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CDM Legal Issues Regional Workshop

?2003 Baker

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CDM Legal Issues Regional Workshop

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    1. CDM Legal Issues Regional Workshop

    2. ©2003 Baker & McKenzie 2 Workshop Agenda

    3. ©2003 Baker & McKenzie 3 Session One: Introduction

    4. ©2003 Baker & McKenzie 4 An Overview of Guidebook

    5. ©2003 Baker & McKenzie 5 Overview of Guidebook (cont.)

    6. ©2003 Baker & McKenzie 6 Overview of Guidebook (cont.)

    7. ©2003 Baker & McKenzie 7 Overview of Guidebook (cont.)

    8. ©2003 Baker & McKenzie 8 Overview of Guidebook (cont.)

    9. ©2003 Baker & McKenzie 9 Overview of Guidebook (cont.)

    10. ©2003 Baker & McKenzie 10 Overview of Guidebook (cont.)

    11. ©2003 Baker & McKenzie 11 Overview of Guidebook (cont.)

    12. ©2003 Baker & McKenzie 12 Overview of the Key Legal Issues in the CDM Initial project legal arrangements Compliance with CDM Rules (authorisation, registration, sustainable development, no deviation from overseas development assistance etc) Creating and owning CERs Transacting CERs

    13. ©2003 Baker & McKenzie 13 Open discussion on country experience and issues faced in the CDM

    14. ©2003 Baker & McKenzie 14 Session Two: CDM Project Structuring and Contracting Approaches

    15. ©2003 Baker & McKenzie 15 General Overview of Issues in Structuring CDM Projects Project structure will depend on nature of project, number of project participants and role which CERs play in attracting finance or revenue Once appropriate structure chosen, risks will need to be considered and allocated Potential project structures include: Direct sale of CERs from a Host Country driven CDM Project Provision of debt finance in return for part payment in CERs Equity investment in return for revenue stream from CERs Non-recourse project finance Technology swap in return for CERs “Bundling” CERs with other commodities through offtake arrangements Includes diagram of example CDM project structure including arrangements for project funding, sale of CERs, project construction, project operation and maintenance and offtake of commodities.

    16. ©2003 Baker & McKenzie 16 Early Experience with the CDM Executive Board Decisions CDM EB was established at Cop 7 The CDM EB has established several panels including the CDM Accreditation Panel, the CDM Methodology Panel, and the Small Scale CDM Panel The CDM Methodology Panel was established to revise all baseline and monitoring Methodology presented in order to give recommendations to the EB All 8 CDM methodologies presented in the first round were rejected However EB has now approved 9 Methodologies 3 methodologies for renewable energy 4 methodologies for landfill 1 methodologies for fuel switching 2 methodologies for modification of production process

    17. ©2003 Baker & McKenzie 17 Review of case study on structuring an energy project: Mini hydro-electricity power station in Zimbabwe

    18. ©2003 Baker & McKenzie 18 Discussion of case study and participant experiences

    19. ©2003 Baker & McKenzie 19 Session Three: CDM Contract Drafting and Negotiation

    20. ©2003 Baker & McKenzie 20 The Roles and Nature of Carbon Contracts Contracting approaches to sell CERs can include: Competitive tender processes Transacting through independent brokers Individual contractual negotiations (e.g. spot transactions, forward sales of CERs or option contracts) Final binding ERPAs are often preceded by some type of Exclusivity Agreement or Letter of Intent which allows the Buyer and Seller time to negotiate appropriate contractual provisions without binding them to reach an agreement.

    21. ©2003 Baker & McKenzie 21 Perspectives of Host Country seller and CER purchaser

    22. ©2003 Baker & McKenzie 22 Key lessons learnt in early contract negotiations

    23. ©2003 Baker & McKenzie 23 Key lessons learnt in early contract negotiations

    24. ©2003 Baker & McKenzie 24 Key lessons learnt in early contract negotiations

    25. ©2003 Baker & McKenzie 25 Case study on legal problems in negotiation: Netherlands CERUPT Offer to purchase CERs from landfill project in Argentina

    26. ©2003 Baker & McKenzie 26 Discussion of case study and participant experiences

    27. ©2003 Baker & McKenzie 27 Summary of Alternative Contracts in Guidebook

    28. ©2003 Baker & McKenzie 28 Summary of Alternative Contracts in Guidebook

    29. ©2003 Baker & McKenzie 29 Session Four: CDM Project Risk Identification and Management

    30. ©2003 Baker & McKenzie 30 Identification of Key Project Risks

    31. ©2003 Baker & McKenzie 31 Host Country Political and Sovereign Risks

    32. ©2003 Baker & McKenzie 32 General Project Risks

    33. ©2003 Baker & McKenzie 33 Kyoto Protocol Risks

    34. ©2003 Baker & McKenzie 34 Management of Key Project Risks Generally parties will allocate risk to the party which is best able to control that risk. The allocation of risks which neither party is able to control should be reflected in the price paid for CERs. Risk allocation can be dealt with through measures such as: Conditions precedent to the entry into force of a contract Guarantees from Host Countries or parent companies Force majeure clauses Laying off risks to third parties such as contractors or DOEs Warranties, indemnities and rights of termination in a contract

    35. ©2003 Baker & McKenzie 35 Contingencies in the CDM Project Cycle

    36. ©2003 Baker & McKenzie 36 Discussion of Participant Experiences

    37. ©2003 Baker & McKenzie 37 Session Five: Conclusions

    38. ©2003 Baker & McKenzie 38 Summary of outcomes and experiences

    39. ©2003 Baker & McKenzie 39 Issues going forward Whether the Kyoto Protocol will enter into force Unilateral CDM Projects Ability of Host Country private participants to hold registry accounts Ability of Host Countries to trade CERs Status of the “prompt start” of the CDM Establishment of DNAs Development of concept of “additionality” Interaction with Host Country laws

    40. Contact: Martijn Wilder, Partner, Sydney martijn.wilder@bakernet.com Rodrigo Sales, Partner, Sydney rodrigo.sales@bakernet.com Paul Curnow, Sydney, Johannesburg curnow@interkom.co.za

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