ARMENIA’S EXPERIENCE ON IMPLEMENTING PROJECTS UNDER THE CLEAN DEVELOPMENT MECHANISM

1. ARMENIA’S EXPERIENCE ON IMPLEMENTING PROJECTS UNDER THE CLEAN DEVELOPMENT MECHANISM Aram Gabrielyan Ministry of Nature Protection of Armenia • Diana Harutyunyan UNDP/GEF “Enabling Activities for the Preparation of Armenia’s Second National Communication to the UNFCCC” Project Regional Workshop on Legal, Institutional and Financial Aspects of Carbon Finance Projects Istanbul, Turkey, January 21-22, 2008

2. Background and measures for the implementation of CDM projects in Armenia • Armenia ratified the UN Framework Convention on Climate Change in May 1993 and the Kyoto Protocol in December 2002. • Ministry of Nature Protection of Armenia was designated as the National Authority (DNA) for the Kyoto Protocol’s Clean Development Mechanism (CDM) in 2003. DNA Contact Person: Dr. Aram Gabrielyan Head of Environmental Protection Department of MoNP of RA UNFCCC National Focal Point • On July 19, 2006, the Government of the Republic of Armenia adopted Decision N-974 on “Implementation of Projects within the framework of Clean Development Mechanism under UNFCCC”. The document outlines the main functions of the Ministry of Nature Protection of RA acting as the DNA. Advantages of the choused model of the DNA - minimal administrative procedures and costs; existing professional potential and awareness on Kyoto Protocol; the key role of the ministry on the issues of sustainable development in the country, etc.

3. Legislative Framework • Under the technical assistance provided by UNDP/GEF for preparation of the First National Communication and technology transfer needs assessment the following activities were performed: - Development of GHG inventory, 1990 and 1995; - Development of GHG abatement strategy and forecast of GHG emissions until 2010; - Identification and evaluation of sectors with the sizable potential for GHG mitigation, analysis of barriers for technology transfer • The Law of RA on Renewable Energy and Energy Saving (2004); • Establishment of promotional tariffs and procedures for guarantied purchase of electricity produced by small HPPs, biogas and wind power plants and cogeneration units (Public Services Regulatory Commission of Armenia – 2003, 2004, 2005, 2007.

4. Legislative Framework • Memorandum of understanding (MoU) is signed between the Government of Denmark and the Government of Armenia on cooperation for the implementation of the Kyoto Protocol (entered into force on March 17, 2005). • Memorandum of understanding (MoU) on bi-lateral cooperation between the Ministry of Nature Protection (MoNP) of Armenia and the Federal Ministry for Agricullture, Forestry, Environment and Water Management of Austria is being prepared for signature. • Memorandum of understanding (MoU) on bi-lateral cooperation between the Ministry of Nature Protection (MoNP) of Armenia and the the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety of German Federal Republic • Negotiations are under way for the signature of memorandum with the UNDP MDG Carbon Facility.

5. Institutional and Organizational Framework • Environmental Protection Department of the Ministry of Nature Protection is responsible for coordination of CDM projects evaluation and approval process. • Establishment of good relationship with the key partners, such as: Ministry of Energy, Ministry of Trade and Economic Development, Ministry of Agriculture, Public Services Regulatory Commission. • Support to the DNA provided under the EC and UNDP/GEF projects. • Climate change experts group performs functions of the DNA Secretariat providing technical support and consultations.

6. Main functions of DNA for CDM in Armenia • Endorsement and approval of CDM projects based on evaluation of conformity of the projects with the country sustainable development objectives as well as confirmation of voluntary participation of the involved parties (Letter of Endorsement, Letter of Approval) – 6 LoA, 1 LoE; • Hold consultations with the key ministries and agencies on specific projects to determine the level of their compliance with the principles of sustainable development of the country – according to the work procedure and established rules. • Authorize participation in CDM project activities for private and state-owned companies from Armenia – 6 companies are already authorized. • Organization and development of CDM projects public hearings institute – the DNA was actively involved in 5 hearings on 4 projects. • Provision of efficient international cooperation under the Kyoto Protocol – participation in negotiations and talks, DNA Forums.

7. Ministry of Trade and Economic Development Ministry of Nature Protection (DNA) Ministry of Labor and Social Security Recommendations on the project Decision on the project • Technical committee • (Expert group) • Project evaluation: • Environmental impact assessment (EIA) • Compliance to standards DNA Secretariat • Stakeholders • Ministries • Agencies and institutions • Local self governing bodies • NGOs and SNCOs • Private companies etc. CDM Project participants Project submission (PIN / PDD) Decisions on the project Approval / Refusal Consultations on project • Investor / CERs buyers • Carbon founds • Banks and other IFIs • Private / state organizations and companies etc. • Owner / CDM project developer • Private company • State company • NGO etc. CDM Projects Revision and Approval Scheme

8. CDM Projects RevisionProcedure Voluntary Procedure • Submission of Project Idea Note (PIN) • Revision and approval of the Project Idea – 15 days • Signing and issuance of the Letter of Endorsement Mandatory Procedure • Submission of PDDs and other related documents • PDDs revision and approval – 30 days (including consultations with the Ministry of Trade and Economic Development and the Ministry of Labor and Social Security as well as with stakeholders) • Signing and issuance of the Letter of Approval

9. DNA requirements for reporting on project contribution to the country’s SD criteria Environmental criteria • Improvement of air and water quality • Efficient land use • Biodiversity protection (ichthyofauna etc.) Economic criteria • Attraction of foreign investments • Employment generation • Sustainable technology transfer Social criteria • Full participation of stakeholders • Service quality improvement • Capacity development

10. Additional functions of DNA for CDM in Armenia • Consultations with stakeholders on development of project documents – more then 14 seminars were been organized, database of national partners was developed. • Assistance in identification of potential partners (project participants) for implementation of CDM projects – presentations of potential CDM projects at carbon forums (Moscow, 2006 and Tashkent, 2007) and CTI seminars (Leipzig, 2006 and 2007). • Information exchange and support to establishment of contacts between project participants and buyers of carbon credits (2 emission reduction purchase agreements (ERPA) were signed between the Armenian companies and carbon buyers); two publications on CDM were developed (CDM Handbook for Armenia and CDM Overview in Armenia). • National capacity development – trainings of national experts as well as specialists from key ministries and agencies. • Identification of barriers (e.g. legal) and development of proposals for improvement of national legislation.

11. Identified Problems • Status (legal title) of CERs (goods, security, intangible assets) is not defined by the national legislation. Actual issue for the ongoing projects. • Ownership of CERs: state, private sector, local government? • Taxation of CDM projects. • Sustainable operation of the DNA: - financing, also as a share of generated CERs (e.g. agreement under Nubarashen Landfill CDM project); - possibility of qualified expert evaluation of CDM projects; - post-approval monitoring of CDM projects (conformity with sustainable development objectives)

12. Potential sectors for implementation of CDM projects in Armenia • Energy Efficiency • Industry(cement production, chemical and metal industry) • Communal sector (heat and water supply) • Renewable Energy • Hydro (small HPPs) • Wind • Solar (water heaters) • Biogas • Waste Management • Gas Supply System • Industrial Processes • Waste Water Treatment • Afforestation and reforestation

13. CDM Projects in Armenia

14. Small HPPs CDM Project in Armenia

15. Registered CDM Projects Under Implementation • NubarashenLandfill Gas Capture and Power Generation Project • Lusakert Biogas Plant • Yeghegis Small Hydro Power Plant

16. Nubarashen Landfill Gas Capture and Power Generation Project in Yerevan Project Objective: To collect landfill gas from Nubarashen landfill site in Yerevan and to burn methane, a combustible gas contained in LFG in a gas engine generator (GEG) with a view to generating electricity. Produced electricity will be soled to the national grid. • CAPEX – 6 mln. USD • Crediting Period – 16 years • Total GHG emissions reduction – 2.16 mln. tCO2e

17. Project Benchmarks

18. Analysis of Surface GasEvaluation of actual volume of disposed waste Extraction of Sample Landfill Gas

19. Status of the Project and Identified problems Addressing of the following issues is vital for the further materialization of the project activity: • VAT payment: transfer of fixed assets from Shimizu Corporation to balance of the Yerevan Municipality; • CERs taxation (profit tax payment at CERs transfer); • Local authorized party as a state body of territorial administration is not flexible enough to ensure efficient participation in the project.

20. Lusakert Biogas Plant • The purpose of the project is to mitigate Lusakert Pedigree Poultry Plant's animal effluent related GHG emissions, by improving the farm's Animal Waste Management System practices. • Crediting Period – 21 year (3 x 7); • CAPEX – 3.4 mln EURO; • Annual GHG emission reduction for the first crediting period – 63000 tCO2e; • Designed dayli capacity of the plant – 8500 n. M3 methane; • Designed capacity of CHP – 1 MW

21. Project Outcomes • Hight-quality organic fertilizers • Heat and electricity Generated heat will be utilized to ensure required thermal conditions in the digester and for other technical purposes. Electricity will be supplied to the grid. Autumn 2007 Baseline condition

22. Digester under construction LBP CJSC CO-FOUNDERS Lusakert Pedigree Poultry Plant LLC (Armenia) Vekst Project Financing Facility AS (Norway) Bigadan A/S (Denmark) Industrialization Fund for Developing Countries– IFU (Denmark)

23. Project Benchmarks

24. Yeghegis Small HPP • Crediting Period – 21 year (3 x 7) • CAPEX  1,1 mln. EURO • Annual GHG emission reduction for the first crediting period– 3166 tCO2e • Installed Capacity - 3.16 MW • Annual Generation - 5.8 GWh • Project is under construction

25. Project Objective The technology implementation is based on the use of anaerobic digester treatment as the first step before a lagoon system. Produced effluent from the biogas plant will be routed to the existing lagoons. The captured gas will be used in a gas engine generator to produce heat and electricity. The heat from the cogeneration plant is used for heating the digester, in order to optimize operation and increase the speed of decomposition of the organic matter of effluents. The operational income will derive from sale of electrical energy to the distribution grid as well as realization of a fertilizer from the biogas production. Current situation

26. CDM Project Under Development Restoration of the Heat and Hot Water Supply for the Avan and Davidashen Districts in Yerevan, Armenia AVAN Project • Area - 1.5 km2; • Elevation - 1250 m; • Population – 37000; • Number of residential buildings – 218; • Number of apartments – 10 172 • Number of public buildings– 32 • Heat demand – 78,5 MW

27. Project Objective The project envisages reconstruction of entire centralized DH system from heat supply source to the end-user. The cogeneration unit will be installed to generate electricity to the grid, the total efficiency of system will be improved. • Complete modernization of heat supply sources with introduction of cogeneration technology (cogeneration units with total installed capacity of 12.3 MW); • Installation of efficient heat only boilers for covering heat peak demand (60 MW); • Rehabilitation of heat supply mains and heat distribution systems; • 100% replacement of old primary and secondary network pipes; • Introduction of new calculation and payment system base on actual heat consumption.

28. Project Financial Data • Expected cost of project implementation: 33 mln. USD; • Annual GHG emission reduction – 36.924 tCO2e; • Estimated revenues from sale of emission reductions: from € 185,000 to € 370,000 annually; Expected scheme of financing the project: Project financing structure will include a combination of debt and equity financing in proportion 80% to 20%. • Internal Rate of Return (without CERs) – 10,5%; • Internal Rate of Return (with CERs) – 12% • Payback Period – 8 years

29. THANK YOU! MINISTRY OF NATURE PROTECTION OF THE REPUBLIC OF ARMENIA Governmental Building #3, room # 533, Yerevan, Armenia Tel.: (+37410) 583920, Fax: (+37410) 583933