1. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 1 Capacity Development for CDM Second Regional Workshop NA&ME Contractual cornerstones for CDM Projects Samir Amous, APEX, Tunisia Regional Centre for North Africa and Middle-East Tel : +216 71 848 094 --- Fax : +216 71 843 453 amous.apex@gnet.tn amous.apex@gnet.tn

2. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 2 Contractual arrangements in the CDM project cycle

3. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 3 Identify Contracting Partners  Core Project Partners: Project proponents : National Government, Provincial Government, local Authorities, private enterprises (either national or foreign) Buyer of CERs Seller of CERs CERs trader  Other Project Parties: Operational Entities to validate project activities, and verify/certify emission reductions

4. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 4 How to regulate the transactions with OE ? What if an OE is not fitting its commitments ? Which Jurisdiction ? Do they need to have assets in the country ? Is appeal to OE decision possible ? To which court ? Contractual arrangements with Operational Entitites

5. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 5 Contractual cornerstones for CDM projects: 20 articles to be considered

6. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 6 A project Holder who apply for Resources to implemnt activitis that result in emission reductions  Sells CERs A Project Investor who brings a level of resources that is linked to the CERs generated by the project Third Parties: Operational Entities, Executive Board, etc. External issues : KP decisions, leakages, baseline, Methodologies, Additionality, What is a CDM Transaction – Contractual arrangement:

7. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 7 1. Parties/introduction to the contract: Project participants to be fully designated and described: The host country The project Entity The CERs owner Any other actor that would have a obligations/responsibility in relation with the project Contractual cornerstones for CDM projects:

8. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 8 1. Parties/introduction to the contract: Recall the project circumstances Country ratification DNA approval OE conclusions (baseline and project document validation) CDM Executive Board approval Crediting period Contractual cornerstones for CDM projects:

9. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 9 2. Description of the contract subject: Purpose : Emission Reduction Purchase Agreement A buyer to buy CERs A Seller to sell CERs Any Intermediary involved in the transaction Contractual cornerstones for CDM projects:

10. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 10 3. Definitions: UNFCCC – Reference to Protocols Kyoto Protocol – CDM relevant articles/amendements GHG – tCO2e  unit of measurment, methodology of measurement, gases involved, GWP used CDM CERs : clear identification  nature and scope of the rights associated with this major contractual subject Contractual cornerstones for CDM projects:

11. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 11 3. Definitions: CDM Executive Board COP/MOP  definition and any relevant decision DNA  definition and any relevant decision Operational Entity Host Country Contractual cornerstones for CDM projects:

12. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 12 3. Definitions: Monitoring Plan Parties to the contract Participants Project Entity Project Design Document Project Starting date-Project Termination Date Contractual cornerstones for CDM projects:

13. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 13  Definitions: Crediting Period (7 years x 3, or 10 years) Baseline Validation Registration Certification Sustainable Development  Reference to the SD assessment protocol and to DNA decision related to the project Contractual cornerstones for CDM projects:

14. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 14 4. Sales and Purchase/rights of the buyers and sellers: Number of CERs Years of generation Other environmental/various side benefits Contractual cornerstones for CDM projects:

15. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 15 5. Delivery Mechanisms: Fixed dates Triggering events (e.g. Entry into force of KP) Legal Mechanisms to transfer/deliver CERs Risks associated with the transfer/delivery regime  possible legislative changes Contractual cornerstones for CDM projects:

16. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 16 6. Shortfall/Failure to deliver Cases of technologies that require regular maintenance Cases of varying CERS delivery: e.g. Windpower where the CERs delivery is linked to actual wind inputs Force-majeure : e.g. storm, etc. Cases of insolvency Possible Indemnities Contractual cornerstones for CDM projects:

17. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 17 7. Evidence of the CERs: Baseline measurement Monitoring Procedures and Methodologies Emission reduction measurements  methodologies approaches and risk assessments Responsibility of the validation of the CERs occurrence Verification and Certification procedures Possibly annex TORs for Operational Entities Contractual cornerstones for CDM projects:

18. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 18 8. Risks Technical risks Regulatory risks, customs/taxes risks Political risks Financial risks (e.g. exchange rate risks, etc.) Insurance options Contractual cornerstones for CDM projects:

19. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 19 9. Payment Modalities: Price to consider for CERs transactions Money of the contract Taxation statements Penalties/fees/charges for delays in CERs payment or delivery Contractual cornerstones for CDM projects:

20. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 20 10. Warranties and Representation: The undertaking of the emission reduction activity Warranty for creation of CERs Validity of the rights Rights free of any encumbrance Permanence of the CO2e reductions Usual commercial warranties Contractual cornerstones for CDM projects:

21. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 21 11. Liabilities and Indemnities: Define the liability boundaries of each of the project participants Include any relevant Waiver Mention any possible the liability of indemnities for any damage occuring inside or outside the project Ensurance Liabilities of leakage Contractual cornerstones for CDM projects:

22. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 22 12. Default, Termination and Remedies: Reasons : Failure in delivering CERs Failure in paying CERs Breaches in warranty Failure in the validation/verification obligations Failure in securing necessary governmental approvals Contractual cornerstones for CDM projects:

23. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 23 12. Default, Termination and Remedies: Consequence/Actions : Immediate termination of the contract Withholding payment Reduction of the CERs purchase price Reimbursement of any extra charge incurred Contractual cornerstones for CDM projects:

24. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 24 13. Progress reports and Audits: Regular reports might be requested Responsibiliy of the reporting Procedure/format for the reporting Contractual cornerstones for CDM projects:

25. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 25 14. Confidentiality Confidentiality issues Confidentiality obligations Actions in case of breaching Confidentiality obligations Contractual cornerstones for CDM projects:

26. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 26 15. Arbitration &Dispute Resolution Procedures should be set out Place and system of arbitration  Ref to Permanent Court of International Arbitration : « Optional Rules for Arbitration Relating to Natural Resources/or the Environment (www.pca-cpa.org)www.pca-cpa.org Contractual cornerstones for CDM projects:

27. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 27 16. Taxes, Levies, Charges Provisions relating to all these issues Covers all project cycle (verification, validation, certification, recourse to lawyers, etc.) « Share of Proceeds » to pay under the CDM rules Contractual cornerstones for CDM projects:

28. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 28 17. Cases of « Force majeure » Describe the cases Describe actions to be taken Contractual cornerstones for CDM projects:

29. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 29 18. Third Party State clearly if there is any Third Party involved in the contract (e.g. verifier, land owner, bank, regulatory body, local Community, NGO) Specify the rights and obligations of this Third Party Contractual cornerstones for CDM projects:

30. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 30 19. Boiler Plate Agreement supersiding prior agreements, etc. Governing Law Variation of the contract Severability in case of invalidity of any provision of article Contractual cornerstones for CDM projects:

31. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 31 19. Boiler Plate Waiver cases Obligations that should survive the expiry date of the contract Notices Any assignement of the CERs rights to any Third Party Contractual cornerstones for CDM projects:

32. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 32 20. Possible enforçable domestic Laws Contractual cornerstones for CDM projects:

33. UNEP Collaborating Centre on Energy and Environment Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II - Cairo, 12-13 January 2004 33