UNEP Collaborating Centre on Energy and Environment Capacity

UNEP Collaborating Centre on Energy and Environment 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 Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II Cairo, 12 -13 January 2004 1

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

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

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

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

UNEP Collaborating Centre on Energy and Environment What is a CDM Transaction – Contractual arrangement: ü ü 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, Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II Cairo, 12 -13 January 2004 6

UNEP Collaborating Centre on Energy and Environment Contractual cornerstones for CDM projects: 1. Parties/introduction to the contract: ü 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 Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II Cairo, 12 -13 January 2004 7

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

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

UNEP Collaborating Centre on Energy and Environment Contractual cornerstones for CDM projects: 3. Definitions: ü ü UNFCCC – Reference to Protocols ü GHG – t. CO 2 e unit of measurment, methodology of measurement, gases involved, GWP used ü ü CDM Kyoto Protocol – CDM relevant articles/amendements CERs : clear identification nature and scope of the rights associated with this major contractual subject Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II Cairo, 12 -13 January 2004 10

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

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

UNEP Collaborating Centre on Energy and Environment Contractual cornerstones for CDM projects: q Definitions: ü ü ü 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 Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II Cairo, 12 -13 January 2004 13

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

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

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

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

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

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

UNEP Collaborating Centre on Energy and Environment Contractual cornerstones for CDM projects: 10. Warranties and Representation: ü The undertaking of the emission reduction activity ü ü ü Warranty for creation of CERs Validity of the rights Rights free of any encumbrance Permanence of the CO 2 e reductions Usual commercial warranties Capacity Development for CDM - Egypt, Second Nationa Workshop - Phase II Cairo, 12 -13 January 2004 20

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

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

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

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

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

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

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

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

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

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

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

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

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