TACR: PRC: Clean Development Mechanism Fund Governance

CDMF Governance and Operations Manual Eng V3.doc - 1 -

People’s Republic of China

Clean Development Mechanism Fund

Governance Procedures and Operations Manual


Table of Contents

Page PART I CDM Fund Governance Procedures

3

Chapter One Principles, Overview & Definitions

4

Chapter Two Board Structure & Composition

11

Chapter Three Board Functions, Duties & Powers

12

Chapter Four Delegation of Board Powers

15

Chapter Five Proceedings at Board Meetings

17

Chapter Six Recordkeeping, Reporting & Meetings

19

Chapter Seven Other Provisions

21

PART II CDM Fund Operations Manual

22

Chapter Eight Organizational Structure of the CDM Fund and Basic Functions of Each Division

23

Chapter Nine Receiving Funds

26

Chapter Ten Formulation of Financial Investment Policy

30

Chapter Eleven Operation and Management of Financial Assets

31

Chapter Twelve Formulation of Project Investment Policy

33

Chapter Thirteen Operation and Management of CDMF Project Funding

38

Chapter Fourteen Budget Management

50

Chapter Fifteen Accounts Administration

56

Chapter Sixteen Payment Administration

59

Chapter Seventeen Risk Control and Compliance

63

Chapter Eighteen Reporting System

66

Appendix Various Schedules

68


PART I

CDM FUND GOVERNANCE PROCEDURES


Chapter One

Principles, Overview & Definitions

Article 1. Governing Principles: The utilization and the management of the CDM Fund

should adhere to relevant PRC laws, regulations and financial rules and measures, and should

follow the principles of fairness, justice, openness, high efficiency, risk control and cost-

effectiveness. The benefits that result from the utilization of the CDM Fund in accordance

with the general objective of the CDM Fund should include both economic benefits and

social benefits.

Article 2. Scope of this Document: This document sets forth proposed procedures for

the governance and management of the China CDM Fund (“CDMF” or the “Fund”) and the

CDM Fund Management Center (“CDMFMC” or “FMC”), together with proposed general

operating principles and procedures for the CDMF Board of Directors (“Board”). This

document supplements the “Statutes of China Clean Development Fund”, “Regulations on

Management of China Clean Development Fund”, and “Regulations on Financial

Management of China Clean Development Fund”, all dated 28 March 2007 (Draft v5.0)

(together in their final form, the “Charter Documents”), and incorporates by reference the

“Rules of Procedure for the Board of Clean Development Mechanism (CDM) in China”.

Article 3. Design Overview: The diagram below illustrates the overall design of the

Fund, the relationship of the Fund and the CDMFMC, key functions of the CDMFMC, and

key external parties with which the Board of the Fund will need to interact. These

relationships and functions will not be static – this illustration anticipates the operational

requirements of the Fund after several months of start-up operations, and is intended as a tool

for the Board and CDMFMC officers in their planning and consideration of which functions

should be performed by which entities.

Article 4. Structure: Part I of this document describes the structure and proceedings of

the Board of Directors of the Fund and its relationship with outside entities and the

CDMFMC. The Charter Documents provide that the CDMFMC will employ a range of staff

to carry out financial and project investments, project monitoring and management, reporting,

Board secretariat role, business development, risk management and other key functions.

Functions of the CDMFMC are described in Part II hereof.


China CDM Fund

China CDM Fund & Management Center – Design Overview

Bank Deposits

CDMF Management Center (CDMFMC)

CDMF Board of Directors: 7 non-executive membersNDRC (Chair), MoF (Vice-Chair), MoFA, MoST, MoAg, SEPA, CMA

Grant Programs

IFIs & Other Donors

ERPAs

Grants & TA Support

President & Vice-Presidents

Secretariat & General

Administration

ExternalAudit

Eligible Foreign Public Sector & Private Sector Investors

Deposits to financeIndirect

Investments

Income

Operating Expenses

CERs

Payments

Levy mechanism

Government Shares of CER sale proceeds

¥ / $ / €

Project Equity & Debt

Project PortfolioReturns

(Interest / Dividends / Capital Geins)

Other Climate Change Investments

CDM Projects / Entities

National Audit Board

(PRC public-sector)M o F(Operational)

Capacity-Building GrantsPublic Awareness Grants

Adaptation Grants

Procurement

External Audit Firm

(Int’l GAAP)

Law FirmOutside Counsel

Other AdvisorsFinancial

ManagementTechnical

Financial Investment

Portfolio

Government Securities

Board Committees

Intermediary Financial

Institutions

PROJECT APPLICATIONS

Payments?

Report to Board

Internal Audit(Report directly

to Board)

Eligible Donors

Contributions

IFIs

Loans & grants

Direct Investments

Staff Departments:

See Part II, Chapter 8

International Carbon Funds & Other

CER Buyers

Other Support & Investments

Article 5. Definitions:

(1) “Annual Meeting” means a meeting of the Fund held pursuant to the

provisions hereof;

(2) “Annual Report” means a written report issued by the Board of the

Fund pursuant to the provisions hereof;

(3) “Asset Allocation Guidelines” means the set of guidelines adopted by

the Board pursuant to Schedule A1 hereto which govern the Board’s overall

allocation of Fund Property among investment activities, and, within the

category of investments, to various sub-categories of investment asset

including government securities and bank deposits as well as Project loans


and other Project investments. All investment and financial management of

the Fund shall be carried out pursuant to the Asset Allocation Regulations;

(4) “Board” or “Board of Directors” means the Fund’s Board of

Directors;

(5) “Board Representative” means a person representing a Directorate

Institution on the Board of the Fund;

(6) “CDM Executive Board” means the body of that name established by

the UNFCCC to regulate the Clean Development Mechanism and projects

undertaken pursuant thereto;

(7) “CDMF Project” means any project undertaken by a Project Entity to

which the Fund is providing financial support pursuant to a CDMF Project

Financing Agreement;

(8) “CDMF Project Financing Agreement” means an instrument or

contract between the CDMFMC and a Project Entity pursuant to which such

Project Entity receives financial support from the Fund;

(9) “CER” means Certified Emissions Reductions as defined by the CDM

Executive Board;

(10) “Charter Documents” means the constitutive documents of the Fund:

“Statutes of China Clean Development Fund”, “Regulations on Management

of China Clean Development Fund”, and “Regulations on Financial

Management of China Clean Development Fund”, in their final form as

approved by the respective Directorate Institutions;

(11) “China Banking and Regulatory Commission” or “CBRC” means

the body of that name established by the Government of the PRC;

(12) “China CDM Fund” or “CDMF” or “Fund” means this Clean

Development Mechanism Fund as approved by the State Council of the

People’s Republic of China and established in accordance with the Charter

Documents;

(13) “Compensated Financing” means Concession Loans or other types of

financing where capital provided is expected to be recovered either through

principal payback or through dividends and appreciation of underlying

financial interest received by the CDMFMC;

(14) “Concession Loan” means a loan by the Fund to a Project Entity

pursuant to a CDMF Project Financing Agreement which bears interest at less

than current market rates for comparable tenors and amounts;

(15) “Co-Financier” means an IFI or another public-sector or private

financial institution or fund which enters into a Co-Financing Agreement with

the Fund;


(16) “Co-Financing Agreement” means an agreement between the Fund

and a Co-Financier, pursuant to which they agree to jointly provide financial

support, technical assistance, or other forms of support to Project Entities on

such terms as the Co-Financing Agreement may provide for;

(17) “Direct Investment” means an investment which is made by the Fund

directly without the involvement of an Intermediary Financial Institution;

(18) “Directorate Institutions” shall mean those institutions of the PRC

Government which participate in the management of the Fund and which are

entitled to appoint Directors to its Board, namely the National Development

and Reform Commission, the Ministries of Finance, Foreign Affairs, Science

and Technology, and Agriculture, together with the State Environment

Protection Administration and the China Meteorological Administration;

(19) “Donor” means an eligible Person who contributes to the Fund as

provided herein;

(20) “Donor Agreement” means an agreement under the provisions hereof

between any Donor and the Board with respect to said Donor’s contribution to

and participation in the Fund;

(21) “Eligible Depository Bank” means a bank which has been approved

by the Board as a depository for Fund Property per the Asset Allocation

Guidelines in Schedule A1 hereof;

(22) “Eligible Foreign Public Sector Investor” means any government,

agency, ministry or other official entity of a country other than the PRC which

is making an approved co-investment in a Project;

(23) “Eligible Private Sector Investor” means any Person, other than an

Eligible Foreign Public Sector Investor, organized in a country other than the

PRC, which is making an approved co-investment in a Project;

(24) “Expert Assessment Panel” means the body of that name as

established pursuant to Article 106 hereof;

(25) “Financial Investment” means an investment by the Fund in

Government Securities or deposits at an Eligible Depository Bank which are

not related to a CDMF Project Financing Agreement;

(26) “Fiscal Year” means the fiscal year of the Fund established by the

provisions hereof;

(27) “CDMFMC” or CDM Fund Management Center means the unit of

that name established by the Fund for the purposes of managing the Fund ;

(28) “First Year of CDMFMC Operation” means the 12 months (365

days) starting immediately from the date when the CDMFMC officially

commences operations;


(29) “Fund Property” means any and all of the property contributed to the

Fund by the Government of the PRC or by any other Donor, plus other

property generated through Fund operations;

(30) “Grant” means a financial gift given by the Fund to a Project Entity

without expectation of (a) repayment of principal, (b) payment of interest or (c)

issuance by such Project Entity to the Fund of equity or any other financial

interest;

(31) “Grant Portfolio” for the Fund means the series of Projects to which

the Fund has contributed or is contributing capital as Grants;

(32) “Grant Portfolio Criteria” for the Fund means the criteria specified

by the Board as the basis for the overall allocation of Grant resources of the

Fund, including at a minimum, the criteria set out in Schedule A4 hereto;

(33) “Grant Selection Criteria” for the Fund means the criteria specified

by the Board as the basis for selecting Projects for the possible allocation of

Grant resources from the Fund, including at a minimum, the criteria set out in

Schedule A5 hereto;

(34) “HFC” means hydrofluorocarbons;

(35) “Indirect Investment” means an investment which is made by the

Fund through an Intermediary Financial Institution;

(36) “Independent Investment Manager” means a third party investment

management company independent of the CDMF;

(37) “Independent Third Party” means a properly qualified entity, such

as a financial or environmental auditing company, investment advisor or

consultant, which is independent from the Board, the PRC Government, and

the Project Entity, and was not previously employed on activities related to

the Project Entity in question;

(38) “Interim Meeting” means a meeting of the Directors which is not a

Regular Meeting and which is convened pursuant to the provisions hereof;

(39) “Interest-free Loan” means a loan by the Fund to a Project Entity

pursuant to a CDMF Project Financing Agreement made in the expectation of

repayment of principal but without expectation of payment of interest;

(40) “Intermediary Financial Institution” means a bank, investment

manager, or other financial institution which is an approved wholesale

recipient of cash from the Fund or other Fund Property, and uses such cash or

Fund Property to finance investments on behalf of the Fund and pursuant to

the Fund’s Asset Allocation Guidelines, Project Portfolio Criteria, Project

Selection Criteria and any other regulations or guidelines of the Board which

may from time to time be in effect;

(41) “International Financial Institution” or “IFI” means a multilateral

or bilateral development finance institution, e.g. the Asian Development Bank


or the World Bank, which may contribute to the Fund or with which the Fund

may enter into Co-Financing Agreements;

(42) “Investment Phase” means the process of allocating the capital of the

Fund to Projects pursuant to the Project Portfolio and Project Selection

Criteria for the Fund;

(43) “N2O” means nitrous oxide;

(44) “National CDM Board” means the body of that name established by

the Government of the PRC;

(45) “Non-Compensated Financing” means Grants or other types of

financing where capital provided by the CDMFMC is not expected to be

repaid or recovered in any form;

(46) “Opening Date” of the Fund means the date declared by the Board to

be the first date on which Project Entities may submit funding applications

(including Grant requests) to the Fund;

(47) “Operational Date” of the Fund means the date declared by the Board

to be the date on which the Fund commences operations;

(48) “Person” means and includes individuals, corporations, partnerships,

trusts, unincorporated associations, unincorporated organizations, joint

ventures and other entities, and governments and agencies and political

subdivisions thereof;

(49) “PFC” means perfluorocarbons;

(50) “Project” means an activity for which the Board has agreed to or

intends to agree to provide resources, in the form of investment or Grant

pursuant to the provisions hereof;

(51) “Project Entity” means one or more persons with which the Board

has entered into or intends to enter into an Investment Agreement;

(52) “Project Investment Strategy Plan” means an overall strategy plan

approved by the Board of the CDMF regarding policies on CDMF project

investment as well as project selection criteria;

(53) “Project Portfolio” for the Fund means the series of Projects to which

the Fund is contributing capital either as investment or as Grant;

(54) “Project Portfolio Criteria” for the Fund means the criteria specified

by the Board as the basis for the overall allocation of resources of the Fund,

including at a minimum, the criteria set out in Schedule A2 hereof;

(55) “Project Selection Criteria” for the Fund means the criteria specified

by the Board as the basis for selecting Projects for the possible allocation of

resources from the Fund, including at a minimum, the criteria set out in

Schedule A3 hereof;


(56) “Regular Meeting” means a meeting of the Directors convened


(57) “Secretariat” means the Fund Board secretariat which may be

delegated by the Board to the CDMFMC by the provisions hereof;

(58) “Statutes” means the Statutes of China Clean Development

Mechanism Fund;

(59) “Technical Assistance Fund” means a fund or funds established


(60) “Total Fund Assets” means the total of the Fund’s assets in all

categories including fixed and financial assets, Project investments,

receivables, cash, etc.;

(61) “UNFCCC” means the United Nations Framework Convention on

Climate Change.


Chapter Two

Board Structure & Composition

Article 6. Number of Board Representatives, Membership of the Board : The Board

of the Fund shall consist of representatives of the following 7 (seven) ministerial members

(together, the “Directorate Institutions”):

A. The National Development and Reform Commission (“NDRC”, appointing

the Chair),

B. The Ministry of Finance (appointing the Vice-Chair),

C. The Ministry of Foreign Affairs,

D. The Ministry of Science and Technology,

E. The Ministry of Agriculture,

F. The State Environment Protection Administration, and

G. The China Meteorological Administration.

Article 7. Term of Office of Board Representatives: From time to time, each

Directorate Institution shall appoint a Board Representative who shall serve at the discretion

of such Directorate Institution

Article 8. Vacancies: In case of a vacancy on the Board through a Board

Representative’s resignation, retirement, death or incapacity, the Directorate Institution

which appointed the vacating Board Representative shall appoint a replacement Board

Representative.


Chapter Three

Board Functions, Duties & Powers

Article 9. Authority of the Board to Enter into Binding Contracts on Behalf of the

Fund: The Board is empowered to execute binding agreements and contracts on behalf of the

Fund; this power may be delegated to the CDMFMC, its staff, or to other individuals named

by the Board in Interim Meeting.

Article 10. Fiduciary Duty: The Board and each individual Board Representative shall

have a fiduciary duty to the Government of the PRC to manage the property of the Fund

prudently and pursuant to all applicable provisions of Chinese Law, the Charter Documents

of the Fund, and any applicable rules and regulations of the Fund then in force.

A. Appointment & Supervision of Management: The Board shall appoint

officers and staff of the CDMFMC as provided herein;

B. Officers: The officers of the CDMFMC shall comprise a President and two

Vice-presidents, together with such other officers as the Board may from time to time

determine;

C. Nominations: Officers of the CDMFMC shall be appointed by the Board

from nominees proposed from time to time by the Directorate Institutions. The Board

may from time to time establish procedures for requesting and evaluating such

nominations from Directorate Institutions;

D. Secondment: The Directorate Institutions may, with the consent of the Board,

also second staff members to the CDMFMC to assist with its functions or provide

special services thereto;

E. Staffing: The officers of the CDMFMC shall be responsible to the Board for

hiring, training and managing appropriate qualified staff for the CDMFMC. The

Board may dismiss any officer or staff of the CDMFMC at any time by majority vote

in Interim Meeting;

F. Duties: The officers and staff of the CDMFMC shall discharge any and all

duties and responsibilities delegated to it by the Board;

G. Reorganization: The CDMFMC shall be organized or reorganized from time

by the Board as it sees fit;

H. Annual Budget: The Board shall approve an annual budget of the CDMFMC,

including remuneration of officers and staff, such budget to be approved by majority

vote of the Board in Interim Meeting;

I. Management Agreement: The Board shall enter, on behalf of the Fund, into

a written management agreement with the CDMFMC, the terms of which shall be

established or amended by the Board.


Article 11. Financial Management & Control:

A. Segregation of Fund Property: All property of the Fund belongs to the PRC

government as non-budgetary capital, and shall be kept segregated from other funds

and assets of the PRC Government and shall be used only for purposes of the Fund,

as established in the Charter Documents and approved from time to time by the Board.

B. Incoming Levy Proceeds: The CDMFMC shall prepare procedures of levy

collection and management in accordance with Decree 37. The procedures will

become effective after being reviewed and approved by the Board.

C. Fund and CDMFMC Expenditure: No expenditure may be made from the

Fund without authorization of the Board. Eligible expenses are expenses of the Fund

proper (of board meetings, legal services, advisors, etc.), and of the CDMFMC

(further to its approved budget as provided herein). The Board shall review and

approve annually a budget for the CDMFMC, funding for which may be disbursed

annually or otherwise at the discretion of the Board. The CDMFMC shall be

responsible to the Board for accounting for all expenditure incurred within this budget.

D. Conflicts: Any Board Representative who has a personal interest in a project

proposed for funding by the Fund, or in any contract into which the Fund may enter,

shall abstain from the relevant vote by the Fund board.

E. Accounting & Financial Reporting: The Board shall ensure that accurate

and timely financial records are kept, and that the Fund’s financial results are reported

to all concerned Persons, including the Directorate Institutions, Donors, international

agencies and co-financiers, as well as the public. The Board may delegate all or part

of this function to the CDMFMC, and shall engage one or more external audit firms

or other appropriate independent third parties or experts for advice in establishing

appropriate accounting and financial reporting systems prior to the Fund’s

Operational Date.

F. Audit:

(1) Internal audit function: The Board may, if it sees fit, organize an

internal audit function for the Fund which reports directly to the full Board, or

to any Audit Committee of the Board which it may constitute, and which may

be external to the CDMFMC.

(2) MOF Audit: The Ministry of Finance shall be entitled to conduct its

own annual audit of the Fund’s finances and operations, and the Board shall

direct the CDMFMC to cooperate fully with such audit.


(3) State Audit Bureau Audit: The State Audit Bureau shall be entitled

to conduct its own annual audit of the Fund’s finances and operations, and the

Board shall direct the CDMFMC to cooperate fully with such audit.

(4) External Audit Firm Audit for International Financial Reporting:

The Board shall appoint a suitably qualified external audit firm to conduct an

annual independent audit of the Fund’s finances and operations, including

those of the CDMFMC and Intermediary Financial Institutions, if any. This

audit shall be undertaken to the auditor’s choice of applicable international

accounting standards, and the results of such audit shall be published as an

integral part of the Fund’s Annual Report. The Board shall direct the

CDMFMC, all Project Entities (whether recipients of investments or Grants

from the Fund), any other recipient of Fund Property, and any Intermediary

Financial Institution to cooperate fully with such audit.


Chapter Four

Delegation of Board Powers

Article 12. Delegation Principle: The Board may delegate any of its powers to other

Persons to discharge, provided that such Persons remain at all times under the supervision of

the Board and are bound by all applicable audit provisions hereof.

Article 13. Delegation of Board Powers to the CDMFMC:

A. Board Secretariat Functions: The Board Secretariat functions (including,

inter alia, preparation and circulation of minutes of meetings of the Board,

preparation and circulation of meeting notices and agendas, collation and circulation

of reports on the Fund’s finances and/or operations, etc) may be performed by a

specially-designated office within the CDMFMC.

B. Documentation (Management Contract between the Fund & CDMFMC):

The delegation of Board powers to the CDMFMC shall be governed by a written

Management Agreement as provided herein, subject to approval by the Board.

Article 14. Delegation of Asset Management Functions to Intermediary Financial

Institutions: By written agreement subject to approval by the Board, the Board may also

delegate certain of its powers (e.g. to originate loans or to enter into other investment

transactions) to qualified Intermediary Financial Institutions as may be recommended from

time to time by the Center, such as banks or licensed investment managers. The investment

operations on behalf of the Fund undertaken by such Intermediary Financial Institutions shall

at all times be governed by the Board through the Asset Allocation Guidelines, Project

Portfolio Criteria, and Project Selection Criteria then in effect, together with any specific

terms and conditions of such written agreement (provided however that such written

agreement may not supersede any provisions of the Asset Allocation Guidelines, Project

Portfolio Criteria and Project Selection Criteria then in effect). The Intermediary Financial

Institutions shall also be subject to all manner of audit applicable to the Fund as provided

herein.

Article 15. Transactions with External Parties: All transactions with external Persons,

including, but not limited to:

A. Project Entities (Investees and Grant Recipients);

B. Other Grant recipients;

C. Intermediary Financial Institutions;


D. Independent Investment Managers;

E. External audit firms;

F. External legal advisors;

G. Vendors / suppliers (for procurement of goods and services); and

H. Any other specialist advisors, managers or agents

shall be documented by formal written agreements with the Fund or with the CDMFMC on

behalf of the Fund (further to Articles 11 and 14 hereof) , and shall be subject to approval or

termination by the Board in Regular Meeting, unless specifically otherwise provided herein.

Article 16. Transactions with IFIs, Co-Financiers and Donors: Additionally, the

CDMFMC, with the consent of the Board, may establish special procedures for regulating

transactions between the Fund and IFIs, Co-Financiers and Donors. The CDMFMC may

establish such internal departments or engage such external advisors as may be approved to

develop and manage such transactions and programs and to liaise with participating IFIs, Co-

Financiers or Donors.


Chapter Five

Proceedings at Board Meetings

Article 17. Meeting Types: All decisions of the Board shall be taken at Regular or

Interim Meetings as provided herein.

A. Regular Meetings: Regular Meetings of the Board shall be called by the

Chair or on behalf of the Chair by the Secretariat and held at least once in every

calendar quarter, and shall be the forum for conducting regular business of the Fund.

Notice of Regular Meetings shall be issued per Article 21 hereof.

B. Interim Meetings: Interim Meetings may be called by any of the parties

below at any time to consider proposals to be brought to the Board as provided herein,

or matters requiring Interim Meeting consideration. Notice of Interim Meetings may

be issued by:

(1) The Chair;

(2) Any five Directorate Institutions or their Board Representatives;

(3) NDRC, acting though the <designated NDRC officer>; or

(4) The President of the CDMFMC.

Article 18. Quorum: The quorum for any Regular or Interim Meeting of the Board shall

be five (5) Board Representatives. Resolutions of the Board shall pass upon a vote in favor

by at least 5 of the Board Representatives present. Article 19. Voting: Each Board Representative shall have one vote. In case of a tie, the

Chair shall cast the deciding vote.

Article 20. Abstentions: Any Board Representative who does not attend a Board meeting

or submit a written consent as provided herein, and therefore does not vote, shall be regarded

as abstaining from voting thereat. Additionally, any Board Representative may abstain from

voting on any resolution of the Board, and such abstention shall be duly noted in the Minutes

of the Meeting.

Article 21. Meeting Notices:

A. Notice of Regular Meetings: Notice of a Regular Meeting of the Board shall

be distributed in writing (including via email) by the Secretariat no fewer than 10

business days before the Regular Meeting in question.

B. Notice of Interim Meetings: Notice of an Interim Meeting of the Board shall

be distributed in writing (including via email, but subject to written confirmation of


receipt by each addressee) no fewer than 2 full business days before the Interim

Meeting in question.

Article 22. Action by Written Consent in Lieu of Regular Meeting: The Board may

take action on any matter which is properly the subject of a Regular Meeting by means of

written consent in lieu of meeting, such consent to be circulated no fewer than 5 business

days before the voting deadline. The quorum requirements for Regular Meetings as set forth

herein shall apply to such written consents.

Article 23. Form of Instructions to the CDMFMC: The Board may give instructions to

the CDMFMC in such form as it may from time to time decide, provided, however, that such

instructions shall be in writing and be subject to approval by the Board in Regular Meeting.


Chapter Six

Recordkeeping, Reporting & Meetings

Article 24. Records and Reports: The Management Center shall be responsible for

keeping accurate and true records of the Fund’s finances and operations, and for publishing

regular reports to the Board and other parties..

A. Minutes of Board Meetings: Minutes shall be taken of all Regular and

Interim Meetings of the Board by a person from the Board Secretariat located in the

Management Center so appointed by the Chair. Minutes shall be signed by the Chair

and distributed to all Directorate Institutions within 10 days of the relevant meeting.

B. Annual Report of the Fund: The Management Center shall prepare an

Annual Report for the Fund which shall contain the report and certification of

external auditors retained for this purpose, prepared to international accounting

standards, as well as of the State Audit Bureau. The Annual Report shall be submitted

to the Board for approval and, with the approval of the Board, be published and

distributed to Directorate Institutions, Donors, and Co-Financiers, and shall be made

available to the public in electronic form on the Fund’s website in English as well as

Chinese language.

C. Annual Meeting of the Fund: The Board shall hold an Annual Meeting for

the Fund to present the Fund’s Annual Report to Directorate Institutions, Donors, Co-

Financiers and such other persons or institutions as may be invited by the Board, and

to host such other programs related to the activities and objectives of the Fund as the

Board may from time to time see fit.

D. Other Reporting: Other reporting shall be done pursuant to the requirements

of the Board as provided herein.

Article 25. Amendments to Governing Documents:

A. Amendments to Governance Procedures: These Governance Procedures

may be amended by majority vote of the Board in Regular Meeting.

B. Amendments to Charter Documents: It is recognized that the

circumstances under which the Fund and CDMFMC will operate will change as the

field of climate change evolves, and particularly in light of unforeseeable changes to


the CDM regime after 2012. For this reason, the Charter Documents of the Fund may

require amendment or modification in future. The Charter Documents of the Fund

may only be amended as follows:

(1) The Statutes may be amended only by unanimous vote of the Board.

(2) All other Charter Documents may be amended by majority vote of the

Board.

Article 26. Termination or Reorganization: The Board, by unanimous resolution of all

Directorate Institutions, may recommend termination or reorganization of the Fund at any

time, but such termination or reorganization shall require the written consent of all Co-

Financiers of Projects which will not be completed by the proposed date of termination.


Chapter Seven

Other Provisions Article 27. Fiscal Year: At its first meeting, the Board shall fix the Fiscal Year end of

the Fund for its financial reporting.

Article 28. Donors: The Board shall from time to time determine eligibility criteria for

Donors to the Fund as well as any specific terms and conditions under which it will accept

contributions to the Fund, such terms and conditions to be reflected in applicable Donor

Agreements.

Article 29. Opening Date: The Board shall, at its first meeting, determine the first date

on which Project Entities may submit funding applications (including Grant requests) to the

Fund.

Article 30. Operational Date: The Board shall, at its first meeting, determine the date on

which the Fund shall commence operations.

Article 31. Technical Assistance Funds: The Board may from time to time, from the

resources of the Fund which may be allocated to Grants, make Grants to or establish

Technical Assistance Funds to further the objectives of the Fund, such Technical Assistance

Funds to be administered by the CDMFMC or other duly authorized Person subject to written

agreement with the Fund approved by the Board by majority vote in Regular Meeting.


PART II

CDM FUND OPERATIONS MANUAL


Chapter Eight

Organizational Structure of the CDM Fund and Basic Functions of Each Division

Article 32. The Board of the CDMF is the across-department coordination institution for

CDMF affairs and exercises the following functions and powers.

A. To examine the basic management system of the CDMF;

B. To discuss and examine important the CDMF business matters;

C. To examine the annual utilization plan of the CDMF;

D. To examine project applications of the CDMF utilization;

E. To examine the outcomes of those important activities and projects supported

by the CDMF;

F. To examine the annual budget scheme and the annual financial statement of

CDMF;

G. To discuss and examine the revision of the Statutes of the CDMF.

Article 33. The CDMFMC shall be established as the management and implementation

body of the CDMF. The CDMFMC is a public entity with legal person status, established

with the approval of the State Council and regulated by the Ministry of Finance.

Article 34. The main responsibilities of the CDMFMC include:

A. To implement decisions made by the Board of the CDMF, and to organize and

carry out CDMF business activities under the supervision of the department in charge

of the CDMF;

B. To implement CDMF capital levying and raising;

C. To formulate plans on important matters such as management and utilization

of the CDMF, and to implement such plans after they are approved by the Board of

CDMF;

D. To formulate rules and procedures to manage the business activities, financial

management and account management of the CDMF;

E. To supervise and monitor CDMF projects during the entire process of project

implementation;

F. To develop and implement CDMF projects;

G. To develop domestic and international cooperation in accordance with the

general objectives of the CDMF, including cooperation with local partners;

H. To report work progress to the Board of CDMF;

I. To formulate the annual utilization plan of the CDMF;

J. To formulate the annual budget and financial statements of the CDMF.


Article 35. In accordance with Article 6 of the “Statutes of China Clean Development

Fund”, the objectives of the CDMFMC in managing the CDMF are to provide financial

support for sustainable domestic activities addressing climate change, while preserving and

enhancing the overall assets of the Fund.

Article 36. The CDMFMC, through its management of CDMF operations, should seek to

raise cooperation capital from multiple domestic and international sources and should

promote the sound utilization of such capital in accordance with the general objectives of the

CDMF.

Article 37. The CDMFMC will be led by one President and two Vice Presidents. The

President and Vice Presidents will be appointed by the Board of the CDMF. The CDMFMC

should establish the following permanent functional departments, each led by a Department

Head who is appointed by the President:

A. CDM Levy Collection Department, responsible for collecting levy from

proceeds of relevant CER transfers;

B. Financial Department, responsible for budgeting, account management,

payment management, financial reporting of the CDMF;

C. Cash Management/Financial Investment Department, responsible for

optimizing the deployment of the CDMF’s cash resources and available financial

assets;

D. Project Management Department, responsible for receiving and analyzing

proposals for projects, advising on the selection of potential projects and monitoring

the implementation of the selected projects thereafter;

E. Co-Financing Department, responsible for coordinating and liaising with IFIs

and other organizations for projects they will co-invest in;

F. Administration (Human Resources) and Secretariat Department, responsible

for the overall HR and administration matters of the CDMF and CDMFMC including

liaison between the Board and the CDMFMC;

G. Legal and Risk Control Devision, responsible for ensuring that the CDMF and

the CDMFMC operate within the law and there is compliance with all relevant

external and internal regulations; as well as monitoring all manner of actual or

potential risks, and advising on ways to eliminate/minimize such risks. When the

CDMFMC grows into a larger organization in the future, the department may be split

into two – one for legal and compliance, and the other for risk management.

Article 38. Regional offices will not be established at the initial stage. However, the

Board of the CDMFMC may decide to establish regional offices in the future, if the situation

requires.


Article 39. The CDMFMC may establish relevant Advisor Groups to advise the Center

on certain aspects of the CDMFMC business.

Article 40. Below is a simplified organization and reporting relationship chart:

Notes:

1) Boxes with solid frames represent deparments or functions that have been approved by the

relevant authorities;

2) Boxes with dotted frames represent departments or functions that are yet to be approved, or

may be established in the future;

3) Arrows indicate reporting relationship.

CDMFMC President

CDMF Board

CDM Levy Collection

Financial

Administration (HR)and Secretariat

Legal and Risk Control

CDMFMCVice President

Cash Management/Financial Investment

Project Selection and Monitoring


Co-Financing

Advisory GroupCDMFMC President

CDMF Board

CDM Levy Collection

Financial

Administration (HR)and Secretariat

Legal and Risk Control


Cash Management/Financial Investment

Project Selection and Monitoring


Co-Financing

Advisory Group


Chapter Nine

Receiving Funds

Article 41. The CDM Levy Collection Department of the CDMFMC is responsible for

activities related to receiving levies.

Section 1: The Determination of Levy Amount

Article 42. According to “Measures for Operation and Management of Clean

Development Mechanism Projects in China”, proceeds from the transfer of CERs shall be

owned jointly by the Government of China and the CDM project owner, with the allocation

ratio defined as below:

A. the Government of China imposes a 65% levy on CER transfer proceeds from

HFC and PFC projects;

B. the Government of China imposes a 30% levy on CER transfer proceeds from

N2O projects;

C. the Government of China imposes a 2% levy on CER transfer proceeds from

CDM projects in priority areas defined in Article 4 of “Measures for Operation and

Management of Clean Development Mechanism Projects in China” and in forestation

projects.

Article 43. The CDMFMC shall ascertain the amount of government levy on CDM

projects according to the contract price and normal accounting principles. If the actual

transfer price is lower than the lowest price allowed by the government for the transfer, the

CDMFMC shall calculate the government levy according to the lowest price allowed by the

government for the transfer. After the government levy amount is determined, the CDMFMC

shall send the Government Levy Amount Affirmation Letter to the project owner.

Article 44. When a CDM project is approved by the National CDM Board and its

Emissions Reduction Purchase Agreement (ERPA) is signed by the project owner and

foreign buyer(s), the project owner must summit a photocopy of the ERPA to the CDMFMC.

Article 45. If an ERPA specifies delivery in installments, after each installment of CER

transfer, the CDM project owner must file with CDMFMC information as to the target, price

and amount of the transfer. The CDMFMC is obligated to maintain the confidentiality of the

ERPA information.


Article 46. The CDM project owner shall respond and acknowledge the levy amount to

the CDMFMC within 5 working days after it receives the Government Levy Amount

Affirmation Letter issued by the CDMFMC.

Section 2: Collection of Levies

Article 47. There are three ways for collecting the government levy:

A. Centralized payment. With this method, the CER transfer contract specifies

that all CER proceeds will be transferred to the CDMFMC first; after deducting the

government levy from the revenue, the CDMFMC will transfer the remaining amount

to the specified account of the project owner.

B. Split payment. With this method, the CER transfer contract stipulates that the

amount of CER proceeds should be divided into 2 portions – part payable to

government and part payable to the project owner. The foreign buyer will directly

transfer the government levy amount to the dedicated account of the CDMFMC.

C. Payable by project owner. With this method, the foreign buyer will directly

transfer the entire CER transaction proceeds to the specified account of the project

owner. The project owner shall then transfer the government levy amount to the

specified account of the CDMFMC according to the ratio set out in the relevant rules.

Article 48. If the centralized payment method is adopted according to the relevant

contracts, the CDMFMC should deduct the amount of the government levy according to the

allocation ratio prescribed in relevant regulations from the amount received, and remit the

remainder to the project owner and notify the owner within 10 working days.

Article 49. If the split payment method is adopted in the relevant contract, the CDMFMC

should verify the volume and price of the transaction, and collect the government levy in full

in accordance with the relevant prescribed ratio on a timely basis.

Article 50. If the “payable by project owner” method is adopted, the project owner shall

transfer the government levy amount to the dedicated account of the CDMFMC within 10

working days after receiving the Levy Amount Affirmation Letter.

Article 51. The CDMFMC encourages the parties to the CER purchase agreement to

include a specific clause stipulating that the foreign buyer will transfer the entire purchase

amount directly to the dedicated account of the CDMFMC; or that the foreign buyer will

remit the government levy for each CER transaction directly to the dedicated account of the

CDMFMC.


Article 52. CDM project owners who have received CER transfer proceeds before these

rules come into force should also pay the government levy to the CDMFMC on a timely

basis.

Section 3: Other Provisions

Article 53. The CDMFMC shall establish a special information system to track and

monitor the implementation and transactions of CDM projects in China through the

information system.

Article 54. In order to ensure the proper management of CDMF capital, the CDMFMC

will establish an accounting unit in accordance with the CDMF’s accounting policy and

financial management system. The accounting positions will be independent from other

positions; and accounts will be established and checked centrally. Different revenues of the

CDMF will be accounted for respectively according to the source of the capital.

Article 55. The Ministry of Finance will establish a special bank account for the CDMF.

All revenues of the CDMF should be deposited in this bank account according to the source

of the funds. The CDMFMC will manage the funds strictly in accordance with relevant bank

deposit management rules.

Article 56. Should the revenue/expense item involve foreign exchange, the CDMFMC

should follow “The People’s Republic of China Interim Regulation of Managing Foreign

Exchange”, i.e. receipts in foreign exchange (such as USD, EUR, and JPY) should be

converted into RMB according to current bank exchange rates, recorded into the appropriate

accounts and financial statements, and reported to the regulatory authority and the Board of

the CDMF without delay.

Article 57. To improve the levy mechanism of the CDMF, a detailed receivables system

should be set up based on the type of CDM projects, CER amounts, levy ratios, currencies,

and nationalities/regions plus names of CER transaction counterparties.

Article 58. The CDMFMC should properly maintain all relevant information, proof

documents, bank certificates, remittance records, and payment receipts generated by the levy

process and the fund utilization process.

Article 59. The CDMFMC must comply with the PRC Accounting Law and relevant

financial management regulations, objectively report financial activities and record financial

data. The CDMFMC should ensure the preservation of capital through forecasting prior to


the event, monitoring throughout the event, and evaluation after the event. The CDMFMC

shall voluntarily accept audits from the Board of the CDMF, the Ministry of Finance,

relevant national audit institutions and external auditors.


Chapter Ten

Formulation of Financial Investment Policy

Article 60. The CDMFMC is responsible for preparing policy recommendations

regarding optimizing the Fund’s financial investment resources for the CDMF Board’s

approval. The CDMFMC will draft an annual Financial Investment Strategy Plan which

discusses return objectives and risk controls of the Fund’s financial investments in the light

of the Fund’s needs and capital market conditions, and will make recommendations on asset

allocation.

Article 61. The Financial Investment Strategy Plan will become effective upon the

approval by the CDMF Board.

Article 62. During the first year of CDMFMC operation, the following restrictions

regarding financial investments shall apply:

A. Permitted scope of financial investments includes cash, negotiated deposits,

and government bonds；

B. No more than a certain percentage of the Fund assets may be invested in

financial instruments；

C. Government bond investments can be no more than a certain percentage of the

total value of financial investments.

Article 63. The CDMFMC will review the financial investment policies annually and

recommend changes in the Financial Investment Strategy Plan to the Board of the CDMF.

Revisions will become effective upon approval by the Board.


Chapter Eleven

Operation and Management of Financial Assets

Article 64. Daily operations of financial asset investment will be undertaken by the

CDMFMC Cash Management/Financial Investment Department in accordance with the

Financial Investment Strategy Plan.

Article 65. During the first year of CDMFMC operation, all financial investments will be

implemented by designated traders in the Cash Management/Financial Investment

Department.

Article 66. After the first year of CDMFMC operation, the CDMF Board may approve

the CDMFMC to appoint independent investment managers if deemed appropriate. If the

CDMFMC is approved to use external managers, then the following rules apply:

A. The Cash Management/Financial Investment Department must appoint

designated personnel with expertise and experience in investment management to

take overall responsibility for activities related to external managers;

B. If the CDMFMC appoints independent managers, it must stipulate selection

criteria, including, inter alia, permitted securities, return objectives, benchmarks,

tracking error and risk tolerance level;

C. The CDMFMC must ensure that the manager selection process is fair and

appropriate. The CDMFMC should follow the process of inviting proposals from a

group of CSRC authorized fund managers or banks, evaluating the proposals in order

to arrive at a short list of 3-5 managers, then interviewing potential candidates before

making a final decision;

D. The CDMFMC should enter into a written Investment Management

Agreement with each selected external manager. The Agreement must specify

permitted securities, return objectives, benchmarks, tracking error, risk tolerance,

review period and monitoring procedures;

E. The investment manager must submit performance reports to the CDMFMC

on a monthly basis;

F. The CDMFMC must monitor and evaluate the investment performances of

external managers against the agreed upon criteria on a regular basis. If necessary the

CDMFMC can recommend that the Board terminate the Agreement or replace the

manager.

Article 67. The Head of Cash Management/Financial Investment Department must detail

all financial investment positions to the President of CDMF and the Vice President in charge


of the Department, copying the Head of Legal and Risk Control Department on a monthly

basis.

Article 68. The Head of Cash Management/Financial Investment Department must

provide a quarterly financial investment position report to the CDMF Board, prior to each

scheduled Board meeting. The quarterly report should include at least the following:

A. Description of current financial investment portfolio and comparison of

current portfolio versus the Strategic Investment Plan;

B. Investment income received during the quarter;

C. Realized gain/losses during the quarter;

D. Unrealized gain/losses during the quarter;

E. Fund management expenses;

F. Comparison of returns to target;

G. Key risk indicators;

H. Comparison of risks to target;

I. Future prospects.

Article 69. Should unusual negative circumstances occur which has leads to more than a

5% loss1 of the financial investments of the Fund, the Head of Cash Management/Financial

Investment Department should immediately provide a position summary and a recommended

action plan to the President of the CDMFMC and the Vice President in charge of the

Department, copying the Head of Legal and Risk Control Department. The President should

then immediately convene an Interim Meeting immediately with the relevant departments to

review and decide on an action plan.

1 The figure here is suggested by the ADB TA team and will need approval.


Chapter Twelve

Formulation of Project Investment Policy Article 70. According to the “Statutes” and the “Regulations on Management”, the

CDMF can be applied to support the following types of activities:

A. Capacity building for the State to address climate change;

B. Public awareness for the State to address climate change;

C. Activities related to climate change mitigation, such as energy conservation

activities and renewable energy development and utilization including CDM projects;

D. Activities related to adaptation to climate change;

E. Investment of CDMF capital for the preservation and appreciation of the value

of the CDMF;

F. Other business activities serving the general objectives of the CDMF;

G. Other activities approved by the State Council.

Article 71. The types of project investment that the CDMF can make include the

following:

A. Grants;

B. Concession Loans and other types of Compensated Financing;

C. Other forms of capital utilization as appropriate for the business development

of the CDMF, and approved by the Board of the CDMF.

Article 72. Types B and C of the above Article constitute CDM Project Investments.

While Type A, Grants, is not defined as a Project Investment, due to its effect on the value of

the Fund, responsibility with regard to policies and the awarding of Grants will be borne by

the Project Selection and Monitoring Department.

Article 73. The CDMF will provide Grants for the following types of activities which are

consistent with the Fund’s objectives stipulated in the “Statutes” and Article 70 of this

document: A. Capacity building initiatives include:

(1) Research and other activities supporting China’s participation in

international climate negotiations and relevant international cooperation; (2) Research and other activities that are necessary for China and its

different regions to effectively address climate change issues, including

communications and coordination between the central and local governments

regarding climate change; (3) Research and other activities which are necessary for the expansion of

the Fund’s business activities.


B. Public awareness initiatives include:

(1) Promoting the concern, understanding and support for climate change

issues by the whole of society, including incorporating climate change

contents into the mainstream education system, so that the entire society,

particularly decision-makers and current and future professionals of key

sectors and industries will develop a strong awareness of climate change

issues, and have enhanced capability to take into account climate change in

their work;

(2) Creating a positive image for the Fund so as to assist the achievement

of the Fund’s objectives, and a good societal atmosphere for the successful

development of the Fund’s activities.

Article 74. Concession Loans and other Compensated Financing will mainly support

projects that directly address climate change or lead to significant benefits in addressing

climate changes, and can meanwhile bring economic returns to the CDMF. The CDMF

should invest in projects that are within priority development fields set by the Chinese

government. If the CDMF invests in CDM projects, the operation of the CDM projects

should adhere to the “Regulation on China Clean Development Mechanism Projects” and the

CDMF funding should be used for faster and better implementation for such CDM projects; if

the CDMF invests in potential CDM projects, the potential CDM projects should meet the

qualifications for CDM projects specified in the “Regulation on China Clean Development

Mechanism Projects”, and the CDMF funding used to promote the development,

implementation and completion of such potential projects. The CDMF will give preferential

consideration to the development and implementation of CDM projects.

Article 75. Specifically, Concession Loans and other Compensated Financing will support

the following types of projects:

A. Energy efficiency improvement and energy conservation-related activities,

including the development of relevant markets and technologies, as well as the

transfer and application of relevant technologies.

B. Renewable energy-related activities, including relevant markets and

technologies, as well as the transfer and application of relevant technologies.

C. Other activities that have strong climate change mitigation benefits, such as

mitigation of greenhouse gases and disposal of organic waste, etc., including the

development of relevant markets and technologies, as well as the transfer and

application of relevant technologies.

D. Adaptation to climate change, including the development of relevant markets,

the development, transfer and application of relevant technologies, and the

implementation of relevant projects.


Article 76. Projects to be supported with donated or entrusted funds should as far as

possible meet any relevant criteria, if any, set by the donors or entrusting agencies.

Article 77. Applicants for Grants should meet the following requirements:

A. The applicant is a Chinese governmental agency that conducts activities that

address climate change, or a domestic public institution, a domestic non-profit NGO

or a social organization that provides support to such activities;

B. The applicant has legal person status;

C. The applicant has appropriate experience in the climate change field;

D. The applicant is the implementer of the project;

E. The applicant meets other conditions as may be determined by the Fund’s

Board.

Article 78. Applicants for Concession Loans and other types of Compensated Financing

should meet the following requirements:

A. The applicant is an enterprise within the territory of China, duly registered and

has passed annual checks;

B. Except when applying for cooperation funds, applicants should be a Chinese

enterprise or an enterprise controlled by Chinese capital;

C. The applicant’s products should be marketable, its operation should show

efficacy, and the applicant must not misallocate loan capital or other Compensated

Financing and must have good credit standing;

D. The applicants have the ability to pay principal and interest when due. The

applicant has paid off any interest, fees and principal that are due, or have developed

a payment plan that is recognized by the CDMFMC regarding any outstanding debt;

E. The applicant has opened a bank account or a general deposit account;

F. Except otherwise specified by the State Council, an applicant which is a

limited liability company or a stock limited company should have no more than 50%

of its net assets invested in equity investments in other companies;

G. The debt to equity ratio of the applicant meets the requirement set by the

CDMFMC;

H. If the investment period for the project is one year or more, the ratio of equity

to total project investment should satisfy the equity capital ratio for such an

investment project required by the government;

I. The applicant is the implementer of the project;

J. Other requirements as may be determined by the Board of the CDMF.

Article 79. An applicant should accept the following restrictions on the usage of the CDMF capital:


A. It shall not make equity investment with the investment capital from the

CDMF;

B. It shall not speculate in financial securities or futures with the investment

capital from the CDMF;

C. It shall not speculate in the real estate sector or conduct real estate business

with the investment capital from the CDMF;

D. It shall not make illegal arbitrage profit by lending out the investment capital

from the CDMF;

E. It shall not commit fraud to obtain CDMF investment.

Article 80. The CDMFMC is responsible for drafting the Fund’s project investment

policies including an annual Project Investment Strategy Plan, which lays out the policy on

CDMF project investment as well as selection criteria. The Plan will include the following

aspects:

A. Target percentage of the total amount for project financing (sum of Grants and

project investments) to the overall balance of the CDMF at the beginning of the year,

i.e., 1 January of that year;

B. Target percentages for Grants, Concession Loans and other Compensated

Financing to the overall balance of the CDMF at the beginning of the year;

C. Selection criteria for Grants and various types of project investment;

D. Appropriate limits as to the maximum percentages of the CDMF assets that

can be invested in any single project, any type of project, or any region, so as to avoid

concentration risk. The Plan should provide a list of relevant categories as well as

defining the appropriate regions.

Article 81. The Project Investment Strategy Plan will become effective upon approval by

the Board of the CDMF.

Article 82. During the first year of the CDMFMC’s operation, the following investment

limits will be imposed2:

A. The total amount of Grants and other non-Compensated Financing of CDMF

funding should not exceed 10% of the CDMF balance at the beginning of the year.

Within this limit, the actual level of Grants will be determined by the Board in

accordance with project applicants and the development plan of the CDMF.

B. Total amount of project Concession Loans (which includes interest free loans

and low-interest loans) should not exceed 60% of the CDMF’s balance at the

beginning of the year.

2 The percentage figures in this article are suggested by the ADB TA team and are subject to approval.


C. The maximum percentages of CDMF assets that can be invested in any single

project, any type of project or any region (to avoid concentration risk) should satisfy

the following restrictions:

(1) No more than 10% of the total project investment amount can be

invested in one single project;

(2) No more than 40% of the total annual project investment amount can

be invested in one category of project;

(3) Chinese provinces, autonomous regions and municipalities will be

grouped into East, South, West, North and Central Regions. No more than

30% of the total annual project investment amount can be invested in one

single region.

Article 83. After the Fund has been in operation for one year, the CDMFMC may

recommend revision to the investment percentage limits based on the overall assessment of

the market and feedback from the relevant government ministries. The revised rules will

become effective after being approved by the Board of the CDMF.


Chapter Thirteen

Operation and Management of CDMF Project Funding

Section 1: Responsible Division

Article 84. The Project Selection and Monitoring Department of the CDMFMC is

responsible for the successful operation of project funding activities (including Grants,

Concession Loans and other Compensated Financing, and other approved approaches) in

accordance with the policies formulated by the Board of CDMF.

Section 2: Project Application Process

Article 85. The NDRC and the CDMFMC will both publish on their websites or through

other relevant media channels “The CDMF Project Guidelines” in English and in Chinese on

a regular basis in accordance with the annual Project Investment Strategy Plan approved by

the Board of the Fund. The Guidelines will include project types eligible for financing,

available amount of financing, eligibility criteria for applicants, list of required application

documents, timeframe for handling applications, and other relevant information.

Article 86. For those applications that will not be reviewed during the timeframe for

reviewing pooled applications, the NDRC and CDMFMC will publish respectively relevant

guidelines and application matters on an ad hoc basis on their websites or via other media

channels.

Article 87. Project application information will be published for at least 30 days on the

NDRC and the CDMFMC’s websites before the application deadline.

Article 88. The applicant must carefully review “The CDMF Project Guidelines”, as well

as any requirements the NDRC and the CDMFMC have published regarding the relevant

batch of project applications for the relevant year, so as to develop an understanding of the

nature of the Fund, eligible projects, and applicant eligibility criteria, etc.

Article 89. The applicant can visit the websites of the NDRC and of the CDMFMC for

more information.

Article 90. The applicant shall submit application materials to the NDRC within the

required timeframe through governmental agencies that are relevant to climate change, with a


copy of all the documents sent to the CDMFMC at the same time. The Fund will not accept

applications submitted by individuals.

Article 91. Applicants that are applying for fund project financing for the first time shall

register with the CDMFMC within the required timeframe prior to the review period for the

applications. Information regarding registration forms and all relevant requirements can be

found on the CDMFMC’s website.

Article 92. The application materials to be submitted include:

A. A basic introduction of the applicant entity and relevant proof documents;

B. Technical proposition for the project;

C. A statement regarding the relevant technical skills and experience of the

applicant;

D. Financial proposition for the project;

E. Other required documents.

Article 93. For investment projects, the applicants must also submit the following

materials:

A. An explanation regarding the project and its financing situation, the intended

usage for the capital applied for and the effect of the capital in helping the project;

B. Means of repayment and a plan for repayment of CDMF investments;

C. Relevant approval documents and a detailed business plan of the proposed

project, certificates, sales contracts, and proof of repayment capability;

D. Progress report of the applicant project;

E. An introduction of the guarantor (if applicable), documents proving the

consent of the guarantor to guarantee on the loans;

F. Financial reports of the applicant and its guarantor for the previous year,

certified by an accounting firm or auditing firm with qualifications that satisfy the

requirements of the CDMFMC;

G. Financial reports of the applicant and its guarantor for the previous quarter, a

list of assets under mortgage and/or lien by the applicant and the guarantor, and proof

documents of the counterparty agreeing to the mortgage and/or lien;

H. An explanation of any previous inappropriate allocation of CDMF capital and

subsequent correction measures;

I. A statement as to the project meeting Chinese laws and regulations, the

sustainable development strategies and policies of the state, and general requirements

of state economic and social development planning;


J. An explanation as to how the project helps with the mitigation/adaptation of

climate changes and with local sustainable development.

Article 94. The applicant shall submit the application materials in both hard copies and

electronic copy.

Article 95. Applications companied by a government guarantee may be given preferential

treatment compared to other applications together with more preferential lending terms.

Section 3: Restricted Applications and Restricted Applicants

Article 96. For each applicant in any year, the total number of applications it has

submitted plus projects financed by the Fund where the applicant has primary responsibility

for implementation cannot exceed one. The number of projects in which the applicant

participates is not limited.

Article 97. If two or more than two notifications for change have been issued by the

CDMFMC to projects coordinated by the same individual or institution, the individual or

institution shall not be eligible to apply for future fund project financing within two years.

Section 4: Responsibilities and Obligations of Applicants

Article 98. During the fund project application and implementation process, the applicant

and project coordinator(s) must undertake the following responsibilities and obligations:

A. The applicant shall meet all of the necessary conditions to undertake the

project that the CDMF supports, and will establish on effective project management

system;

B. Applicants shall prepare the application materials in accordance with the

requirements of the Fund, ensure the accuracy of the materials, and ensure that

sufficient personnel and other resources will be provided to the project;

C. After obtaining the CDMF’s financing approval, the applicant and the project

coordinator shall carry out fully the commitment in the application materials and shall

be responsible for the overall implementation of the project. They shall develop the

project implementation plan according to the requirements of the project approval

notice, report to the CDMFMC regularly according to the stipulations in the

agreement on the implementation progress of the project, and truthfully compile and


submit budget reconciliation reports and a project completion report. The project

implementers shall provide to the CDMFMC all project results and relevant

information when requested for the final project check and acceptance.

Article 99. The applicant shall report to the CDMFMC and request approval regarding

any changes that will significantly influence or alter the agreed-upon (near term) target,

constitution, cost or return of the CDMF project, and any changes in implementation

arrangement such as a change in the responsible person for the project or change in the

implementation entity. The CDMFMC will be responsible to review these changes, and

determine if they are material or immaterial in nature. If the changes are deemed material,

approval from the CDMFMC is necessary before the changes are made. The CDMFMC may

consult relevant experts or the Board of the CDMF in the determination process. The

CDMFMC will stipulate relevant detailed procedures prior to the implementation of the first

batch of CDMF projects.

Article 100. The management and application of CDMF moneys are subject to inspection

by the relevant financial authorities, audit authorities and entrusted organizations of the

CDMF. The applicant and the project coordinator shall cooperate to provide relevant

materials.

Article 101. Applicants and project coordinators undertake to act with integrity during both

application and implementation phases. For example, they cannot submit an application for a

project that has been implemented with funding from a different source, or for a project that

has been previously implemented.

Section 5: Processing and Evaluation of Applications

Article 102. After the applicants have submitted application materials within the required

timeframe, the CDMFMC will invite experts or an entrusted assessment organization to

conduct a preliminary screening based on the application requirements published by the

CDMFMC.

Article 103. If deemed necessary, the CDMFMC may, through relevant governmental

agencies that had submitted the applications, request the applicants to provide additional

information or documents. The CDMFMC may conduct, or entrust relevant experts or

assessment organization to conduct, an on-site inspection of the applicant, and directly obtain

relevant information.


Article 104. For those applications that fail to pass the preliminary screening, the

CDMFMC will send to the applicants by mail or fax a signed written notice which gives

specific reasons for rejection.

Article 105. The CDMFMC and entrusted assessment organizations shall respect requests

by project applicants not to disclose any confidential or proprietary information contained in

the application materials, assuming these requests are consistent with all laws and regulations.

Article 106. The CDMFMC will organize Expert Assessment Panels to assess applications

received. Some experts will be selected from the CDMFMC internally while others will be

selected from third-party entities.

Article 107. The experts will join the Assessment Panel in their personal capacity and will

not represent the entities they formally work for. If the entity that an expert works for is

applying for CDMF financing, the expert shall not participate in the assessment of that same

category of applications. The experts shall not disclose any confidential or proprietary

information acquired through their duties on the Assessment Panel. The responsibility of the

expert not to disclose confidential information constitutes an obligation in respect of that

member and shall remain an obligation after the expiration or termination of that expert’s

work for the Assessment Panel.

Article 108. The CDMFMC may establish a database of relevant technical and financial

experts for the purpose of selecting experts for each Assessment Panel.

Article 109. Technical experts of each Assessment Panel will give a score (from 0 to 100)

to the following aspects of the project applications (but will not give a score to the financial

aspects of the project):

A. Benefits of the proposed project on climate change mitigation and adaptation;

B. Benefits of the proposed project on local sustainable development;

C. Consistency of the proposed project with the goal of the CDMF;

D. Technical feasibility of the proposed project;

E. Technical capability, relevant experience, and facility/hardware of the

applicant;

F. Clarity of project goal and possibilities of evaluating the outcomes;

G. Timeframe of the project;

H. Degree to which the benefits of the project can last;

I. Other aspects.


Article 110. The weighting of the above aspects will be determined by the Board of the

Fund. The final score of a project application will be the simple average of the scores that

each technical expert gives to that project.

Article 111. For applications for Grants, the financial experts of the Expert Assessment

Panel will evaluate the financial aspects of the candidate projects and give a group opinion as

to whether the project is financially “reasonable”, “basically reasonable”, or “not reasonable”.

For those projects that are evaluated as financially “reasonable” or” potentially reasonable”,

the financial experts as a group should provide an estimated financial budget.

Article 112. For applications for Concession Loans or other Compensated Financing, the

financial experts of theAssessment Panel shall evaluate financial aspects of a candidate

project and give a group opinion as to whether the project is financially “feasible”, “basically

feasible”, “not feasible”. When giving the group opinion, the following factors need to be

considered:

A. The applicant and the guarantor’s ability to repay the loan;

B. The feasibility of the repayment plan;

C. The economic and technical feasibility of the investment project;

D. The financing status of the investment project;

E. The return that the CDMF can earn from the project and the risks.

Article 113. For applications for Concession Loans and other Compensated Financing, the

CDMFMC/ Expert Assessment Panel may request the applicants to provide other additional

material, and may request face-to-face interviews and hearings if necessary. The Expert

Assessment Panel may also decide to conduct on-site inspection of the projects, as well as

consultation with local government and stakeholders.

Section 6: Notification of Evaluation Outcomes

Article 114. For candidate projects with technical evaluation or with financial evaluation

of “not reasonable” or “not feasible”, the CDMFMC will formally issue to the applicant a

written “Project Rejection Notice” which explains the reasons for rejection.

Article 115. For candidate projects with technical evaluation or financial evaluations of

“reasonable”, “basically reasonable”, “feasible” or “basically feasible”, the CDMFMC will

issue an Opinion Inquiry Form to the applicants, indicating that the Fund is considering

approval of the application, and indicating any suggested changes and amount of intended

financing. The Opinion Inquiry Form will be sent to the applicants via express mail or fax,

and the applicants will also be notified by phone. The Opinion Inquiry Form is considered to


be received by the applicant one week after the express mail/fax has been sent.

Article 116. The applicant shall notify the CDMFMC in writing if it wishes to continue

with the application process. The written decision by the applicant shall be returned to the

CDMFMC within 2 weeks after the Opinion Inquiry Form was issued. If a written decision

is not received by the CDMFMC within this timeline, the applicant will be automatically

regarded as having given up the application.

Article 117. The CDMFMC will then divide the continuing applications into categories

and, rank them according to their technical scores, outlining the basic information of the

applicants and the projects, as well as the financing amount recommended by the Expert

Assessment Panel or the entrusted assessment organizations.

Article 118. The Board of the CDMF will then discuss each category of applications and

determine the projects to be financed with the corresponding financing amounts in

accordance with the annual Project Investment Strategy Plan of the CDMF.

Article 119. For the projects that the CDMF Board selects to finance, the CDMFMC shall

issue a “Project Approval Notice”, which specifies the project name, applicant, and amount

of financing. For the projects that the CDMF Board decides not to finance, a “Project

Rejection Notice” will be issued. Both “Project Approval Notices” and “Project Rejection

Notices” shall be sent to the applicants as appropriate by fax or by express mail. The list of

approved projects and basic information about these projects will also be published on the

CDMFMC’s website.

Article 120. Upon receiving “Project Approval Notice”, the applicants shall sign a project

financing agreement with the CDMFMC or its entrusted organizations on a timely basis.

Section 7: Timeline

Article 121. The CDMFMC shall adhere to the following timeline:

A. Within two weeks of receiving an application, the applicant will be informed

of the initial qualification screening result.

B. Within two months from the application deadline, the expert evaluation will

be completed. This timeline includes the time required for engaging the experts or

entrusted organization.

C. Within one week after the Expert Assessment Panel or the entrusted

organizations finishes its evaluation, the applicant will be notified of either the

rejection decision or preliminary approval.


D. Within one week after the Fund’s Board or the CDMFMC makes a decision,

the applicant will be notified regarding final approval.

Section 8: Methods of Making Loans

Article 122. Where the CDMFMC approves loan funding to a project, the CDMFMC can

make the loan in one of the following two ways:

A. The CDMFMC may entrust an eligible Chinese bank or another eligible

financial institution, to extend a loan for the approved project.

B. The CDMFMC may directly provide a policy loan if approved by relevant

government authority.

Article 123. If the above method A is adopted, the CDMFMC must enter into a written

contract of entrustment with the bank or financial institution. Pursuant to the provisions of

such a contract of entrustment, the CDMFMC will then open a designated account with the

entrusted bank for loan purposes, and transfer funds into the designated account.

Article 124. If the above method A is adopted, for each approved loan project, the

CDMFMC will supply the entrusted bank with information and documents relevant to the

approved loan project. The entrusted bank or financial institution will then prepare and sign

a loan contract with the relevant project entity according to the terms and conditions

approved by the CDMF. The bank or financial institution will then disburse funds to the

project pursuant to the terms and conditions in the agreement with the CDMFMC.

Article 125. The entrusted banks or financial institution shall be subject to supervision from

relevant government authority, and will be responsible for ensuring the loan agreement

observes the finance policies of the State.

Article 126. The entrusted bank or financial institution is responsible for collecting the

interest and principal of the loan according to the loan agreement. Should there be any non-

compliance with the terms of the agreement the entrusted bank or financial institution must

pursue relevant recourse according to Chinese law and the loan agreement, and must inform

the CDMFMC immediately.

Section 9: The Implementation and Monitoring of CDMF Projects

Article 127. When implementing CDMF Projects, the project party shall strictly adhere to

the CDMF Project Financing Agreement signed with the CDMFMC or its entrusted

organizations.


Article 128. For major projects that receive over RMB1 million in Grants from the CDMF

or RMB10 million in Concession Loans or other Compensated Financing from the CDMF, or

projects that have major significance, a project supervision committee and a project

management office should be established. For other projects, if deemed necessary, a project

supervision committee may be established and dedicated personnel should be assigned to

take responsibility to supervise the projects. Members of the supervision committee should

include representative(s) from relevant government departments which have an interest in the

CDMF, representatives from the CDMFMC, representative(s) from central or regional

governmental departments that are responsible for the implementation of the project, and

independent experts from relevant fields. The project supervision committee is responsible

for providing guidance to the implementation of the project.

Article 129. If the project party wishes to revise any terms in the approved project, they

must request approval from the CDMFMC and specify reasons. If the CDMFMC approves

any revisions, the project party can then implement the agreement according to the revised

clauses.

Article 130. The project party shall submit to the CDMFMC an implementation status

report, including technical and financial aspects, on a semi-annual basis. For activity-based

projects, the project party shall submit the report to the CDMFMC within 1 month after the

activity is completed.

Article 131. The CDMFMC will conduct, or will entrust independent experts or

independent organizations to conduct, a mid-term evaluation of the projects under

implementation according to the project investment agreements.

Article 132. If necessary and if approved by the Board of the CDMF, the CDMFMC may

conduct evaluations of projects that are being implemented or have been completed, even if

such evaluations may not be specified in the project funding agreements. The CDMFMC

may also entrust independent experts or independent organizations to carry out such

evaluations. Any relevant costs of such evaluations shall be borne by the CDMFMC.

Article 133. The CDMFMC will conduct on-site inspections of projects with over RMB10

million in CDMF financing. The CDMFMC can decide to inspect other projects, if

necessary. Relevant technical and financial experts may participate in the on-site inspection.

The CDMFMC may request relevant entities to conduct a financial audit of a project, if it

deems necessary. The cost of such an audit shall be borne by the CDMFMC.

Article 134. If a material difference arises between the actual implementation and the

approved implementation plan, or if any of the following situations occur:


A. Violation of relevant laws, regulations and policies;

B. Violation of this CDMFMC Governance Procedures and Operations Manual,

or of financial management measures applicable to the project, or other specific

management rules;

C. Material violations of the contract, including intentional delay in performing

contract obligations or non-performance of obligations;

D. Refusal to submit or intentional delay in submitting required information and

materials regarding project implementation; or the submission does not comply with

the rules;

E. Refusal to submit or intentional delay in submitting required information and

materials regarding project results; or the submission does not comply with the rules;

the CDMFMC will then issue a written notice to the project party requesting corrections, and

specifying a response deadline. The project party shall submit to the CDMFMC a written

report regard the corrective measures before the deadline expires, and answer any queries the

CDMFMC or its entrusted experts/organizations may have.

Article 135. The CDMFMC may also request corrective measures to be taken based on

information it has obtained through the monitoring and supervision of the project

implementation or based on other facts.

Article 136. Governmental agencies, both central and local, should bear responsibility for

monitoring and overseeing projects which have been submitted through them.

Article 137. The Project Selection and Monitoring Department of the CDMFMC is

primarily responsible for monitoring the implementation of all projects. The Head of the

Project Selection and Monitoring Department must provide a summary report on project

implementation to the President of the CDMFMC and the Vice President in charge, copying

the Head of Risk Management and the Head of Legal Counsel and Compliance. The Project

Selection and Monitoring Department should also provide an overall project implementation

and monitoring report to the Board on a quarterly basis.

Section 10: The Completion and Termination of Fund Projects

Article 138. After a project has achieved its specified goals, the project party shall submit a

completion report to the CDMFMC which includes both technical and financial reports on

project implementation, and request inspection and acceptance by the CDMFMC.

Article 139. The CDMFMC shall conduct the inspection and acceptance procedures. Once

the project passes the inspection and its result is accepted, the CDMF project is completed.


Article 140. Unless otherwise stipulated, when a Grant project is completed, the project

implementer should return any unused Grant capital to the CDMFMC.

Article 141. The CDMFMC may conduct, or entrust independent experts or independent

organizations to conduct, a post-completion evaluation of the Grant project.

Article 142. For projects that receive more than RMB10 million financing from the CDMF,

the CDMFMC shall invite relevant entities to conduct an audit as to the financial status of the

implemented project. For other projects, the CDMFMC may entrust relevant entities to

conduct audits if necessary.

Article 143. If after the CDMFMC has issued a notification for change, and the project

party has not submitted a report on change within the specified timeframe or the report on

change has not been approved by the CDMFMC, the CDMFMC can temporarily suspend any

remaining funding that has not been disbursed, and issue a relevant written notice.

Article 144. If the project party has made proper changes within 1 month after the

CDMFMC has issued such a notice, and the changes have been acknowledged by the

CDMFMC, the CDMF can continue to finance the project. Otherwise, the CDMF will

terminate any outstanding financing to the project.

Article 145. If the project party has conducted any illegal or criminal activities during the

implementation of the CDMF project, the CDMFMC shall immediately terminate financing

of the project, and shall request immediate repayment of financing according to the financing

agreement as well as relevant laws and regulations.

Article 146. If a financing agreement is signed between a project party and an entrusted

bank or other financial institution, the entrusted bank or financial institution will be

responsible for implementing any termination procedures, based on the authorization by the

CDMFMC.

Section 11: Co-Financing Department

Article 147. The Co-Financing Department of the CDMFMC is responsible for all aspects

of activities in relation to the various co-financiers with which CDMF may work in the future,

including:

A. Domestic and international commercial and investment banks;

B. Domestic and international private-sector investment fund managers;


C. Foreign bilateral and multilateral donors and public-sector development

financing entities.

Article 148. The Co-Financing Department will coordinate with the Project Selection and

Monitoring Department and other relevant departments, to carry out the following functions:

A. Identify CDMF projects which would benefit from co-financing;

B. Identify appropriate co-financiers;

C. Negotiate terms and conditions and structure transactions;

D. Arrange financial and other guarantees where necessary;

E. Prepare investment agreements and other Chinese and foreign legal

documents with co-financiers;

F. Monitor co-financed projects for compliance with co-financier conditionalities

(e.g. environmental impact, corporate governance, etc.);

G. Prepare regular project evaluation, and financial and non-financial assessment

reports to co-financiers,

H. Establish and maintain good relations with a wide range of current and

potential co-financiers.

Article 149. As this function requires constant liaison with foreign parties, the main staff

members in this department should be fluent in both Chinese and English and be well-versed

in project finance and investment banking, preferably with international experience.

Article 150. To perform these duties, the CDMFMC may appoint external

advisors, experts and other service providers.


Chapter Fourteen

Budget Management

Section 1: Principles of Budgeting

Article 151. Expenditure should be controlled in order to ensure a proper balance between

revenue and expenses. According to the “Regulations on Management of China Clean

Development Fund” and the “Regulations on Financial Management of China Clean

Development Fund”, revenues should be collected on a timely basis and expenditures should

be properly allocated, so as to best ensure the preservation and appreciation of the value of

the CDMF.

Article 152. In order to adhere to the principle of financial stability and in accordance with

relevant regulations, the CDMF must ensure that proper financial feasibility studies are

undertaken for investment projects and other projects with significant funding requirements.

The CDMF must strictly control the budget and expenditure of high risk projects, so as to

ensure that the financial management goals of the CDMF can be realized.

Article 153. The CDMF must maintain an appropriate balance at the aggregate level by

installing appropriate controls. The CDMF should ensure that budget arrangements will be

conducive not only to the orderly and coordinated daily operations of the CDMF and to the

realization of CDMF’s strategic goals, but also to the sustainable development of the CDMF.

Article 154. The accounting of the CDMF must be complete and comprehensive. The

budget should be prepared on all expected business activities, and completely reflect

revenues, expenditures, costs, investments, fund raising and the need for capital. All items

that will have a significant impact on the financial status and position of the CDMF should be

included in the financial budget according to relevant rules.

Article 155. The CDMF will budget and utilize funds in a balanced manner, so as to ensure

the goals of the CDMF can be achieved. The budget should also have a contingency margin

so as to support priority projects addressing climate change.

Section 2: Contents of Budget

Article 156. Revenue budget. The revenue budget will take into consideration factors that

may lead to an increase/decrease of revenues in the fiscal year concerned. Revenues from

various sources will be forecast in a realistic manner, and may not contain false


representation. Revenues from administrative levies and from asset appreciation and other

sources must be itemized. Specific items of the budget revenue include the following:

A. Revenue from CERs (classified according to types);

B. Grants, technical assistance and investments by International Financial

Institutions;

C. Donations from international and domestic organizations and individuals;

D. Government budget allocations.

The items above constitute the CDMF Fund-Raising Revenue Budget Form.

E. Interest on deposits;

F. Interest on bonds;

G. Dividends;

H. Interest on loans;

I. Income from entrusted investments;

J. Income from investment in shares;

K. Income from project management.

The items above constitute the main items of the CDMF Investment Return Revenue Budget

Form (specifically referring to the revenues generated from the operation of the CDMF).

Article 157. Administrative expenditure budget, i.e. basic expenditure budget. The basic

expenditure budget is an annual administrative expenditure plan for the CDMF to ensure its

proper daily operations. The departments/offices involved in this process include:

A. Human Resources Office: responsible for compiling the staff cost budget for

all the staff of the CDMFMC. The content includes: a) salaries and wages; b) social

security expenses; c) commercial insurance expenses; d) welfare and benefits; e)

education and training expenses; f) labour union expenses; g) labour protection

expenses; h) housing expenses; i) other expenses.

B. Administrative Office: responsible for compiling the overall administrative

and office expense budget. The content includes: a) promotion expenses; b) printing

expensea; c) travel expenses; d) office expenses; e) meeting expenses; f) business

entertainment expenses; g) external expert expenses; h) rental and property

management fees; i) utilities such as water, electricity and air-conditioning expenses;

j) postal and telecom expenses; k) transportation expenses; l) fixed asset purchase

expenses; m) material consumption costs; n) repair expenses; o) fuel expenses; p)

legal expenses.

C. Financial Department: in addition to compiling the financial budget, the

Financial Department is also responsible for aggregating and summarizing budgets

from other departments and for compiling the procurement budget of the CDMFMC.

The procurement budget should be compiled according to the Procurement Catalogue

issued by the Government’s Procurement Office and other relevant rules, and reflect


the realistic needs of the CDMF. The budget should follow any special requests by

international and domestic organizations and individuals who contributed Grants and

donations, should such special requests be made.

Article 158. Project expenditure budget. The project expenditure budget is an

expenditure plan for specific work items in accordance with the CDMF Management

Regulations. A feasibility study is necessary for this budget, concerning technology, finance,

cost, social benefit, and whether or not the benefits of adaptation to and mitigation of climate

change are able to be realized, etc. The details include:

A. Types of projects;

B. Number of projects;

C. Implementation periods;

D. Capital utilization methods;

E. Main budget items including but not limited to the following: a) R&D; b)

meetings, workshops and seminars ; c) travel; d) telecommunications; e) international

cooperation and interchanges; f) postal costs; g) equipment purchase and/or rent; h)

auditing; i) legal; j) insurance.

Article 159. Financial budget. The Financial Department should compile a capital-raising

budget, investment budget, cash flow budget, predicted balance sheet, and predicted income

statement in accordance with the tenet and business scope of the CDMFMC and with the aim

to maintain and increase the value of the CDMF and to provide support to addressing climate

change. The financial budget should be compiled based on the basic budget and the project

budget, and include the following items:

A. Cash flow budget, which mainly includes: cash flow generated via receipt of

funds, cash flow generated from investment activities that focus on the preservation

and appreciation of the CDMF value, impact of exchange rate fluctuations, and net

increasing in cash and cash equivalents.

B. Changes in the CDMF budget, including in particular: period starting balance,

returns and utilization during the period, activities related to preserving and

increasing the CDMF value, period ending balance, change in equity capital, and risk

reserves.

C. Predicted balance sheet, which mainly includes the assets, liabilities, and the

CDMF’s equity.

D. Predicted income statement, which mainly comprises revenue, expenditure,

and net balance including risk reserve.

Article 160. Budget periods shall be annual, quarterly and monthly.


Section 3: Budgeting Methodology

Article 161. Depending on the item, content and timeframe for the budget, the

methodology used may be fixed budgeting, flexible budgeting, zero-base budgeting,

revolving budgeting, or other appropriate methods.

Article 162. Instructions for Budgeting (i.e. Manual for Preparing Budgets) will include

the following:

A. The basis of the budget;

B. Accounting system and policies to be applied;

C. Major financial targets and objectives;

D. Important fund-raising and investment activities, and descriptions of risks;

E. Economic analysis and forecasts for the fiscal year concerned.

Article 163. During the budgeting process, if foreign currencies are involved, such foreign

currencies shall be converted into RMB according to the relevant exchange rates published

by the state. The types of foreign currencies and the exchange rates applied should be

specified, and recorded in the foreign currency income and expenditure plan.

Section 4: Budgeting Process

Article 164. The CDMFMC shall establish an internal group responsible for compiling the

budget. The group shall consist of the relevant departments and the principal responsible

persons; the departments include the Administrative (HR) and Secretariat, the various

business departments, the Financial Department, and the Legal and Risk Control Department.

The task of the group is to parepare medium and long-term development plans, the annual

work plan and key financial targets of the CDMF, and to record the policies in written

format, which, when approved by the President and Vice Presidents’ work meeting and

signed by the President of the CDMFMC, will be circulated to the various departments for

the purpose of compiling the budget.

Article 165. The compilation of the budget should follow the processes of “bottom up” and

“top down”, i.e., according to the annual development targets decided by both the CDMF

Board and the CDMF’s regulatory authority, each department shall create its own budget and

then submit it to the CDMF level. The CDMFMC will then reconcile the needs of each

department and send the budget back to each department for revision, before finally

aggregating the budgets from each department again and finalising an overall budget based

on the principle of “overall consistency in receiving capital, raising capital and administering

capital”.


Article 166. The CDMF’s annual budget should be submitted respectively to the regulatory

authority of the CDMF and the Board of the CDMF for their review. The CDMF Board

should review the CDMF’s budget in accordance with the documents including the “Meeting

Procedures of the CDMF Board”, “Statutes of China Clean Development Mechanism Fund”

and “Regulations on Management of China Clean Development Mechanism Fund”, plus the

annual work plan and targets that the Board has formulated.

Article 167. The approved budget will be delivered in the form of a “Budget Task

Memorandum” to each department of the CDMFMC for implementation. Each department

must strictly implement the tasks and endeavour to achieve the targets specified in the annual

budget. Due to unforeseen circumstances and lack of precedence, during the initial stage of

the CDMFMC operations, some flexibility in the budget may be allowed if approved by the

President of the CDMFMC.

Article 168. After the budget compilation group has submitted the budget within the

required timeframe, if due to technical reasons or because the compilation is not consistent

with the CDMF’s requirements, the budget can be revised. However, any revision of the

budget requires convincing evidence and discussion. Appropriate revisions regarding

projects and numbers can be made. If the revision amounts exceeding 10% of the budget, the

revision needs to be reviewed again by the CDMF Board.

Article 169. In order to evaluate the progress and the results of budget implementation, it is

necessary to incorporate a budget implementation review as part of the performance reviews

of the responsible persons in each department. Such reviews should be conducted on a semi-

annual basis. The mid-year review will focus mainly on the financial statements. Particular

scrutiny will be given to divisions that did not reach their targets. If failure to meet the tasks

in the specified timeframe is due to policy changes or other uncontrollable factors, the budget

may be revised.

Section 5: Time Schedule for Budgeting

Article 170. The annual budget process for each relevant department shall commerce on 1

July each year, and departmental budgets should be completed by the end of August. The

CDMF will then aggregate the budgets and complete the review within 30 days. By the end

of October, each department should complete its revised budget. In November, the CDMF

should complete the CDMF level budget and submit this to the Board of the CDMF for the

first round of reviews. In December, the Board of the CDMF should finish the second round

of reviews. By 15 January of the following year, the budget should be finalized and the


“Budget Task Memorandum” should be delivered to the relevant departments for

implementation.

Article 171. Before the end of March, the CDMFMC and each department shall finish the

summary and analysis report of the implementation result of the previous year’s budget.

Before the end of April, the report should be submitted to the Board of the CDMF and the

relevant regulating department for approval.


Chapter Fifteen Accounts Administration

Section 1: Account Establishment

Article 172. The establishment, opening, alteration and cancellation of CDMFMC bank

accounts should follow the process of submitting written applications to the relevant

regulatory authorities, completing relevant forms, and obtaining approvals and signatures.

Article 173. The Financial Department is responsible for the management, utilization and

control of bank accounts, and for the legality, security and proper compliance of the accounts.

Article 174. The CDMFMC shall establish bank accounts according to the nature of the

capital and strictly in accordance with the bank rules for managing deposits. The accounts

should include a basic deposit account, a general deposit account, a temporary deposit

account and a special deposit account.

Article 175. Bank accounts must be established on the basis of risk control. Accounts must

be established in different banks with the deposit in each bank in principle not exceeding

20% of the total deposit amount. The state owned or state control banks are preferred, plus

other banks if approved.

Article 176. The Ministry of Finance (MoF) shall establish a “China CDMF Special

Account” for the CDMF. The revenues of the CDMF will be accounted for according to the

source of the capital, and the expenditures itemized.

Article 177. The CDMFMC will open the basic deposit account for the purpose of settling

payments, including bank transfer or cash payments, that arise from daily operations.

Article 178. The CDMFMC will open the general deposit account for the purpose of loan

transactions and other settlement needs, with a bank that is different from the bank where the

CDMFMC maintains the basic deposit account.

Article 179. The CDMFMC will open the special deposit account to accept Grants,

donations, and other types of cooperation capital from domestic and international institutions

and individuals, including the World Bank and the Asian Development bank.


Article 180. The CDMFMC will open the temporary deposit account to be used for Grants

to and investments in CDMF projects.

Article 181. The above accounts can all be used for bank transfers. To the extent that the

PRC’s cash management regulations permit the accounts for cash payments, the accounts can

also be used for cash payments.

Section 2: Account Operation

Article 182. The complete name of the account must be provided when establishing bank

accounts so as to facilitate supervision by the bank and the relevant regulatory authorities.

The account name will include two levels.

A. The level one account name should be unified as “China CDMFMC-”

B. The level two account name should be the name of the project or the project

office, so that the combined name reads as “China CDMFMC – xyz Project” or

“China CDMFMC – xyz Project Office”.

Article 183. The owner of a CDM project should establish an independent bank account at

a bank designated by the CDMFMC. The owner shall keep separate records of the account

and the account shall be used only for the project. The owner shall accept supervision and

oversight by the CDMFMC and relevant departments.

Article 184. When establishing a special account for a project, the project owner should

provide the required approval documents, account limit, purpose of the funds and usage plan,

plus annual budget and requirements of the bank. The Financial Department will review the

documents and the account will be established once the President of the CDMFMC approve

the account opening.

Article 185. The Financial Department shall designate a dedicated person to keep all

records of account establishment, including account opening applications, approval

documents, account opening permits and account seals.

Section 3: Account Supervision

Article 186. The CDMFMC shall strictly obey all financial laws and bank settlement

regulations. Bank accounts can only be used by the CDMFMC and can not be assigned, lent

or transferred. Any usage of the accounts that is not related to the CDMFMC is prohibited.

Article 187. The project manager shall designate a specific person to be responsible for the

any project fund which is to be specially used for activities by the government relating to


climate change. No person is allowed to interfere with, abuse or divert project funds for any

reason.

Article 188. If a bank account expires or is no longer needed, the Financial Department

should coordinate with relevant departments to close the account. If an account is to be

closed, the CDMFMC must check and reconcile the account balance with the bank. The

account can be closed once the balance reconciliation is reviewed and approved by the bank.

Article 189. If it is necessary to change the name of an account, the CDMFMC shall cancel

the original account and establish a new account according to relevant regulations.


Chapter Sixteen

Payment Administration

Section 1: Scope of Payment Article 190. CDMFMC business expenditures refer to expenditures generated from the

business of the CDMFMC in accordance with Article 26 of the “Regulations on Management

of China Clean development Fund Article 191. CDMFMC business management expenditure refers to expenditure incurred

by the CDMFMC to provide for the needs of the CDMFMC and are recorded independently

as a proportion of the general business expenses. Those expenses include but are not limited

to: expenses for project research and development, expenses for computers, expenses for

materials and ad hoc meetings, expenses for office supplies and printing, expenses for project

verification, examination and acceptance, staff salaries, expenses for project management,

expenses for project examination and analysis, etc.

Article 192. The CDMFMC administrative expenses must be incurred to maintain and

ensure the regular operation of the Board of the CDMF and the CDMFMC. Administrative

expenses include the following for the staff to operate the business: expenses for staff salaries,

welfare and social security, expenses for traveling including international travel, conferences,

communications, office activities, rent, fixed assets procurement, business services, printing,

postage costs, publicity, equipment procurement, repairs and maintenance, and other

expenses.

Section 2: Project Payment Examination

Article 193. Project payments should be in accordance with the approved financial budget,

utilization plan and the “Regulations of Financial Management of the China Clean

Development Fund”. The following items should be prepared for project payment;

A. General description of the project;

B. Project Establishment Application;

C. Project Design Document;

D. Project Feasibility Study;

E. Project Budget;

F. Project Evaluation Report by relevant specialized entity;

G. Fund utilization report;

Project applicants, who apply for significant or special funds, should provide comments an

examination report plus guarantee by the local finance department of the applicant’s

provincial, municipal or autonomous regional authority.


Article 194. Each project will be considered only once and should specify a definite

purpose. The financial staff will allocate funding, if approved, according to a payment

schedule. These funds will be transferred to the bank account of the project owner through

bank remittance. The final allocation fund will be made after the project is examined and

accepted. Without project examination and acceptance, the final allocation will not be made.

Article 195. The Financial Department shall manage the financial income and expenses of

all projects and will establish an account for each project for separate accounting. It is not

allowed to mis-direct or hold back project funds for any reason.

Article 196. The project owner should carry out the project activity according to the

project plan and budget and should not change the purpose agreed with the CDMF. If it is

necessary to change the utilization purpose, the project owner should provide written

application to the CDMFMC. Only after approval by the CDMFMC can the project adjust

the fund utilization.

Article 197. The CDMFMC shall monitor the utilization of every project fund. The project

manager and financial staff should inspect the mid-term position of each project’s fund

management and utilization according to relevant regulations. The project owner must

cooperate actively and meet all requests for information. If it is found that the project owner

has changed the fund utilization purpose without authorization, the CDMFMC will require

the owner to make suitable changes. If the project owner refuses to make the changes or

delays making the changes, the CDMFMC should take relevant action against the project

owner, including suspending or terminating the funding.

Article 198. The project executing entity should adjust project implementation in situations

specified under Article 66 and Article 67 of the Regulations on Management of China Clean

Development Mechanism Fund.

Article 199. During project implementation, in the event of any of the following situations,

the funding should be suspended and the allocated funds should be returned:

A. Expenses are not made in accordance with the Measures and relevant

regulations;

B. Material changes in project management entity, project description, format of

outcome, project content and other aspects, unless the changes have been approved in

accordance with the preceding articles;

C. The agreed tasks cannot be completed as planned, or the project is postponed

for one year or or for over one year in aggregate.


Article 200. The CDMFMC will cease the funding and require the return of allocated

funds if the project has to be terminated because the project owner is seriously ill or dies or

for other major reasons.

Article 201. After a project is completed, the project owner should ensure its own financial

department completes the project accounts and presents the final accounting results as

required in the Approval Document of Project Completion and submit this to the CDMFMC.

Article 202. The management personnel and financial staff of the project owner should

manage the project fund. Also in accordance with the requirements of the financial

regulations and budget, the final accounting results including the expenses should be

rigorously examined and adjustment made in respect of any irregularities.

Article 203. The CDMFMC will have power to issue directives including the “Written

Warning”, “Criticism Advice”, “Stop Funding”, “Cancel Project”, “Return All Fund” and

other measures for those who violate the Charter Documents and this Governance Procedures

and Operation Manual.

Article 204. The CDMFMC shall submit a Yearly Project Implementation Report with

explanations to the CDM Board and the Ministry of Finance within four months after the end

of the year.

Article 205. The CDMFMC and relevant entities should carefully keep all fund transfer

certificates, receipts, cash bills, original vouchers, account items and other bills to ensure the

completeness of accounting documentation and to be ready for inspection by the financial

and auditing departments of the CDMFMC.

Section 3: Regular Expenses Examination

Article 206. All regular expenses must be strictly managed according to the procedures.

Reimbursement of business expenses must be properly approved within the limit of authority.

The process of reimbursement must be consistent with the requirements of payment and

utilization regulations.

Article 207. The reimbursement of business expenses must have signatures from the

individual, an inspector and an approver. The reimbursement of expenses for domestic and

international travel, conferences, exhibitions, etc., of which receipts are not provided,


requires a signed certificate by participants plus the signature of the inspector and the

approver.

Article 208. As regards foreign currency income and expenses, all exchange of foreign

currency and foreign exchange settlement must be managed strictly according to the relevant

regulations of the State Administration of Foreign Exchange. The accountant and the cashier

must check all transactions to ensure strict compliance with the state foreign exchange

management regulations.

Article 209. The Financial Department must examine and deal with expense

reimbursement according to the financial regulations. The examiner must examine all bills

and vouchers, and ineligible expenses will be rejected. Necessary conditions for expense

approval are:-

A. As per budget;

B. In line with proper usage;

C. Complete bills and vouchers;

D. In accordance with approval procedures.

Article 210. Any expense which is not in accordance with financial regulations will not be

reimbursed. Any change in fund usage without authorization should halt capital utilization

and be treated according to the degree of change and financial regulations.

Article 211. The procurement of goods plus office equipment and fixed assets must be

carried out according to the yearly budget, quarterly budget or supplementary budget and

according to the Law of the People's Republic of China on Tenders and Bids and the

Government Procurement Law of the People’s Republic of China.

Article 212. For regular business, departments may appoint a person to draw certain

amounts of cash for emergency purposes from the Financial Department after the Head of the

Financial Department obtains approval from the President of the CDMFMC. At the end of

each month or if the appointed person changes, the cash position should be reconciled.

Article 213. Temporary cash advances for business should be carried out by completing a

Cash Advance Form recording justification, utilization, currency unit, etc. The borrower is

responsible for the cash, and shall compensate if unfortunately the cash is either lost, stolen,

or damaged, etc.


Chapter Seventeen

Risk Control and Compliance

Article 214. The Legal and Risk Control Department of the CDMF will be responsible for

all legal, compliance and risk control functions of the CDMFMC. When the CDMFMC is

relatively small in size in the initial stage, the legal compliance and the risk control functions

will be placed together in the Legal and Risk Control Department, with the head of the

department taking overall responsibility for both functional areas, and a division chief

appointed for each function.. When the CDMFMC grows in size, the Board may decide to

split the department into a Risk Control Department and a Legal and Compliance Department.

Section 1: Risk Control

Article 215. The Board of the CDMF will review and determine the key risk parameters of

the CDMF, including risk tolerance levels such as the exposure limit that can be allowed for

one single project, project type or region.

Article 216. The Risk Control Divison of the Legal and Risk Control Department of the

CDMFMC will be responsible for day-to-day risk control functions, in accordance with

policies set by the Board.

Article 217. The Risk Control Division staff must be independent, and risk managers must

reach risk evaluation decisions based on their own professional judgment in accordance with

the CDMF’s risk policies, and free from any pressure from the teams responsible for project

selection and financial investments. In cases where the risk managers have different opinions

on a project or a financial investment from that of the project selection teams or the financial

investment teams, the risk manager’s views will prevail.

Article 218. The Risk Control Division has the authority to veto an investment decision.

For projects and financial investments that the CDMF is already committed to, the Risk

Control Division can require a curtailment of financing, stop loss sale or unwinding decision.

Article 219. Project selection decisions and financial investment decisions (if investment

risks are higher than the risks of government bonds) must be signed off by the Head of Legal

and Risk Control Department or his/her authorized staff. The Head of Legal and Risk

Control Department may request special protection clauses to be added into loan agreements

(such as guarantees, collateral, etc) before signing off on a loan.


Article 220. Risk managers should work closely with each project team with the goal of

identifying early signals of credit deterioration on a timely basis. If the loan agreement

allows, the risk manager may request suspension of unmade loan installments, early return of

principal or additional protection (such as additional guarantees or collateral) to be put in

place.

Article 221. For financial instruments, the Risk Control Division should closely monitor

market valuation changes due to changes in either market risk or credit risk. The Legal and

Risk Control Department should apply modern risk control tools to assess the CDMF’s risk

exposure, and establish proper mechanism for stop loss and unwinding of financing projects.

Article 222. The Legal and Risk Control Department should communicate its risk views

and policies with the project and financial investment teams on a regular basis.

Section 2: Legal and Compliance

Article 223. The Legal and Compliance Division of the Legal and Risk Control

Department is responsible for all internal and external compliance matters.

Article 224. The Head of Legal and Risk Control Department will report to the President

of the CDMF and the Vice President in charge on a regular basis regarding the overall

compliance situation, including any violations, and penalties and remedy measures

implemented. The Head of Legal and Risk Control Department will also report directly to

the Board of the CDMF on a quarterly basis.

Article 225. The Legal and Compliance Division should be completely independent and

free from any pressure from other departments of the CDMFMC.

Article 226. The Legal and Compliance Division shall establish a database of relevant laws,

regulations, and standards to which the CDMF should adhere.

Article 227. The Legal and Compliance Division should also formulate implementation

policies and procedures, including penalties and remedies in case of violations, which are

consistent with all external/internal regulations and rules. Such policies and procedures

should be maintained with the database.

Article 228. The database should be updated on a timely basis, and should be organized in

a way that is easy for CDMFMC employees to access. The database should be kept in paper


format at the Legal and Compliance Division, and should also be available on the CDMFMC

internal website (intranet) so that CDMFMC employees can refer to the rules and procedures

at any time.

Article 229. Training and prevention are the keys to a good compliance environment. The

division should provide regular training of staff on legal and compliance topics. The

training should be conducted at least twice a year for all staff, and especially in the following

situations:

A. New employees joining the CDMFMC;

B. Major changes in relevant laws, regulations, or internal procedures.

Article 230. An annual compliance check will be conducted for each operating department

of the CDMFMC, and the compliance check scores will become part of the evaluation of the

division performance.

Article 231. Employees of the CDMFMC are encouraged to consult compliance staff if

they have any uncertainties related to compliance. Employees are also encouraged to report

any non-compliance to the compliance staff, who should promptly conduct an investigation

into the reported activity. If the reporting employee requests confidentiality, the Legal and

Compliance Division has an obligation to keep the identity of the reporting individual

confidential.

Article 232. The CDMFMC welcomes the general public to report any violations of

Chinese laws, regulations, policies and procedures committed by an employee or

representative of the CDMFMC. The Legal and Compliance Division should accept any

external complaints and reports.

Article 233. Should the department identify a major non-compliance situation that poses a

significant threat to the CDMF, the Head of Legal and Risk Control Department must

immediately report the situation to the President, Vice President in Charge, and the CDMF

Board. Situations that may pose a significant threat to the CDMF include but are not limited

to the following:

A. Non-compliance acts that have led to, or threaten to lead to, significant

financial losses for the CDMF;

B. Non-compliance acts that have led to, or threaten to lead to, the CDMF being

the subject of a lawsuit;

C. Criminal activities by CDMF, CDMFMC, or its senior managers;

D. Other situations where the Head of Legal Counsel and Compliance deems it

necessary.


Chapter Eighteen Reporting System Article 234. The CDMF Board, CDMFMC, applicants and other relevant parties

(including entrusted bank/financial institutions; independent fund managers, Grant recipients

and loan recipients） shall report on Fund operations and project operations in accordance

with the relevant articles of the Charter Documents and relevant contracts. They shall ensure

that there are no erroneous or misleading statements or major omissions, and should be

responsible for the accuracy and completeness of the content of the reports. The reporting

system described in this Manual should facilitate such reporting compliance.

Article 235. The CDMFMC will assist the Board to make the following disclosure and

reports:

A. Disclose to the general public once each year, the Fund’s assets, income, cash

flow and other financial information;

B. Disclose to the general public the Project Portfolio and Financial Investment

Portfolio (or a summary thereof) as well as its Grant Portfolio on its website when

available.

Article 236. The CDMFMC should also:-

A. Submit quarterly reports on CDMF financial matters and Fund project

management reports to the Board. After approved by the Board, the reports to the

Ministry of Finance;

B. When each CDMF project is completed, submit a report audited by

independent auditors to the Board which outlines the usage of the funds;

C. Should a major event occur affecting the CDMF, immediately submit a special

report to the Board. This report can be disclosed to the public once approved.

Article 237. The CDMFMC Report includes both regular reports and emergency reports.

Article 238. Regular reports shall include the following.

A. The CDMFMC must submit a budget reconciliation report within 4 months of

the end of each fiscal year, and must compile the next fiscal year’s budget before the

end of each financial year. The annual budget and reconciliation reports should be

reviewed by the Board, prior to submission to the regulatory authority of the Fund

and the monitoring authority of the Fund;


B. The CDMFMC shall file an annual operation status report with the Board. It

shall also report on its operating status to the MOF as instructed;

C. The CDMFMC shall report the status of monitoring the implementation of

approved projects in accordance with the provisions of this Manual.

Article 239. The CDMFMC should make an Emergency Report to the Board as soon as

possible should the following circumstances occur:

A. Change of legal status of relevant parties in Fund operations (eg. due to

merger, split, dissolution, bankruptcy, etc);

B. The CDMFMC is involved in a major lawsuit or arbitration;

C. An entrusted bank has material violations of its trust loan agreement, or loan

recipients have material violations of their loan agreements.

Article 240. The CDMFMC shall ensure the following reports are made by applicants and

relevant parties in operation of the Fund:

A. Applicants shall prepare reports to the CDMFMC in accordance with the

provisions of this Manual;

B. Grant recipients and loan recipients shall report to the CDMFMC in

accordance with relevant provisions of this Manual;

C. Loan recipients should report to the entrusted bank and to the CDMFMC on

the project operation status in accordance with the loan agreement;

D. Entrusted banks or financial institutions shall report on the status of their loan

management to the CDMFMC in accordance with the contract of entrustment. After

loans are made, the entrusted banks or financial institutions shall also report to the

CDMFMC in written form any major events relevant to loan recipients that may

jeopardize the security of the loan;

E. Each Independent Investment Manager shall report to the CDMFMC in

accordance with the provisions of this Manual.


Appendix

Various Schedules

SCHEDULE A1:

Asset Allocation Guidelines

The Board shall establish and maintain Asset Allocation Guidelines by which the Fund

Management Center or any other Person to whom the Board has delegated powers shall

allocate Fund Property among the various eligible categories of investment (including

government securities and bank deposits), Project investments, and Grants. The Asset

Allocation Guidelines shall be reviewed at least annually by the Board, and may be amended

at any time by the Board.

These Guidelines shall govern all actions of all Persons including the Fund Management

Center and Intermediary Financial Institutions (if any) or other Persons from time to time

making investments and Grants on behalf of the Fund.

Amounts of Fund Property available for allocation to the following asset categories shall be

calculated using current balances wherever possible, or, wherever current balance

information is not available, then using the most recent unaudited accounts of the Fund.

1. Allocation Category 1: Financial Instruments Investment Portfolio (PRC

Government Securities & Bank Deposits)

Maximum amount of the Fund which can be invested in Financial Instruments: 100%

a. Eligible Government Securities: Maximum % of the Fund which can be

invested in eligible Government Securities: 100%

i. Eligible issuers of government securities (list)

ii. Eligible issue types (list)

iii. Maximum maturity: (5 years)

iv. Eligible amounts per maturity in paper of eligible issuers:

1. Up to 90 days’ maturity: ______% of balance allocable to

government securities






4. Up to 5 years’ maturity: ______% of balance allocable to


b. Bank Deposits: Maximum % of the Fund which can be invested in deposits at

Eligible Depository Banks: _____% of total Fund Assets

i. Minimum credit rating for Eligible Depository Banks: <Moody’s AA

or equivalent

ii. Other eligibility criteria (e.g. years in operation, exchange listing, any

applicable PRC Government authorizations, etc.)

iii. Eligible Depository Banks (list specific banks meeting credit rating or

other eligibility criteria together with specifically authorized branches)

iv. Maximum maturity allowed for bank deposits: 360 days

v. Eligible amounts per maturity at eligible depository banks:

1. Up to 90 days’ maturity: ______% of balance allocable to bank

deposits


bank deposits


bank deposits

2. Allocation Category 2: Project Investments

Maximum amount of the Fund which can be invested in Project investments: _____%.

NB Each Project Investment must meet Project Selection Criteria per Schedule A3 hereof

as amended from time to time by the Board. The Project Portfolio as a whole must

comply with the Project Portfolio Criteria per Schedule A2 hereof as amended from time

to time by the Board.

3. Allocation Category 3: Project Grants and Other Grants

Maximum amount of the Fund which can be expended in Grants: _____% of total Fund

Assets (RMB _________) during the period ____ 200x - ____200y.

NB Each Grantee must meet Grant Selection Criteria per Schedule A5 hereof as amended

from time to time by the Board. The Grant Portfolio as a whole must comply with the

Grant Portfolio Criteria per Schedule A5 hereof as amended from time to time by the

Board.



SCHEDULE A2:

Project Portfolio Criteria

The Board shall establish and maintain Project Portfolio Criteria by which the Fund

Management Center and Intermediary Financial Institutions (if any) shall evaluate applicant

Projects for investment support by the Fund, including, but not limited to the following.

These Project Portfolio Criteria shall be applied and maintained at all times to ensure risk

mitigation for the Fund through diversification of project types, geographical exposure, etc.

These Project Portfolio Criteria shall be reviewed at least annually by the Board in due

consideration of advice from and recommendations by the Fund Management Center, and

may be amended at any time by majority vote of the Board in Regular Meeting. The Fund

Management Center and Intermediary Financial Institutions, if any, with responsibility for

evaluating Projects for eligibility for the Fund shall at all times observe the Project Portfolio

Criteria then in effect.

1. Geographical allocation (by province / region, with particular targets for individual

cities?)

2. Project type allocation

3. Sector allocation (e.g. water treatment, air pollution, agricultural, transportation, etc.)

4. Allocation to (aggregate) project debt

5. Allocation to (aggregate) project equity

6. Allocation to other forms of project investment (hybrid / mezzanine)


SCHEDULE A3:

Project Selection Criteria

The Board shall establish and maintain Project Selection Criteria by which the Fund

Management Center and Intermediary Financial Institutions (if any) shall evaluate applicant

Projects for investment / Grant support by the Fund, including, but not limited to the

following.

These Project Selection Criteria shall be applied to every applicant Project regardless of the

composition of the then existing Project Portfolio, and those applicant Projects which do not

meet the criteria then in effect shall be rejected for purposes of receiving investment or

Grants from the Fund.

Project Selection Criteria in effect shall be reviewed at least annually by the Board in due


may be amended at any time by the Board in Regular Meeting. The Fund Management

Center and Intermediary Financial Institutions, if any, with responsibility for evaluating

Projects for eligibility for the Fund shall at all times observe the Project Selection Criteria

then in effect.

1. Project Size

The Board shall establish minimum and maximum sizes (in Yuan RMB amounts) for Projects

from which it will consider applications for investment from the Fund.

2. Minimum & Maximum Fund Investment Participation (% of Project budget)

The Board shall establish minimum and maximum percentages of a proposed Project’s overall

financing requirements which the Fund will consider investing.

3. Minimum & Maximum Fund Investment Participation (Yuan RMB Amount)

The Board shall establish minimum and maximum Yuan RMB amounts which the Fund will

consider investing in any single Project.

4. Project Is In Eligible Geographical Region

The Board shall establish eligible geographical areas in which the Fund may invest and in

which the Fund may make Grants. Investment areas may differ from Grant areas.

5. Permits and Clearances

The Board shall establish requirements that applicant Projects obtain necessary permits and

clearances from national authorities and local authorities in the area where the Project is to be

located.


6. Technical Review (Methodology and Technology to be Used)

The Board shall establish requirements that applicant Projects be subjected to technical

review of methodologies and technologies to be used in attaining the objectives of the Project,

including by Independent Third Parties.

7. Qualifications of Project Sponsors / Partners / Developers

The Board shall establish requirements that sponsors of applicant Projects meet specific

financial or other criteria (e.g. minimum amount of annual sales or years of experience,

geographical representation for a corporate sponsor), and that individuals associated with

Project sponsors also meet defined criteria (e.g. age, educational level, years of experience,

etc.).

8. Financial Criteria of Project

The Board shall establish specific financial requirements for applicant Projects including, but

not limited to, minimum projections for annual turnover and leverage ratios, security, external

guarantees, collateral, etc., and may establish such template covenants, terms and conditions

to govern Projects as it sees fit.


SCHEDULE A4:

Grant Portfolio Criteria

The Board shall establish and maintain Grant Portfolio Criteria by which the Fund

Management Center shall evaluate Grant applicants for support by the Fund, including, but

not limited to the following. These Grant Selection Criteria shall be applied to every Grant

applicant regardless of the composition of the then existing Grant Portfolio, and those

applicant Projects which do not meet the criteria then in effect shall be rejected for purposes

of receiving investment or Grants from the Fund.

These Grant Selection Criteria shall be reviewed at least annually by the Board in due


may be amended at any time by the Board in Regular Meeting. The Fund Management

Center and any other person to whom the Board has delegated the function of screening and

evaluating Grant applications shall at all times observe the Grant Selection Criteria then in

effect. The criteria will address, inter alia, the following points:

1. Geographical Allocation (e.g. by Province / Region)

2. Project or Program Type Allocation (e.g. Education, Capacity Building, etc.)

3. Sector Allocation (e.g. Water Treatment, Air Pollution, Agricultural,

Transportation, etc.)


SCHEDULE A5:

Grant Selection Criteria

The Board shall establish and maintain Grant Selection Criteria by which the Fund

Management Center shall evaluate Grants applicants for support by the Fund, including, but

not limited to the following:

These Grant Selection Criteria shall be applied to every applicant Grant regardless of the

then existing Portfolio, and those applicant Grants which do not meet the criteria then in

effect shall be rejected for purposes of receiving investment or Grants from the Fund. These

Grant Selection Criteria shall be reviewed at least annually by the Board in due consideration

of advice from and recommendations by the Fund Management Center, and may be amended

at any time by the Board in Regular Meeting. The Fund Management Center and any other

Person with responsibility for evaluating Grant applicants for eligibility for the Fund shall at

all times observe the Grant Selection Criteria then in effect.

1. Grant Size

The Board shall establish minimum and maximum Grant sizes (in Yuan RMB amounts).

2. Minimum & Maximum Fund Grant Participation (% of Project Budget)

The Board shall establish minimum and maximum percentages of a proposed Project’s overall

financing requirements which the Fund will consider granting.

3. Minimum & Maximum Fund Grant Participation (Yuan RMB Amount)

The Board shall establish minimum and maximum Yuan RMB amounts which the Fund will

consider granting to any single applicant.

4. Grant Applicant is in Eligible Geographical Region

The Board shall establish eligible geographical areas in which the Fund may make Grants.

Grant areas may differ from investment areas.

5. Permits and Clearances

The Board shall establish requirements that Grant applicants obtain relevant permits and

clearances from national authorities and local authorities in the area where the project or

program to be supported by the proposed Grant is to be located.

6. Technical Review (Methodology, Technology to be Used, etc.)

The Board shall establish requirements that applicants for Grants be subjected to technical

review of methodologies and technologies to be used in attaining the objectives of the Project

or program to be supported, including by Independent Third Parties.

7. Qualifications of Sponsors / Partners / Developers

The Board shall establish requirements that sponsors of projects and programs which are

applying for Grants meet specific financial or other criteria (e.g. minimum amount of annual


sales or years of existence, geographical representation for a corporate sponsor), and that

individuals associated with such sponsors also meet criteria (e.g. age, educational level, years

of experience, etc.).