Sustainable Procurement in Developing and Transition Countries A Generic Approach in German Financial Cooperation

EcoProcura, Ghent, September 25, 2014

Albrecht Wald

Bank aus Verantwortung

Index

1

KfW Development Bank – Who we are – How we work

2

The concept of Sustainable Procurement

3

Examples of Sustainable Procurement

2

KfW Development Bank – Who We Are How We Work

Bank aus Verantwortung

KfW - German Promotional Bank A Wide Array of Functions

Domestic business

• • • •

Founded in 1948 70+ offices abroad Comittments 2013: 72.5 bn EUR 5,300+ Employees

International business

We support the German economy Business Area Mittelstandsbank

Business Area Privatkundenbank

Business Area Kommunalbank

SMEs, Founders, Start-ups

Housing, modernisation & education programs

Municipal infrastructure projects, global loans in Germany/Europe

We ensure internationalisation

We promote development

Business Area Export and Project Finance

Business Area Promotion of Developing and Transition Countries

International project and export finance

Promotion of developing and transition countries

Promotion of environmental and climate protection Business Area Development Bank 600+ employees

4

KfW Development Bank Commitments in 2013 by Region and Sector (in %) Latin America 13%

Transregional 3%

North Africa/Middle East 16% Sub-Saharan Africa 23%

Europe 14%

• Comittments 5.3 bn € (budget & own funds) • Projects in 70+ countries • Highly diverging project types & sectors

Asia/Oceania 31%

Others 13% Production Sector 3% Financial Sector 26% - Credit lines - Micro credits - Thematic funds

- Emergency & Disaster Aid

Social Infrastructure 34%

Economic Infrastructure 24%

- Water/Sewage - Education - Health - Governance - Agriculture

- Energy incl. Renewables - Transport - Communication

5

The Roles in Procurement in Financial Cooperation

German Ministry (BMZ)

KfW

Partnercountry

Project Executing Agency PEA

- Ministry of Finance - Foreign Affairs - ……

- Water Utility - Ministry of Health - ……

Tendering & contracting

Consultant

• Tendering & contracting by PEA • KfW monitors procedures & contracting • Disburses funds directly upon request

Contractor / Supplier

6

Motivation for Sustainable Procurement

Project Level

• Sustainability is an inherent goal of Finacial Cooperation projects • Overall design adresses projects‘ overall sustainability • Procurement procedures lag behind

KfW‘s Goal

• Maintain and consolidate position as leading international climate and environmental bank (~ 50 % of comittments in 2013)

International Level

• Part of International Development Finance Club (IDFC), a group of 20 finance institutions worldwide

7

KfW Development Bank The Concept of Sustainable Procurement

Thema der Präsentation / Ort / Datum [TT. Monat Jahr]

8

Sustainability and Procurement?

Three-Pillar Approach

Economy Dimensions of sustainability ….

… and their relevance to procurement

Ecology 

Focus on price as award criteria

Social Aspects 

Environmental impact of products / systems

Labour standards during production/implementation

9

Objective and Chances

Objective Foster overall project success by introducing sustainability criteria in procurement procedures

Chances

•

Promotion of higher quality products / systems

•

Operating time Operating cost Social Standards

•

Level-playing-field for various types of bidders

•

Raising awareness of stakeholders / participants

10

Challenges

Challenge

Response

Diversity of sectors, countries, size & types of projects

Focus on high volume sectors / projects

National procurement regimes

Application not mandatory but gradually

Potentially higher investment cost

Potentially lower operating cost (LCC)

Limited know -how of participants (internal, external)

Information dissemination to procurement „beginners“ and „pros“

11

Developing the Approach 1. Breaking down tendering and contracting procedure in phases

Planning/ design

PreSelection

Evaluation

Contract

2. Applying different dimensions of sustainability to each phase, if feasible

Economy

Ecology Social-Aspects

3. Elaboration of concepts, methodologies and examples for focal sectors

12

Our Concept – Toolbox Sustainable Procurement Toolbox and flyer available in DE, EN, FR, ES

Content •

Overview

•

Basic concepts and methodologies

•

Specific sectoral chapters on •

Drinking and sewage water treatment

•

Energy incl. renewables

•

Buildings

•

Information & communication technology

•

Transport

Target groups: Project executing agencies, consultants, contractors, KfW‘s staff

13

KfW Development Bank Examples of Sustainable Procurement

Thema der Präsentation / Ort / Datum [TT. Monat Jahr]

14

Example 1

Planning

Pre-Selection

Evaluation

Contract

 Increase ecological quality by defining criteria during planning / design phase

Aspect

Description / Example

Comment

Maximum / minimum parameters

• Max. carbon dioxide (CO2) emissions of

Adequate definition of few but verifiable parameters to influence the ecological quality positively

motor vehicles

• Min. efficiency factor for power generators, solar panels

• Max. noise level of a generator house

15

Example 2

Planning

Pre-Selection

Evaluation

Contract

 Preselection takes into account proven track record and handling of ecological and social aspects of the bidders

Aspect

Description / Example

Comment

Experience/ handling of ecological and social aspects

- Certificates (environmental, S&H) - Organisational set-up and ressources - Reports and audits (environmental, safety & health, occupational accidents)

Focus on few but relevant and verifiable aspects. Point scoring system to compare and preselect highest ranked bidders.

16

Example 3

Planning

Pre-Selection

Evaluation

Contract

 Consideration of non-monetary aspects in evaluation

Aspect

Description / Example

Comment

Life Cyle Cost Approach (LCC)

Evaluation considers investment & operating & disposal cost

Frequently applied in sewage plants financed by KfW (excl. disposal cost)

Bonus System

Bonus points for exceeding minimum parameters, e.g. X points for each % that exceeds the minimum efficiency factor.

Method to compensate higher cost of higher quality products/systems.

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Example 4

Planning

Preselection

Evaluation

Contract

 Contractual implementation of sustainability criteria (relevant for award)

Aspect

Description / Example

Comment

Warranted characteristics

Contractual penalty arrangement in case warranted characteristica/parameters are not met (solar panels efficiency factor)

Forces bidders to offer realistic values e.g. for operating cost

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Putting the Concept into Practice? Fundamental groundwork

• KfW Guidelines for procurement amended wrt sustainability • Toolbox and flyer made available in various languages

Dissemination

• Internal promotion to identify suitable projects • Involvements of consultants and industries • Cooperation with other development banks (AfD, IDFC) • On-site workshops with project executing agencies

Sewage water treatment plant

• LCC approach appplied for years in various countries in SE Europe, Latin America (excl. disposal cost)

Photo voltaic plant

High voltage trans-mission lines

• 10-year guarantee on solar panels‘ efficiency factor with gradual payments of retention money to contractor, India 2013

• Provisions for labour standards during implementation comparable and higher than FIDIC pink book, India 2014

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Thank you for your attention Questions?

20

Contact

Albrecht Wald Principal Manager KfW Palmengartenstrasse 5–9 60325 Frankfurt am Main Telefon/Phone +49 (69) 7431 – 2371 Telefax/Fax +49 (69) 7431 - 3363 Email: [email protected] Internet: https://www.kfw-entwicklungsbank.de/International-financing/KfW-Entwicklungsbank/ Link to Toolbox and Flyer in English: https://www.kfw-entwicklungsbank.de/International-financing/KfW-Entwicklungsbank/About-us/Vergabe-von-Aufträgen/

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International Development Finance Club (IDFC) IDFC Members Worldwide

› Asia

IDFC Members Comittements

› The Americas

• China (CDB)

› Overall comittments of all

• Brazil (BNDES)

• India (SIDBI)

• Chile (BE)

• Indonesia (Eximbank)

• Columbia (Bancoldex)

• Japan (JICA)

• Honduras (BCIE/CABEI)*

• Korea (KoFC)

• Mexico (NAFIN)

› Europe

• Venezuela (CAF)

• Croatia (HBOR)

› Africa

• France (AFD)

• Morocco (CDG)

• Germany (KfW)

• South Africa (DBSA)

• Greece (BSTDB)

• Togo (BOAD)

• Russia (VEB)

IDFC members in 2011 added up to approximately USD 390 billion (World Bank Group: USD 72.9 billion).

IDFC‘s home page

• Turkey (TSKB) 22