1. JCF March, 2006 Issues on and Requests for Joint Implementation ( “JI” ) Projects Institutional Framework on Joint Implementation ( “JI” ) Projects Yusuke Ito Japan Carbon Finance, Ltd. Your Partner for Development & Success in CDM/JI Projects & for Contribution to Sustainable Development

2. JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2005 Japan Carbon Finance, Ltd. All Rights Reserved. 2 JCF / Company Profile (1) Main Business Objective : To Purchase Carbon Credits (ERUs and CERs ） issued until 2012 from JI/CDM Projects with Assistance to Development of JI/CDM Projects (2) Committed Fund Amount: Approx. US$ 140 million from fund pool called “Japan GHG Reduction Fund (JGRF)” (3) Fund Providers: 31 Major Japanese Private Enterprises and 2 Governmental Financial Institutions (JBIC and DBJ) (4) Contracted Projects (as of end Feb. 2006): (Types) Wind Power/ Landfill / Coal Mine/ Energy Efficiency (Country) China/ Malaysia/ India/ South Africa/ Brazil

3. JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2005 Japan Carbon Finance, Ltd. All Rights Reserved. 3 JCF not yet signed ERPAs for JI  Since one and quarter year’s operation, JCF has not yet signed any ERPAs for JI Projects. What are the reasons for that?  Number of JI Projects might be limited due to some reasons. Or, are there a considerable number of Projects for European Entities because they are close to JI Host countries in light of Geography, History, Business and Economy while very few for Japanese?  Assuming that such Limitation is Common to all Parties concerned, issues of (i) Funding, (ii) Individual Risk, (iii) Duplication with EU-ETS and (iv) Price shall be raised, which prevent the potential JI Projects from the smooth Development and Implementation.

4. JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2005 Japan Carbon Finance, Ltd. All Rights Reserved. 4 Issues on JI (1) --- Funding  JCF received a number of PINs from JI Projects which always faces Funding Difficulty, not only for Debt but also for Equity Capital.  This may be caused by Host Countries’ Tightening Policy in Finance and Economy under their (sometimes under EU’s) Discretion, however, Merits and Significance of JI Projects have to be recognized.  Establishing a new Credit Facility for JI Projects (if possible, (more attractive) semi-commercial Interest Rates with middle/long Term) will ease non-availability of Funding and Improvement of Project Feasibility.

5. JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2005 Japan Carbon Finance, Ltd. All Rights Reserved. 5 Issues on JI (2) --- Individual Risk  Whether Host Country comply with Eligibility Requirements (“ERs”) is big issue for Buyers in light of Delivery in timely Manner. Even though Projects adopt Track 2 Procedure, there remains a Risk of Host Country’s non-compliance with ERs from which (i) National System for Monitoring and (ii) Annual Submission of Emission Inventory are excluded.  Question will be raised what happens if Host Country cannot comply with ERs and Projects achieves Emission Reductions in that period. Once Host Country meets ERs at the later time, Project should have a Right to receive AAUs for such Emission Reductions, or hopefully ERUs through Conversion from AAUs.  In order to ease such Burden, Early Progress in (i) Calculation of AAUs in the Standard Year and (ii) National Registry by Host Country is highly appreciated.

6. JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2005 Japan Carbon Finance, Ltd. All Rights Reserved. 6 Issues on JI (3) --- Duplication w/ EU- ETS  What happens if JI Project Entity becomes Facility to be allocated EU Allowance from Host Country?  JI Project Entity should be allocated an appropriate Amount of EU Allowance which is not being reduced by Emission Reductions achieved by JI Project implemented previously. Otherwise, such Project Entity becomes unable to sell Emission Reductions to Buyer or has to provide itself with such Amount through EU- ETS.  Host Country should confirm such Allocation in case Project Entity becomes Facility to be capped its Emission.

7. JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2005 Japan Carbon Finance, Ltd. All Rights Reserved. 7 Issues on JI (4) --- Price  What is Background and Rationale that JI Project Entity can enjoy higher Price of Emission Reductions than CDM? Somebody tells that such Difference comes from the Difference in Country Risk. (JI Host Countries are more stable than CDM in general.)  Difficulty in accepting such explanation, as such Price Difference cannot be seen theoretically in CDM Projects in Countries which are different in such Aspect. (e.g. Political and Fiscal Stability.)  Lower Price than CDM may be offered as there are above-mentioned additional issues CDM Projects do not have to face. Otherwise, JI Projects should resolve those issues or make Rationale on such Difference.

8. JCF Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2005 Japan Carbon Finance, Ltd. All Rights Reserved. 8 Requests in Summary  Funding  Host Country ’ s Establishment of Financial Program for JI Projects; such as Provision of Loans/ Guarantees/ Security Interests through its Government- owned Policy-lending Institutions.  Individual Risk  Host Country’s Effort and Early Progress on Compliance of Eligibility Requirements.  Duplication  Host Country ’ s Confirmation that JI Project Entity shall not be adversely affected from future Emission Capping under EU-ETS.  Price  Comparable Price with CDM Projects unless it can solve additional Issues raised above or make rationale for such Difference.