the prices will go up substantially; what seemed to be a good deal from an arbitrage point of view then turns out to not be the case. In the long term, that can lead to the production of electricity at disadvantageous prices as an alternative in-country, when an interconnector arrangement would have been better, all things considered.
In those terms, the regulations seem a very sensible and wise move to take, as they essentially align the UK with arrangements across the EU, both in terms of its capacity considerations and arrangements for electricity flow. I think that is a good thing, and clearly the Government do as well. However, we need to understand that that means that interconnector traffic will now not simply be a question of deciding how much capacity—how much flow they can get down it—someone can use in their interconnector, possibly at the cost of other interconnectors in operation, but will actually be subject to a co-operative arrangement, so far as interconnector practice is concerned.
Assuming that is the case, I am concerned about what the UK will do about its interconnector exemptions policy. As I am sure hon. Members will know, someone could avoid the obligations that came along with the previous interconnector cap and floor regime, or those sort of regimes, by proposing to exempt an interconnector from all those rules and regulations and joint trading arrangements. In the instance of cap and floor, interconnector operators get a minimum amount of income for their capacity and flow, but they have to give income back beyond a certain point, so they have a stable investment environment; but if they want to make a lot of money out of an interconnector and wish to take the downsides with the upsides, they may apply for an exemption in order to—so they may think—make their interconnector work to their advantage.
The exemptions regime, which was previously conducted on both sides of the interconnector end jointly, has now come to an end, obviously, with the UK leaving the EU. Previous hearings on exemptions, which were carried out jointly by the UK and its EU partner states, have now come to an end, but the UK has not yet established its own exemptions regime, so far as I understand it. That is potentially important, because what a UK exemption regime will look like could be very important to the extent to which interconnector operators consider that they should reasonably be bound by the provisions outlined in the draft regulations—regulations which, as the Minister said, are subject to a number of detailed, technical further considerations to work out exactly how the scheme will operate and what its ins and outs are likely to be. I would be grateful if the Minister could confirm that, although a specific UK exemptions regime is not in place at the moment, work is under way to put one in place in the not too distant future. I assume that to be case.
That question is not academic, because at present, there are no fewer than four interconnectors either operating or proposed to operate between the UK and France, the total capacity of which actually comes to more than the total amount of interconnection that the UK has at present with all other EU states. One might say that the passage of interconnection between the UK and France is very crowded. We are potentially in a position in which the only way to make money out of an interconnector between the UK and France is to, as it were, eat the lunch of other interconnectors, rather than by actually operating according to the sort of rational arrangements set out in the draft regulations. Two of the interconnectors that are either operational or proposed between the UK and France are either applying to be exempt or are exempt, and two are not. Depending on the UK’s exemption regime, those non-exempt interconnectors could have their lunch eaten much more efficiently by those exempt interconnectors in the future. Alternatively, they may even work together at a lower possible income level, but nevertheless under a organised and co-operative arrangement that actually secures the two-way traffic in the most felicitous way for both countries—not necessarily in the interest of any one interconnected company, but in the interests of those countries.
Can the Minister tell us what progress is being made on the UK exemption regime? Will it be aligned with the provisions in the SI, or does the Minister have plans to make it far less collaborative and co-operative than the regulations before the Committee suggest?
Anne-Marie Trevelyan
I thank the hon. Gentleman, as ever, for his valuable and insightful contribution. To confirm, Norway is not included in the regulations—separate discussions are ongoing with them at the moment, which, unsurprisingly, look very similar. I am happy to keep him updated in due course on how those are progressing.
On the question of the exemptions regime, the best answer that I can give is probably, “May I come back to the hon. Gentleman on that ongoing area?” I am happy to write to him with more details in the near future. He challenged me last time on a particularly tricky question, which I think we managed to fulfil, and although this is less tricky, I would not want to give him insufficient information today—I would rather write and provide him with the full picture so that he is reassured in due course.
The regulations will oblige our transmission systems operators to develop now and at pace new efficient cross-border electricity trading arrangements. As I said, those are really important to supporting our decarbonisation, our security-of-supply objectives and, crucially, to providing economic benefits to all our customers. The new regime should be operational by April 2020. That is quite a challenging deadline, but adherence to it will enable us to realise as early as possible those benefits to consumers of the arrangements. We are very minded that we have a clear set of deadlines to meet to help everyone to get to that point. On that basis, I recommend the draft regulations to the Committee.
Question put and agreed to.