1. GEF/UNDP/DOE CBRED PROJECT “Philippines: Capacity Building to Remove Barriers to Renewable Energy Development” Presentation by : MSC Business Planning & Development Subcontract Presentation to REIAC September 22, 2005

2. Outline of Presentation MSC Business Planning and Development I.Background/Rationale of MSC II.Environment Scan and Market Assessment III.The Establishment and Operationalization of the Market Service Center (MSC) 1.Vision and Mission 2.Service Offerings 3.Strategies 4.Organizational Plan 5.Marketing Plan 6.Financial Plan 7.Operational Plan

3. I.Introduction – Background/Rationale  Lack of system in government permitting process  Complex project development process Some Barriers the MSC Aims to Address

4. How the MSC concept started – A “One-stop shop” for expediting the processing of applications, permits and approvals required to carryout RE projects; and Provide assistance in RE project development

5. II. Environment Scan/SWOT Analysis & Market Assessment Objectives : the Environment Scan aims to guide the MSC in positioning itself in the RE sector as a provider of quality services that will facilitate private sector participation and investments in RE projects. the Market Assessment provides an understanding of the specific service requirements of the target markets, facilitates the prioritization of such services and allows for the internal assessment of capabilities of the MSC.

6. II. Environment Scan/SWOT Analysis & Market Assessment (cont’d) Environment Scan (SWOT Analysis): Strengths: 1.CBRED Project can provide initial resources to the MSC 2.DOE can provide office space 3.Link with DOE can facilitate access to foreign funding 4.MSC is molded by DOE, RE industry and stakeholders 5. Large corporations that can pursue large projects exist in the RE industry

7. Environment Scan (SWOT Analysis): Weaknesses: 1.Potential market in off-grid areas are generally the poor sector of society with low capacity to pay and where need for electricity may not be a priority; 2.RE market is spread too thinly making it difficult and costly to promote, market and provide after-sales services to; 3.Through the years, RE industry has shrunk in size, thereby decreasing the potential market for MSC services; 4.A number of RE project developers have lost interest in tapping local financing due to stringent loan terms and conditions. II. Environment Scan/SWOT Analysis & Market Assessment (cont’d)

8. Environment Scan (SWOT Analysis): Opportunities: 1.Isolated grids open a window for RE systems to become viable; 2.The UC under the ME provides financial support to encourage RE project developers to participate in ME program; 3.The transformation of some ECs to stock corporation paves the way for the participation of RE project developers to acquire portions of the distribution business; 4.The uninstalled hydro equipment of the NEA can be used by RE project developers; 5.RE projects are qualified for carbon credits under the CDM of the Kyoto Protocol;

9. II. Environment Scan/SWOT Analysis & Market Assessment (cont’d) Environment Scan (SWOT Analysis): Opportunities: 6. High foreign exchange rate may favor local manufacture of RE systems and components; 7. More than ever, the extremely high cost of conventional fuel has made RE highly competitive; 8. MFIs operating in unelectrified communities have existing network that can be tapped in promoting and marketing of RE products;

10. II. Environment Scan/SWOT Analysis & Market Assessment (cont’d) Environment Scan (SWOT Analysis): Opportunities: 9. The ANECs may be tapped as a network to promote, market and service RE systems in their areas of coverage; 10. Rural electrification and provision of potable water supply are priority programs of the present administration; 11. The expected passage of the RE Bill will greatly boost the RE industry.

11. II. Environment Scan/SWOT Analysis & Market Assessment (cont’d) Environment Scan (SWOT Analysis): Threats: 1.The MSC may be viewed as a competitor by the private sector; 2.The sustainability of MSC’s operation after the life of the CBRED project is a concern; 3.The current size of the RE industry is small to support the operation of a self-supporting MSC; 4.The occurrence of infringement of intellectual property rights has negated the gains of previous efforts to encourage RE equipment manufacturers to commercialize; 5.The Clean Air Act is viewed as a barrier by biomass-based system fabricators.

12. II. Environment Scan/SWOT Analysis & Market Assessment (cont’d) Market Assessment: Services needed by RE industry : 1. Project Development 1.1 Facilitation in securing permits, licenses and approvals. 1.2 Access to information for project design 1.3 Proposal Packaging for loan application 1.4 Loan Sourcing/Fund Syndication 2. Advisory Services on Business Systems and Process Improvements 3. Assistance in Promotion and Marketing of RE Products

13. lll. The Establishment of the MSC Vision Statement We are the “One-Stop Shop” in the development of a vibrant and competitive renewable energy industry in the country and in the ASEAN region.

14. Mission Statement “We are the institutional catalyst that is responsive to the needs of renewable energy stakeholders in the development and widespread application of renewable energy in a sustainable manner. We value our employees and stakeholders as partners in making renewable energy a practical and reliable energy source”.

15. 2. Service Offerings 1. Advisory Services for RE Equipment Mfrs & Service Providers - Advisory Services - Training 2. Info services - Info provision/processing - Access to Private Databases 3. Marketing & Promotions Services - Web hosting - Facilitation of networking 4. Project Development Services - Facilitation of Securing Permits, Licenses & Approvals - Loan Proposal Packaging - Facilitation of Loan Application - Brokering of Rehabilitation of NEA Hydro Projects - Fund Syndication-related services - Conduct of FS (w/private sector partners)

16. 3. Goals and Strategies in the Establishment of the MSC 3.1 Phases of the MSC The establishment of the MSC shall evolve in 3 phases: Phase 1 : Interim MSC (Q4 2004 – Q2 2005) Phase 2 : Simulation of Operation of the Spin-Off Organization (Q3 2005-Q2 2007) Phase 3: Establishment and Operationalization of the Spin-Off Organization (Q3 2007 – onwards)

17. 3. Goals and Strategies in the Establishment of the MSC 3.1 Goals of the MSC Phase 1: Creation of the IMSC - Full complement of personnel hired - Capacity building of staff started - Business relationships with potential customers, subcontractors, fund sources and other RE stakeholders started

18. 3. Goals and Strategies in the Establishment of the MSC 3.1 Goals of the MSC Phase 2: Simulation of Operation of the Spin-Off Organization - Starts providing services to the RE industry to simulate the operation of the SOO - Capacity building of staff continues - Business relationships with potential customers, subcontractors, fund sources and other RE stakeholders sustained - Management system defined

19. 3. Goals and Strategies in the Establishment of the MSC 3.1 Goals of the MSC Phase 3: Establishment and Operationalization of the Spin-Off Organization - MSC – SOO registered - Continues to provide services - Starts accumulating revenue - Business relationships with potential customers, subcontractors, fund sources and other RE stakeholders sustained - Sustainability of operation achieved

20. 3. Goals and Strategies in the Establishment of the MSC 3.2 Strategies of the MSC Phase 1: Interim MSC - Use the approved plantilla of the CBRED Project to hire personnel

21. MSC Interim Organization Coordination/ Consultation on turned- over systems Project Steering Committee (PSC) (DOE, UNDP, DENR, etc) MSC Coordinator EIPO REIAC Technical Support Specialist Information and Promotions Technical Specialist Policy and Institutional Technical Specialist Administrative Coordination CBRED - PMO Turnover of Systems developed by CBRED Subcomponents CBRED-PMO ( supervision of activities funded from CBRED Funds) Boundary of the Interim Organization of the MSC Subcommittee For Component 2 Review/Consultation Administrative Assistant Review/Consultation

22. 3. Goals and Strategies in the Establishment of the MSC 3.2 Strategies of the MSC Phase 1: Interim MSC - Use the approved plantilla of the CBRED Project to hire personnel - Start capacity building of IMSC personnel on the services it shall offer and on the Management System of the SOO

23. PHASE 1 : Establishment of the Interim MSC (IMSC) Attributes of IMSC: 1. no legal personality; a group within CBRED 2. staffed with personnel provided under CBRED 3. housed at the DOE 4. operates on funds allocated by CBRED for MSC Intentions of Establishing the IMSC: 1. serve as vehicle to receive incoming personnel 2. personnel familiarization with and integration into the RE industry 3. start personnel capacity building on MSC operation & management 4. Organizational Plan - Phases of MSC Establishment and Operationalization

24. 3. Goals and Strategies in the Establishment of the MSC 3.2 Strategies of the MSC Phase 2: Simulation of Operation of SOO - Simulate the provision of services ‘at cost’ - Agreements for services shall be between the DOE and the client since the MSC has no legal personality to transact business - Turnover systems created under the CBRED project subcomponents to the MSC, and provide access to corresponding budgets - Undertake preparatory activities for the establishment of the SOO

25. 3. Goals and Strategies in the Establishment of the MSC 3.2 Strategies of the MSC Phase 3: Establishment and Operation of the SOO - Formalize the creation of the SOO - Tap the CBRED project resources to support the operation of the SOO - Assign the administration of the PPF, LGF and MFF to the SOO - Undertake project-based services/activities - Sustain customer relationship - Undertake continuous search for projects and funds - Forge partnership with subcontractors

26. Total Capability Required by the MSCF. Core Capability Of the MSCF (Project Integrator/ Consolidator) Sub-contractor Capability A Sub-contractor Capability B Sub-contractor Capability C Sub-contractor Capability D Boundary of MSCF organization Total capability required by the MSCF In relation to its capability Boundary of Sub-contractor Management

27. Long-term sustainability No-governmental entity Assistance to RE sector Non-competition with private sector Close-links with RE-related gov ’ t agencies Close ties with clients and stakeholders 4. Organizational Plan – Imperatives

28. Service lines under one roof Economy & flexibility in structure Access to external technical expertise/facilities Links with domestic/international fund sources High level of staff competence Ability to access external funds to help support its operation 4. Organizational Plan – Imperatives (cont’d)

29. 4. Organizational Plan - Options 1. Government Corporation with Charter 2. Government Corporation under the Corporation Code 3. Private Corporation - Stock Corporation 4. Private Corporation - Non-Stock Corporation 5. Private Corporation-Non-Profit, Non-Stock 4.1 Association 4.2 NGO 4.3 Foundation

30. 4. Organizational Plan – Comparative Matrix

33. 4. Organizational Plan – Conclusion/Recommendation Conclusion of Organization Study A Foundation is the most appropriate type of organization for MSC mainly for following reasons :  Not viewed as a competitor of the RE Industry  Can accept fund donations and projects from national, bilateral and multilateral donors/sources to help support its operation  Donors can deduct 100% of their donations/contributions from their taxable income

34. Attributes of the MSC Foundation 1. has legal personality to transact business 2. housed at DOE until proven financially capable of maintaining its own office 3. operates on MSC funds provided under CBRED and revenues from services provided to the RE industry Intentions of the MSC Foundation 1. absorb qualified IMSC staff 2. provide services to RE industry for a fee 3. continue capacity building of staff 4. pursue market development activities 4. Organizational Plan - Phases of MSC Establishment and Operationalization

35. MSCF Table of Organization Board of Trustees Executive Director Manager Knowledge Mgt Finance & Administration Manager Business Dev’t One Person Two Persons One Person Manager Operations Project Manager Project Support Staff Project Subcontractors

36. Total Capability Required by the MSCF. Core Capability Of the MSCF (Project Integrator/ Consolidator) Sub-contractor Capability A Sub-contractor Capability B Sub-contractor Capability C Sub-contractor Capability D Boundary of MSCF organization Total capability required by the MSCF In relation to its capability Boundary of Sub-contractor Management

37. INTERACTION WITH STAKEHOLDERS Services That can be Subcontracted To MSCF DOE Investment Promotions MARKET SERVICE CENTER DOE Registration Program Potential Projects / Project Developers Project Development Services Weak areas in Processes, Products, Business Systems Advisory Services Information RE Industry Information Marketing /Promotions Services Financial Institutions Donations Potential Projects RE Industry Information Services

38. 1. RE Project Developers 2. RE Engineering service providers - fabricators - service providers 3. RE Manufacturers - manufacturers - suppliers - integrators 5. Marketing Plan- Major Target Markets

39. Prioritization based on the following considerations: - MSC currently capable to provide the service (3 pts) - MSC needs minimal training to provide service (2 pts) - MSC requires intensive training to be able to provide the service (1 pt) 5. Marketing Plan – Product Mix

40. MSC Priority Services Offerings 5. Marketing Plan – Product Mix Services of the MSCWeightRatingWeight Rating Prioritization 1. Facilitation of Securing Permits/ Licenses/ Approvals 0.1830.545 2. Loan Proposal Packaging and Facilitation of Loan Application 0.8232.461 3. Fund Syndication-related services 0.2730.814 4. Business Systems Process Improvement 0.4520.903 5. Marketing and Promotions Services 0.5531.65 2 6. Information Services 0.1820.36 6

41. Caters to a niche market Provides services in partnership with consulting firms/individuals Provides full range of services 5. Marketing Plan – Competition 5. Marketing Plan – Pricing Cost-plus pricing (actual direct cost plus admin cost)

42. 5. Strategies in Building the Market for MSC Services 1.Organize and conduct business fora to marry potential projects with investors, in coordination with REMD and EIPO; 2. Meet and discuss with major RE industry players on MSC can help them now, follow through and maintain customer; 3. Offer reasonable fees for services; 4. Use the Register of RE equipment manufacturers and service providers in selecting partners for providing services to the RE industry;

43. 5.Pursue membership in RE industry organizations for exposure; 6.Prioritize services with outputs in the short term to start build a name in the industry; 7.Get support from CBRED Project for creating awareness and promotions of MSC. 5. Strategies in Building the Market for MSC Services (cont’d)

44. Media Advertising – newspapers, magazines, radio, tv Web-based advertising (homepage, government, industry web sites) Brochures Exhibitions in fora, conferences Meetings with potential clients 5. Marketing Plan – Marketing Strategies

45. 6. Financial Plan – Financial Projections for MSCF Operation Assumptions: 1.Pre-operating expenses - (SEC reg’n. business permits, etc.) 2.Additional capital expenses - (office & equipment) 3.O & M - (Existing IMSC O&M plus retainer fees, honoraria, office rental, etc.)

46. 6. Financial Plan – Financial Projections ii. MSCF Operation Scenarios: 1.Base case – Targeted no. of clients based on PRODOC (at least 2 RE projects packaged; at least 50 clients served; at least 50% of OPEX financed by its income) 2.Pessimistic– 50% less clients than the base case 3.Optimistic– 50% more clients than the base case 4.Break- even – 100% financially sustainable

47. 6. Financial Plan – Financial Projections for MSCF Operation Results: Fixed Cost : P 3.9 to 8.5 Million in the 14 years of operation or 97 to 63 % of total operating cost. Variable Cost: P 0.1 to 5.1 million in the 14 years of operation or 3 to 37% of total operating cost of P 4.0 to 13.6 million. Revenue: Ranges from a low of Php 0.8 to a high of Php 15.3 million.

48. 6. Financial Plan – Financial Projections ii. MSCF Operation Summary of Scenarios: 1.Base case – 16.7 million deficit* 2.Pessimistic– 47.8 million deficit* 3.Optimistic– 11.4 million surplus 4.To Break-even – There should be 31% increase on the yearly frequency of services targeted in base case *Equal to required capital fund infusion at the start of the operation

49. Strategy 1: Optimize CBRED project support for its operation & endeavor to increase frequency/number of clients served Strategy 2: Access interest earnings of the PPF, LGF and MFF to help finance its operating cost Strategy 3: Carryout systematic solicitation of new funds or projects from multilateral and bilateral sources e.g. UNDP, USAID, ADB, World Bank, JICA 7. Financial Plan – Strategies

50. Transitory Provisions 1. Phasing-in Strategy – IMSC simulates the operation of the SOO by providing services to the RE industry 2. Asset Transfer – All equipment purchased for the MSC shall be transferred to the Foundation through a Deed of Donation from UNDP. 3. Personnel Transfer – Services of IMSC staff shall be terminated at the end of operation of IMSC. They will however be given priority in hiring personnel for the MSCF, if they qualify. Years of service with the IMSC shall not be transferred to the Foundation.

51. 7. Operational Plan – Contingency Plan If the MSCF is not sustainable at current level of operation, the following are fallback options: 1. Continue to operate as a Foundation with scaled-down operation aimed at sustainability 2.Dissolve the Foundation – Transfer all MSCF assets to the DOE and DOE continues the functions of the MSCF

52. Cost Benefit Analysis Renewable Energy Policy Framework Target =10 MMBFOE =4,697 MW Assuming MSC provides services to 10% of the projects: Total MW=469 MW MMBFOE=1 MMBFOE Forex Savings=50 million USD or equivalent to 2.75 Billion Pesos Potential MT CO 2 emissions avoided=310,440 At 7 USD per MT CO 2 =2.2 USD million

53. Empowering people, Improving lives Email: lnavarro@irg-p.com.ph