JCF Experience of JCF in its Carbon Finance

JCF Experience of JCF in its Carbon Finance operation　 Joichi　KIMURA Deputy Director General Carbon Finance Department Japan Carbon Finance, Ltd. September 14, 2006 Your Partner for Development & Success in CDM/JI Projects (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. & for Contribution to Sustainable Development

JCF Your Partner for Development & Success in CDM/JI Projects Kyoto Target Achievement Plan (Japanese cabinet decision, April 2005) Use of Kyoto Mechanisms for 1. 6% (100 mil. t-CO 2) CO 2 emissions from energy usage + 0. 6% CO 2 emissions from non-energy usage CH 4 and N 2 O emissions - 1. 2% HFCs, PFCs and SF 6 emissions + 0. 1% Sinks by forestry management - 3. 9% Use of Kyoto Mechanisms (CDM, JI & ET) - 1. 6% Total (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. - 6. 0% 2

JCF Your Partner for Development & Success in CDM/JI Projects u. Reference (C) Copyright

JCF Your Partner for Development & Success in CDM/JI Projects Registered CDM projects (As of August 14, 2006) Volume Project Type Number Biomass energy 82 4, 137, 842 Renewable energy 77 5, 063, 545 Methane collection 66 12, 063, 100 Energy Efficiency 9 996, 413 Fugitives (HFC, N 2 O) 7 60, 248, 574 Others (Fuel switch, Associated gas etc. ) 7 1, 512, 284 Total 265 84, 021, 758 (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. (ton/annum) 4

JCF Your Partner for Development & Success in CDM/JI Projects Barriers for developing CDM projects 1. Risks for Validation and Registration 2. Risks in Monitoring, Verification and Issuance of 3. CERs 3. Risk of CERs Volume Fluctuation (Delivery Risk) 4. Risks in arranging Underlying Finance (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 5

JCF Your Partner for Development & Success in CDM/JI Projects Company Profile (1) Main Business Objective: 　　To purchase CERs and ERUs （ERs） issued until 2012 from CDM/JI Projects (2) Fund Pool: 　　Called “Japan GHG Reduction Fund (JGRF)”, all amount of which JCF can utilize to purchase ERs (3) Committed Fund Amount: 　　Approx. US$ 140 million (4) Establishment: 　　December 1, 2004　 (5) Location: 　　Tokyo, Japan (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 6

JCF Your Partner for Development & Success in CDM/JI Projects (6) Fund Providers: 2 Policy-lending Institutions (Governmental Banks) & 31 Major Japanese Private Enterprises Sector Policy-lending Institution Utility Fund Providers Japan Bank for International Cooperation (JBIC) Development Bank of Japan (DBJ) Tokyo Electric Power Co. , Inc. 10 Kansai Electric Power Co. , Ltd. Major Chubu Electric Power Co. , Inc. Powers Tohoku Electric Power Co. , Inc. & Hokkaido Electric Power Co. , Inc. Hokuriku Electric Company the The Chugoku Electric Power Co. , Inc. Largest Shikoku Electric Power Co. , Inc. Gas Kyushu Electric Co. , Inc. Firms The Okinawa Electric Power Co. , Inc. Electric Power Development Co. , Ltd. (J-Power) Tokyo Gas Co. , Ltd. (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 7

JCF Your Partner for Development & Success in CDM/JI Projects (6) Fund Providers: Sector Oil & Manufacturing Trading Engineering Fund Providers Nippon Oil Corp. Idemitsu Kosan Co. Ltd. Japan Energy Corp. Kyushu Oil Corp. Sony Corp. Toshiba Corp. Sharp Corp. Fuji Xerox Co. , Ltd. The Japan Iron and Steel Federation Taiheiyo Cement Corp. Toyota Motor Corp. Terumo Corp. Mitsubishi Corp. Mitsui & Co. , Ltd. Sumitomo Corp. Itochu Corp. Marubeni Corp. Sojitz Corp. JGC Corp. (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. Major Companies in Oil, IT, Steel, Cement, Automobile & Medical Equipment fields 6 Major Investing & Trading Companies 8

JCF Your Partner for Development & Success in CDM/JI Projects Services (1) Financial Assistance for Project Development: Ø Ø Ø PDD Preparation Validation Initial Verification (No need to refund in principle, but with certain ceiling amount ) (2) Purchase of Carbon Credits (CERs, ERUs, AAUs): JCF commits purchase of carbon credits under ERPA (Emission Reduction Purchase Agreement) (at a fixed price). * Payment on Delivery in principle * Purchase Price: to be decided on project-by-project basis (3) Upfront Payment: 　　　　　 Upfront Payment for carbon credits can be considered on case-bycase basis. (Depends on necessity and risk profiles. Thorough Due Diligence) 　　 (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 9

JCF Your Partner for Development & Success in CDM/JI Projects Assistance in Development - no need to compensate Even in case of shortage of carbon credits in spite of best endeavors by project entities: Project entitiess are not required: • to make up for the shortage (with credits from other projects or sellers); and • to pay any penalty to JCF. unless the delivery failure is caused by their willful misconduct. (e. g. sale of carbon credits to some third party) Great merit for project entities not to suffer from unpredictable financial risks in future. (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 10

JCF Your Partner for Development & Success in CDM/JI Projects Merits for Projects (1) Additional Cash Flow: Ø Improvement of Project Viability with additional Cash Inflow by selling CERs in US$ Ø Securing of Stable Profitability by getting commitment for purchase of CERs Ø Front-loaded Revenue in Sweep Method (2) Assistance in Development: Ø Saving of Development Costs (PDD, Validation, Initial Verification etc. ) Ø Getting of Assistance and Orientation for development of CDM projects (3) Possibility of Parallel-purchase / Equity participation: Ø A part or all of the remaining Carbon Credits may be purchased by our Fund Providers in collaboration with JCF. Ø Participation as investors by some our Fund Providers may be possible. (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 11

JCF Your Partner for Development & Success in CDM/JI Projects Merits for Projects (4) Collaboration with and Support from JBIC & DBJ: ØStrong ties with Japanese Government issuing Written Approvals for CDM/JI Projects ØCooperation and strong ties with Host Governments and Development Financial Institutions ØUnderlying Financing from JBIC, such as; A) Export Loan B) Overseas Investment Loan C) Untied Loan D) ODA Loan, etc. (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 12

JCF Your Partner for Development & Success in CDM/JI Projects Example Model for Underlying Finance provided for CDM /JI Projects by JBIC Fund Provision Underlying Finance 　（On-Lending Scheme） JCF Intermediary Financial Institution Purchase of CER (Carbon Finance) Cash Inflow during Crediting Period （Direct Loan） (Japanese) Companies in Power /Energy Sector, etc. 　Underlying 　　Sponsorship 　Finance 　　　 (Equity, etc. ) CDM/JI Projects (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. Cash Inflow during Construction Period 13

JCF Your Partner for Development & Success in CDM/JI Projects Operational Flowchart Stake Holders Other Participants of Project DOE Clarification & Screening of PIN Evaluation & Selection of Project Conclusion of Mo. U defining basic terms & conditions Exclusive Negotiation Period PDD Preparation Validation (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. Assistance for Project Development Bearing of PDD Preparation Cost Bearing of Validation Cost Conclusion of ERPA D Host Country DNA Submission of PIN ue Diligenc e Consultant JCF Project Planning Feasibility Study Project Preparation Host Country DNA Project Entity 14

JCF Your Partner for Development & Success in CDM/JI Projects Operational Flowchart Project Entity Stake Holders Host Country DNA CDM -EB JCF Assistance for Project Development Conclusion of ERPA Japan DNA Validation DOE Registration Upfro nt Paym ent Effecting of Sale/Purchase Obligation Bearing of Initial Verification Cost Monitoring Projec t Imple menta tion DOE CDM-EB Verification Certification & CERs Issuance (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. CERs Payment on Delivery 15

JCF Your Partner for Development & Success in CDM/JI Projects Key Criteria at Screening of PINs/PDDs Project Description and Project Participants: u Fulfillment of Kyoto Rules: u Ø Methodology (Baseline Study & Monitoring Plan) Ø Validation (Methodology Applicability, Data, Quality Control, etc. ) Ø Possibility of Authorization & Approval by Host Country Ø Stakeholders’ Comments u Additionality: Ø Investment Analysis/Barrier Analysis and Common Practice Analysis, etc. u Environmental & Social Safeguard Requirements: Ø Compliance with Laws & Regulations, etc. (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 16

JCF u Your Partner for Development & Success in CDM/JI Projects Project Feasibility: Ø Ø Ø Ø u 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. ) Contribution to Sustainable Development of Host Country: Ø Environmental, Social & Economic Impacts, Technology Transfer Effects, etc. (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 17

JCF u Your Partner for Development & Success in CDM/JI Projects Purchase Conditions: Ø Price To be discussed according to the risk profile of the Project. Ø Volume More than 50, 000 t-CO 2 e/year is preferable. Ø Delivery Schedule etc. Early commissioning project is preferable. Portfolio Guideline: u ERs to be purchased from: approx. in USD, million a Single Project Up to 25 a Single Host Country Up to 37 (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 18

JCF Your Partner for Development & Success in CDM/JI Projects For More Information, Contact Japan Carbon Finance, Ltd. (JCF) Carbon Finance Department Masato Ari, Director General m-ari@jcarbon. co. jp Joichi Kimura, Deputy Director General j-kimura@jcarbon. co. jp Yoichiro Matsushita, Deal Manager y-matsushita@jcarbon. co. jp Tel: +81 -3 -5212 -8877 Fax: +81 -3 -5212 -8886 1 -3, Kudankita 4 -chome, Chiyoda-ku, Tokyo 102 -0073, JAPAN Japan Bank for International Cooperation (JBIC) Representative Office in Jakarta Mr. Yuhei Ohmi, Representative , Mr. Ichiro Hayashidani, Representative Tel: +62 -21 -522 -0693 Fax: +62 -21 -520 -0975 Summitmas II 7 th. Floor, Jl. Jenderal. sudirman, Kav. 61 -62, Jakarta, Indonesia You are welcome to visit our web site. http: //www. jcarbon. co. jp (C) Copyright 2006 Japan Carbon Finance, Ltd. All Rights Reserved. 19