RED CERAMICS FUEL SUBSTITUTION LA PAZ - BOLIVIA

History The fuel substitution project of the Red Ceramics Association (ACR) in Alpacoma, La Paz, was developed by ACR since The Association with 40 members has also 40 ovens (kilns) for the manufacture of construction bricks. ACR is settled in the outskirts of La Paz, in the western hangs of the valley, located close to the poorest residential areas. The fuels used in the ovens, before implementation of the fuel substitution project, were sawdust, used lubrication oil and scrap wood. The severe air pollution and the incompliance of the environmental regulations implied the risk of closure for the red ceramists. ACR, with contribution of its members, contracted the consulting engineering services for the design studies and technical specifications of the natural gas distribution system. In 1996 ACR members requested to E+Co a credit of US$ 160,000. Overview and Strategy

E+Co proposed to Caja Los Andes S.A. FFP (CLA), a micro credit second story bank of La Paz, a co-financing operation. CLA carried out the evaluation of the creditworthiness of the borrowers and accepted the basis of the technical and economical evaluation of the project, made by E+Co. Only 30 out of the 40 ACR members ratified their interest in an E+Co individual loan, to extend the natural gas distribution system to Alpacoma and to carry out in- doors installations of natural gas, as well as to purchase appropriate burners. The ACR members obtained the municipal permits, the environmental declaration and the technical approval of the installations by the pertinent authorities. This was particularly arduous given the fact that ACR members have mostly only low grade education and cultural barriers with the administration, due to their autochthonous ethnic origin and their condition of rural immigrants in La Paz. Overview and Strategy

In September 1999 the loan contract was signed with E+Co for US$ 160,534.52, together with a debt service collection service contract with Caja Los Andes. The amount of the credit was increased in September 2000 with US$ 41, to a total of US$ 202,160. The project has been implemented and its commissioning started in October Due to the market problems for the bricks production in 2001, that lead the low prices and less demand, E+Co. after an appraisal of the situation accepted to give for 10 months a debt service alleviation, by reducing the monthly installments by approximately 40%, and later in 2002 a term extension of 12 months. By March 2002, 30% of the debt has been repaid to E+Co. Overview and Strategy

Technology The technology of natural gas use as fuel for ovens in the brick manufacture is mature and standard, well regulated by law and supervised by the gas distribution company (YPFB in La Paz) and the regulatory agency (Superintendencia de Hidrocarburos). The project includes a tap from the main gas pipeline to the project area, foreseen with pressure regulation devices, measurement equipment and emergency shut off valves. The secondary gas pipeline, as well as the in-doors installations, are of steel pipe and each individual oven has pressure regulation devices, flaring installations and measurement and control devices. Each brick producer has his own mobile burner, adapted to the existing kiln. Overview and Strategy

Red Ceramics Alpacoma – La Paz, Bolivia Bricks Inside the Oven Bricks and Brick Producers

Red Ceramics Alpacoma – La Paz, Bolivia Gas Pipeline in Place of Sawdust Pressure Regulation and Measurement Cabinet Brick Producers in the Western Hangs of La Paz

Due to the cultural limitations, the role of E+Co in this project was besides that of a financing institution, of an advising role to assure the proper legal, administrative and technical decisions, also in relation with the supply, erection and construction contracts. The differences in skill, commercial contacts and education among others, among the different members of the Association obliged E+Co to monitor individually and periodically the socially weakest members, assisting them to solve specific problems E+Co relationship

The social benefits targeted in this project were primarily focused in preserving the jobs of 30 families, facing closure threat, because of environmental restrictions to the use of sawdust and used lubrication oil. The second objective of the project was the improvement of the income of the families and the improvement of the working and living conditions, with the reduction of noxious gas emissions in the working and living areas around the project zone. The environmental benefits are directly related with the use of clean fuel, not only for the immediate neighborhood of the Red Ceramics Association, but also for large and densely populated urban areas of La Paz affected by the gas emissions, since decades. Social and environmental impacts

Amount:US$ 202,160 Type: Debt Interest rate:9 % p.a. and 3% p.a. additional penalty interest. Grace period:12 months. Repayment period: 52 months (monthly installments) Guaranties: Each debtor registered the mortgage of his real estate property in favor of E+Co and the Red Ceramics Association committed itself to take disciplinary measures in case of default of any of the debtors. Out of a total investment of US$ 260,000, Red Ceramics Associates contributed with US$ 57,840 as equity and labor for excavation and fill of ditches, as well as for miscellaneous masonry works, like housing for measurement and pressure regulation equipment Key terms of Financing

Financial highlights and projections Revenues Growth (%) EBITDA Margin Interest Expense Loan Amortization Total Debt (Balance at end of year) Equity invested EBITDA/Interest Expense EBITDA/Debt Service 652, , , , , , , , , , , , , , , , , , , , , , , , , , , , , In US Dollars

The project started gradually its commissioning in October The most remarkable quantitative impacts were the decrease of losses due to overcooking and smelting of bricks, with an increase in total net loading of each batch of 14.6 %, due to reduction of dead spaces in the oven and less risk of smelting or overcooking of the bricks, as well as reduction of the total production losses from 14% of each batch to 5 % of losses due to overcooking and smelting. These advantages of the new fueling system were off set by the indexation of the natural gas tariffs, the devaluation of the Bolivian currency in front of the U.S. dollar and the lower demand of the product, together with lower prices in terms of Bolivianos. Operational Metrics

Nevertheless, the total production form 2000 being estimated in 15.8 million bricks went up in 2001 to 20 million bricks. The pollution of the sawdust and used lubrication oil has been reduced by more than 80 %, since the quality of the bricks manufactured with natural gas are more competitive than the ones that are marginally produced with traditional fuels. Operational Metrics

The ownership of the natural gas distribution system from the tap of the main gas pipeline to the individual property gates, belongs to the Red Ceramics Association Members, who contributed with equity and labor in kind for its construction installation. The assets installed within the land property of each associate member, belong to the individual, as private ownership. During the execution and financing of the project the contribution of each member was adjusted to the physical characteristics and dimensions of the installations. Management and Ownership

The maintenance of the civil works, the external condition of the distribution system and signalization is the responsibility of the owners, as well as the installations within the land property of each member of the Association. The operation of the main tap and the distribution system is under the responsibility of the Natural Gas Distribution Company (currently YPFB), as well as the gas provision, the pressure regulation, measurement, monthly billing and collection. The supervisory body from the side of the State is the Superintendency of Hydrocarbons, in charge also of the consumer rights protection. Management and Ownership