WB Carbon Finance Project Cycle and Role of Key Players Introduction to Carbon Finance March 10, 2004

WB Carbon Finance

Project Cycleand Role of Key Players

Introduction to Carbon Finance

March 10, 2004

Proposal Review and Upstream Due Diligence

1. PIN reviewed by CF Unit 2. Upstream Due Diligence (“sniff test”)3. If PIN is acceptable, sponsor notified with

request to prepare PCN ; deal manager prepares risk matrix

4. Host Country Endorsement/No Objection sought

5. If PCN agreed by FMC (and Participants Committee if required), letter of intent is offered; further work is authorized

Negotiation of Project Agreements

Periodic verification & certification

Construction and start up

Project completion

3 months

2 m

onth

s

3 months

1-3 years

Up

to 2

1 ye

ars

Project Proposal Review and Upstream Due Diligence

Preparation and review of the Project

Carbon Asset Due Diligence

1. Project Design Document prepared (a. Determine whether existing methodology is applicable

b. may require baseline study)

2 Monitoring Plan prepared3. CF Unit quality control of

results4. Documents for Validation

prepared by CF Unit and sponsor

5. Bank region begins technical, financial, environmental and social due dilligence



Project completion

3 months

2 months

3 months

1-3 years

Up

to 2

1 ye

ars




Validation process

1. CF Unit contracts the Independent Validator and submits documents

2. Validator studies project design document, including baseline study and monitoring plan where applicable

3. Documents are posted for 30-day comment period

4. Validator issues a report and opinion




Project completion

3 months

2 months

2 m

onth

s3 months

1-3 years

Up

to 2

1 ye

ars

Validation Process



Validation process




1. CF Unit prepares term sheets and draft ERPA. 2. Negotiations completed and term sheet is

initialed 3. Project Due Diligence is completed and World

Bank internal approvals are secured.4. Letter of Approval obtained from Host Country5. ERPA is signed6. ERPA becomes effective after financial closure is

achieved

Project completion

3 months

2 months

2 m

onth

s

3 months

1-3 years

Up

to 2

1 ye

ars




Validation process



Construction and start up1. At construction completion, CF Unit contracts Independent

Verifier 2. Verifier checks that specifications of the monitoring plan

are met (“Initial Verification”)3. Project implementation starts4. Project entity monitors in accordance to the monitoring

plan

Project completion

3 months

2 months

2 m

onth

s

3 months

1-3 years

Up

to 2

1 ye

ars

Start of Generation of ERs & Monitoring



Validation process




1. Verifier issues periodic verification report2. CF Unit pays project sponsor for ERs 3. Certified ERs are issued by the CDM Exec.

Board as per distribution agreement4. Verification undertaken annually or as

deemed appropriate

Project completion

3 months

2 months

2 m

onth

s

3 months

Up

to 2

1 ye

ars

Verification and Certification



Validation process




Project completion

3 months

2 months

2 m

onth

s

3 months

1-3 years

Up

to 2

1 ye

ars

Crediting period either• 10 years fixed or• 7 year renewable (maximum 21 years)

Project Completion



Validation process




Project completion

3 months

2 months

2 m

onth

s

3 months

1-3 years

Up

to 2

1 ye

ars

• Project Idea Note • Project Concept Note

• Project Design Document•Monitoring Plan

• Validation protocol and report

• Project Appraisal and related documentation• Term sheet• Emission Reduction Purchase Agreement

PCF/CDM Project Cycle – The documentation

• Initial verification report

• Verification report• Supervision report



Validation process

Project Appraisal and Negotiation



Project completion

3 months

2 months

2 m

onth

s

3 months

1-3 years

Up

to 2

1 ye

ars

• Upstream Due Diligence, carbon risk assessment and documentation: $ 25K

• Project Design Document and Monitoring Plan: $55k

• Contract, Processing •and documentation: $25k

• Consultation and Project Appraisal: $60K• Negotiations and Legal documentation: $100K

Carbon Asset Creation and Maintenance Manuf. Process and Costs based on Bank experience

Total through Negotiations

• All expenses: $265 K•For Large Scale Project

• Initial verification at start-up: $25K

• Verification: $10-25 K• Supervision: $10-20K

CFB Cost Indices Per Project Cycle Step

Project Cycle Step Responsibility Total Cost per Project Cycle Step

Regional Allocation* CFB Allocation

PREPARATIONPIN/PCN preparation Client and/or PCF/NCDF FMU

and/or Regional Task Team$30,000 $10,000 $20,000

Project Design Document Client and/or FMU and/or Regional Task Team

$20,000 $5,000 $15,000

MP External consultants $20,000 $5,000 $15,000

Carbon Risk Assessment External consultants $10,000 $0 $10,000

PCN + PAD (including env./soc./fin. due diligence)

Regional Task Team $85,000 $75,000 $10,000

Carbon Asset Due Diligence FMU $20,000 $0 $20,000

Validation External consultants $30,000 $0 $30,000

Appraisal/ Term Sheets for Project and HCA/ Pre-Negotiations/ Consultations/ Negotiations

Regional Task Team/ FMU/ Legal Team

$25,000 $15,000 $10,000

Legal Documents, including ERPAs Legal Team $25,000 $5,000 $20,000

TOTAL PREPARATION * $265,000 $115,000 $150,000

SUPERVISION/VERIFICATION

Initial Verification FMU $25,000 $25,000

Supervision Regional Task Team $10,000 $10,000

* Additional $25,000 for each sub-project in case of an umbrella project, tentatively distributed as follows:

$5,000 for each PDD, MP, Carbon Risk Assessment and Validation;

$2,500 each for Appraisal/ Term Sheet/ Pre-Negotiations Consultations/ Negotiations and Legal Documents.



Validation process

Project Appraisal and Negotiation



Project completion

3 months

2 months

2 m

onth

s

3 months

1-3 years

Up

to 2

1 ye

ars

• Upstream Due Diligence, carbon risk assessment and documentation: $ 20K

• Project Design Document and Monitoring Plan: $15k

• Contract, Processing •and documentation: 20k

• Consultation and Project Appraisal: $35K• Negotiations and Legal documentation: $20K

Carbon Asset Creation and Maintenance Manuf. Process and Costs based on Bank experience

Total through Negotiations• All expenses: $110 K•For Small Scale Project

• Initial verification at start-up: $25K

• Verification: $10-25 K• Supervision: $10-20K

Disclosure requirements

• No less than sixty (60) days before signature of the PCF/ CFB's Emission Reductions Purchase Agreement by the Country Director, the environmental assessment report, indigenous people action plan, resettlement plan, or other action or management plans or material produced in application of Bank Group safeguard policies, will be made publicly available in a manner fully consistent with the safeguard policies both at the Bank Information Shop and in a publicly accessible location in the PCF project country.

The first step is to submit a PIN (template on www.carbonfinance.org)

• Description of Project Proponent• Type of Project• Location of Project• Expected Schedule• Financing Sought• Technical Summary of Project• Expected Environmental Benefits

What is involved in PCN preparation?

• Field visits for identification and preparation• Due diligence on:

– environmental and social issues,– carbon asset, – status of project financing, – quality and experience of project sponsors and any financial

intermediaries

• Consultations with Government on the proposed carbon financed project (including relevant discussions needed to obtain a letter of approval), and related legal services review and support