Carbon Finance Presentation for DOE - DNA conference Presented by: Ziv Ben-Ami zivb@nedbankcapital.co.za +27 11 294 3021
Who is Nedbank Limited? • Nedbank Ltd is one of the major 4 banks in South Africa � Listed on the Johannesburg Stock Exchange (“JSE”) with a market cap of R71.8 billion (Bloomberg 11 May 2011) � Total assets of R R609,7 billion (Mar 2011) � At the forefront of African sustainability, as evidenced by its 2010 accolades 1 � 51.37% held by Old Mutual Life Assurance Company (South Africa) Ltd � Old Mutual Life Assurance Company (South Africa) Ltd is part of Old Mutual Plc � Financial highlights of Old Mutual Plc group � � FUM of £309.3 billion (Dec 2010 preliminary results) FUM of £309.3 billion (Dec 2010 preliminary results) � Operating profit (IFRSAOP) of £1,481 million • Nedbank Capital is a division of Nedbank Ltd � Housing the bank’s investment banking offering comprises several divisions that manage Nedbank's structuring, lending, underwriting and trading businesses. � Offering a full spectrum of investment services and products, ranging from equity research and specialised advice to debt raising and long-term project financing � Clients include the who's who of southern Africa's top corporations, government bodies, financial institutions, emerging BEE consortiums, multinational corporates and consortiums undertaking major infrastructure and mining projects in Africa 2
Nedbank Capital’s Carbon Asset Offering: 3
Carbon Market Overview REGULATORY VOLUNTARY Voluntary Carbon Standard (VCS) CDM EU ETS Voluntary Gold Voluntary Gold Standard (VGS) Large Scale Plan Vivo EUAs Small Scale CERs VERs CPA Programme of Activities CPA CPA 4
Carbon Market Volumes 2009 5
Enabling Climate Change Mitigation INTEGRATED CARBON FINANCE SOLUTIONS • Aid / development funds • Project Finance • Underwriting • • Structuring Structuring Delivery Delivery using • Syndication • Commercial paper (bonds and notes etc.) • Discounted cash flows • Carbon income 6
Aid and Development funding Nedbank Capital: • can facilitate access to aid and development agency funding • is negotiating additional aid facilities specifically targeting renewable energy projects • can facilitate sovereign and currency risk protection • has established relationships with many African governments • ODA not allowed under CDM, need for additional allocation. 7
Project Finance Services enabling project finance include: • Financial modeling • Equity • Debt underwriting • Discounted cash-flow • Financial structuring • Loan syndication • • Issue of commercial paper (bonds) Issue of commercial paper (bonds) - Primary market sales and distribution - Placement with investment funds - Structuring for investment funds 8
Carbon Project Development Carbon Project Development Annual • Desktop project review : Measure & Monitor Report Project Concept • Financial evaluation Project Performance Submitted for (Emissions Benefit) • Carbon project potential assessment National approval (DNA) & Prior Verification • Technology introduction Notification (UNFCCC) Develop physical project plan • Site visit and due diligence Plan and engage with financiers • DNA & UNFCCC engagement • PIN / notice of prior intent lodgement Select or develop project methodology • Advice for financial planning Carbon Define project benefits • PDD development, validation & registration (Optionally Project Project Document project base-line Document project base-line Nedbank risk against future Offset allocation) Nedbank risk against future Offset allocation) Production Evaluate project for additionality Cycle Generate PDD & submit for approval to: • Emission Reduction Purchase Agreement CER's National sustainability & (ERPA) : Submitted Issued & allocated development criteria for Carbon • Pre- and post 2012 in accordance Issuance Public comment • Nedbank or third party buyer with ERPA • Cash on delivery ( floor & market up-side Validation (DOE) share ) Project acceptance/registration • Pre-payment Complete physical project implementation 9
CDM Specific Risks • 2012 deadline - end of first commitment period. – no certainty for projects eligibility into EU ETS, unless a new binding agreement is signed. – The situation gives rise to CDM Specific risks: • Registration Risk – Time – Host Country • Eligibility Risk – Technology – Host Country • Delivery Risk – Under performance compared to PDD – Nationalization? Risk adjusted pricing for CERs 10
Putting it all together – A Carbon Finance Solution Carbon Project Development Annual Project bankability and funding supported • Desktop project review : Measure & Monitor Report Project Concept through innovative use of : • Financial evaluation Project Performance Submitted for (Emissions Benefit) • Carbon project potential assessment National approval (DNA) & Prior • Aid, Development agency and Government Verification • Technology introduction Notification (UNFCCC) funding Elimination of sovereign risks Develop physical project plan • • Site visit and due diligence • Financial and performance guarantees Plan and engage with financiers • DNA & UNFCCC engagement • Elimination or minimisation of exchange • PIN / notice of prior intent lodgement Select or develop project methodology rate risks • Advice for financial planning Carbon Define project benefits • PDD development, validation & registration (Optionally • Carbon project development and Project Project Document project base-line Document project base-line Nedbank risk against future Offset allocation) Nedbank risk against future Offset allocation) registration services Production Evaluate project for additionality • Structuring borrowing requirements and Cycle term to match investment restrictions Generate PDD & submit for approval to: • Emission Reduction Purchase Agreement CER's • Commercial Paper (bond etc.) issuance for National sustainability & (ERPA) : Submitted Issued & allocated distribution into local and international development criteria for Carbon • Pre- and post 2012 in accordance investment funds Issuance Public comment • Nedbank or third party buyer with ERPA • Contracted pre-sale of carbon credits • Cash on delivery ( floor & market up-side Validation (DOE) enabling funding through discounted share ) carbon cash-flows Project acceptance/registration • Pre-payment Complete physical project implementation 11
Services Nedbank does not normally offer Nedbank does not normally provide : • Finance for pre-feasibility / feasibility studies • Start-up funding • Technology development funding • • Environmental impact assessment (finance or services) Environmental impact assessment (finance or services) These services may be made available on a case-by-case basis 12
Making Carbon Work – REDD in Kenya � Reduced Emissions from Deforestation and Degradation (REDD) project in SE Kenya � Estimated avoided emissions over 20 years - approximately 200,000 metric tonnes of CO 2 e (VER’s) per year after issuance buffer � Partially funded through Nedbank purchase of REDD carbon finalised November 2009 – Initial purchase 2006-2009 vintage pre-CCB Accredited VER’s – Additional purchase option for VER’s annually 2010 to 2015 – High price attained due to project appeal and limited availability of African carbon offsets � First stage payment immediate � Second stage payment due upon CCB Accreditation (issued December 2009) � � Third stage payment due upon Voluntary Carbon Standard (VCS) REDD AUFDD (Avoiding unplanned Third stage payment due upon Voluntary Carbon Standard (VCS) REDD AUFDD (Avoiding unplanned frontier deforestation and degradation) registration (anticipated during 2010, actual Feb 2011) � Community support initiatives form the basis of the carbon offset leakage avoidance strategy, including: – Ecotourism an ecotourism provider operates a camp which provides employment for local wildlife rangers and safari guides and other service jobs, as well as a market for local produce – Eco-factory organic clothing factory employed over 150 people from the community in the construction phase – Organic greenhouse and nursery program grow citrus trees for sale at a discount to local farmers for shade and income generation, chillies for cash crop and human/wildlife conflict intervention – Dryland farming scheme working with the Kenyan Agricultural Research Institute (KARI) to explore the potential of growing jojoba as a dryland cash crop – Participation in school construction and bursary scheme 13
Thank You
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