The New Nation - Internet Edition

Staff Reporter

British Prime Minister Gordon Brown administration is planning to turn its 800 million pound sterling grant for the poorest countries in the world to adapt climate change project into loan and repay with interest.

Most of the least developed countries, victim of climate change created by rich countries, have reacted sharply to the UK's move after the Britain's Guardian newspaper disclosed this disconcerting information Saturday.

"We need urgently to prepare for climate change, but we are not in a position to pay back loans," said on official of the Bangladesh High Commission in London.

"The climate situation has not been created by us. The money should come spontaneously from rich countries and not be a loan," he added.

The UK environmental transformation fund was announced by the prime minister Gordon Brown to international acclaim in November 2007, and it was widely expected to be made in direct grants to countries experiencing extreme droughts, storms and sea level rise associated with climate change.

But the Guardian has learned that the money is not additional British aid and will be administered by the World Bank mainly in the form of concessionary loans, which poor countries will have to pay back to Britain with interest.

A letter signed by two British Ministers shows that Britain has been pressing other G8 countries to also give money to the new fund, which will be launched in July in Japan at the G8's annual meeting.

"UK contributions from the environmental transformation fund t will need to be primarily concessional loans. We will also talk to other donor countries about the possibility of grants," the letter, signed by UK's Environment Minister Phil Woolas and international aid counterpart Gareth Thomas revealed.

The letter shows that the US has resisted the idea of loans, preferring to give developing countries grants. "We understand that grants would be the US preferred approach," the British ministers said. Both their departments are understood to have argued strongly that the money should be in direct grant form on principle, but were overruled by the Treasury.

On Friday night several countries joined environment and development groups to condemn the loans.

A senior Brazilian diplomat was "indignant" that poor countries should have to borrow the money to prepare their populations for climate change.

"It is not nearly enough money to tackle the problem, but I am not surprised. Increasing the debt of countries is not a good idea", according to him.

Development groups said they were dismayed that climate adaptation funds would be funded by any sort of loan. "The money should be additional to aid," said Toby Quantrill, head of international government at WWF.

"It should be grants and not loans, otherwise developing countries will have to pay twice, once for the emissions that caused the problems and then again to clean up the mess," said Tom Sharman, a policy adviser with ActionAid in London.

"This is not money that is additional to Britain's aid budget. It seems strange to be cancelling debt and then inviting poor countries to take on new debt," he added.

The fund will be promoted as the G8's showpiece contribution to developing countries at the next meeting of the organisation, in Japan in July. The US and Japan are understood to have agreed to contribute but figures have not yet been decided. Britain hopes that the fund will attract more than £1.5 billion.

The principle of a major fund to help poor countries adapt has been widely welcomed because the international community has so far contributed very little. The World Bank administers 10 climate funds but the majority have little money available.

Concerns were also expressed that the World Bank, to which Britain is now the largest contributor, is now becoming the main disburser of international money for climate change as well as a major funder of climate change emissions.

"Between 2005 and 2007 the Bank financed greenhouse gas-emitting fossil fuel projects from coal, oil and gas to the tune of $1.5bn . At the same time the Bank acts as trustee to 10 greenhouse gas-reducing funds, pocketing an average 13 per cent 'overhead' in the process", said Janet Redman, an analyst with Washington think tank Foreign Policy in Focus.

The £800m will be spent over the next three years, focusing on projects that support development through environmental protection and which help poor countries to tackle climate change. Of the money, £50m has been earmarked for helping 10 countries in central Africa to tackle deforestation in the Congo basin.