London, May 17 (IANS) Almost all of the 800 million pounds ($1.6 billion) offered by Britain to help developing countries cope with the effects of climate change will have to paid back with interest, a newspaper reported Saturday. The revelation drew criticism from developing country diplomats and NGOs.

The UK Environmental Transformation Fund, announced by Prime Minister Gordon Brown in November 2007, was meant to help countries experiencing extreme droughts, storms and sea level rise associated with climate change.

However, although widely expected to be disbursed in the form of grants, the money will be administered by the World Bank mainly in the form of concessionary loans that poor countries will have to pay back to Britain with interest, the Guardian reported.

The fund, which Britain hopes will attract 1.5 billion pounds, is to be launched in Japan at the summit of the Group of Eight (G8) industrialised countries in July.

The newspaper quoted a letter from two government ministers - environment minister Phil Woolas and international aid counterpart Gareth Thomas - as saying: '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.'

The US, however, preferred giving grants rather than loans.

The departments of both Woolas and Thomas are understood to have argued strongly that the money should be in direct grant form on principle, but were overruled by the Treasury.

Several countries joined environment and development groups to condemn the loans. 'We need urgently to prepare for climate change, but we are not in a position to pay back loans,' said a spokesman for 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.' 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. '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.'

'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,' Tom Sharman, a policy adviser with ActionAid, told the newspaper.

Citing what is called the 'polluter pays principle', developing countries say global warming has mainly been caused by wealthy countries who must take primary responsibility for a global cleanup.

Most scientists believe global warming and climate change have been caused by the emission of harmful greenhouse gases as a result of human activity following industrialisation.