Welcome to the KfW Carbon Fund

1. Welcome to the KfW Carbon Fund Djerba CDM Investor Forum, September 23, 2004 KfW Carbon Fund Project Team Tel: +49-69-7431-4218 carbonfund@kfw.de

2. Agenda • Basic facts about KfW • Concept and Framework Conditions • Project Selection Procedures • Main Contract Features KfW Carbon Fund

3. 1 Basic facts about KfW

4. The KfW BankengruppeBasic Information • Promotional bank of the Federal Republic of Germany. • Founded in 1948. • Shareholders:Federal Republic of Germany (80%), German federal states (20%). • Headquarter:Frankfurt am Main; branch offices:Berlin and Bonn. • Foreign offices:Brussels and 28 offices in developing and emerging countries. • Balance-sheet total at the end of 2003:EUR 315 billion. • 3,670 employees at the end of 2003. • Rating:AAA/Aaa/AAA. KfW Carbon Fund

5. KfW Bankengruppe New brand structure * Consultancy for the federal government on the privatisation of state enterprises,other advisory services Promotion of SMEs, business founders and start-ups Promotion of housing, environmental and climate protection, education, infrastructureand the social sector Export and project financing, investment andcorporate financing Promotion of developing and transitioncountries Investment Finance in Germany and Europe Export and Project Finance Financial Cooperation Advisory and other Services * KfW IPEX-Bank at first as a brand name; from Jan. 2008 as a legally independent 100 % subsidiary of KfW Bankengruppe KfW Carbon Fund

6. 2 The KfW Carbon FundConcept and Framework Conditions

7. KfW Carbon FundFramework Conditions • Kyoto-Protocol; Marrakech Accord • Project-based Mechanisms: - Joint Implementation – JI - Clean Development Mechanism – CDM • European Emissions Trading System (ETS) • National allocation plans • Linking Directive for JI and CDM • GHG Emissions Trading Law (“TEHG”) KfW Carbon Fund

8. KfW Carbon FundObjectives • Project development function: Promotion of projects and measures contributing to • reduction of global Greenhouse Gas Emissions • sustainable development in the host country • Development of an economically attractive service instrument for German and European enterprises, who are interested in using the project-based mechanisms of the Kyoto Protocol in their CO2-strategy • Cost-effective purchase of emission reduction certificates, which can be converted into EU-Allowances („Compliance Tools“) KfW Carbon Fund

9. KfW Carbon FundFund Concept • Overall concept: Setting-up a programme for acquiring certificates from project activities(purchase programme, no direct financing function) • Fund is organized as a „Buyers Pool“ of participants • KfW acts as a buyer in its own name for account of the participating companies/institutions • KfW will conclude Agency Contracts with participants and long term „Emission Reduction Purchase Agreements“ (ERPAs) for emission credits or project related allowances • Fund has a commercial orientation KfW Carbon Fund

10. KfW Carbon FundFund Concept Advantages for projects: • Long-term purchase contracts (fixed amount, fixed price)(„Emissions Reductions Purchase Agreement (ERPA)“); • Additional flow of income for climate protection projects • Improved cashflow and return on investment • Increased attractiveness to equity providers and lenders („bankability“): Possibly additional financing or „credit enhancement“ through ERPA as part of the securities package KfW Carbon Fund

11. KfW Carbon FundProject Partnership Structure Community of Fund Participants:Enterprises, etc. ECA- Guaranteeas required € Credits Credits Project CompanyExample: Combined Heating and Power Plant € € Bank Credits KfW Carbon FundCredits Offtaker € € Investor/Project Developer Power/Heat € Equipment Power OfftakerHeat Offtaker Contractor KfW Carbon Fund

12. KfW Carbon FundContractual Relations Project 1 Participant 1 Agency contracts KfW Project Portfolio (“KfWCarbon Fund“) ERPA Project 2 Participant 2 Project 3 Participant 3 Projectn Participant x KfW Carbon Fund

13. KfW Carbon FundFund Volume / Time Schedule Fund volume • Target volume: EUR 50 million • First closing: EUR 25 million • KfW‘s participation: up to EUR 10 million • German Government: up to EUR 8 million Time schedule • Official launch (floating of first CDM-tender): 29 June 2004 • Deadline for closing 1st tranche: 31 December 2004 KfW Carbon Fund

14. 3 The KfW Carbon FundProject Selection Procedures

15. KfW Carbon FundProject Selection Principles (I) General Framework: • Kyoto Protocol/Marrakech Accord • European Emissions Trading System (ETS),Linking Directive • Clearance by the German Government • Internationally accepted environmental standards (e.g. World Bank guidelines, EU regulations, EIA of German co-operation with the developing countries) Ensuring the value and acceptance of the purchased certificates in the ETS KfW Carbon Fund

16. KfW Carbon FundProject Selection Principles (II) • Fund management guidelines: • Building up a balanced project portfolio under the aspects of risk and return in the interest of the fund participants • Investment grade project portfolio • Main criteria: • Delivery risk • Price per ton of CO2e • Transaction costs (normally minimum of 50,000 t/pa CO2e per transaction) KfW Carbon Fund

17. KfW Carbon FundProject Selection Principles (III) • Technologies and sectors:No restrictions or preferences but exclusions in line with Kyoto and the ETS: • No nuclear power projects • Large hydro power projects only if they fulfill the recommendations of the World Commission on Dams • No sinks projects (LULUCF) KfW Carbon Fund

18. KfW Carbon FundSelection Procedure (I) Two stage tender process; transparent selection criteria • Stage 1: “Expression of Interest“ • Project Information Note (“Project Pre-Check“) • Letter of Endorsement of Host Country • Financial status of project proponents  Letter of Support by German Government (obtained by KfW) KfW Carbon Fund

19. KfW Carbon FundSelection Procedure (II) Stage 2: “Full Proposal“ • Project Design Document; Business Plan; EIA Report • Final Validation Report • Host Country Letter of Approval Invitation to negotiate a purchase Contract Basis: General Conditions of Contract Step 2 Full Proposal Phase KfW Carbon Fund

20. KfW Carbon FundTime Schedule Expression of Interest Phase • Deadline for submissionof Expression of Interest (EoI): 31 October 2004 • Evaluation of EoI; short listing: 30 November 2004 • Invitation to submit Full Proposals (Step 2): December 2004 For further details: www.kfw.de/carbonfund KfW Carbon Fund

21. 4 The KfW Carbon FundMain Contract Features

22. KfW Carbon FundPurchase Contracts (I) • Long-term purchase agreement (Forward contract) • KfW will buy in its own name (AAA Buyer) • Guaranteed minimum offtake quantity at a fixed price;usually max. 50% of expected quantity of credits generated • Contract period up to 2012 with option to extend • Market-based pricing KfW Carbon Fund

23. KfW Carbon FundPurchase Contracts (II) • Delivery options • Early delivery option for seller  early fulfillment of contract;option to sell surplus amounts in later years in the market • Right of first refusal for buyer on Additional and Future Creditsat the then prevailing market price • Payment arrangements • Payment on delivery as a rule • Prefinancing on a case by case basis; to be decided by KfW‘s credit departments; customary terms and conditions KfW Carbon Fund

24. KfW Carbon FundConclusion Opportunities for Developers and Investors • Attractive Long-term contracts at fixed prices • Improved and reliable cash flow • Bankable contract, well structured, AAA off-taker • Service package provided by KfW • Guidance through the Kyoto process • Drawing on KfW’s experience in project finance • Controlling transaction costs • Standardized procedures • Co-operation with intermediaries KfW Carbon Fund

25. Thank you for your attention! KfW BankengruppeKfW Carbon Fund Tel: +49-69-7431-4218 carbonfund@kfw.de www.kfw.de/carbonfund