1. World Bank/KenGen Workshop on CDM Project Methodologies and Preparation October 3 & 4, 2006 CDM Contracting and Legal Issues

2. Overview of Key Legal Issues in the CDM Compliance with CDM Rules Compliance with CDM Rules Creating and owning VERs/CERs – Issuance and Registry Creating and owning VERs/CERs – Issuance and Registry Purchasing VERs/CERs (ERPA) Purchasing VERs/CERs (ERPA)

3. Registration (EB) Issuance of CER(EB) Validation (DOE) KP risks: CDM Cycle/Rules Verification and Certification (DOE) Monitoring Project

4. Generation of VERs and CERs Generation of GHG emission reductions (in tonnes of CO2e] Verification by a Designated Operational Entity VERs Approval of the Methodologies, Registration of the Project, Issuance of Certified Emission Reductions CERs Carbon Contract $$

5. Issuance and Registry of CERs

6. Purpose of ERPA Record agreement Record agreement Identify responsibilities Identify responsibilities Establish rights Establish rights Manage risk Manage risk

7. Some basics Two parts Two parts General Conditions - standard terms, conditions, rights/ obligationsGeneral Conditions - standard terms, conditions, rights/ obligations Negotiated agreement - purchase amount, price, payment terms, preconditions, reps and warrantiesNegotiated agreement - purchase amount, price, payment terms, preconditions, reps and warranties VER or CER contracts (JI being developed) VER or CER contracts (JI being developed) Goals: consistency, flexibility, reducing transaction costs Goals: consistency, flexibility, reducing transaction costs

8. Features Sale and Purchase agreement Sale and Purchase agreement Object ERsObject ERs Amount, Price and PaymentAmount, Price and Payment ER creation ER creation Who does whatWho does what validation validation Registration Registration Verification Verification Certification Certification Risk allocation - Risk is allocated to the party best able to bear it Risk allocation - Risk is allocated to the party best able to bear it Project risk (to be borne by Project Entity) Project risk (to be borne by Project Entity) KP regulatory /baseline risk (to be borne by Trustee) KP regulatory /baseline risk (to be borne by Trustee) - Market risk (shared)

9. Key Contractual Provisions Definitions Definitions Payment upon delivery Payment upon delivery Monitoring and Verification Monitoring and Verification Project Development and Operation Project Development and Operation Events of Defaults Events of Defaults Remedies Remedies Termination events Termination events

10. Risk allocation – KP risk Methodology risk – change in methodology (e.g., baseline and monitoring methodology) from ERPA signing reduces ERs generated BuyerSeller Registration risk – e.g., project not registered due to additionality/methodology BuyerSeller Request for review risk – EB reviews DOE’s verification which could delay, reduce or eliminate CER issuance BuyerSeller

11. Key obligations related to issuance Verification – contracting for DOE to undertake verification Buyer(Trustee) To be negotiated Focal Point – who communicates with EB (principally relates to issuance) Buyer Buyer or Joint Buyer/Seller Share of proceeds – who pays the share of proceeds BuyerSeller Payment by Buyer 60 days after receipt of Transfer Form that follows Verification 60 days after CER delivery

12. Events of Default by Project Entity Transfer Failure Transfer Failure Dissolution/liquidation/bankruptcy (etc.) Dissolution/liquidation/bankruptcy (etc.) Material delay in the construction Material delay in the construction Material breach of terms of ERPA Material breach of terms of ERPA Repeatedly failure to comply with CDM related rules Repeatedly failure to comply with CDM related rules Failure to meet the requirements of the MP or EMP Failure to meet the requirements of the MP or EMP

13. Events of default by Trustee -Failure to make payment -Other material breach Remedies: Remedies: -Require payment -terminate the ERPA

14. Remedies Buyer remedies - Trustee VERsCERs Intentional breach Cost recovery + damages Costs + liquidated damages in the amount of: ERs x (spot price – unit price) Not an intentional breach (i) Allow delivery in subsequent years, (ii) reduce annual amounts + increase option, or (iii) terminate after 3 years Same as for VER Seller remedies – Project Entity (i) Recover outstanding payments + interest, and/or (ii) terminate ERPA Same as for VER

15. Costs & Taxes Costs Costs Deduction of project preparation / KP related costs from annual payment (caped) by Trustee in the Annual PaymentsDeduction of project preparation / KP related costs from annual payment (caped) by Trustee in the Annual Payments Taxes Taxes Deduction of Host country taxes by TrusteeDeduction of Host country taxes by Trustee

16. Other significant clauses Governing Law Governing Law English LawEnglish Law Arbitration Arbitration In accordance with UNCITRALIn accordance with UNCITRAL

17. Thank you