Design, Development and Operationalization of a Green Refinancing Facility in Papua New Guinea

Date documents can be requested until : 20 January 2025 16:00
Title : Design, Development and Operationalization of a Green Refinancing Facility in Papua New Guinea
Procurement No. : 100011800
Process : RFP
Description : Global Green Growth Institute in Papua New Guinea invites all eligible companies to submit their proposals for consulting services to Design, Development and Operationalization of a Green Refinancing Facility in Papua New Guinea.

PROJECT BACKGROUND AND OBJECTIVES:
Background
The Green Refinancing Facility (GRF) is an initiative under the IGFP Roadmap and supported by BPNG. The objective of the GRF is to incentivize and scale up the volume of inclusive or green loans in Papua New Guinea, aligning with the country’s Inclusive and Green Taxonomy.
Objective
To engage consultants/consulting firms to provide expert services in developing and operationalizing the GRF, ensuring it meets the strategic outcomes of reduced GHG emissions and the creation of green jobs, among others.

Project Summary & Impact
The project scope involves supporting the establishment and operation of the GRF and enabling the initial capital injection of EUR 1.8 million from AFD into the GRF as a component of the IGFP. The project will be managed by GFC under the guidance of the IGFP Steering Committee in close collaboration with BPNG. The facility will lead to increased volume of green and/or inclusive loans (as determined with reference to PNG’s Inclusive and Green Taxonomy) by participating financial institutions citizens.

Project Context
Summary of IGFP Phase I (2020-2023). The first phase of IGFP project involved the following:
• Establishment and operationalization of the IGFP Steering Committee (chaired by BPNG),
• Establishment and operationalization of the IGFP Technical Working Group (comprised of line ministries, local financial institutions, bilateral/multilateral development agencies, and NGOs)
• Development of the Inclusive and Green Finance Policy (IGF Policy) of PNG, which includes:
o A Diagnostic Report on the State of Inclusive and Green Finance in PNG,
o Inclusive and Green Taxonomy, and,
o IGFP Implementation Roadmap

Establishment and operationalization of the GFC to be responsible for implementing the IGF Policy and all future initiatives related to green finance in Papua New Guinea

Summary of IGFP Phase II (2024-2027). The second phase of IGFP project involves the following:
• Enhancing the readiness of local FIs to apply the taxonomy to their lending operations and receive/utilize funding (e.g., grants and concessional loans) from donors to increase their portfolio of inclusive or green loans, and,
• Developing green loan products aligned with the taxonomy with participating financial institutions.
• Development of GRF in IGFP Phase III (2025-2026) to incentivize and scale up the volume of inclusive or green loans in PNG.

PROPOSED ACTIVITIES:
The GRF will be implemented in IGFP Phase III (2025-2026) to incentivize and scale up the volume of inclusive or green loans in PNG. While the detailed elements shall be developed as part of the project proper, a high-level list of activities required to develop and implement the GRF are provided below:

1) Activity 1. Terms
The following details are tentative and subjective to adjustments as consultations progress.
Indicative terms for the facility

Lender: BPNG. The facility would be managed and operated by BPNG in the initial years and coordinated by GFC. The project envisions the facility as a product/division within BPNG at this point in time.

Borrower: Eligible local financial institutions (FIs) that have entered into a refinancing agreement with BPNG.

Currency: PNG Kina

Nature of loans covered: Green/Blue loan products that conform to the inclusive green taxonomy will be eligible for refinancing under the facility.
Tentative criteria: Sector and purpose (linked to the Green taxonomy)
Amount and tenure: Type (preferably term loans only for efficiency and simplicity)

Maximum amount that can be refinanced: Tentative ceiling
Potentially, BPNG may impose a cap of [50% - 80%]. Hence for a PGK 100,000 loan, a FI may refinance up to 80% (PGK 80,000) using the GRF, but the remaining 20% should be financed using the FI’s own deposits.
Appropriate level of the cap shall be proposed by the consultant based on its market assessment.

Interest rate (IR) Tentative formula
IR charged by the provider of initial capital for the GRF (e.g., donor agency) + 2-3% (to cover administrative and contingency costs). Refinancing decision to be made contingent on initial uptake and demand. IR extended to the market to be capped.

Interest payment Tentative schedule
Quarterly or as stated in the refinancing agreement

Other Reporting requirements
All loans refinanced are to be aligned to the Green Taxonomy.
Special consideration for specific priority sectors aligned to the Green Taxonomy e.g. women-led businesses, SME’s, agriculture projects, bio-diversity and marine loans
Maximum interest that can be charged to borrowers
Penalties for non-compliance
Additional option of grant contribution attached to refinancing loans in specific sectors – for applicable key priorities attached to a loan, a potential grant component in areas of capacity building, training, market engagement etc
Explore and provide concept note of having green guarantee scheme complementing GRF.
Ability for other investors/donors to inject grants/loans into the refinancing facility

2) Activity 2. Training for FIs

The GRF will operate under the GFC. It is anticipated that the GFC (in addition to raising awareness, knowledge generation, and serving as a convener of green finance-related events) will also offer tailored training targeted at FI employees on GRF, green finance, taxonomy, reporting, and related instruments.. As part of project, the firm shall provide initial training specifically to GFC on how to operationalize the GRF including awareness training for FI’s on how the GRF works.

3) Activity 3. Administration

At the FI level
Each FI shall manage the loans as per their internal procedure. They may, however, set up a temporary team to deal with administrative aspects of accessing the GRF (e.g., preparing documents, regular and ad-hoc reporting, troubleshooting, etc.).

At the GFC/BPNG level
GFC as a division/project within BPNG will
a. ensure adherence to the agreement between BPNG and the donor/investor agency/partner on the GRF, and
b. manage the refinancing agreements entered into with local FIs - the review of refinancing applications, regular reports, resolving disputes, disbursing funds, etc.
c. become the Secretariat of the GRF; where the secretariat shall have a set number of days by which it is to finish each task and reply to the FIs (e.g., 10 business days to review monthly refinancing applications from FIs and communicate its decision, 15 business days to disburse funding, etc.).
d. This team will consist of, at minimum:
i. Chairman IGFP/GFC Steering Committee
ii. Head of GFC
iii. One nominee from BPNG (Senior Manager or equivalent from relevant BPNG unit)
iv. one representative from GGGI and
v. one advisor from the GRF donor agency(s).

e. Its scope of work under shall be determined based on consultations with the BPNG, GGGI and donor agency(s).

Refinancing procedure
a. Each eligible FI that has signed a refinancing agreement with GFC/BPNG shall
i. prepare and submit the requisite documents at agreed-upon intervals (e.g., details of each loan and how they comply with the GRF’s requirements) to access the GRF.
b. application will be reviewed by the GFC within a set number of days and the funds released (or not) depending on the outcome of the review.
c. Each FI is responsible for monitoring the loans and making payments to the GRF as per their refinancing agreement with GFC/BPNG.

AML/CFT procedure
The Proceeds of Crime Act 2005 and regulations require all Financial Institutions (FIs) to comply with BPNG AML-CFT policies and regulations. All direct and final beneficiaries that are registered with BPNG including under the GRF must implement a documented Know Your Customer (KYC) and other AML processes such as Customer Acceptance Policy, Customer Identification Procedures, Monitoring of Transactions and Risk Management. In line with the IGFP, one of the requirements that will form part of the background checks and comply with BPNG's AML-CFT policies and regulations is disclosure by FIs of data to report, how often, what non-financial data should disclose to the public in their annual reports, which disclosure standards to use (e.g., Task Force on climate-related financial disclosures) to put in place. BPNG will need to determine what data FIs need to disclose but fall into the following categories:
• anti-corruption and bribery issues,
• environmental matters, social and employee aspects,
• respect for human rights,
• diversity on board of directors.

4) Activity 4. Governance

The GRF will be governed by IGFP/GFC’s steering committee, the composition of which would be described in the agreement between BPNG, Steering Committee of IGFP/GFC, AFD and any other relevant stakeholder deemed relevant by IGFP/GFC Steering Committee.

The committee will consider and decide on strategic matters pertaining to the GRF, such as whether to accept additional capital from a new donor/investor, revising material terms of the refinancing agreement with FIs, expanding/reducing the scope of eligible activities, etc. (note. GFC with the support of BPNG and GGGI, will be responsible for day-to-day administration of the GRF).

SCOPE OF WORK:
Given the context of IGFP and GRF, the consultancy will cover the following tasks:
Status of inclusive green finance in PNG:
o Review the diagnostic report and market potential of inclusive green finance in PNG:
 Understand motivations and obstacles to invest in green technologies and equipment,
 Assess market demand and offer for financial services targeting investments consistent with PNG Inclusive and Green Taxonomy including identifying targeted sectors and entities
o Analyze banks motivations and obstacles to finance such green investments and whether FIs would consider the primary barriers and drivers to scale up green lending products - the ability to offer lower rates (with cheaper funding from the GRF), longer tenors, or lower risk (need for a guarantee scheme) and review existing documentation produced by the IGFP.
o Analysis of existing loan practices (including size of green loans) of the existing financial institutions in PNG, at least for the 5 FI’s that have signed MoU’s with BPNG to participate in this project
o Drafting of baseline report specifying key financial points of GRF
o Present to Project team BASELINE REPORT
o Gather feedback from Project team
o Review/benchmark other central bank models that have implemented targeted refinancing facilities (e.g., Bangladesh, Egypt).

1) Design and Operationalization
o Following the review of market demand and obstacles faced by commercial banks to finance inclusive green investments, confirm or propose amendments to the tentative terms and conditions of the GRF.
o Develop detailed elements of the GRF including the scope, size, operating modality, and criteria for loan eligibility.
o Define the processes for loan applications, refinancing agreements, and disbursement of funds.
o Establish reporting requirements and compliance mechanisms for participating financial institutions (FIs).

2) Training and Capacity Building
o Design and conduct initial training programs for BPNG, GFC and FIs on GRF
o Provide ongoing support to ensure FIs can effectively utilize the GRF – a total of 4 man-days per year for the next 3 years
3) Governance and Administration:
o Assist in the establishment of a governance committee for strategic decision-making.
o Develop administrative protocols for BPNG’s internal team to manage the GRF, including reviewing refinancing applications and disbursing funds.
4) Monitoring and Evaluation:
o Develop a framework for monitoring the performance of the GRF, including metrics for GHG reductions and green job creation.
o Design evaluation methods to assess the impact and efficiency of the facility.
5) AML/CT Compliance:
o Ensure all procedures align with the Proceeds of Crime Act 2005, BPNG’s AML-CFT policies and regulations, and AFD’s AML-CFT policy, including defining what the procedures are.
o recommend a system of verification of FI KYC/AML/CFT processes and other AML measures for FIs and beneficiaries related to GRF transactions.
6) E&S management system
o Define E&S standards and procedures of the GRF, including minimum E&S requirements to be met by financial institutions benefiting from GRF funds.
7) Stakeholder Engagement:
o Facilitate consultations with relevant stakeholders including government ministries, local FIs, and international organizations.
o Prepare communication materials and conduct awareness campaigns to promote the GRF.

For more details, please refer to the Terms of Reference (TOR) document attached.

IMPORTANT TIMELINES:
The tender submission deadline is JANUARY 20, 2025 16:00 HRS KOREAN STANDARD TIME (KST).
If any bidder has any request for clarification on the TOR or any part of the tender documents, GGGI will be happy to clarify if they are received on or before 7 days before the deadline (namely: if the tender submission deadline is 16:00 20 Jan 2025 KST, then the due date for submission of request for clarification is 16:00 13 Jan 2025 KST).

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