Financing a CDM Project

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• Financing a CDM Project
• DBBLs experience

Farhad Ahmed Khan Assistant Vice
President Syndication Structured Finance Credit
Division, Dutch-Bangla Bank Ltd
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DBBLs Participation in Euro 12 Million Project

• DBBL to provide to the extent of Taka eqvt. Euro
  2.00 million in part funding of implementation of
  WWR Bio Fertilizer Ltd, a municipal organic
  waste-to-bio-fertilizer plant
• FMO to act as Arranger and DBBL to act as Agent
  and Security Trustee

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Project Partners
Waste Concern Consultants (WCC) from Bangladesh.
It is working in the area of waste management in
Bangladesh since 1995. It is specialized in small
and medium scale waste management projects
especially composting. Waste Concern is involved
in design and implementation of 47
compost/recycling plants distributed in 26 cities
and towns of Bangladesh. Apart from Bangladesh,
WC is also involved in waste composting projects
in Sri Lanka and Vietnam. World Wide Recycling
BV from Netherlands. It is also working in the
areas of waste management. This company is
associated with VAR a large scale waste recycling
company. It is specialized in large scale waste
projects including composting
WWR Bangladesh Holding BV.
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The Shareholders Structure
WBH holds 100 less legally required local
shareholding of one share of WWR Bio.
The shareholders of WBH are WWR (EUR 1.7m,
54.2), WCC (EUR 0.4m, 13.6), FMO (EUR 0.5m,
16.1) and Triodos (EUR 0.5m, 16.1).
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About VAR/WWR

• WWR is closely related to the VAR via Jan Boone,
  who is the founder of VAR, was director of VAR
  till July 2002, and still is main shareholder of
  VAR with 80 and he is chairman of the
  supervisory board of VAR. VAR was established in
  1981 by Jan Boone. VAR is one of the largest and
  most innovative companies in the area of
  sustainable waste treatment in the Netherlands.
  VAR and WWR have signed a Cooperation Agreement
  via which VAR is obliged to provide technological
  support to WWR.
• At the end of 2006, VAR had a Balance Sheet
  total of EUR 83m, turnover of EUR 48m, net profit
  EUR 4.1m, solvency 32 and 140 staff. The
  following key figures of VAR in 2006
• Balance sheet total EUR 79,992,817
• Equity EUR 27,096,302
• Turnover EUR 47,643,755
• EBIDTA EUR 7,300,429
• Net profit EUR 4,122,329

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Financing Plan of WWR Bioin million Euro
Amounts x1m EUR Equity to WBH Loan to WBH Loan to WWR Bio Total
FMO 0.43 1.54 3.90 5.87
Triodos 0.43 0.43 1.50 2.36
WWR/WCC 1.80 - - 1.80
DBBL - - 2.00 2.00
Total 12.03
the amounts paid out to WBH are transferred to
WWR Bio as equity
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Investment and Financing
 Investment Plan (in Euro) 2007 2008/2009 2009/2010
1 Investments in intangibles 690,000 0 0
2 Land 187,198 327,273 297,521
3 Buildings machines 1,304,035 3,899,706 3,806,134
4 Contingencies (activated) 167,903 502,112 490,064
5 Enrichment   550,000 413,223
6 One-off costs 225,000    
Total 2,574,136 5,279,091 5,006,942
Financing Plan (in Euro)      
7 Capital injection WWR/WC 840,000 804,900 155,100
8 Capital injection FMO 200,000 191,643 36,929
9 Capital injection Triodos 200,000 191,643 36,929
10 WBH subloan FMO 164,805 689,914 688,138
11 WBH subloan Triodos 79,305 191,643 157,623
12 WWR Bio subloan FMO 721,680 1,743,950 1,434,370
13 WWR Bio subloan Triodos 269,639 651,586 535,919
14 WWR Bio loan DBBL 372,736 900,721 740,829
Total 2,848,164 5,366,000 3,785,836
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Projected Operating Results
Amounts in x1000 EUR 2008 2009 2010 2011 2012 2013 2014 2015
Turnover 1,537 6,323 6,178 11,293 10,986 9,367 8,852 8,365
EBITDA 412 2,541 2,447 4,550 4,584 3,313 3,122 2,942
Net profit -129 1114 1169 2692 1767 1117 1100 1137
Operational cash flow 220 1,416 2,477 3,484 4,648 3,650 3,230 3,043
Cash at end of year 240 999 1,177 2,804 4,704 6,257 6,151 5,993
 
Balance sheet total 7,989 9,502 13,941 16,018 16,902 17,158 16,163 15,200
Solvency () 26 34 33 42 48 53 61 71
Risk Bearing Capital as of TA 82 81 85 88 92 95 95 95
Debt/EBITDA 14.05 2.28 3.61 1.83 1.71 2.21 1.76 1.25
Current ratio 4.37 5.40 5.79 6.48 8.64 11.52 11.84 12.10
DSCR excl. investments 2.03 3.87 4.07 5.39 4.63 4.00 2.26 2.47
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Tenor/Repayment Period
Tenor Tranche I IV for the loans, 10 years from the financial close, with a grace period of 6 years. Tranche V (6 years) from Financial Close with a grace period of 12 months. Repayment Period Tranche I-IV In 8 semi-annual equal installments with the first such installment due 78 months after the closing date. Tranche V In 20 quarterly installments with the first such installment due 15 months after the closing date.
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Perceived Risk as assessed by DBBL
Construction risk
Feedstock risk
Off-take risk
Loan Structure Risk
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• Feedstock risk
• Input of organic waste is guaranteed by a
  Concession Agreement with the municipality that
  allows WWR Bio to collect up to 700 ton/day waste
  from designated areas, like local markets.

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• Construction risk
• A compost facility is a relatively easy concept.
  Also, the construction is done under supervision
  of the VAR with extensive experience and
  knowledge

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• Operational risk
• Employees will be trained, partly at the VAR in
  the Netherlands. If major problems occur the VAR
  will give technical assistance. Management of the
  companies will come from WCC and WWR and thus
  have experience with waste management

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• Off-take risk (demand, competition and
  distribution)
• Compost can be used as a substitute for or
  additional to more expensive fertilizers. The
  compost market is only marginally developed,
  while the domestic fertilizer market can not
  foresee in total demand. So (potential) demand is
  high, while competition is low. Because the
  compost will be tailor made for different crops
  it can be sold during the whole year. WWR Bio
  negotiates on agreements with end-users directly
  and off-take agreements with wholesalers/distribut
  ors. Own distribution will then be considered
  later

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• Land
• For the first 100-130 ton/day capacity land is
  acquired under a lease contract, which might not
  be sustainable. DBBLs investment is however
  limited to EUR 0.372 m in the first phase and for
  subsequent phases it is required that land is
  obtained in ownership.

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• Revenue from CERs
• The used methodologies are approved as CDM
  projects and thus CERs will be generated as soon
  as the compost facility is operational. The price
  of CERs stays, nevertheless, very insecure, but
  profits of the project are mainly generated by
  selling (enriched) compost
• DBBL assumed a fixed selling price of Euro 8 per
  unit CER

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• Environmental and social risks
• The project has significant environmental and
  social positive impacts, the most important being
  the reduction of greenhouse gas emissions, the
  production of soil improving compost and the
  offering of livelihood opportunities and
  improvements for poor and marginalized people.
  Potential adverse impacts do exist, but are
  limited and manageable and they can be mitigated.

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• Key Man Risk
• The Directors of WWR Bio are A.H. Md. Maqsood
  Sinha of WCC and a representative of WWR,
  currently Jan Boone. A.H. Md. Maqsood Sinha has
  experience with waste management in Bangladesh.
  A.H. Md. Maqsood Sinha and Jan Boone seem very
  capable of running WWR Bio. Nevertheless, if Jan
  Boone or any other key person should fall away,
  an important financial and business partner is
  lost (key man risk), especially during
  construction phase.

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• Loan Structure Risk
• The tenor for the DBBLs loans is 6 year, with a
  grace period of 1 year. DBBL (senior loans)
  receives security over all fixed and floating
  assets of WWR Bio.
• Another mitigant is that disbursements of the
  loans to expand capacity from 100 to 700 ton/day,
  will be considered only if the project at phase 1
  has proven to be a success.

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Milestones Achieved

• Concession Agreement with DCC has been signed
  to collect and transport waste
• National CDM Board Approval has been obtained
• Land lease agreement for 22 years has been
  signed
• Trade licensee obtained
• Land use clearance obtained
• BOI registration obtained
• Third party verification of Environmental and
  Social Compliance has been done
• Environmental clearance obtained from DOE
• Work permit for the WWR engineer has been
  obtained
• Import permit has been obtained
• Land development completed
• Detailed Engineering design completed
• Major construction works for phase 1 completed
  by March 2008
• The project has gone into trial operation end of
  March 2008
• Pending Registration of compost/enriched
  compost

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DBBL to finance First CDM project in Bangladesh

• Commercial lenders are cautious in providing new
  loans particularly to projects involving
  unfamiliar technologies.
• Technologies, equipment processes relevant for
  CDM are available commercially, many of which
  offer viable economic returns yet, not many of
  such projects are being implemented in Asia
  compared to what can be potentially achieved.
• Bangladesh is yet to see any lender, other than
  DBBL, to finance CDM project.
• DBBL wishes to extend thanks to FMO for involving
  it with the countrys first ever CDM project.

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Summing up DBBLs Feeling

• An adequate risk-sharing structure is often
  difficult to put in place and almost always
  creates unanticipated delays in achieving
  financial closing.
• Risk should be allocated, by contract, to the
  party that is best able to mitigate or control.
• Completion risk could be avoided by implementing
  such project in phases.
• There should be transfer of technical know-how
  from Annex I country.
• Carbon Credit market development needs
  accelerators. Action by participating players
  needed advisors, buyers, FIs, government to put
  in place the necessary accelerators.
• Regulatory support needed.
• Lenders should have greater oversight of the
  project. They should have control the application
  of cash flows.

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Summing up - DBBLs Feeling (Contd.)

• First time lenders for projects like CDM should
  be in the senior loan category. Equity and quasi
  equity should be invested first.
• Banks need assets to back-up however, CDM
  project is often not asset based but idea based.
• Documentation is lengthy and complex, and costs a
  great deal to put into place.
• Success of WWR Bio is crucial for other lenders
  to finance CDM project.
• Bangladesh is an attractive market for CDM.
• DBBL will embark on the lessons learned to take
  on more such viable CDM projects. Journey has
  just begun.

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The End

• Thank You