Financing a CDM Project

– DBBL’s experience

Farhad Ahmed KhanAssistant Vice President

Syndication & Structured Finance

Credit Division, Dutch-Bangla Bank Ltd

DBBL to provide to the extent of Taka eqvt. Euro 2.00 million in part funding of implementation of WWR Bio Fertilizer Ltd, a municipal organic waste-to-bio-fertilizer plant

FMO to act as Arranger and DBBL to act as Agent and Security Trustee

DBBL’s Participation in Euro 12 Million Project

Waste Concern Consultants (WCC) from Bangladesh. It is working in the area of waste management in Bangladesh since 1995. It is specialized in small and medium scale waste management projects especially composting. Waste Concern is involved in design and implementation of 47 compost/recycling plants distributed in 26 cities and towns of Bangladesh. Apart from Bangladesh, WC is also involved in waste composting projects in Sri Lanka and Vietnam.

World Wide Recycling BV from Netherlands. It is also working in the areas of waste management. This company is associated with VAR a large scale waste recycling company. It is specialized in large scale waste projects including composting

WCCWCC WWRWWR

WWR Bangladesh Holding BV.WWR Bangladesh Holding BV.

WWR Bio Fertilizer Bangladesh Ltd.

Project Partners

The Shareholders Structure

WBH holds 100% less legally required local shareholding of one share of WWR Bio.

The shareholders of WBH are WWR (EUR 1.7m, 54.2%), WCC (EUR 0.4m, 13.6%), FMO (EUR 0.5m, 16.1%) and Triodos (EUR 0.5m, 16.1%).

About ‘VAR’/WWRWWR is closely related to the VAR via Jan Boone, who is the founder of VAR, was director of VAR till July 2002, and still is main shareholder of VAR with 80% and he is chairman of the supervisory board of VAR. VAR was established in 1981 by Jan Boone. VAR is one of the largest and most innovative companies in the area of sustainable waste treatment in the Netherlands. VAR and WWR have signed a Cooperation Agreement via which VAR is obliged to provide technological support to WWR.

At the end of 2006, VAR had a Balance Sheet total of EUR 83m, turnover of EUR 48m, net profit EUR 4.1m, solvency 32% and 140 staff. The following key figures of VAR in 2006:

– Balance sheet total: EUR 79,992,817– Equity: EUR 27,096,302– Turnover: EUR 47,643,755– EBIDTA: EUR 7,300,429– Net profit: EUR 4,122,329

Financing Plan of WWR Bioin million Euro

Amounts x1m EUR

Equity to

WBH*

Loan to* WBH

Loan to WWR Bio

Total

FMO 0.43 1.54 3.90 5.87

Triodos 0.43 0.43 1.50 2.36

WWR/WCC 1.80 - - 1.80

DBBL - - 2.00 2.00

Total 12.03

*the amounts paid out to WBH are transferred to WWR Bio as equity

Investment and Financing Investment Plan (in Euro) 2007 2008/2009 2009/2010

1 Investments in intangibles 690,000 0 0

2 Land 187,198 327,273 297,521

3 Buildings + machines 1,304,035 3,899,706 3,806,134

4 Contingencies (activated) 167,903 502,112 490,064

5 Enrichment   550,000 413,223

6 One-off costs 225,000    

Total 2,574,136 5,279,091 5,006,942

Financing Plan (in Euro)      

7 Capital injection WWR/WC 840,000 804,900 155,100

8 Capital injection FMO 200,000 191,643 36,929

9 Capital injection Triodos 200,000 191,643 36,929

10 WBH subloan FMO 164,805 689,914 688,138

11 WBH subloan Triodos 79,305 191,643 157,623

12 WWR Bio subloan FMO 721,680 1,743,950 1,434,370

13 WWR Bio subloan Triodos 269,639 651,586 535,919

14 WWR Bio loan DBBL 372,736 900,721 740,829

Total 2,848,164 5,366,000 3,785,836

Projected Operating ResultsAmounts in x1000 EUR 2008 2009 2010 2011 2012 2013 2014 2015

Turnover 1,537 6,323 6,178 11,293 10,986 9,367 8,852 8,365

EBITDA 412 2,541 2,447 4,550 4,584 3,313 3,122 2,942

Net profit -129 1114 1169 2692 1767 1117 1100 1137

Operational cash flow 220 1,416 2,477 3,484 4,648 3,650 3,230 3,043

Cash at end of year 240 999 1,177 2,804 4,704 6,257 6,151 5,993

 

Balance sheet total 7,989 9,502 13,941 16,018 16,902 17,158 16,163 15,200

Solvency (%) 26% 34% 33% 42% 48% 53% 61% 71%

Risk Bearing Capital as % of TA 82% 81% 85% 88% 92% 95% 95% 95%

Debt/EBITDA 14.05 2.28 3.61 1.83 1.71 2.21 1.76 1.25

Current ratio 4.37 5.40 5.79 6.48 8.64 11.52 11.84 12.10

DSCR excl. investments 2.03 3.87 4.07 5.39 4.63 4.00 2.26 2.47

Tenor/Repayment Period

Tenor:

Tranche I – IV : for the loans, 10 years from the financial close, with a

grace period of 6 years.

Tranche V: (6 years) from Financial Close with a grace period of 12

months.

Repayment Period:

Tranche I-IV: In 8 semi-annual equal installments with the first such

installment due 78 months after the closing date.

Tranche V: In 20 quarterly installments with the first such installment due

15 months after the closing date.

Feedstock risk Feedstock risk Construction

risk

Construction risk

Perceived Risk as assessed by DBBL:

Off-take risk Off-take risk Land

Operational risk

Revenue from CERs

Environmen-tal and social

risks

Key Man Risk Loan Structure

Risk

Loan StructureRisk

Feedstock risk:

Input of organic waste is guaranteed by a Concession Agreement with the municipality that allows WWR Bio to collect up to 700 ton/day waste from designated areas, like local markets.

Construction risk:

A compost facility is a relatively easy concept. Also, the construction is done under supervision of the VAR with extensive experience and knowledge

Operational risk:

Employees will be trained, partly at the VAR in the Netherlands. If major problems occur the VAR will give technical assistance. Management of the companies will come from WCC and WWR and thus have experience with waste management

Off-take risk (demand, competition and distribution):

Compost can be used as a substitute for or additional to more expensive fertilizers. The compost market is only marginally developed, while the domestic fertilizer market can not foresee in total demand. So (potential) demand is high, while competition is low. Because the compost will be tailor made for different crops it can be sold during the whole year. WWR Bio negotiates on agreements with end-users directly and off-take agreements with wholesalers/distributors. Own distribution will then be considered later

Land:

For the first 100-130 ton/day capacity land is acquired under a lease contract, which might not be sustainable. DBBL’s investment is however limited to EUR 0.372 m in the first phase and for subsequent phases it is required that land is obtained in ownership.

Revenue from CERs:The used methodologies are approved as CDM projects and thus CERs will be generated as soon as the compost facility is operational. The price of CERs stays, nevertheless, very insecure, but profits of the project are mainly generated by selling (enriched) compost

DBBL assumed a fixed selling price of Euro 8 per unit CER

Environmental and social risks:

The project has significant environmental and social

positive impacts, the most important being the reduction of

greenhouse gas emissions, the production of soil

improving compost and the offering of livelihood

opportunities and improvements for poor and marginalized

people. Potential adverse impacts do exist, but are limited

and manageable and they can be mitigated.

Key Man Risk:

The Directors of WWR Bio are A.H. Md. Maqsood Sinha of WCC and a representative of WWR, currently Jan Boone. A.H. Md. Maqsood Sinha has experience with waste management in Bangladesh. A.H. Md. Maqsood Sinha and Jan Boone seem very capable of running WWR Bio. Nevertheless, if Jan Boone or any other key person should fall away, an important financial and business partner is lost (key man risk), especially during construction phase.

Loan Structure Risk:

The tenor for the DBBL’s loans is 6 year, with a grace period of 1 year. DBBL (senior loans) receives security over all fixed and floating assets of WWR Bio.

Another mitigant is that disbursements of the loans to expand capacity from 100 to 700 ton/day, will be considered only if the project at phase 1 has proven to be a success.

Milestones Achieved:

Concession Agreement with DCC has been signed to collect and transport waste

National CDM Board Approval has been obtained

Land lease agreement for 22 years has been signed

Trade licensee obtained

Land use clearance obtained

BOI registration obtained

Third party verification of Environmental and Social Compliance has been done

Environmental clearance obtained from DOE

Work permit for the WWR engineer has been obtained

Import permit has been obtained

Land development completed

Detailed Engineering design completed

Major construction works for phase 1 completed by March 2008

The project has gone into trial operation end of March 2008

Pending : Registration of compost/enriched compost

DBBL to finance First CDM project in Bangladesh

– Commercial lenders are cautious in providing new loans particularly to projects involving unfamiliar technologies.

– Technologies, equipment & processes relevant for CDM are available commercially, many of which offer viable economic returns; yet, not many of such projects are being implemented in Asia compared to what can be potentially achieved.

– Bangladesh is yet to see any lender, other than DBBL, to finance CDM project.

– DBBL wishes to extend thanks to FMO for involving it with the country’s first ever CDM project.

Summing up – DBBL’s Feeling

• An adequate risk-sharing structure is often difficult to put in place and almost always creates unanticipated delays in achieving financial closing.

• Risk should be allocated, by contract, to the party that is best able to mitigate or control.

• Completion risk could be avoided by implementing such project in phases.

• There should be transfer of technical know-how from Annex I country.

• Carbon Credit market development needs accelerators. Action by participating players needed – advisors, buyers, FIs, government to put in place the necessary accelerators.

• Regulatory support needed.

• Lenders should have greater oversight of the project. They should have control the application of cash flows.

Summing up - DBBL’s Feeling (Contd.)

• First time lenders for projects like CDM should be in the senior loan category. Equity and quasi equity should be invested first.

• Banks need assets to back-up; however, CDM project is often not asset based but idea based.

• Documentation is lengthy and complex, and costs a great deal to put into place.

• Success of WWR Bio is crucial for other lenders to finance CDM project.

• Bangladesh is an attractive market for CDM.• DBBL will embark on the lessons learned to take on more such viable

CDM projects. Journey has just begun.

The End

Thank You