The Role of JBIC in Support of Overseas Projects Related to Kyoto Mechanisms December 2004

Yohei NISHIYAMAJapan Bank for International Cooperation (JBIC)

【 Chile 】

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1. JBIC at a Glance Organization Established as a Governmental Financial

Institution of Japan in October 1999 by the Merger of : The Export-Import Bank of Japan

(JEXIM:est.1950) and Overseas Economic Cooperation Fund, Japan (OECF:est. 1961)

Purpose・　 Promotion of Japan’s international Trade and

other 　　 international economic Activities

・　 Stabilization of the international financial Order

・　 Economic and social Development and/or Stability of developing Areas

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Regional Distribution of Commitments during the last 5 years (April 1999～March 2004)

Outstanding Amount: JBIC TotalUSD 178.8 billion (Japanese Yen 115/USD)

Asia53%

South America15%

Europe7%

Middle East10%

Multilaterals, others5%

North America4%Africa

4%

Oceania2%

Asia

South America

Middle East

Europe

Multilaterals, others

Africa

North America

Oceania

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Overseas Network (26 Representative Offices)

[Asia(13)] Beijing, Hong Kong, Bangkok, Hanoi, Jakarta, Kuala Lumpur, Manila, Singapore, Colombo, Dhaka, Islamabad, New Delhi, Sydney

[Europe(4)] Moscow, Frankfurt, London, Paris[Africa(2)] Cairo, Nairobi[North America(2)] New York, Washington [South America(5)] Bogota, Buenos Aires, Lima,

Mexico City, Rio de Janeiro

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2. JBIC and GHG Pollution Prevention Projects

(1) JBIC is actively supporting Projects to alleviate GHG Effect through Financing Operations, for exampleRenewable Energy

– Northern Luzon Wind Power Project, Philippines (ODA Loan)

– Upper Kotmale Hydropower Project, Sri Lanka (ODA Loan)

Natural Gas – Beijing Environment Improvement Project,

China (ODA Loan)

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– Severnaya Natural Gas-Fired Combined Cycle Power Plant Project Ⅱ,Azerbaijan (ODA Loan)

Energy Saving / Energy Efficiency– Rehabilitation of Coal-Fired Thermal Power

(Co-generation) Plant Project, Romania (Export Loan)

– LD Gas Recovery System Project, Brazil (Export Loan)

– Shaanxi Province Xian Co-generation Project, China (Export Loan)

Forest Conservation, etc.

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3. Outline of Kyoto Protocol and CDM (1) Kyoto Protocol: Adopted at the Third

Conference of the Parties to the United Nations Convention on Climate Change held in Kyoto, Japan in December 1997. It commits industrialized country signatories to reduce their greenhouse gas by an average of 5.2% compared with 1990 emissions, in the period 2008-2012(first commitment period).

In case of Japan:commitment to reduce by 6% compared

with 1990 level ⇒ （ A ）actual emission level in 2002 increased by

7.6% compared with 1990 level ⇒ 　（ B ）（ A ）＋（ B ）＝ 13.6% (approx.

174Million t-CO2/Year)

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(2) Greenhouse gases (GHGs): The six GHGs are responsible for climate change and global warming;carbon dioxide (CO2), methane (CH4), and nitrous oxide (N20), as well as hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6).

(3) Clean Development Mechanism (CDM): The mechanism provided by Article 12 of the Kyoto Protocol, designed to assist developing countries in achieving sustainable development by permitting industrialized countries to finance projects for reducing greenhouse gas emission in developing countries and receive credit for doing so.

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GH

Gs e

missio

ns

GH

Gs e

missio

ns

CER☆ 　

(Certified Emission Reductions)

Without CDM Project With CDM Project

“Additionality 　☆☆” &“Baseline☆☆☆”

Host　 County (no limitation of emissions)

Distributed to Host Country

Transferred to participants (Annex I Country)

Annex I Country (investor) with limitation of emission

Adding the emission reductions with CER

reduction

（ Ministry of the Environment, Japan, modified by Nishiyama)

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☆Certified Emission Reductions (CERs): A unit of greenhouse gas emission reductions issued pursuant to the Clean Development Mechanism of the Kyoto Protocol, and measured in metric tons of carbon dioxide equivalent.

☆☆Additionality: Gas emission reductions generated by CDM and Joint Implementation project activities must be additional to those that otherwise would occur. Additionality is established when there is a positive difference between the emissions that occur in the baseline scenario, and the emissions that occur in the proposed project.

☆☆☆Baseline: The emission of greenhouse gases that would occur without the contemplated policy intervention or project activity.

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(1) JBIC’s contribution to Prototype Carbon Fund (PCF) of World Bank (Committed Amount: USD180 million) Objective:

Accumulation and dissemination of know-how for handling CDM/JI projects Committed USD10 million along with 8

Japanese companies (May 2000) Only JBIC contributed to PCF from public

sector in Japan Engaging actively as a member of

Participants’ Committee

4. JBIC’s Engagement to Kyoto Mechanisms

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Chile Chacabuquito (hydropower) Project achieved 112,000 tons of CO2 VER in total after almost one year of operation (June 2003)

(2) Financial Support for CDM/JI Projects through: International Financial Operations

– Export loan– Overseas investment loan– Untied loan– Guarantee– Equity 　 participation

(Potential CDM project) Shanxi Coal Bed Methane Collection & Power

Project (currently under negotiation)

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Overseas Economic Cooperation Operations – ODA loan (Potential CDM project)

Zafarana Wind Power Project (Egypt,Dec.2003)

The necessary procedures for the application of the CDM have already been started.

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Advantages of JBIC’s financing for CDM/JI Projects – Strong relationship with host country (government

agencies and private sector) built through years of financing operations and our overseas networks of 26 representative offices

Smooth Implementation of Projects– Collaboration and Support with/from JBIC

Underlying Finance– Extensive knowledge and know-how in dealing with

environmental projects in developing countries– Intermediary Functions: Close and Tight

Relationship with Japanese Industry having interest in CDM/JI Projects

– Accumulation of experience through investment in PCF

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　　(3) Support for the Capacity Building in the Host Co

untriesSupport for Mobilizing Institutional Framework, having a seminar regarding Kyoto Mechanisms

CAF (Corporación Andina de Fomento) in March, 2003To provide further financial support and economic and social development support in the Andean Region, and to promote CDM project activities as well

Mexican/DNA (Comité Mexicano para Proyectos de Reducción de Emisiones y de Captura de Gases de Efecto Inverradero) in Apr. 2004

　　

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BCIE （ Banco Centroamericano de Integración Económica) in Jul ｙ 2004To provide CDM project in Central American countries through JBIC’s various financial instruments as well as supporting Japanese firms in acquiring emission reduction credits

Chilean DNA (Comisión Nacional del Medio Ambiente, CONAMA), ProChile, SOFOFA in Nov. 2004

( ４ ) MOU with IETA and World Bank IETA (International Emissions Trading Association)

in Dec. 2003 World Bank in Dec.2004

To further facilitate sustainable development of developing countries and regions through GHG emission reduction efforts based on collaboration concerning the World Bank carbon finance initiative.

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4. General Outlines of Japan Carbon Finance,Ltd. (JCF)

The first GHG Reduction Fund in Asia to contributethe achievement of the GHG Reduction target of Japan defined by Kyoto Protocol, and to contribute the sustainable growth in Non Annex I countries.

(1) Objectives : To purchase CERs and ERUs (ERs) issued for the crediting period until 2012 from CDM/JI Projects

(2) Fund Pool : Called “Japan GHG Reduction Fund (JGRF)”, which JCF can utilize to purchase ERs

(3) Committed Fund Amount: Approx. USD 140 million

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(4) Establishment: December 1, 2004 　 (5) Location: Tokyo, Japan(6) Fund Providers: Major Japanese Private

Enterprises & Policy-lending InstitutionsJCF was established by some of Major Fund Providers including Japanese Policy-lending Institutions (JBIC, Development Bank of Japan).

(7) Project Development Cost (PDD Preparation, Validation, etc.): To be borne by JCF in principle with a certain ceiling

(8) Timing of Payment : Payment on Delivery in principle (Upfront Payment is to be made on case-by-case basis)

　

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(9) Purchase Price: To be decided on project-by-project basis through Project Selection Process

(10) Project Information Notes (PINs) : Submission of PINs to JCF are welcome in any time & any form (JCF is happy to provide own PIN form if requested to the e-mail address: jcf@jbic.go.jp)

(11) Project Screening Criteria: Inclusive of Fulfillment of Kyoto Rules, Additionality, Environmental & Social Safeguard 　Requirements, Project Feasibility, Contribution to Sustainable Development of Host Country, Portfolio Guideline, etc.

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Portfolio Guideline;

*Sector: “Sectoral Scopes” listed in UNFCCC web site which include A) Renewable Energy, B) Waste Handling and Disposal, C) Manufacturing Industries (Energy Efficiency, Fuel Switching, etc.), D) Fugitive Emissions, E) Chemical Industries, F) Agriculture, etc.

ERs to be purchased from: approx. in USD, million

a Single Project Up to 17

a Single Host Country Up to 25

a Single Sector * Up to 30

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(12) Advantage for Projects

Additional Cash Flow: Project Viability to be improved by Cash In-flow in USD under ERPA

Development Function: JCF will provide assistance and orientation to develop CDM/JI projects.

Possibility of Co-purchase: Fund Providers for JGRF may purchase a part or all of the remaining ERs after the purchase by JCF.

2.JBIC and GHG Pollution Prevention Projects

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JCF/JBIC Collaboration Scheme

CDM/JIProject

(ERs Seller)

JBIC

DBJ

Japanese Company

A

Japanese Company

B

Japanese Company

C

Loan Agreement (L/A)

Emission Reduction Purchase Agreement （ ERPA)

*Fund Provision through JGRF

JBIC

Japanese Commercial

Banks

JCF（ ERs Buyer)

Financing for Capital Expenditure and long–term Working Capital during the Construction Period of the Project

Payment for ERsgenerated during the Crediting Period of the Project

・・・・

*

*

*

*

*

2.JBIC and GHG Pollution Prevention Projects

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CDM/JIProjectEntities

(ERs Seller)

Japan CarbonFinance, Ltd.(ERs Buyer)

Japan GHG Reduction

Fund(Fund Pool)

Relationship between JCF & JGRF

ERs

Payment Payment

ERs

Emission Reduction Purchase

Agreements (ERPAs)

Emission Reduction

Resale Agreement

ERs Purchase Structure

2.JBIC and GHG Pollution Prevention Projects

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JBIC

CDM/JIProjects

Example Model for Underlying Finance

provided for CDM /JI Projects by JBIC

Underlying Finance

　（ On-Lending Scheme ）

Fund Provision

Purchase of CER(Carbon Finance)

　　　　　　　　　 Direct Loan

　 Underlying 　 　 Sponsorship　 Finance 　　　 (Equity, etc.)

Companies in Power /Energy Sector, etc.

Intermediary Financial InstitutionJCF

Cash Inflow during Construction Period

Cash Inflow during Crediting Period

2.JBIC and GHG Pollution Prevention Projects

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JCF

Execution of ERPA

Operational Flowchart

Evaluation & Selection of Project

Execution of Letter of Intent (LOI) which defines basic terms & conditions

Project Entity/Sponsor

Submission of PIN Clarification & Screening of PIN

PDD Preparation

Validation & Registration

Assistance & Orientation to develop Project

Exclusivity Period for ERPA Execution

2.JBIC and GHG Pollution Prevention Projects

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Key Criteria at Screening of PINsProject Description and Project ParticipantsFulfillment of Kyoto Rules:

Methodology (Baseline Study & Monitoring Plan)Validation (Methodology Applicability, Data, Quality Control, etc.) Possibility of Authorization & Approval by Host CountryStakeholders’ Comments

Additionality (Investment Analysis/Barrier Analysis and Common Practice Analysis, etc.)

Environmental & Social Safeguard Requirements: Compliance with Laws & Regulations, etc.

2.JBIC and GHG Pollution Prevention Projects

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Project Feasibility:Construction Plan, Business Plan and Fund-raising Plan Project-related Contracts

Concession/License & PermitsCreditworthiness and Competence of Project SponsorsExperiences of Management and/or Project Operator Commercially Viable Proven TechnologyFinancial Viability (Cash Flow Projection, Sensitivity Analysis, etc.)

Contribution to Sustainable Development of Host Country (Environmental, Social & Economic Impacts, Technology Transfer Effects, etc.)

Portfolio Guideline and Purchase Conditions

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CDM　Host　 Country　 Rating　 by ‘Point Carbon’ Point Carbon presented a rating of the most important CDM countries at the end of this

November. The rating has been based on its recently developed methodology which includes (1) assessment of host countries’ institutional conditions for CDM, (2)investment climate, as

well as (3)project status and potential.

1.India 　　　　　　2.Chile ☆・・・ Japanese DNA has approved 12 projects including 4 projects in

Chile.3.Brazil4.Peru5.China6.Morocco7.Mexico8.Vienam9.Thailand10. South Africa

☆Point Carbon describes as follows regarding Chile (end of October,2004).‘ Despite of limited theoretical potential for CDM projects and rather strict sustainability criteria, Chile can be characterized as a good prospect foe CDM investment-----.The DNA has shown promising results so far, the investment climate is quite good, and several CDM projects are to be submitted for registration at CDM Executive Board.’

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Muchas 　 Gracias!!