Risks and how to

manage it
How to market CDM Projects
 Risks

The further developed the project is, the lower

will be the risks
Off the shelf buyer faces no risk
Financer risk is limited by contract and insurance
Equity investor shares risk of success of project
 Stages of Risk I - Country
Country status
Stability
Environmental, labour, institutional
Infrastructure
Presence of approved OE
Suitable local expertise (technical, legal, financial)
Certainty of contracts and of ownership
Lawlessness
Litigiousness
Produce country Assessment Report
But the Japanese are already interested
 Stage of Risk II - Approval
DNA Status
Is the DNA in existence
Will the DNA be biased to some sectors seems not in SA
Are the DNA criteria clear, stringency
Is the DNA efficient or causing delays
SD Status
Will the Project contribute to Sustainable Development
Is the project an SSN project SD criteria met
Is the project a gold label project SSN projects probably are
Approval Status
Has the project already been approved
Produce Approval Certificate, Gold Label endorsement, or
Assessment Report
 Stage of Risk III - Validation
Methodology
Is the baseline methodology approved
Is the project additional
Validation
Has PDD been validated by an approved OE
Produce validation certificate, or
Assessment Report
 Stage of Risk IV: Feasibility
Feasibility Study
How far is implementation?
Is there a good rate of return iro CERs as against the capital cost of the project
What portion of the bigger project is the CDM component
How liquid is the Project Participant in relation to the timing of the production of
CERs
To what extent are the proceeds of bigger project already contracted for (e.g.
methane collected)
How additional is the project
What are the transaction costs
How viable is the bigger project
What are the profit margins in respect of the CERs
What is the state of the CER Market: what are the parameters
Produce auditors Assessment Report
 Stage of Risk V: Market Indicators
Has the CER Market matured
What prices do CERs fetch at the moment
What factors will affect the CER Market
How do these factors impact on the specific project
What is the future of the CER Market
When should project be marketed??
Produce an market appraisement Report
 Stage of Risk VI - Technology
Is the project technology reliable/ tested / the best available
Has the technology been tested by developer/ in same country/ in same
situation
What factors affect the technology being successful in the host country
How complicated is the technology
How expensive is the technology (including maintenance)
Are royalties payable
What possibility is there for technology proliferation/on-selling
What is the relationship between the technology and the baseline
What provision is there for ongoing training and maintenance
What likelihood is there for take-up of the technology
Produce Assessment Report against a set of performance indicators
 Stage of Risk VII: Insurance
Is there insurance in place iro performance by PP
What grade of risk is there in respect of each assessment
of risk identified iro the project
Is there insurance in place for each stage of risk
How adequate is this insurance
What consideration is there for points of conflict to arise
What provision is there for the resolution of each identified
conflict
Produce insurance certificates or insurance potential
report iro each identified risk
 The Project
Prospectus

Packages the Project for

Marketing
Is presented to top brass
Is like a company
prospectus/ annual report
Includes Risk, Status and
Evaluation Reports
Shows Price to Risk in
graph format:
 Confidentiality
What detail of Internal Rate of Return to
include:
Higher IRR, less risk to investor/buyer
Lower IRR, lower offers?
How much information must be exposed in
PDD
Conservatism
High scenario proves additionality
Low scenario proves baseline
 Risks to Seller/PP

Same as buyer in respect of the success of the project

Opposite to buyer in respect of degree of buyer
involvement
Choosing optimum time iro risks, cash flow needs and
potential for maximising profit
Choosing the right buyer (and the buyers ability to
perform)
Identifying the right technology and the right project
Negotiating in a weak/uncertain market
International competition to sell into the market
Negotiating with top-flight international dealers
The right contract, the right forum for enforcing
performance/ claiming damages