Chile The Role of JBIC in Support of

【Chile】 The Role of JBIC in Support of Overseas Projects Related to Kyoto Mechanisms December 2004 Yohei NISHIYAMA Japan Bank for International Cooperation (JBIC)

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 2

Regional Distribution of Commitments during the last 5 years (April 1999～March 2004) Outstanding Amount: JBIC Total USD 178. 8 billion (Japanese Yen 115/USD) 3

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 4

2. JBIC and GHG Pollution Prevention Projects (1) JBIC is actively supporting Projects to alleviate GHG Effect through Financing Operations, for example l Renewable Energy – – l 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) 5

1. Severnaya Natural Gas-Fired Combined Cycle Power Plant Project Ⅱ, Azerbaijan (ODA Loan) 1. Energy Saving / Energy Efficiency 1. Rehabilitation of Coal-Fired Thermal Power (Cogeneration) Plant Project, Romania (Export Loan) 2. LD Gas Recovery System Project, Brazil (Export Loan) 3. Shaanxi Province Xian Co-generation Project, China (Export Loan) l Forest Conservation, etc. 6

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. 174 Million t-CO 2/Year) 7

(2) Greenhouse gases (GHGs): The six GHGs are responsible for climate change and global warming; carbon dioxide (CO 2), methane (CH 4), and nitrous oxide (N 20), as well as hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF 6). (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. 8

Host　County (no limitation of emissions) Transferred to participants (Annex I Country) reduction CER☆　 GHGs emissions (Certified Emission Reductions) Annex I Country (investor) with limitation of emission Adding the emission reductions with CER Distributed to Host Country Without CDM Project With CDM Project “Additionality　☆☆”&“Baseline☆☆☆” （Ministry of the Environment, Japan, modified by Nishiyama) 9

☆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. 10

4. JBIC’s Engagement to Kyoto Mechanisms (1) JBIC’s contribution to Prototype Carbon Fund (PCF) of World Bank (Committed Amount: USD 180 million) l Objective: Accumulation and dissemination of know-how for handling CDM/JI projects l Committed USD 10 million along with 8 Japanese companies (May 2000) l Only JBIC contributed to PCF from public sector in Japan l Engaging actively as a member of Participants’ Committee 11

Chile Chacabuquito (hydropower) Project achieved 112, 000 tons of CO 2 VER in total after almost one year of operation (June 2003) (2) Financial Support for CDM/JI Projects through: l International Financial Operations l – Export loan Overseas investment loan – Untied loan – Guarantee – Equity　participation – (Potential CDM project) Ø Shanxi Coal Bed Methane Collection & Power 12 Project (currently under negotiation)

l Overseas Economic Cooperation Operations – ODA loan (Potential CDM project) Ø Zafarana Wind Power Project (Egypt, Dec. 2003) The necessary procedures for the application of the CDM have already been started. 13

l 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 14

　　 (3) Support for the Capacity Building in the Host Countries l l Support for Mobilizing Institutional Framework, having a seminar regarding Kyoto Mechanisms CAF (Corporación Andina de Fomento) in March, 2003 To 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 　　 15

l l BCIE（Banco Centroamericano de Integración Económica) in Julｙ 2004 To 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), Pro. Chile, SOFOFA in Nov. 2004 (４) MOU with IETA and World Bank l l 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. 16

4. General Outlines of Japan Carbon Finance, Ltd. (JCF) The first GHG Reduction Fund in Asia to contribute the 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 17

(4) Establishment: December 1, 2004　 (5) Location: Tokyo, Japan (6) Fund Providers: Major Japanese Private Enterprises & Policy-lending Institutions JCF 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) 　 18

(9) Purchase Price: To be decided on project-byproject 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. 19

Portfolio Guideline; 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 *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. 20

(12) Advantage for Projects l Additional Cash Flow: Project Viability to be improved by Cash In-flow in USD under ERPA l Development Function: JCF will provide assistance and orientation to develop CDM/JI projects. l Possibility of Co-purchase: Fund Providers for JGRF may purchase a part or all of the remaining ERs after the purchase by JCF. 21

JCF/JBIC Collaboration Scheme JBIC Japanese Commercial Banks Emission Reduction Purchase Agreement （ERPA) Loan Agreement (L/A) CDM/JI Project (ERs Seller) *Fund Provision through JGRF * * JCF （ERs Buyer) DBJ * Japanese Company * * Financing for Capital Expenditure and long– term Working Capital during the Construction Period of the Project JBIC Payment for ERs generated during the Crediting Period of the Project A Japanese Company B Japanese Company C ・・ 22

ERs Purchase Structure Relationship between JCF & JGRF Payment CDM/JI Project Entities (ERs Seller) Payment Emission Reduction Purchase Agreements (ERPAs) Emission Reduction Resale Agreement ERs Japan Carbon Finance, Ltd. (ERs Buyer) Japan GHG Reduction Fund (Fund Pool) ERs 23

Example Model for Underlying Finance provided for CDM /JI Projects by JBIC Fund Provision JCF Purchase of CER (Carbon Finance) Cash Inflow during Crediting Period Underlying Finance 　　　　　Direct Loan 　（On-Lending Scheme） Intermediary Financial Institution Companies in Power /Energy Sector, etc. 　Underlying 　　Sponsorship 　Finance 　　　 (Equity, etc. ) Cash Inflow during Construction Period CDM/JI Projects 24

Operational Flowchart Project Entity/Sponsor Submission of PIN JCF Clarification & Screening of PIN Evaluation & Selection of Project Execution of Letter of Intent (LOI) which defines basic terms & conditions PDD Preparation Assistance & Orientation to develop Project Validation & Registration Execution of ERPA Exclusivity Period for ERPA Execution 25

Key Criteria at Screening of PINs l Project Description and Project Participants l Fulfillment of Kyoto Rules: Methodology (Baseline Study & Monitoring Plan) Validation (Methodology Applicability, Data, Quality Control, etc. ) Possibility of Authorization & Approval by Host Country Stakeholders’ Comments l Additionality (Investment Analysis/Barrier Analysis and Common Practice Analysis, etc. ) l Environmental & Social Safeguard Requirements: Compliance with Laws & Regulations, etc. 26

l Project Feasibility: Construction Plan, Business Plan and Fund-raising Plan Project-related Contracts Concession/License & Permits Creditworthiness and Competence of Project Sponsors Experiences of Management and/or Project Operator Commercially Viable Proven Technology Financial Viability (Cash Flow Projection, Sensitivity Analysis, etc. ) l Contribution to Sustainable Development of Host Country (Environmental, Social & Economic Impacts, Technology Transfer Effects, etc. ) l Portfolio Guideline and Purchase Conditions 27

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. Brazil 4. Peru 5. China 6. Morocco 7. Mexico 8. Vienam 9. Thailand 10. 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. ’ 28

Muchas　Gracias!! 29