UK: Poor countries to pay back climate loan. With interest

Britain's £800 million (1 billion euro) international project to help the world's poorest countries adapt to climate change is under fire after it emerged almost all the money offered by Prime Minister Gordon Brown will have to be repaid with interest.

The UK Environmental Transformation Fund, announced by Mr Brown to international acclaim in November last year, 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 in London has learned the money is not extra 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 Government ministers and seen by The Guardian shows Britain has been pressing other Group-of-Eight industrialised countries to also give money to the new fund, to be launched in Japan at the G8's annual meeting in July.

"UK contributions from the Environmental Transformation Fund ? will need to be primarily concessional loans. We will also talk to other donor countries about the possibility of grants," stated British Environment Minister Phil Woolas and his international aid counterpart Gareth Thomas in the signed letter.

The letter shows that the US has resisted the idea of loans. "We understand that grants would be the US preferred approach," the British ministers say. 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 UK Treasury.

Several countries joined environment and development groups to condemn the loans.

"We are not in a position to pay back loans," said a spokesman for the Bangladesh high commission in London, adding: "The climate situation has not been created by us." Bangladesh expects up to 80 million people to be displaced by climate change within 50 years.

A senior Brazilian diplomat was "indignant" that poor countries should have to borrow the money to prepare their populations for climate change, saying: "Increasing the debt of countries is not a good idea."

There were also concerns the World Bank, to which Britain is the largest contributor, is becoming the main disburser of international money for climate change while also funding major greenhouse gas-emitting fossil-fuel projects.

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