Risks and how to manage it How to market CDM Projects

Risks The further the project, the lower the risk –Off the shelf buyer faces no risk –Financer risk is limited by contract and insurance –Equity investor shares risk of success of project

Stages of Risk I - Country Country status –Stability Environmental, labour, institutional –Infrastructure Presence of approved OE Suitable local expertise (technical, legal, financial) –Certainty of contracts and of ownership Lawlessness Litigiousness  Produce country Assessment Report –But the Japanese are already interested

Stage of Risk II - Approval DNA Status –Is the DNA in existence –Will the DNA be biased to some sectors  seems not in SA –Are the DNA criteria clear, stringency –Is the DNA efficient or causing delays SD Status –Will the Project contribute to Sustainable Development Is the project an SSN project  SD criteria met Is the project a gold label project  SSN projects probably are Approval Status –Has the project already been approved  Produce Approval Certificate, Gold Label endorsement, or Assessment Report

Stage of Risk III - Validation Methodology –Is the baseline methodology approved –Is the project additional Validation –Has PDD been validated by an approved OE  Produce validation certificate, or Assessment Report

Stage of Risk IV: Feasibility Feasibility Study –How far is implementation? –Is there a good rate of return iro CERs as against the capital cost of the project –What portion of the bigger project is the CDM component –How liquid is the Project Participant in relation to the timing of the production of CERs –To what extent are the proceeds of bigger project already contracted for (e.g. methane collected) –How additional is the project –What are the transaction costs –How viable is the bigger project –What are the profit margins in respect of the CERs –What is the state of the CER Market: what are the parameters  Produce auditor’s Assessment Report

Stage of Risk V: Market Indicators Is the KP ratified Has the CER Market matured What prices do CERs fetch at the moment What factors will affect the CER Market –How do these factors impact on the specific project What is the future of the CER Market –When should project be marketed??  Produce an market appraisement Report

Stage of Risk VI - Technology Is the project technology reliable/ tested / the best available –Has the technology been tested by developer/ in same country/ in same situation –What factors affect the technology being successful in the host country –How complicated is the technology How expensive is the technology (including maintenance) –Are royalties payable –What possibility is there for technology proliferation/on-selling What is the relationship between the technology and the baseline What provision is there for ongoing training and maintenance What likelihood is there for take-up of the technology  Produce Assessment Report against a set of performance indicators

Stage of Risk VII: Insurance Is there insurance in place iro performance by PP What grade of risk is there in respect of each assessment of risk identified iro the project Is there insurance in place for each stage of risk How adequate is this insurance What consideration is there for points of conflict to arise What provision is there for the resolution of each identified conflict  Produce insurance certificates or insurance potential report iro each identified risk

The Project Prospectus Packages the Project for Marketing Is presented to top brass Is like a company prospectus/ annual report Includes Risk, Status and Evaluation Reports Shows Price to Risk in graph format:

Confidentiality What detail of Internal Rate of Return to include: –Higher IRR, less risk to investor/buyer –Lower IRR, lower offers? How much information must be exposed in PDD –Conservatism High scenario proves additionality Low scenario proves baseline

Risks to Seller/PP Same as buyer in respect of the success of the project Opposite to buyer in respect of degree of buyer involvement Choosing optimum time iro risks, cash flow needs and potential for maximising profit Choosing the right buyer (and the buyer’s ability to perform) Identifying the right technology and the right project Negotiating in a weak/uncertain market International competition to sell into the market Negotiating with top-flight international dealers The right contract, the right forum for enforcing performance/ claiming damages