WB Carbon Finance Project Cycle and 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 months 3 months 1-3 years Up to 21 years 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 prepared 3. CF Unit quality control of results 4. Documents for Validation prepared by CF Unit and sponsor 5. Bank region begins technical, financial, environmental and social due dilligence Periodic verification & certification Construction and start up Project completion 3 months 2 months 3 months 1-3 years Up to 21 years Carbon Asset Due Diligence

Preparation and review of the Project Carbon Asset Due Diligence 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 Negotiation of Project Agreements Periodic verification & certification Construction and start up Project completion 3 months 2 months 3 months 1-3 years Up to 21 years Validation Process

Preparation and review of the Project Carbon Asset Due Diligence Validation process Negotiation of Project Agreements Periodic verification & certification Construction and start up 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 Country 5. ERPA is signed 6. ERPA becomes effective after financial closure is achieved Project completion 3 months 2 months 3 months 1-3 years Up to 21 years Negotiation of Project Agreements

Preparation and review of the Project Carbon Asset Due Diligence Validation process Negotiation of Project Agreements Periodic verification & certification Construction and start up 1. At construction completion, CF Unit contracts Independent Verifier 2. Verifier checks that specifications of the monitoring plan are met (“Initial Verification”) 3. Project implementation starts 4. Project entity monitors in accordance to the monitoring plan Project completion 3 months 2 months 3 months 1-3 years Up to 21 years Start of Generation of ERs & Monitoring

Preparation and review of the Project Carbon Asset Due Diligence Validation process Negotiation of Project Agreements Periodic verification & certification Construction and start up 1. Verifier issues periodic verification report 2. CF Unit pays project sponsor for ERs 3. Certified ERs are issued by the CDM Exec. Board as per distribution agreement 4. Verification undertaken annually or as deemed appropriate Project completion 3 months 2 months 3 months Up to 21 years Verification and Certification

Preparation and review of the Project Carbon Asset Due Diligence Validation process Negotiation of Project Agreements Periodic verification & certification Construction and start up Project completion 3 months 2 months 3 months 1-3 years Up to 21 years Crediting period either 10 years fixed or 7 year renewable (maximum 21 years) Project Completion

Preparation and review of the Project Carbon Asset Due Diligence Validation process Negotiation of Project Agreements Periodic verification & certification Construction and start up Project completion 3 months 2 months 3 months 1-3 years Up to 21 years 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

Preparation and review of the Project Carbon Asset Due Diligence Validation process Project Appraisal and Negotiation Periodic verification & certification Construction and start up Project completion 3 months 2 months 3 months 1-3 years Up to 21 years 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

Preparation and review of the Project Carbon Asset Due Diligence Validation process Project Appraisal and Negotiation Periodic verification & certification Construction and start up Project completion 3 months 2 months 3 months 1-3 years Up to 21 years 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 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