Welcome to the KfW Carbon Fund KfW Carbon Fund Project Team Tel: Djerba CDM Investor Forum, September 23, 2004

2 KfW Carbon Fund Agenda 1. Basic facts about KfW 2. Concept and Framework Conditions 3. Project Selection Procedures 4. Main Contract Features

1 Basic facts about KfW

4 KfW Carbon Fund The KfW Bankengruppe Basic Information Promotional bank of the Federal Republic of Germany. Founded in Shareholders: Federal Republic of Germany (80%), German federal states (20%). Headquarter: Frankfurt am Main; branch offices: Berlin and Bonn. Foreign offices: Brussels and 28 offices in developing and emerging countries. Balance-sheet total at the end of 2003: EUR 315 billion. 3,670 employees at the end of Rating: AAA/Aaa/AAA.

5 KfW Carbon Fund * * KfW IPEX-Bank at first as a brand name; from Jan as a legally independent 100 % subsidiary of KfW Bankengruppe Investment Finance in Germany and Europe Financial Cooperation Export and Project Finance Advisory and other Services Promotion of housing, environmental and climate protection, education, infrastructure and the social sector Export and project financing, investment and corporate financing Consultancy for the federal government on the privatisation of state enterprises, other advisory services Promotion of developing and transition countries Promotion of SMEs, business founders and start-ups KfW Bankengruppe New brand structure

2 The KfW Carbon Fund Concept and Framework Conditions

7 KfW Carbon Fund KfW Carbon Fund Framework Conditions Kyoto-Protocol; Marrakech Accord Project-based Mechanisms: -Joint Implementation – JI -Clean Development Mechanism – CDM European Emissions Trading System (ETS) National allocation plans Linking Directive for JI and CDM GHG Emissions Trading Law (“TEHG”)

8 KfW Carbon Fund KfW Carbon Fund Objectives Project development function: Promotion of projects and measures contributing to reduction of global Greenhouse Gas Emissions sustainable development in the host country Development of an economically attractive service instrument for German and European enterprises, who are interested in using the project-based mechanisms of the Kyoto Protocol in their CO2-strategy Cost-effective purchase of emission reduction certificates, which can be converted into EU-Allowances („Compliance Tools“)

9 KfW Carbon Fund KfW Carbon Fund Fund Concept Overall concept: Setting-up a programme for acquiring certificates from project activities (purchase programme, no direct financing function) Fund is organized as a „Buyers Pool“ of participants KfW acts as a buyer in its own name for account of the participating companies/institutions KfW will conclude Agency Contracts with participants and long term „Emission Reduction Purchase Agreements“ (ERPAs) for emission credits or project related allowances Fund has a commercial orientation

10 KfW Carbon Fund Advantages for projects: Long-term purchase contracts (fixed amount, fixed price) („Emissions Reductions Purchase Agreement (ERPA)“); Additional flow of income for climate protection projects  Improved cashflow and return on investment  Increased attractiveness to equity providers and lenders („bankability“): Possibly additional financing or „credit enhancement“ through ERPA as part of the securities package KfW Carbon Fund Fund Concept

11 KfW Carbon Fund KfW Carbon Fund Project Partnership Structure Contractor Community of Fund Participants: Enterprises, etc. KfW Carbon Fund Credits Offtaker Project Company Example: Combined Heating and Power Plant Investor/ Project Developer € Bank Power Offtaker Heat Offtaker ECA- Guarantee as required € € € € € Credits Equipment Power/Heat Credits

12 KfW Carbon Fund KfW Carbon Fund Contractual Relations Participant 1 KfW Project Portfolio (“KfW Carbon Fund“) Project n Project 3 Project 2 Project 1 Participant 2 Participant 3 Participant x ERPAERPA Agency contracts

13 KfW Carbon Fund KfW Carbon Fund Fund Volume / Time Schedule Fund volume Target volume: EUR 50 million First closing: EUR 25 million KfW‘s participation: up to EUR 10 million German Government: up to EUR 8 million Time schedule Official launch (floating of first CDM-tender): 29 June 2004 Deadline for closing 1st tranche: 31 December 2004

3 The KfW Carbon Fund Project Selection Procedures

15 KfW Carbon Fund General Framework: Kyoto Protocol/Marrakech Accord European Emissions Trading System (ETS), Linking Directive Clearance by the German Government Internationally accepted environmental standards (e.g. World Bank guidelines, EU regulations, EIA of German co-operation with the developing countries) Ensuring the value and acceptance of the purchased certificates in the ETS KfW Carbon Fund Project Selection Principles (I)

16 KfW Carbon Fund Fund management guidelines: ➨ Building up a balanced project portfolio under the aspects of risk and return in the interest of the fund participants ➨ Investment grade project portfolio Main criteria: ➨ Delivery risk ➨ Price per ton of CO2e ➨ Transaction costs (normally minimum of 50,000 t/pa CO 2 e per transaction) KfW Carbon Fund Project Selection Principles (II)

17 KfW Carbon Fund Technologies and sectors: No restrictions or preferences but exclusions in line with Kyoto and the ETS: No nuclear power projects Large hydro power projects only if they fulfill the recommendations of the World Commission on Dams No sinks projects (LULUCF) KfW Carbon Fund Project Selection Principles (III)

18 KfW Carbon Fund Two stage tender process; transparent selection criteria Stage 1: “Expression of Interest“ Project Information Note (“Project Pre-Check“) Letter of Endorsement of Host Country Financial status of project proponents  Letter of Support by German Government (obtained by KfW) KfW Carbon Fund Selection Procedure (I)

19 KfW Carbon Fund KfW Carbon Fund Selection Procedure (II) Step 2 Full Proposal Phase Stage 2: “Full Proposal“ Project Design Document; Business Plan; EIA Report Final Validation Report Host Country Letter of Approval  Invitation to negotiate a purchase Contract Basis: General Conditions of Contract

20 KfW Carbon Fund KfW Carbon Fund Time Schedule Expression of Interest Phase Deadline for submission of Expression of Interest (EoI): 31 October 2004 Evaluation of EoI; short listing: 30 November 2004 Invitation to submit Full Proposals (Step 2): December 2004 For further details:

4 The KfW Carbon Fund Main Contract Features

22 KfW Carbon Fund KfW Carbon Fund Purchase Contracts (I) Long-term purchase agreement (Forward contract) KfW will buy in its own name (AAA Buyer) Guaranteed minimum offtake quantity at a fixed price; usually max. 50% of expected quantity of credits generated Contract period up to 2012 with option to extend Market-based pricing

23 KfW Carbon Fund KfW Carbon Fund Purchase Contracts (II) Delivery options Early delivery option for seller  early fulfillment of contract; option to sell surplus amounts in later years in the market Right of first refusal for buyer on Additional and Future Credits at the then prevailing market price Payment arrangements Payment on delivery as a rule Prefinancing on a case by case basis; to be decided by KfW‘s credit departments; customary terms and conditions

24 KfW Carbon Fund Opportunities for Developers and Investors Attractive Long-term contracts at fixed prices Improved and reliable cash flow Bankable contract, well structured, AAA off-taker Service package provided by KfW Guidance through the Kyoto process Drawing on KfW’s experience in project finance Controlling transaction costs Standardized procedures Co-operation with intermediaries KfW Carbon Fund Conclusion

Thank you for your attention! KfW Bankengruppe KfW Carbon Fund Tel: