N Y Dinesh Babu Asia Carbon International B.V CDM : lessons learned and future options CDM : lessons learned and future options 21 May 2005 Asia CDM : Private sector perspectives

Expectations from CDM Expectations from CDM CDM benefits (short, medium and long- term) vis-à-vis complexities Financial flow, technology transfer Financial flow, technology transfer Sustainable development benefits Sustainable development benefits Efficiency improvement, resource conservation Efficiency improvement, resource conservation Sectors priorities / preferential treatment Small scale projects Small scale projects Rural development oriented projects Rural development oriented projects contd…

Expectations from CDM Proactive role of FIs (dom.& int.) Improvements in investment climate – investors’ confidence Integration of carbon finance with underlying project finance High price levels for CERs Risk mitigation tools Financial models for high SD rural projects

Expert poll conducted by Point Carbon ( While CDM is a means of increasing the return on investment, it will rarely change a bad investment into a good one as long as carbon prices are low. Therefore, the CER stream is rarely the most important factor deciding whether a CDM investment is sound or not. It is just the glazing of the cake. It is much more important that a potential project is economically and financially sound as such.

The investment question Investment from Annex I not forthcoming Investment from Annex I not forthcoming So is Technology Transfer So is Technology Transfer CER : mere purchase without ownership CER : mere purchase without ownership CER price : low to influence an investment CER price : low to influence an investment decision decision Unilateral CDM - inevitable Unilateral CDM - inevitable

The investment question...contd Mainstream financing is yet to formally engage in CDM transactions. CER revenues yet to be recognized by FIs for leveraging financing Low awareness levels and skills Low awareness levels and skills Low CER revenues Low CER revenues Bilaterals’ & Multilaterals’ funding for PDD development : no guarantee for purchase of CERs !

Leading to………. Only companies with strong balance sheet have access to finance Inability of other promoters to bring in equity and to raise loans Lack of development of project ideas and promoters for small community projects

# 1 Environmental integrity vs stimulating project development # 2 Project portfolio and sustainable development # 1 Environmental integrity vs stimulating project development # 2 Project portfolio and sustainable development Challenges

# 1 Accelerate integration of private sector perspectives in the CDM decision making process # 2 Influence FIs to leverage and innovate financial tools # 3 Channelize SMEs efforts to contribute to mitigating climate change (+ sectoral CDM) # 4 Orientation of grass root NGOs in ensuring and propagating the integral element of climate change : sustainable development # 1 Accelerate integration of private sector perspectives in the CDM decision making process # 2 Influence FIs to leverage and innovate financial tools # 3 Channelize SMEs efforts to contribute to mitigating climate change (+ sectoral CDM) # 4 Orientation of grass root NGOs in ensuring and propagating the integral element of climate change : sustainable development Possible solutions

Identification of CDM project opportunity Evaluation & Initial documentation Preliminary CDM due diligence Framing the PIN Pitching to investors Framing the PDD Taking the project thru the whole approval / certification process On approval– assisting with the fund raising Effective structuring of the investment ESCO model in case of energy projects VC + incubation model–hand hold the local developers Project & Carbon Advisory ACaDF™ Project / Carbon Finance ACX-Change™ Asia Carbon Fund™ Carbon Asset Management. Complete alignment of interests–there is no scope for conflicts of interests. Portfolio / mutual fund approach provides better valuation + scope for non performance insurance. A Win-Win solution Lowest Transaction costs in the sector Manage CDM related investments into Asia Set up project execution + Management team Advantages –Adequate safe guards –Quality management –Complete transparency –Exit option after harvesting CERs –Return on investment to cover cost of funds + premium for risk –Structured finance–to optimise local debt component Capacity Building Region specific focussed Capacity Building. Backed by clearly defined pilot projects Development of local expertiese Mentoring service for local consultants Set up Local Center of Excellence  PDD expertiese  Local OE–operating at local costs Identification of CDM project opportunity Evaluation & Initial documentation Preliminary CDM due diligence Framing the PIN Pitching to investors Framing the PDD Taking the project thru the whole approval / certification process On approval– assisting with the fund raising Effective structuring of the investment ESCO model in case of energy projects VC + incubation model–hand hold the local developers Project & Carbon Advisory ACaDF™ Project & Carbon Advisory ACaDF™ Project / Carbon Finance Project / Carbon Finance ACX-Change™ACX-Change™ Asia Carbon Fund™ Asia Carbon Fund™ Carbon Asset Management. Complete alignment of interests–there is no scope for conflicts of interests. Portfolio / mutual fund approach provides better valuation + scope for non performance insurance. A Win-Win solution Lowest Transaction costs in the sector Manage CDM related investments into Asia Set up project execution + Management team Advantages –Adequate safe guards –Quality management –Complete transparency –Exit option after harvesting CERs –Return on investment to cover cost of funds + premium for risk –Structured finance–to optimise local debt component Capacity Building Region specific focused Capacity Building. Backed by clearly defined pilot projects Development of local expertise Mentoring service for local consultants Set up Local Center of Excellence  PDD expertise  Local OE – operating at local costs The Asia Carbon Group “Total carbon solutions”

Project documentation Carbon Advisory Project finance Advisory & syndication Baseline study CER Trading Complete Carbon Solution Competitive position Low Medium High Product/market attractiveness LowMediumHigh Venture Carbon Advisory Carbon Trading Project finance & Mgmt. Fund Management Propeller for future growth – The Complete Carbon Solution The Asia Carbon Group “Total carbon solutions”

Thank you N.Yuvaraj Dinesh Babu Head, Climate Change Asia Carbon International B.V (Incorporated in The Netherlands) 150, Cecil Street, #10-03 Singapore Ph: Fax: