JCF September 14, 2006 Experience of JCF in its Carbon Finance operation Joichi KIMURA Deputy Director General Carbon Finance Department Japan Carbon Finance, Ltd. Your Partner for Development & Success in CDM/JI Projects & for Contribution to Sustainable Development

JCF Your Partner for Development & Success in CDM/JI Projects JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 2 Kyoto Target Achievement Plan (Japanese cabinet decision, April 2005) CO2 emissions from energy usage + 0.6% CO2 emissions from non-energy usage CH4 and N2O emissions - 1.2% HFCs, PFCs and SF6 emissions + 0.1% Sinks by forestry management - 3.9% Use of Kyoto Mechanisms (CDM, JI & ET) - 1.6% Total - 6.0% Use of Kyoto Mechanisms for 1.6% (100mil. t-CO2)

JCF Your Partner for Development & Success in CDM/JI Projects JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 3  Reference

JCF Your Partner for Development & Success in CDM/JI Projects JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 4 Project Type Number Volume (ton/annum) Biomass energy 82 4,137,842 Renewable energy 77 5,063,545 Methane collection66 12,063,100 Energy Efficiency 9 996,413 Fugitives (HFC, N2O) 7 60,248,574 Others (Fuel switch, Associated gas etc.) 7 1,512,284 Total ,021,758 Registered CDM projects (As of August 14, 2006)

JCF Your Partner for Development & Success in CDM/JI Projects JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 5 Barriers for developing CDM projects 1. Risks for Validation and Registration 2. Risks in Monitoring, Verification and Issuance of CERs 3. Risk of CERs Volume Fluctuation (Delivery Risk) 4. Risks in arranging Underlying Finance

JCF Your Partner for Development & Success in CDM/JI Projects JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 6 Company Profile (1) Main Business Objective: To purchase CERs and ERUs （ ERs ） issued until 2012 from CDM/JI Projects (2) Fund Pool: Called “Japan GHG Reduction Fund (JGRF)”, all amount of which JCF can utilize to purchase ERs (3) Committed Fund Amount: Approx. US$ 140 million (4) Establishment: December 1, 2004 (5) Location: Tokyo, Japan

JCF Your Partner for Development & Success in CDM/JI Projects JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 7 (6) Fund Providers: 2 Policy-lending Institutions (Governmental Banks) & 31 Major Japanese Private Enterprises Utility Tokyo Electric Power Co., Inc. Kansai Electric Power Co., Ltd. Chubu Electric Power Co., Inc. Tohoku Electric Power Co., Inc. Hokkaido Electric Power Co., Inc. Hokuriku Electric Company The Chugoku Electric Power Co., Inc. Shikoku Electric Power Co., Inc. Kyushu Electric Co., Inc. The Okinawa Electric Power Co., Inc. Electric Power Development Co., Ltd. (J-Power) Tokyo Gas Co., Ltd. Policy-lending Institution Japan Bank for International Cooperation (JBIC) Development Bank of Japan (DBJ) SectorFund Providers 10 Major Powers & the Largest Gas Firms

JCF Your Partner for Development & Success in CDM/JI Projects JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 8 SectorFund Providers Oil & Manufacturing Nippon Oil Corp. Idemitsu Kosan Co. Ltd. Japan Energy Corp. Kyushu Oil Corp. Sony Corp. Toshiba Corp. Sharp Corp. Fuji Xerox Co., Ltd. The Japan Iron and Steel Federation Taiheiyo Cement Corp. Toyota Motor Corp. Terumo Corp. Trading Mitsubishi Corp. Mitsui & Co., Ltd. Sumitomo Corp. Itochu Corp. Marubeni Corp. Sojitz Corp. Engineering JGC Corp. (6) Fund Providers: Major Companies in Oil, IT, Steel, Cement, Automobile & Medical Equipment fields 6 Major Investing & Trading Companies

JCF Your Partner for Development & Success in CDM/JI Projects JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 9 (1) Financial Assistance for Project Development:  PDD Preparation  Validation (No need to refund in principle,  Initial Verificationbut with certain ceiling amount ) Services (2) Purchase of Carbon Credits (CERs, ERUs, AAUs): JCF commits purchase of carbon credits under ERPA (Emission Reduction Purchase Agreement) (at a fixed price). * Payment on Delivery in principle * Purchase Price: to be decided on project-by-project basis (3) Upfront Payment: Upfront Payment for carbon credits can be considered on case-by- case basis. (Depends on necessity and risk profiles.Thorough Due Diligence)

JCF Your Partner for Development & Success in CDM/JI Projects JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 10 Even in case of shortage of carbon credits in spite of best endeavors by project entities: Project entitiess are not required: to make up for the shortage (with credits from other projects or sellers); and to pay any penalty to JCF. unless the delivery failure is caused by their willful misconduct. (e.g. sale of carbon credits to some third party) Assistance in Development - no need to compensate Great merit for project entities not to suffer from unpredictable financial risks in future.

JCF Your Partner for Development & Success in CDM/JI Projects JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 11 Merits for Projects (1) Additional Cash Flow:  Improvement of Project Viability with additional Cash Inflow by selling CERs in US$  Securing of Stable Profitability by getting commitment for purchase of CERs  Front-loaded Revenue in Sweep Method (2) Assistance in Development:  Saving of Development Costs (PDD, Validation, Initial Verification etc.)  Getting of Assistance and Orientation for development of CDM projects (3) Possibility of Parallel-purchase / Equity participation:  A part or all of the remaining Carbon Credits may be purchased by our Fund Providers in collaboration with JCF.  Participation as investors by some our Fund Providers may be possible.

JCF Your Partner for Development & Success in CDM/JI Projects JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 12 (4) Collaboration with and Support from JBIC & DBJ:  Strong ties with Japanese Government issuing Written Approvals for CDM/JI Projects  Cooperation and strong ties with Host Governments and Development Financial Institutions  Underlying Financing from JBIC, such as; A) Export Loan B) Overseas Investment Loan C) Untied Loan D) ODA Loan, etc. Merits for Projects

JCF Your Partner for Development & Success in CDM/JI Projects JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 13 CDM/JI Projects Example Model for Underlying Finance provided for CDM /JI Projects by JBIC Underlying Finance （ On-Lending Scheme ） Fund Provision Purchase of CER (Carbon Finance) （ Direct Loan ） Underlying Sponsorship Finance (Equity, etc.) (Japanese) Companies in Power /Energy Sector, etc. Intermediary Financial Institution Cash Inflow during Construction Period Cash Inflow during Crediting Period JBIC JCF

Your Partner for Development & Success in CDM/JI Projects JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 14 Operational Flowchart JCF Project Planning Feasibility Study Other Participants of Project Project Entity Stake Holders Host Country DNA Exclusive Negotiation Period Conclusion of MoU defining basic terms & conditions Project Preparation DOE Consultant Host Country DNA Assistance for Project Development Bearing of PDD Preparation Cost PDD Preparation Validation Bearing of Validation Cost Due Diligence Clarification & Screening of PIN Evaluation & Selection of Project Submission of PIN Conclusion of ERPA

JCF Your Partner for Development & Success in CDM/JI Projects JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 15 Operational Flowchart JCF Host Country DNA Project Entity Stake Holders Registration CDM -EB Japan DNA DOE CERs Payment on Delivery DOE CDM-EB Verification Certification & CERs Issuance Project Implementation Effecting of Sale/Purchase Obligation Upfront Payment Assistance for Project Development Validation Conclusion of ERPA Bearing of Initial Verification Cost Monitoring

JCF Your Partner for Development & Success in CDM/JI Projects JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 16  Project Description and Project Participants:  Fulfillment of Kyoto Rules:  Methodology (Baseline Study & Monitoring Plan)  Validation (Methodology Applicability, Data, Quality Control, etc.)  Possibility of Authorization & Approval by Host Country  Stakeholders ’ Comments  Additionality:  Investment Analysis/Barrier Analysis and Common Practice Analysis, etc.  Environmental & Social Safeguard Requirements:  Compliance with Laws & Regulations, etc. Key Criteria at Screening of PINs/PDDs

JCF Your Partner for Development & Success in CDM/JI Projects JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 17  Project Feasibility:  Construction Plan, Business Plan and Fund-raising Plan  Project-related Contracts  Concession/License & Permits  Creditworthiness and Competence of Project Sponsors  Experiences of Management and/or Project Operator  Commercially Viable Proven Technology  Financial Viability (Cash Flow Projection, Sensitivity Analysis, etc.)  Contribution to Sustainable Development of Host Country:  Environmental, Social & Economic Impacts, Technology Transfer Effects, etc.

JCF Your Partner for Development & Success in CDM/JI Projects JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 18 ERs to be purchased from: approx. in USD, million a Single ProjectUp to 25 a Single Host CountryUp to 37  Portfolio Guideline:  Purchase Conditions:  Price To be discussed according to the risk profile of the Project.  Volume More than 50,000t-CO2e/year is preferable.  Delivery Schedule etc. Early commissioning project is preferable.

JCF Your Partner for Development & Success in CDM/JI Projects JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 19 Japan Carbon Finance, Ltd. (JCF) Carbon Finance Department Masato Ari, Director General Joichi Kimura, Deputy Director Yoichiro Matsushita, Deal Manager Tel: Fax: , Kudankita 4-chome, Chiyoda-ku, Tokyo , JAPAN For More Information, Contact You are welcome to visit our web site. Japan Bank for International Cooperation (JBIC) Representative Office in Jakarta Mr.Yuhei Ohmi, Representative, Mr.Ichiro Hayashidani, Representative Tel: Fax: Summitmas II 7 th Floor, Jl.Jenderal.sudirman, Kav.61-62, Jakarta, Indonesia