IDF 2018

Annual Report

Infrastructure Development Fund (IDF) is the Dutch government fund for private investments in infrastructure, managed by FMO.

Every country needs roads, ports, railways, sanitation, energy and communication systems to prosper and provide a decent standard of living for their population. That’s why in 2002 the Dutch government and FMO established the Infrastructure Development Fund. The Fund was specifically designed to facilitate basic infrastructure services as they often lead to direct and immediate impact on economic growth, employment, empowerment and poverty reduction.

80% of the global poor are dependent on the quality of agricultural value chains for their income. The effects of climate change challenges long term sustainable development. 

At a glance

Achievements portfolio as per 31-12-2018

27 million

Beneficiaries reached

IDF invested in a total of 34 countries and had an impact on 27 million beneficiaries. The fund has been instrumental in setting up telecom, off-grid energy and more recently forestry.

891,886

Jobs supported

34,116 direct jobs supported and 857,770 indirect jobs supported

378,617

Jobs supported for women

14,098 direct jobs supported for women and 364,519 indirect jobs supported for women

1,895 MW

Installed capacity

Creating access to energy remains a key driver for sustainable development and private sector growth. 

Total committed portfolio

€417 million

Total committed portfolio by region

Optimizing groundwater management to prepare for climate change impacts

Water is a precious commodity for large agricultural organizations and the local communities who depend on it. As a large agro-industry company, DanPer is conscious of the potential negative effects of their water use on neighboring communities.

IDF investment: USD 5 mln; USD 25 mln catalyzed from FMO
Contracted: 2016
Instrument: USD loan, 10-year-tenor

Danper is one of Peru’s leading agricultural companies and currently produces fresh, canned and frozen fruits and vegetables mainly for export to North American and European markets.

IDF provides long-term funding to Danper, that it would not have otherwise got from local banks. Moreover, IDF long-term funding de-risks Danper for FMO and has thereby catalyzed an additional USD 25 mln from FMO with a shorter tenor (eight years). While it is a well-run company overall, Danper is exposed to risk in terms of the long-term availability of groundwater. This risk will be amplified by climate change. Danper has therefore developed an integrated water management plan for its Compositan farm close to Trujillo on Peru’s coast with the support of FMO capacity development funds. The plan is certified by the Alliance for Water Stewardship (AWS) Standard and its stakeholder management, including the surrounding communities. The AWS is a member of the ISEAL alliance, an international authority on sustainability standards, and Danper is one of only two private companies worldwide that is AWS certified.

Potential impact of Danper’s integrated water management plan on its climate change resilience

There are two main outcomes of Danper’s integrated water management plan. Firstly, optimising the fresh water consumption of its Compositan farm is not only expected to lead to more climate-resilient business practices but should also make the surrounding communities more resilient to climate-related water risks. This is especially important as Peru’s coast is facing a water crisis. Even though it is the most populous region of Peru, it has only 1.8% of the country’s renewable fresh water reserves. Secondly, albeit an indirect outcome, the plan also protects the jobs generated by Danper by supporting Danper’s sustainable growth path.

The main stakeholders of Danper’s integrated water management plan are its workers, the surrounding communities and of course the environment. Danper’s workforce includes a significant number of underprivileged women who did not traditionally have opportunities for formal employment before the growth of new agriculture activities in Peru.

Danper currently employs 18,336 people, approx. 50% of which are women (status July 2018), which is a massive increase compared to December 2016, when it employed 5,157 people, approx. 30% of which were women. Around 30% of Danper’s workforce are temporary workers. The rest are permanent employees (status 2016). Being SA8000 certified, Danper pays its workers a living wage. It is unclear exactly how many workers are at risk of losing their jobs if the water risk materialises, but some redundancies are likely.

As Danper developed an integrated water management plan, its ambition grew over time and we supported them to acquire an AWS certification.

Overall, Danper runs a solid business with well-diversified operations. The key remaining risk to its operations and thus the job security of its workers is that of the long-term availability of sufficient groundwater suitable for irrigation. The water risk mitigation strategy laid out in the integrated water management plan is based on thorough hydrological monitoring of the area surrounding the Compositan farm. It is therefore highly likely that this risk will be adequately addressed. Danper’s AWS certification underscores this assessment.

Read more about: Optimizing groundwater management to prepare for climate change impacts

Forestry - an effective climate change mitigation strategy

Investing in forestry creates a high level of impact, mainly in the mitigation of global climate change through carbon sequestration. Moreover, forests provide food, fuel, shelter, clean water and air, medicines, livelihoods and employment for people around the world and contain 80% of the world’s terrestrial animals and plants.

Development and investment rationale for our forestry investments

Investments in forestry projects play an important role in the new IDF strategy for the coming 10 years, as they have a high development impact. Deforestation and forest degradation are significant drivers of climate change, accounting for 12% of global greenhouse gas (GHG) emissions. This makes forestry investments a highly effective climate mitigation strategy. Moreover, forests provide food, fuel, shelter, clean water and air, medicines, livelihoods and employment for people around the world and contain 80% of the world’s terrestrial animals and plants.

Overall, we consider two types of forestry project to be within fund's scope: (1) plantation projects that aim to harvest and sell timber products and (2) conservation projects that aim to protect endangered landscapes and are certified to sell carbon credits. Forestry investments are high-risk and complex transactions that have a long lead and structuring time.

A dedicated team has therefore been assigned to develop a forestry portfolio. Investments already made by IDF in forestry projects include the Althelia Climate Fund, Komaza, Miro and Burapha – the latter two in 2018 and these are described in greater detail below.

Potential impact of Miro and Burapha

Miro, Ghana and Sierra Leone

Type: Plantation
Investment: USD 10 mln, 10-year tenor
Purpose: Expansion from 10,000 ha. to 19,000 ha. and capital expenditure until 2020
Instrument: Mezzanine
Contracted: November 2018

Burapha, Laos

Type: Plantation
Investment: USD 5 mln, 8.5 year tenor (catalyzed USD 5 mln from FMO)
Purpose: Expansion from 4,000 ha to 7,000 ha and construction of plywood mill until end 2019, and then potentially up to 15,000 ha by 2023
Instrument: Mezzanine
Contracted: December 2018

Among other outcomes, IDF’s investment in Miro and Burapha will lead to a reduction in green house gas (GHG) emissions and job creation in rural communities.

In both cases, the jobs generated by the two companies are an important source of income for the rural communities, as both Miro and Burapha are the first formal employers in those areas. It goes without saying that addressing climate change through GHG emission reduction is extremely important.

Miro’s plantations sequester 1 million tons of CO2 equivalent (CO2e) per year, of which 22.5% can be attributed to the FMO’s investment. This represents 22,500 tons per year per million invested. Moreover, the expansion of Miro’s operation will create 1,400 direct jobs (approx. 621 full-time and 779 part-time). A Miro worker’s salary is approx. 35% higher than the minimum wage.

Burapha’s plantations sequester 148,235 tons of CO2e per year over the project duration of 8.5 years, 16% of which can be attributed to FMO’s investment. This represents 14,823.5 tons per year per million invested. Moreover, Burapha’s expansion will create 5,350 direct jobs, of which 1,550 will be full-time and 3,800 will be day job. A Burapha worker’s salary is approx. 20% higher than the minimum wage.

In the case of Miro risk capital for forestry is very scarce and IDF investment is critical to successfully closing this funding round.

For Burapha the IDF investment is additional, as an investment with a tenor this long is not available from commercial financiers.

For forestry companies, there is the risk of natural forests being converted into commercial plantations, negatively affecting climate change. Both Miro and Burapha are, however, committed to not logging natural forests. Another risk factor in plantations stems from extensively cloning seedlings. The higher the share of clones in a tree population, the less resilient it is to diseases. Infected trees need to be logged prematurely and thus cannot reach their full sequestration potential. Extensive cloning could pose a risk to Miro and Burapha’s sequestration goals, but this risk is mitigated by the prudent management of their cloning programmes.

Read more about: Forestry - an effective climate change mitigation strategy

Althelia Sustainable Ocean Fund

Investing in the blue economy

“In the Netherlands, we have been observing the destructive consequences of climate change on the oceans for years and we are excited to become one of the first investors in the nascent but high-potential sector of the blue economy.” (Floor van Oppen, Fund Manager IDF)

Through a blended finance approach, FMO and IDF committed USD 7.5 mln to the Althelia Sustainable Ocean Fund (ASOF); a pioneering impact investment vehicle that supports marine and coastal enterprises in delivering food security, improved livelihoods and marine conservation.

ASOF will invest real assets in the “blue economy”, applying best-in-class social and environmental governance to finance sustainable management and the protection of marine habitats, produce significant climate-smart fish protein and support employment in underserved communities of Latin America and Africa.

Husk Power Systems, India and Tanzania

Flexible pay-as-you-go energy service

Husk Power Systems is a mini-grid company with operations in the very low-income Indian states of Uttar Pradesh and Bihar, as well as in Tanzania.

Husk developed a proprietary hybrid power plant system by combining solar PV, biomass gasification and batteries to deliver 24×7 power. It offers customers a flexible “pay-as-you-go” energy service, using a mobile-enabled smart metering system. Husk provides energy 30%-50% cheaper than other comparable off-grid energy companies.

The production of biogas in Husk’s hybrid power plants is fueled by rice husks – a ‘waste product’ of rice milling, that is available in abundance in India and some regions of Tanzania. Husk is poised to grow rapidly over the next four years and envisions adding more than 300 mini-grids in India and Tanzania, which would eliminate 150,000 tons of CO2 emissions per year.