Buyers' and Seller's Perspectives on JI : The Fund Perspective Ash Sharma Facility Manager, Testing Ground Facility (TGF) Carbon Fund UNFCCC Technical Workshop on Joint Implementation Bonn, 13-14 February 2007

Scope of Today’s Discussion About NEFCO and the Testing Ground Facility TGF Strategies Regarding Joint Implementation Project Risks and Mitigation Pricing and Risk Management

Key Features of the Testing Ground Facility A regionally focused carbon purchase fund, acquiring AAUs & ERUs on behalf of its investors (compliance vehicle) Countries of operation : Baltic states, Poland, Russia & Ukraine Focus on energy related projects (but also other project types can be included) A Public Private Partnership based model, including 6 Governments and 8 private sector companies Subscribed capital currently stands at €35 million Fund management services provided by NEFCO (Experience : almost 100 transactions in Russia, > €80m) Current portfolio of 14 projects

STRUCTURE & ACTIVITIES NORDIC ENVIRONMENT FINANCE CORPORATION THE INVESTMENT FUND TGF NEDF OTHER FUNDS LOANS MEZZANINE. RISK- CAPITAL EMISSIONS PURCHASES CONDI- TIONAL GRANTS GRANTS SOFT LOANS LOCAL FUND PROJECT ENTERPRISES MUNICIPALITIES

TGF Investor Base (as of June 2006)

TGF Strategies regarding JI Technology / Project Type : focus on energy related projects (mandate) renewables (mainly wind, solid biomass and biogas) energy efficiency (energy sector, supply and demand side, industrial projects) other project types fuel switching, methane avoidance etc Defined geographic focus where NEFCO is strong Baltic Sea Region (active since 1991) & Ukraine (since 2004) Project size : focus on small to medium sized projects but also interested in larger volumes average so far ~216,000 tCO2e reflects initial fund size Overall, portfolio approach aims to diversify/distribute delivery risk across TGF portfolio

Project Risks and Mitigation Business risks of the underlying project construction risk and construction delay risk performance risk, mainly technology risk and risks relating to resource availability (e.g. biomass, wind) counterparty risks (financial standing and technical capacity) environmental and social risks Financial risks Adequate cashflow to cover project overruns, O&M, debt servicing and a reasonable return on equity Sectoral (competitive) and regulatory risks esp. renewables Baseline risks CDM methodologies / project specific methodologies

TGF works in two groups of countries : Country Risks TGF works in two groups of countries : Countries with advanced economies in transition, part of EU and with generally favourable investment climate Countries with intermediate level of transition to market economy, often difficult business environment and barriers to investment Key Country risks Kyoto Risk, failure to comply with Kyoto obligations such as calculation of AAUs, registries, inventories etc Political risks (foreign exchange convertibility, expropriation etc) For TGF, given our mandate, country risks are "priced in"

Pricing and Risk Management Pricing depends on risk, main factors for TGF: project maturity (TGF risk appetite favours engaging with projects at an early stage, projects with LoAs demand higher prices) transfer risk (ie payment on verification (VERs) vs delivery to nominated registry (ERUs) size of project (e.g Baltic states, small projects but lower HC risk) technology / project types (premium for renewables demanded) Other risk factors host country risks, project risks / performance risks, creditworthiness of seller (difficulties in EITs/ emerging markets) Competition from other buyers - not risk related, but an increasingly important price determinant in our markets

For Further Information Ash Sharma Facility Manager, TGF NEFCO Ash.sharma@nefco.fi Mobile + 358 400 811 327 Office + 358 9 180 01 For general information visit www.nefco.org/tgf In Ukraine: Vladimir Morozov TGF Representative morozov@ukrntec.com Office : +380 62 295 2622 Mobile +380 50 328 0941