Enhancing ERPAs to obtain third party financing Conference at the World Bank Paris, November 19-20, 2003 Prepared by the Merzbach Group, LLC

Prepared by Merzbach Group, LLC2 Disclaimer The views expressed by the Merzbach Group, LLC in this presentation should not be construed as legal advice, but rather as suggestions and possibly a contribution to enhancing the interaction between different contracts that reflect separate but sometimes complementary perspective and intentions for the development of a specific business.

Prepared by Merzbach Group, LLC3 Emission Reduction Purchase Agreements - ERPA  Definition: Long term off-take agreements.  Proven track record using such agreements to develop power, natural resource and concession-type financings.  To obtain financing such contracts need: –clarity, –to be concise, –legally enforceable, –contain appropriate allocation of risks, and –have optimum predictability.

Prepared by Merzbach Group, LLC4 Caveat and Methodology  Focus on the contractual risk sharing proposition  Still early days: contractual terms are evolving  Analysis is based on a sample of contracts with the some of most significant Buyers (PCF, Senter)

Prepared by Merzbach Group, LLC5 Making Room for the Financing  Volume: –operational cushion –versus callable cushion  Need for –Predictability –flexibility

Prepared by Merzbach Group, LLC6 General Risk Allocation  Regulatory  Project Completion  Production- Volume  Price  Force Majeure  Increased costs  Tax  Currency Convertibility  Transfer

Prepared by Merzbach Group, LLC7 Structural Issues Affecting Financing  Assignment  Representation and Warranties  Events of Default

Prepared by Merzbach Group, LLC8 Timing Issues Affecting Financing  Approvals  Registration and Certification  Payments  Cure Periods and Standstill Provisions

Prepared by Merzbach Group, LLC9 Strengths of ERPAs  Willingness of Buyers to take Registration and Certification risks including certain tax and levies risks linked to such processes, certain political Force Majeure risks, and to consider freeing up unencumbered value to serve as cushion for financing

Prepared by Merzbach Group, LLC10 Weaknesses of ERPAs Number of subjective determinations to be made by the Buyer, Assignment provisions, timing of payments, overly broad use of options, certain onerous obligations of Seller implying potential for additional costs

Prepared by Merzbach Group, LLC11 Recommendations (1)  Greater standardization of ERPAs  Improve language of ERPAs linking in detail such contracts to the project preparation documents including PIN, Baseline Study and Monitoring Plans, etc.  Make room for assignment of optimum unencumbered collateral

Prepared by Merzbach Group, LLC12 Recommendations (1)  Improve the collateral value to Third Parties by reducing option language, and providing better comfort on certain risks (implementation, operation, certain tax risks and Force Majeure) transferring such risks to parties of better standing than the project company

Prepared by Merzbach Group, LLC13 Merzbach Group,LLC  Highly Experienced Professionals: 75 + Years, 100 Deals Closed for $20 Billion  Unique Combination of Relevant Skills:  Cohesive Team Track Record with Carbon FundManagement Sector ExpertiseStructured Finance Emerging MarketsCorporate Finance Private EquityEngineering – Clean Energies

Prepared by Merzbach Group, LLC14 Questions