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

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The Role of JBIC in Support of Overseas
Projects Related to Kyoto Mechanisms
?Chile?

• December 2004
• Yohei NISHIYAMA
• Japan Bank for International Cooperation (JBIC)

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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 (JEXIMest.1950) and
Overseas Economic Cooperation Fund, Japan
(OECFest. 1961) Purpose Promotion of Japans
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 1999March 2004)
Outstanding Amount JBIC Total USD 178.8 billion
(Japanese Yen 115/USD)
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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 example
• Renewable 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 ?,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

• 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
  warmingcarbon 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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Annex I Country (investor) with limitation of
emission
Host County
(no limitation of emissions)
Transferred to participants (Annex I Country)
Adding the emission reductions with CER
reduction
GHGs emissions
CER? (Certified Emission Reductions)
GHGs emissions
Distributed to Host Country
Without CDM Project
With CDM Project
Additionality ??Baseline???
(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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4. JBICs Engagement to Kyoto Mechanisms

• (1) JBICs 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

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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 JBICs 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
  Countries
• 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

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• BCIE(Banco Centroamericano de Integración
  Económica) in July 2004
• To provide CDM project in Central American
  countries through JBICs 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 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

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• (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)

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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_at_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.

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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.

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JCF/JBIC Collaboration Scheme
JBIC
Fund Provision through JGRF
Emission Reduction Purchase Agreement (ERPA)
Loan Agreement (L/A)
JBIC

CDM/JI Project (ERs Seller)
JCF (ERs Buyer)

DBJ
Japanese Commercial Banks

Japanese Company A


Japanese Company B
Financing for Capital Expenditure and longterm
Working Capital during the Construction Period
of the Project
Payment for ERs generated during the Crediting
Period of the Project
Japanese Company C

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ERs Purchase Structure

Relationship between JCF JGRF
CDM/JI Project Entities (ERs Seller)
Japan Carbon Finance, Ltd. (ERs Buyer)
Japan GHG Reduction Fund (Fund Pool)
Payment
Payment
Emission Reduction Purchase Agreements (ERPAs)
Emission Reduction Resale Agreement
ERs
ERs
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Example Model for Underlying Finance provided
for CDM /JI Projects by JBIC

JBIC
Underlying Finance (On-Lending Scheme)
Direct Loan
Fund Provision
Companies in Power /Energy Sector, etc.
JCF
Intermediary Financial Institution
Purchase of CER (Carbon Finance)
Underlying Sponsorship Finance
(Equity, etc.)
Cash Inflow during Crediting Period
Cash Inflow during Construction Period
CDM/JI Projects
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Operational Flowchart
Project Entity/Sponsor
JCF

Submission of PIN
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
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• Key Criteria at Screening of PINs
• Project Description and Project Participants
• 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
• Additionality (Investment Analysis/Barrier
  Analysis and Common Practice Analysis, etc.)
• Environmental Social Safeguard Requirements
  Compliance with Laws Regulations, etc.

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• 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.)
• 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.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-----.

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• Muchas Gracias!!