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Carbon as a New Commodity Class – Africa in the Emerging Global Carbon Markets

Carbon as a New Commodity Class – Africa in the Emerging Global Carbon Markets. by Dr. Christiane Abou-Lehaf Senior Principal Associate Planning & Business Development.

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Carbon as a New Commodity Class – Africa in the Emerging Global Carbon Markets

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  1. Carbon as a New Commodity Class – Africa in the Emerging Global Carbon Markets by Dr. Christiane Abou-Lehaf Senior Principal Associate Planning & Business Development Presented at the “West Africa Carbon Finance Investment Forum for Financial Institutions” during February 12 - 14, 2008, in Dakar, Senegal

  2. Contents • About Afreximbank (www.afreximbank.com) • Afreximbank’s Programmes and Facilities • Why Carbon Financing Programme? • Afreximbank Carbon Financing Programme (CFP) – Product Outline

  3. 1. About Afreximbank 1.1 Background: • Established in 1993 as a multilateral financial institution. • Shareholders include African governments and/or their Central Banks; African Multilaterals (Class A Shareholders); African private investors (Class B Shareholders); and non-African investors (Class C). • Authorized capital = US$750 million. • Mandated to finance and promote intra- and extra-African trade.

  4. 1. About Afreximbank (cont’d) • Headquartered in Egypt with Branch offices in Abuja, Nigeria; Harare, Zimbabwe; and Tunis, Tunisia. • Cumulative credit approvals since 1994/95 amounted to USD11.6 billion (end of 2007). • Profitable with Return On Equity in excess of 7% in recent years • Been paying dividends to Shareholders since 1998.

  5. 1.2 Vision, Mission and Mandate 1.2.1 Vision To be the Trade Finance Bank for Africa 1.2.2 Mission To stimulate a consistent expansion, diversification and development of African trade while operating as a first class, profit-oriented, socially responsible financial institution and a centre of excellence in African trade matters.

  6. 1.2.3 Mandate Some of the Principal Objects of the Bank are: • To extend short-term credit and medium-term loans to African exporters and importers; • To finance imports needed for export development such as imports of equipment, spare parts and raw materials; • To promote and provide insurance and guarantee services covering commercial and non-commercial risks associated with African exports; • To develop a market for banker acceptances in Africa; and • To promote and finance South-South trade betweenAfrican and other countries, among others.

  7. 2. Afreximbank Programmes and Facilities Afreximbank offers a number of Programmes and Facilities aimed at promoting intra- and extra-African trade, namely

  8. Afreximbank Line of Credit Programme; • Afreximbank Direct Financing Programme; • Afreximbank Syndications Programme; • Afreximbank Project Related Financing Programme; • Afreximbank Special Risks Programme, including Country Risk and Investment Guarantees Facilities; • Investment Banking and Advisory Services Programme; • Afreximbank Export Development Finance Programme; • Afreximbank Infrastructure and Services Financing Programme; • Afreximbank Future Flow Financing Programme; and • Afreximbank Trade Information Programme, among others.

  9. In its 3rd Strategic Plan to cover the period 2007-2011, Afreximbank proposes to introduce a Carbon Financing Programme

  10. 3. Why Afreximbank Carbon Financing Programme? • It will help the development of environmentally-friendly projects in Africa. • Access to finance will encourage entrepreneurs to think of using environmentally-friendly technologies that may be more expensive than traditional technologies. • Such a Programme will help attract to Africa the huge funds devoted to buying carbon credits under the CDM. Currently most of these funds go to Asia and Latin America.

  11. 3. Why Afreximbank Carbon Finance Programme? (cont’d) • Enhanced cashflow for projects. • To improve the negotiating power of African sellers of Carbon Credit by mitigation of delivery and project completion risks. • Maintaining social responsibility.

  12. 3. Why Afreximbank Carbon Finance Programme? (cont’d) • Even though there are risks in carbon finance such as project completion risk, performance/delivery risk, payment risk, regulatory risk, price risk, etc., the potential benefits to Africa and financiers, such as the Bank could be very high. The flow of new and additional resources for environmentally sound projects in African countries can augment Official Development Assistance (ODA) and serve as a conduit for new technologies. This would meet the need of African countries to increase their energy efficiency and mitigate environmental pollution.

  13. 3. Why Afreximbank Carbon Finance Programme? (cont’d) • Opportunity for spin-off business - It can complement the Bank’s engagement in energy and infrastructure projects, where carbon finance can improve the viability of these investments and create other revenue opportunities.

  14. 3. Why Afreximbank Carbon Finance Programme? (cont’d) • Carbon finance can also play a role in increasing investment in efficient fossil fuel plants, supporting renewable energy (including biofuels), dealing with poorly managed landfills and other waste streams that pose serious public health risks to large populations, building sustainable forest management, improving land use practices in agriculture, and increasing efficiency in transportation – all while setting up a cost-effective mechanism to deal with climate change.

  15. 4. Afreximbank Carbon Financing Programme (CFP) –Product Outline • 4.1 Purpose • 4.2 Objectives • 4.3 Beneficiaries • 4.4 Eligible Transactions • 4.5 Implementing Modality • 4.6 Financing Instruments • 4.7 Pricing • 4.8 Tenor • 4.9 Partnerships

  16. 4.1 Purpose • To support environmentally-friendly projects in Africa by promoting project-based trading of certified emission reductions (Carbon Credits) under the Kyoto Protocol’s Clean Development Mechanism (CDM) as well as pre-financing receivables from carbon credits earned and traded by African businesses and governments thereby contributing to reductions in carbon emissions and abating consequential climate change.

  17. 4.2 Objectives The Bank’s CFP has the general objective of supporting African private and public environmentally-friendly projects, some of which would otherwise not be bankable, by leveraging the credit of off-takers of carbon credits earned by those projects to complement other revenue flows supporting such deals.

  18. The specific objectives are: • to stimulate investment in environmentally-friendly projects under the CDM • To leverage additional carbon finance and supporting investments into Africa through partnering with developed country governments and private corporations wanting to buy carbon credits in African markets; • strengthening the capacity of African countries to benefit from the emerging market for carbon credits;

  19. to play a major role in building, sustaining, and expanding a market-based approach for carbon emission reductions by piloting the development in Africa, of new techniques for achieving carbon emission reductions while attracting finance for new types of projects (e.g., clean coal, urban infrastructure, sustainable agriculture, aforestation, etc.). 5. to promote awareness about the dangers of GHG emissions and to encourage entrepreneurs to pursue projects that recognize these dangers.

  20. 4.3 Beneficiaries 4.3.1 African corporates and governments implementing projects that have earned or are likely to earn carbon credits; 4.3.2 African banks and financial institutions financing trade in carbon credits and/or projects that have earned or can earn carbon credits; and 4.3.3 NGOs and environmental groups seeking finance to promote projects that have earned or can earn carbon credits.

  21. 4.4 Eligible Transactions 4.4.1 African Projects under the CDM; and 4.4.2 Carbon traders that have accumulated carbon credits earned by environmentally friendly projects in Africa and who have sold those credits to acceptable parties.

  22. 4.5 Implementing Modality • Advances to projects against assignment of binding and enforceable carbon credits sales contracts entered into with parties acceptable to Afreximbank; • Country Risk Guarantees to mitigate policy risks for prospective investors in African CDM projects; • Letters of Credit, etc. in support of Eligible Transactions, against carbon credits sales proceeds assignment;

  23. Performance guarantee covering delivery risk for projects that have sold their CER’s on long term basis; • completion risk guarantees for CDM projects if needed by a prospective purchaser of carbon credits; and • Brokerage/ Advisory Services for CER certification process and trading of carbon credits.

  24. 4.6 Financing Instruments 4.6.1 Direct Advance; 4.6.2 Guarantees; and 4.6.3 Advisory/Brokerage services to assist eligible projects earn carbon credit and trade same in the international markets.

  25. 4.7 Pricing 4.7.1 Funded transactions attract: (i) interest rate, and (ii) fees The above are linked to the LIBOR and related to country and transaction risks and market conditions. 4.7.2 The Non-funded transactions attract fees only

  26. 4.8 Tenor Maximum tenor is 4 years, subject to no deal exceeding 2012 unless the Kyoto Protocol is extended.

  27. 4.9 Partnerships The Bank implements its CFP using a partnership approach. Such partners include: • African, non-African Multilateral Development Institutions. • African and non-African EXIM Banks. • African and non-African banks and Carbon Funds. • African and non-African governments. • African and non-African corporates, including brokerage firms. • NGOs and environmental groups.

  28. Prospective applicants can access the programme by sending their application to the President of the Afreximbank. The application must contain detailed information on the following: • Organization; • Ownership; • History; • Management’s experience in the line of business; • 3 year financial statements; • Detailed information on the transaction/project, PDD (if available); • The country of operation, among others.

  29. Contacts Headquarters: The President 1191 Corniche El-Nil, Cairo, 11221, Egypt P.O. Box 404 Gezira Cairo, 11568, Egypt Tel: 202 25780282 Fax: 202 25780276 Email: mail@afreximbank.com Website: www.afreximbank.com

  30. Thank you forListening

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