Annual Review - Summary Sheet (1-2 pages)

Summary of Programme Performance

Year 2018Programme Score BRisk Rating Moderat

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This Annual Review reports against progress made between 1 January 2018 and 31 December 2018. This is the first Annual Review for the UK Sustainable Infrastructure Programme in Latin America (SIP Latam). The programme has scored a B - outputs have moderately not met expectations.

Summary of progress and lessons learnt since last review

The UK Sustainable Infrastructure Programme in Latin America is a £177.5m bilateral programme funded by UK International Climate Finance (ICF) and delivered by the Inter-American Development Bank (IDB) to support partner countries achieve their emission reduction commitments by mobilising private investment into low-carbon infrastructure. The programme works with four partner countries: Brazil, Colombia, Mexico and Peru.

This was the programme’s first year of operation after the Business Case was approved in November 2017. This period focused on programme set-up activities, the identification of priority areas for programming and the design of early technical assistance activities. Initial set-up activities included the recruitment of two dedicated technical advisers, the introduction of monitoring and evaluation systems and establishment of agreed coordination, communication and governance arrangements. BEIS and IDB have developed an improved understanding of each institution’s structures, processes and objectives.

The identification of priority programming areas was initiated through a series of dialogues between IDB officials and partner national governments. This country-led programming process involves structured dialogues with partner countries to determine priority areas for technical cooperation at the country and sub-regional level. This programming process took longer than expected as all four partner countries experienced some form of political transition in 2018. This was not sufficiently factored into expectations at the outset of the programme. The time taken to respond to changes in key government counterparts and new policy priorities meant the programme failed to deliver the full extent of technical assistance activities envisaged. The management of coordination issues with other UK climate programmes also contributed to the delay.

No climate and developmental benefits were delivered from blended finance investments over this period. This reflects revised expectations about the time taken for projects to proceed from eligibility to operation. These assumptions and results projections are to be revalidated for 2019.

Summary of recommendations for the next year

Recommendation 1 (R1): BEIS and IDB to update the logframe to ensure there is a valid results chain and coherent expression of the changes expected. This should include a redefinition of output indicators to better capture the results expected from TA activities. Expected result targets should also be updated for future years. BEIS and IDB to agree revised logframe by December 2019.

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Title: Sustainable Infrastructure Programme in Latin America (SIP Latam)

Programme Value: £177.5m Review Date: June 2019

Start Date: Nov 2017 End Date: Nov 2022

R2: BEIS to explore ways to improve coordination with other UK climate programming delivering technical assistance in the region. Plans in place by October 2019.

R3: BEIS and IDB to develop a standard protocol for engagement with the British Embassy network in order to improve coordination between other UK climate programmes, identify opportunities to maximise climate policy impact and deliver strong UK visibility. Protocol agreed by October 2019.

R4: BEIS and IDB to formally discuss the blended finance pipeline (including upcoming and prospective operations) at least biannually with a focus on additionality, transformational change and finance leveraged. Plans in place by September 2019.

R5: BEIS and IDB to reprofile targets for output 2 results and revalidate assumptions on operating start dates. BEIS to complete modelling by October 2019.

R6: BEIS and IDB to define relevant value for money performance indicators. Indicators agreed by November 2019.

R7: BEIS to maintain oversight of IDB managed evaluation activities and conduct an internal stocktake of progress and quality upon receipt of the final baseline evaluation. Stock-take complete by December 2019.

R8: BEIS and IDB to develop a methodology (KPI 15 Methodology) which outlines how the programme’s likely transformational impact can be monitored on an annual basis. Methodology complete by December 2019.

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A. Introduction and Context (1 page)

Link to Business Case:

https://aidstream.org/files/documents/Sustainable-Infrastructure-Programme---Business-Case-(FINAL-Redacted)-20180525010513.pdf

Link to Log frame: https://science-and-innovation-network.s3.eu-west-2.amazonaws.com/BEIS+ICF/SIPLA/SIP+Latam+Logframe+2018.xlsx

Link to previous Annual Review (if appropriate)

N/A

Outline of the programme

The UK Sustainable Infrastructure Programme in Latin America is a £177.5m bilateral programme funded by the UK International Climate Finance (ICF) and delivered by the Inter-American Development Bank (IDB) to support partner countries achieve their emission reduction commitments by mobilising private investment into low-carbon infrastructure. The programme works across four priority countries in Latin America, specifically Brazil, Colombia, Mexico and Peru, to reduce the market barriers to investment. The programme will span an initial investment period of 5 years (Nov 2017 – 2022).

SIP Latam delivers sustainable infrastructure projects where the perceived financial risk is high. The programme deploys technical assistance to overcome market barriers to investment alongside blended finance to leverage larger volumes of private capital into low-carbon projects. Getting projects off the ground by linking investment finance with technical assistance is a key feature of the programme.

The programme works with countries experiencing rapid urbanisation and growing industrial activity to demonstrate that growth can be effectively decoupled from emissions. Partnering with middle-income countries can also provide the necessary conditions for more difficult, complex and innovative interventions. The region also presents opportunities for the UK to strengthen the coherence of UK programming and amplify existing climate diplomacy efforts.

SIP Latam identifies priority intervention areas by adopting a sequential approach. Firstly, the programme works with key stakeholders to prioritise sectors that have significant barriers to investment and need technical support. Through high-level dialogues with partner governments, IDB selects two to three priority sectors in each target country. These sectors are drawn from the fields of renewable energy (including generation, transmission and distribution), low-emission transport, energy efficiency, waste and wastewater management.

Secondly, a range of technical assistance activities are designed and delivered with public and private sector partners. Public sector technical assistance activities are designed to support partner governments build the right regulatory frameworks e.g. legal advice to standardise Power Purchase Agreements, assistance to design feed-in tariffs or expertise in conducting renewable energy auctions. Private sector technical assistance activities are designed to tackle barriers to private investment in sustainable infrastructure e.g. legal and financial advisory services for project structuring. This could also include training for commercial banks and stock exchanges on green bond standards and issuances. These activities are also informed by a series of private sector engagement events such as investor roundtables.

Lastly, the programme strategically deploys concessional finance to de-risk and attract private investment into novel and innovative projects. Relatively small injections of funding are deployed on concessional terms to leverage larger volumes of private capital into sustainable infrastructure. These projects are not currently being financed by the market as commercial investors consider the financial risks too high.

SIP Latam is implemented across both the public and private sector arms of the IDB Group. The IDB Climate Change Division leads on engagement with partner governments and the delivery of public sector technical assistance activities. IDB Invest, the IDB’s investment arm, manages the blended

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finance component and the investment-related technical assistance activities. Two technical advisors based in the respective departments, contractually reporting to IDB but hired in consultation with BEIS and funded through the programme, are dedicated to the management of these activities. IDB Country Offices support on-the-ground implementation.

IDB were selected as the chosen delivery partner on the basis of its strong track-record of delivering technical assistance, its closeness with governments and unique position for political influence, its proven ability to crowd-in private finance at scale and its international climate leadership.

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B: PERFORMANCE AND CONCLUSIONS (1-2 pages)

Annual outcome assessment

The programme supports the following outcomes. The programme has not delivered sufficient blended finance investments or technical assistance activities to assess performance at the outcome-level at this early stage. However, there is a risk that initial start-up delays have a negative impact on long-term targets. BEIS should closely track progress through ongoing monitoring of the pace and quality of programme implementation.

Outcome 1: Support helps break down partner cross-government barriers while institutions and frameworks are strengthened.

Outcome Indicator 1.1: The level of integration of climate change in national, sectoral or institutional planning as a result of ICF support.

Outcome 2: Increased availability of bankable projects which leads to commercial sustainability of low-carbon market initiatives.

Outcome Indicator 2.1: Total energy generated from clean energy sources in Latin America as a result of SIP Latam supported interventions.

Outcome 3: Climate and social benefits: Reduced Greenhouse Gas (GHG) emissions, increased energy security and energy access.

Outcome Indicator 3.1: GHG emissions avoided as a result of SIP supported interventions (CO2eq).

Overall output score and description

SIP Latam scored a B for this Annual Review i.e. outputs have moderately not met expectations.

Progress against Output 1 is off-track. This reflects the delays in implementation incurred by the political changes in all partner countries. The programme has delivered the number high-level dialogues expected, albeit at a slower pace. This process informs the design of capacity building activities, which have consequently taken slightly longer than expected. The time taken to overcome coordination issues with other programmes has also contributed to the delay.

Progress against Output 2 is off-track/delayed. Expected results have been deferred by one year to reflect the time taken for capital investments to become operational and deliver climate benefits. This time-lag was not fully factored into original result projections.

Scale DescriptionA++ Outputs substantially exceeded expectationA+ Outputs moderately exceeded expectationA Outputs met expectationB Outputs moderately did not meet expectationC Outputs substantially did not meet expectation

Key actions

See recommendations captured under the following output scores.

Has the logframe been updated since the last review?

This is the first annual review for SIP Latam and hence the first logframe. It has taken longer than expected to finalise the logframe milestone targets due to the time taken to reach a shared

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understanding of additionality and attribution of results. The progress made in monitoring and evaluation is described in more detail later in this review.

BEIS and IDB will need to review the logframe to ensure it contains a clear expression of the changes expected, has a consistent and valid results chain and the outputs and outcomes represent good value for money for the resources invested.

The logframe developed alongside the Business Case includes three outcome statements to reflect the complexity of programme interventions. BEIS should reconsider this format and agree whether a single outcome statement would provide a clearer expression of the changes expected. BEIS should also consider redefining the output indicators to ensure they measure the tangible results expected from programme activities, particularly technical assistance and capacity building.

The weighting of the logframe is based on the front-loading of technical assistance in year one. This reflects the foremost priority of commencing country dialogues and early capacity building activities to reduce barriers to investment for later interventions. Concessional financing will take more priority towards the middle of the investment period.

The logframe indicators draw from UK International Climate Finance Key Performance Indicators (KPIs), IDB Invest’s development effectiveness matrix and IDB’s results framework for technical assistance operations. This ensures alignment with BEIS and IDB monitoring systems.

Recommendation 1 (R1): BEIS and IDB to update the logframe to ensure there is a valid results chain and coherent expression of the changes expected. This should include a redefinition of output indicators to better capture the results expected from TA activities. Expected result targets should also be updated for future years. BEIS and IDB to agree revised logframe by December 2019.

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C: DETAILED OUTPUT SCORING (1-2 pages per output)

Output Title

Context specific (country level/project level) TA is delivered

Output number per LF 1 Output Score B

Risk rating (Minor, Moderate, Major or Severe)

Moderate Impact weighting (%): 75%

Risk revised since last AR?

N/A Impact weighting % revised since last AR?

N/A

Key Points

This output scores a B – outputs have moderately not met expectations.

There is a risk that the slow implementation of technical assistance, capacity building and technical studies has a consequential impact on the pace of delivery in 2019. The commencement of strategic dialogues with each partner country and the creation of a roadmap for TA activities should mitigate this risk. Coordination challenges with other UK programmes in-country have also contributed to the delay. Improved communication and coordination mechanisms are expected to streamline this process in year two.

Output Indicator 1.1: Number of high-level dialogues conducted in Latin America

This milestone has been achieved.

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Indicator(s) Milestones from Logframe

Achieved Milestones

Progress

1.1. Number of high-level dialogues conducted

4 (in year) 4 Achieved

1.2. Number of capacity building activities undertaken

3 (in year) 1 Not Achieved

1.3. Number of Technical assistance activities implemented in relation to policy and regulatory assessment and reform.

0 0 N/A

1.4. Number of studies or activities implemented in Latin America supporting private sector investments such as pre-feasibility and/or feasibility, design of financial instruments, project structuring.

4 (in year) 1 Not achieved

Information not captured in outcome indicators 

Number of TA projects presented to BEIS for approval: 10 public sector and 1 private sector.

Number of public sector TA operations granted eligibility by IDB: 4.

Number of public sector TA operations approved by IDB: 4.

High level dialogues involve structured discussions with key government counterparts to identify priority sectors which could be supported with technical assistance. These priorities are drawn from the fields of renewable energy (including generation, transmission and distribution), low-emission transport, energy efficiency, waste and wastewater management. All country operations are designed to respond to the socio-economic and environmental needs of each country, support local plans and be consistent with IDB and UK operational strategies for each country.

Conversations are initially held with finance ministries, planning agencies, relevant sector ministries and national development banks. This process helps ensure the intervention is driven by need and demand in each country. This builds on evidence from previous UK programming that in-country ownership is fundamental to achieving long-term and transformational change. These dialogues also intend to support donor coordination efforts, avoid duplication of support and contribute to wider plans for UK Climate/Sustainable Growth Partnerships with priority countries.

This milestone was achieved for 2018, albeit at a later date than originally expected. A summary of activity in each country is provided below. Dialogues will continue into 2019 to identify and (re)validate priority intervention areas.

Brazil: Priority themes have been initially agreed with the Ministry of Planning to include transport and logistics and frameworks for Public-Private-Partnerships [PPP] in municipalities. Progress was delayed due to changes in key personnel within focal ministries.

Colombia: Technical discussions with key public and private stakeholders took place during the government transition in 2018. Renewable energy and sustainable transport emerged as priority areas.

Mexico: National elections in 2018 focused efforts on technical-level discussions with the transition government. This helped ensure consistent messaging on sustainable infrastructure between the incoming and outgoing administrations. Emerging priority sectors include renewable energy and low-carbon transportation.

Peru: Discussions with the Ministry of Finance agreed the prioritisation of renewable energy planning and policy, waste management and electric vehicles.

Output Indicator 1.2: Number of capacity building activities undertaken.

This milestone has not been achieved.

Capacity building refers to investment in training and training products, institutional strengthening and new practices to support Nationally Determine Contribution (NDC) implementation. One capacity building activity was implemented during this reporting period; a workshop on sustainable infrastructure with public authorities, financiers and private project sponsors from Mexico, Brazil, Colombia and Peru. The workshop took place in May 2018 and supported IDB Invest's Sustainability Week in Peru. The workshop aimed to promote the inclusion of environmental and social criteria in the financing and delivery of infrastructure projects.

The workshop gauged the attention of 80 relevant stakeholders including project sponsors, developers, financers, NGOs and public authorities from Brazil, Colombia, Mexico and Peru. The workshop discussions demonstrated shared interests in sustainability and identified points of collaboration across engineering, finance, innovation and business.

BEIS approved funding for a programme of 11 technical assistance activities proposed by IDB in May 2018. However, the political changes observed throughout the region meant the design, approval and delivery of seven proposals was paused until the new administrations had been engaged and programming areas confirmed. The remaining four operations focused on regional activities and could proceed through IDB approval channels.

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One headline regional workstream promoted the integration of the IDB Sustainable Infrastructure Framework into the planning, design, procurement and financing processes of infrastructure assets. The Sustainable Infrastructure Framework provides a guide for embedding sustainability across the project cycle with the ultimate goal of raising sustainability standards and mobilising private-sector investment. Initial support will be provided to the Ministry of Economy and Finance in Peru to develop the National Infrastructure Plan and Banobras, a Mexican state-owned development bank, to improve their infrastructure project hub (Proyectos Mexico). Other regional workstreams will provide advisory services to the private sector to support the design and development of bankable projects.

The lack of progress against this indicator reflects the time taken to identify, design and approve new areas of technical cooperation in the context of significant political change across SIP Latam partner countries. BEIS expects implementation to improve in 2019 as programmatic priorities are confirmed.

Output Indicator 1.3: Number of Technical assistance activities implemented in Latin America in relation to policy and regulatory assessment and reform.

There are no results to report against this milestone.

Technical assistance activities include specific diagnostics, assessments, strategies and plans which support policy or regulatory reform. These activities are designed to help governments and financial institutions overcome soft market barriers to investment in sustainable infrastructure. These activities take place in the second phase of programming once priority sectors have been identified. No milestones have therefore been set for this reporting period.

Proposals for technical assistance to support private sector participation in urban waste management in Brazil; improve the regulation of the Brazilian power sector; and support renewable energy generation and energy efficiency in Mexico will be submitted for BEIS approval in Q2 2019.

Output Indicator 1.4: Number of studies or activities implemented in Latin America supporting private sector investments such as pre-feasibility and/or feasibility, design of financial instruments and project structuring.

This milestone has not been achieved.

Activities reported against this indicator include studies or activities which develop bankable projects, pilot new financial instruments or support project structuring.

Activities reported against this indicator include later-stage technical support identified after formal business engagement activities such as investor roundtables and project origination activities. The delays to overall implementation had a consequential impact on delivery against this indicator. BEIS will monitor progress and expect performance to improve in 2019.

One technical report was delivered during this reporting period. This report outlined sustainability indicators to be embedded into the pre-investment/preparation, bid/tender, execution, and operation phases listed on the Proyectos Mexico platform. Proyectos Mexico is an online hub which links infrastructure projects with domestic and foreign investors. The platform is an initiative of the Mexican Government and is hosted by Banobras, a Mexican state-owned development bank.

While not considered a result against this indicator, two events were convened in 2018 to discuss barriers to private investment in sustainable infrastructure in Mexico and Colombia. A roundtable event in Mexico (September 2018) convened investors and financiers to: i) identify the tools and resources needed to support the preparation and bankability of public infrastructure investments; and ii) share lessons learned from the issuance of financial instruments for the development of green and sustainable bonds. A roundtable discussion in Colombia (November 2018) brought together investors, development banks and public bodies to: i) discuss means of incorporating sustainability into public-private partnerships; and ii) identify ways to support innovation in sustainable capital markets. UK Government representatives participated in both meetings.

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Output 1 Coordination Challenges:

The management of coordination issues with other UK climate programming has contributed to the delayed approval of capacity building and technical assistance activities. BEIS programme leads have invested more time than expected managing duplication risks with other climate programmes operating in the same geographies and sectors. BEIS should explore ways to improve coordination issues earlier on in the design and approval process of SIP Latam activities.

IDB has been very responsive to BEIS’s requests for greater consultation and coordination with the British Embassy network in Brazil, Colombia, Mexico and Peru. This engagement is necessary for the successful delivery of dialogues, capacity building and technical assistance as it supports: i) coordination with other UK programmes; ii) alignment with UK priorities in-country; iii) commercial opportunities for UK business; iv) greater visibility of UK climate finance; and v) support for the UK’s existing climate diplomacy efforts. IDB should actively continue this process of outreach and engagement.

Recommendations

R2: BEIS to explore ways to improve coordination with other UK climate programming delivering technical assistance in the region. Plans in place by October 2019.

R3: BEIS and IDB to develop a standard protocol for engagement with the British Embassy network in order to improve coordination between other UK climate programmes, identify opportunities to maximise climate policy impact and deliver strong UK visibility. Protocol agreed by October 2019.

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Output Title

2: Capital Investment in sustainable infrastructure project is able to leverage the requisite private finance, increase energy efficiency and create jobs

Output number per LF 2 Output Score B

Risk rating (Minor, Moderate, Major or Severe)

Moderate Impact weighting (%): 25%

Risk revised since last AR?

N/A Impact weighting % revised since last AR?

Key Points

This output scores a B – outputs have moderately not met expectations.

No milestones have been set for this reporting period. Progress against all output 2 indicators has been deferred to 2019 to reflect the time-lag between project origination, due diligence, construction and operationalisation. Lifetime targets are still expected to be achieved.

2.1. Private finance leveraged in investments

2.2. Direct jobs created on infrastructure projects

2.3. Level of installed capacity of clean energy generated as a result of SIP Latam supported interventions

This output relates to the provision of blended finance for sustainable infrastructure investments. The programme deploys relatively small volumes of concessional funding in order to deliver investments in nascent sectors where there is a high-risk perception, challenges to securing commercial lending and where private investors deem the risk adjusted return too low. The funding provided through the programme may take the form of equity, loans, sub-debt, guarantees and other risk mitigation instruments.

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Indicator(s) Milestones from Logframe

Achieved Milestones

Progress

2.1. Private finance leveraged in investments

£0 (in year) £0 Delayed

2.2. Direct jobs created on infrastructure projects

0 0 Delayed

2.3. Level of installed capacity of clean energy generated as a result of SIP Latam supported interventions

0 0 Delayed

Information not captured in outcome indicators 

Number of Blended finance operations granted non-objection/eligibility: 1

IDB Invest works with project developers to create investment worthy projects. This involves screening against IDB Invest and SIP Latam eligibility criteria (including principles for additionality and minimum concessionality), conducting due-diligence work and designing a viable financial structure. The programme is taking a phased approach to this output, initially taking a market-led approach and in the medium term, supporting investments which have been made feasible through the programme’s technical assistance activities.

BEIS and IDB have agreed that delivery of results against this output during the programme’s first year of operation is unrealistic. Expected results for 2019 and subsequent result periods have therefore been deferred by one year. This considers the expected time-lag between project origination, eligibility, concept approval, credit committee, due diligence, construction and operationalisation. While the expected results were based on IDB project pipeline data, the duration of these processes was not fully factored into Business Case expectations for year one. BEIS and IDB should therefore reprofile expected results targets for future years and revalidate assumptions on operating start dates. The profiling exercise will reflect how delays in year one have pushed some expected results beyond the programme’s five-year duration. BEIS still expects to approve activities for the full £177.5m budget over the investment period and does not expect a reduced ambition for expected lifetime results.

One blended finance investment was approved by IDB’s eligibility committee in December 2018. This proposal relates to the development of two utility-scale bifacial solar photovoltaic plants in Yucatan province, Mexico. Bi-facial solar is a new technology which enables power to be produced from both sides of the solar modules. SIP Latam support is expected to provide a $30m/£23m subordinated loan to guarantee the technology and merchant risk under the Power Purchase Agreement. This is intended to make the project more attractive to private investors. The investment has been approved by BEIS but deal closure is still subject to IDB Invest social, environmental, institutional and financial due diligence processes and IDB Invest board approval. The project is expected to have a total installed capacity of 371MW and is projected to leverage approximately $322/£258m from public and private sources at a ratio of 1:10.7. These results will be reported pending financial close and operation. The next blended finance proposal is expected in Q2 2019.

BEIS and IDB should consider having focused discussions, at least biannually, to discuss the progression of the blended finance pipeline including upcoming and prospective operations. This will help ensure delivery against BEIS’s expectations for additionality and transformational change whilst setting expectations of an appropriate balance between market-led investments and those aligned with upstream technical assistance activities.

Recommendations

R4: BEIS and IDB to formally discuss the blended finance pipeline (including upcoming and prospective operations) at least biannually with a focus on additionality and transformational change. Plans in place by September 2019.

R5: BEIS and IDB to reprofile targets for output 2 results and revalidate assumptions on operating start dates. BEIS to complete modelling by October 2019.

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D: FUND PERFORMANCE NOT CAPTURED BY OUTPUTS

Several important start-up activities took place in 2018. Key moments included the recruitment of a new BEIS Programme Lead and Policy Adviser, the recruitment of two embedded Technical Advisers to manage implementation in IDB, an orientation week on BEIS processes and priorities, a programme kick-off meeting in April 2018 and a mid-year meeting in November 2018.

BEIS has worked closely with IDB to establish agreed ways of working, communication and coordination mechanisms over this period. A protocol has been established for formal monthly implementation updates, ad hoc meetings on specific projects and the sharing of Technical Cooperation documents when appropriate. IDB has been responsive to BEIS’s requests for further project information.

The Business Case recognises that working through a multilateral development bank will risk diluting the programme’s visible attribution to UK climate finance. The IDB were expected to deliver a Communication Strategy within six months of the arrangement entering into effect. This did not happen within this timeframe, partly due to a lack of bids to the initial request for proposals. IDB is now in the process of contracting a communications agency to develop a Communications, Branding and Positioning Strategy. This will provide a plan for increasing UK visibility and engaging public and private sector actors in the region, ensuring a high-level of recognition for programme results across stakeholders, and recommending effective means of learning and knowledge dissemination.

It is too early to gauge the programme’s visibility at this stage. However, IDB has responded to BEIS interests by appropriately branding the programme as UK funded, ensuring UK representation at relevant in-country events and promoting the programme at eight international events. These include the Investors Summit on Climate Risks (January 2018), Global Infrastructure Summit (March 2018), Social Capital Markets Conference (October 2018) and Principles for the Delivery of Sustainable Infrastructure (November 2018). The programme’s baseline and evaluation activities will explicitly consider UK visibility as a research question.

IDB and BEIS also hosted a side-event at COP 24, the United Nations annual climate conference. The event showcased initial work supported through the programme to operationalise the IDB Sustainable Infrastructure Framework in Mexico and Colombia. The event included participants from the Colombian Ministry of Environment and Mexico’s largest financial institution.

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E: VALUE FOR MONEY & FINANCIAL PERFORMANCE (1 page)

Key cost drivers and performance

The key cost drivers arising from BEIS’s first £26m contribution to the fund are outlined in Table 1. The programme’s key cost driver is the allocation for blended finance investments. IDB Invest manage this fund according to agreed Development Finance Institution (DFI) principles of minimum concessionally. This delivers commercially viable solutions whilst applying minimum thresholds of concessionality and crowding-in private finance. BEIS provided £23m for blended finance investments during this reporting period (inclusive of management fees). This covered the bifacial solar power plant in Yucatan, Mexico. This allocation will be converted to a subordinated loan, should the project reach financial close.

Funds for technical assistance activities form the second leading cost driver. This covers costs of short-term expert consultancy services, roundtable and workshop logistics and in-country origination activities. BEIS provided £2.8m to technical assistance activities during this reporting period (inclusive of management fees). This covered 4 areas of technical cooperation.

Expenses form the third-largest cost driver. An initial one-off programme set-up fee (£26,000) established the single-donor trust fund. £223,000 has been spent on general expenses during this period. This covers the salaries of the embedded technical advisers, administration fees, evaluation activities and communication costs.

Table 1: First Contribution Breakdown* [redacted due to commercial sensitivity]

VfM performance compared to the original VfM proposition in the business case

The approach used in this Annual Review to assess value for money (VfM) considers economy, efficiency, effectiveness and equity. 

Economy: Are we or our partners buying inputs of the appropriate quality at the right price?   

IDB charge a 5% fee for the management of technical assistance activities and 2.5% for blended finance activities. This fee is charged against the amounts allocated to the technical cooperation and blended finance windows from each BEIS contribution.

For technical assistance, this covers the costs of operation origination, design, due diligence and administration. For blended finance, this covers origination, portfolio management, due diligence, risk and commercial appraisal costs. These fee levels are priced competitively against similar ICF programmes.

IDB is responsible for the award and administration of contracts under the programme. The programme therefore adheres to international standards for the procurement of goods, works and services provided by firms and individuals. IDB applies policies for transparency, competition and equality, and principles of economy, efficiency and integrity to all procurement activities.

Efficiency: How well are we or our partner converting inputs into outputs?  

IDB has strong governance processes to ensure the efficient delivery of project outputs. For example, blended finance investments are subject to a robust scrutiny process. This includes an early-stage eligibility committee, due diligence, credit approval, and final consideration by the IDB Invest Board. All investments are required to present a strong case for additionality and minimum concessionality. BEIS commercial advisers, policy advisers and British Embassy teams conduct a detailed review of each proposal to review the deal terms, structure, and alignment with programme mandate and national country plans and policies. This review point takes place after IDB has determined that the operation aligns with SIP Latam investment criteria, IDB country strategy and can be delivered in line with time and resource requirements.

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BEIS approved the bifacial solar blended finance project on the following efficiency grounds. The project is expected to address the failure of the Mexican renewable energy market to attract institutional investment. Pending financial close, SIP Latam is expected to enable IDB’s participation in the transaction and mobilise approximately 60% of the project’s debt from institutional investors. The expected pricing of the subordinated SIP Latam loan will not provide any over subsidisation/concessionality.

The technical assistance delivered to Banobras (described in more detail under Section C output indicator 1.4) introduced a sustainability classification system for infrastructure projects listed on the web based Proyectos Mexico platform. This address the failure of the market to link foreign investors with sustainable infrastructure projects. SIP Latam provided access to technical expertise and digital innovation in quick response to client demand for greater international investment. This responsiveness and access to skills made SIP Latam additional to other comparable donor funds. Training and capacity building to Banobras will embed the methodology and enable its replication and scale-up beyond the initial 20 projects reclassified with SIP Latam support.

SIP Latam benefits from economies of scale by its ability to deliver through IDB’s existing structures, systems and in-country presence. IDB technical advisers have the ability to draw upon specialist resources from across the organisation according to need. A core feature of the programme is the delivery partnership between the public sector and private investment arms of IDB. Maximising the capacity of both arms and ensuring the efficient alignment of activities will require continued oversight.

Feedback from UK representatives at the roundtable events listed under output indicator 1.3 confirms delivery has met expected quality standards. Informal feedback from Banobras confirmed that IDB provided high-quality and tailored support for the Proyectos Mexico initiative.

The introduction of improved coordination and approval processes is expected to improve the efficiency of technical assistance design and delivery in 2019. This issue is described in more detail under Section C output indicator 1.4.

Effectiveness: Are outputs achieving outcomes?

It is too early to evaluate performance against outcomes at this stage. The delays incurred by the region’s political transitions and time invested in start-up activities have contributed to this. As explained under Section C output 2, expected results have been deferred so that all expected results will occur from 2019 onwards. BEIS does not expect overall programme performance to be any lower than original Business Case expectations at this stage, although a reprofiling exercise to be undertaken in 2019 will further assess this.

As noted in the output 2 discussion, the approved blended finance transaction is expected to leverage in 10.7 times the face value of the original BEIS investment. Should this project progress to financial close, this will be in line with the expected leverage ratios set out in the Business Case.

Equity: Are results equitably distributed?

IDB delivers activities against robust environmental and social safeguard policies, standards, and guidelines. IDB has a clear mandate to consider climate and poverty alleviation, with particular regard to gender equality. BEIS expects the fair distribution of developmental benefits, such as improved employment and job creation, to be addressed in an all relevant technical cooperation and blended finance activities. BEIS will closely monitor how SIP Latam programming is contributing to reductions in inequality as activities proceed to implementation.

Assessment of whether the programme continues to represent value for money

It is difficult to assess the programme’s value for money at this stage due to the delays in implementation. However, the delivery of technical assistance and completion of blended finance investments in 2019 is expected to improve the volume of results to be assessed going forward. BEIS

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should introduce specific value for money performance indicators to establish a more robust assessment of costs and results.

Quality of financial management

IDB administer and account for the programme resources in accordance with its financial regulations. IDB provides unaudited financial statements of programme activity as of December 31 of the previous year. IDB is expected to provide audited financial statements every three years starting in 2018, with the first statement being provided no later than June 2021. These audited financial statements will be prepared by IDB external auditors. IDB is well resourced and has a proven track record in this area. The 2016 DFID Multilateral Development Review judged IDB to have good cost controls and transparency measures.

BEIS makes payments to IDB in line with an agreed a profile of tranche payments outlined in the Contribution Arrangement, subject to compelling evidence of need. This ensure payments are only made when they are essential to allow the programme to proceed and not before. BEIS has worked closely with IDB to establish a common understanding of what constitutes sufficient evidence of need and what information to include in each disbursement request.

Date of last narrative financial report 2018 Annual Report [published April 2018]Date of last audited annual statement N/A [first audit is scheduled for 2021]

Recommendations:

R6: BEIS and IDB to define relevant value for money performance indicators. Indicators agreed by November 2019.

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F: RISK (½ page)

Overall risk rating: Moderate

Overview of programme risk

SIP Latam is a complex programme which operates in countries with varied levels of inherent risk. BEIS has monitored the following risks closely over this review period.

Risk Type Assessment Mitigating Actions

Contextual Risk:

There is a risk that political support for both NDC implementation and private sector participation might change in light of elections in priority countries. This could result in limited engagement from key stakeholders and a failure to achieve the impact and sustainability of results expected.

Moderate

IDB country engagement activities currently gauges political support for sustainable infrastructure in Colombia, Mexico and Peru. There is an interest in encouraging greater private sector participation in infrastructure in Brazil.

IDB and BEIS track emerging risks through regular communication with the British Embassies and IDB Country Offices.

IDB have identified alternative programming options should traction with national government be limited. For example, working closely with sub-national administrations and the private sector.

BEIS and IDB will retain the ability to invest more in other countries if one country is no longer seen as being supportive.

Technical Assistance activities are subject to IDB’s Quality and Risk Review (QRR) process. This process identifies potential political, environmental and social risks and introduces mitigating actions.

Delivery Risk:

There is a risk that technical assistance activities do not proceed at the pace expected following delays in year one.

Moderate

To date, progress has been delayed by political transitions in partner countries and coordination challenges with other UK climate programmes.

BEIS will maintain oversight of the speed and quality of implementation through implementation meetings (at least monthly) with IDB and British Embassy colleagues.

BEIS will maintain close communication with SIP Latam technical advisers and their respective management chains to ensure efficient delivery and continued representation of UK interests.

BEIS and IDB have two formal review meetings each year to assess the performance of the programme and introduce remedial actions.

Delivery risk:

There is a risk that IDB Invest cannot identify blended finance investments which meet BEIS’s expectations of additionality,

Moderate

The progression of investments from origination to eligibility and credit committee has taken slightly longer than expected. This is due to matters arising through

BEIS funds a dedicated technical advisor within IDB Invest to ensure the blended finance operations are additional and respond to BEIS priorities. Implementation updates are held at least monthly.

BEIS and IDB formally discuss the status and direction of the blended

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transformational change and mobilisation of private finance.

enhanced due diligence.

IDB has established a balanced project pipeline with future projects proposals expected in Q2 2019.

finance pipeline at least biannually to ensure additionality and transformative potential.

BEIS policy and commercial advisers have a formal opportunity to object to a blended finance proposal. This provides an additional layer of due diligence.

IDB is expected to present how each investment is additional, transformative and the expected volumes of mobilised capital.

Delivery risk:

There is a risk that, by working through a multilateral development bank, there is little UK visibility or attribution to UK funding.

Moderate

IDB have been alert to BEIS’s interests in UK visibility. IDB have started coordinating with British Embassies to ensure SIP Latam is aligned with other UK programmes and there is sufficient UK participation and representation at events relevant to the programme.

IDB will commission and manage a communication strategy for UK branding, visibility and positioning.

IDB engages with the British Embassy network in the region to ensure SIP Latam contributes to a wider UK offer on climate policy and programming.

IDB and BEIS have established a protocol to ensure there is UK representation at relevant meetings and events.

Outstanding actions from risk assessment

No outstanding actions.

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G: COMMERCIAL CONSIDERATIONS (½ page)

Delivery against planned timeframe

Delivery has been slower than expected over this reporting period. This has been a consequence of the start-up activities and political transitions described throughout the review.

Performance of partnership (s)

The UK is a key partner for the IDB. In addition to SIP Latam, the UK Department for Environment Food and Rural Affairs (DEFRA) partners with IDB on ICF funded programmes covering sustainable agriculture in Brazil and a Blue Carbon initiative in Central America and the Caribbean. This support helps reinforce the UK’s climate ambition and expectation for IDB to continue to demonstrate its international climate leadership. SIP Latam gives policy leads within IDB greater space to advocate for climate interventions and demonstrate the need to mobilise greater sources of climate finance. The intention is that this is replicated and scaled by IDB and other donors.

BEIS and IDB have also worked together to deliver other organisational objectives. For example, IDB is working with the UK Department for International Trade (DIT) to identify opportunities to promote secondary commercial benefits arising through the programme to UK companies. IDB has also signed an MOU with BEIS and DIT to promote Building Information Modelling (BIM). This will be complemented through SIP Latam funded technical assistance activities promoting BIM adoption.

Asset monitoring and control

All physical assets will be subject to IDB’s asset management policy and services. To date, one blended finance investment has received eligibility. This will be subject to further due diligence before being considered for final approval. Asset monitoring, control and management will become a more regular item for discussion at SIP Latam mid-year and annual meetings as soon as investments become operational.

H: MONITORING & EVALUATION (½ page)Evidence and evaluation

BEIS and the IDB have worked closely to develop tools and frameworks for the programme’s monitoring and evaluating activities. These are outlined in the logframe, Theory of Change and an initial Monitoring, Evaluation and Learning [MEL] Plan. These follow the guidance and recommendations of an independent evaluation plan commissioned through the Climate Change Compass, a UK funded programme designed to improve monitoring, evaluation and learning of UK ICF programming. The Compass Evaluation Plan, published in April 2018, proposes recommended evaluation objectives, research questions, methods and analysis to improve ongoing implementation and determine how the programme has delivered climate and developmental outcomes over the near, medium and long-term.

The Business Case and Compass Evaluation Plan recognises that SIP Latam is a complex programme which will require correspondingly complex evaluation methods. Based on IDB’s knowledge of the programme’s target markets, sectors, activities, access to data, and demonstration of internal M&E capacity, BEIS decided that IDB should commission and manage the programme’s independent evaluation activities, with BEIS providing quality assurance through its in-house expertise and the UK funded Evaluation Quality Assurance and Learning Service (EQUALS). The externally contracted evaluation activities will include a baseline study (to commence in Q1 2019), a mid-term review (2020) and a final impact assessment (2023-2025). IDB has released a request for proposals for the baseline study with work to start in March 2019.

IDB procurement rules prohibited the evaluation being contracted as a single project with break clauses between each stage of work. This could have potentially encouraged a more consistent approach between evaluation products, built the evaluation contractor’s knowledge as the work progresses and

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promoted greater cost effectiveness. The contracting of separate evaluations will require more contextual and analytical support from IDB and BEIS to ensure consistent quality standards and methodologies.

BEIS has provided more methodological support to IDB to finalise the logframe, MEL Plan and baseline study terms of reference than originally expected. This reflects the IDB’s familiarity with project rather than programme-level evaluations and their newness to BEIS evaluation standards. IDB has been receptive to this support and shown improved awareness of BEIS evaluation priorities and requirements. BEIS should continue to maintain close oversight of evaluation standards whilst IDB build their understanding of UK evaluation standards and provide more technical guidance to contracted research partners.

R7: BEIS to maintain oversight of IDB managed evaluation activities and conduct an internal stocktake of progress and quality upon receipt of the final baseline evaluation. Stock-take complete by December 2019.

Monitoring progress throughout the review period

BEIS monitors progress against logframe milestones on a continuous basis. Results are formally quality assured at least annually. BEIS and IDB review implementation progress and the programme’s strategic direction at the SIP Latam Annual and Mid-Year Review meetings. Progress is continually monitored through formal monthly and ad hoc calls with the IDB. This regularity of communication should continue.

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I: TRANSFORMATIONAL CHANGE (½ page)Rating

There is currently insufficient evidence to assess the likelihood of transformational impact due to the programme’s early stage of operation. The programme is therefore rated 1 – no evidence yet available.

0 Transformation judged unlikely1 No evidence yet available - too soon to revise assessment in business case2 Some early evidence suggests transformation likely3 Tentative evidence of change – transformation judged likely 4 Clear evidence of change - transformation judged very likely

Evidence and evaluation

ICF KPI 15 relates to the extent to which ICF intervention is likely to have a transformational impact. The indicator tracks early signs of transformation, or the extent to which activities are either being, or have a good likelihood of being, transformational. Many of the transformational features of SIP Latam will only be evident with a lag. These will be monitored through the baseline evaluation (identifying opportunities for transformational change), the mid-term study (gauging early outcomes), and the final impact assessment (evaluating the transformational impact and it was achieved).

The KPI 15 assessment methodology is in development. BEIS and IDB have agreed the following indicative indicators. BEIS and IDB will need to develop a methodology note which draws on the agreed indicators and outlines how the programme’s likely transformational impact can be assessed on an annual basis using available evidence.

R8: BEIS and IDB to develop a methodology (KPI 15 Methodology) which outlines how the programme’s likely transformational impact can be monitored on an annual basis. Methodology complete by December 2019.

KPI 15 Criteria  Indicators 

Political will and local ownership - fostering political will to act on climate change.

Influencing activities engaged by IDB in HQ and Country Offices.  Partner government participation in events relating to sustainable

infrastructure.  

Capacity and capability increased – SIP Latam supported activities enhance local capacity to act on climate change.

Number of sustainable infrastructure related sector and national plans under implementation that mitigate risks and ensure adaptation to climate change (plus qualitative assessment of climate integration).

Evidence of effectiveness - ideas and lessons shared widely.

Number of activities (workshops, key publications) delivered to disseminate program experience, with (qualitative and quantitative) evidence of take-up.  

Replicable - SIP Latam supported activities are being replicated by others.

Investment is enhanced by private actors at scale in sustainable infrastructure in target sectors and geographies.

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