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introduction to legal contracting issues in the cdm

An Overview of Guidebook . Builds on previous CD4CDM Guidebooks with a focus on:Legal requirements of CDM ProjectsInteraction domestic and international lawIdentifying and managing CDM project related risksCDM project structuring and contracting approaches to creating and transferring CERs Potential structures for CDM ProjectsCDM contract drafting and negotiation .

MikeCarlo
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introduction to legal contracting issues in the cdm

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    1. Introduction to Legal & Contracting Issues in the CDM

    3. Key Legal Issues for Project Developers

    5. Project Structures

    7. CDM Contracts

    8. Basic Legal Documentation for Carbon Projects

    9. Letter of Endorsement / Non-objection Between Seller/Buyer and Host Country Expression of Support / Non Objection Evidence that the Host Country has been informed and endorses the project No binding endorsement which creates a right to any future approval

    10. 2. Letter of Approval Between the Host Country and the Project Developer But also: between the Host Country and the Annex I country Should be unconditional Not clear whether or under what circumstances can be withdrawn

    11. 3. Letter of Intent Between Seller and Purchaser Early legal document (Mandate Letter) Secures exclusivity – right but not obligation Cost recovery in case the project sponsor unilaterally decides not to move forward with the negotiations Helps the project sponsor to obtain financing

    13. General Overview of Issues in Structuring CDM Projects The Guidebook discusses means of identifying, allocating and assigning risks through negotiations and contracts.

    14. Host Country Political and Sovereign Risks

    15. General Project Risks

    16. Regulatory Risks

    17. VER vs. CERs Sponsors should consider selling CERs if they: thoroughly understand baseline methodologies and CER/ERU registration process and are prepared to assume delivery risk guess risk worth it in exchange for a higher price do not need to borrow against ER cash flows Sponsors should consider selling VERs if they: are not prepared to take VER-CER conversion risk cannot / do not want to guarantee delivery need to finance preparation costs need to borrow against ER cash flows

    18. Case of CDCF Purchases both CERs as well as VERs, also credits post-2012 (70:30). Takes responsibility for developing (and renewing) the baseline, creating the monitoring plan, selecting and contracting the DOE (i.e. assumes most ‘regulatory’ risk) Reserves sole right to communicate with CDM regulator Contracts at fixed prices for majority of credits Project preparation, verification, certification, and supervision costs (capped) are deducted from payments to Participants Penalty only in event of fraud, gross negligence, wilful misconduct (eg 3rd party sales)

    19. Management of Key Project Risks Generally parties will allocate risk to the party which is best able to control that risk. The allocation of risks which neither party is able to control should be reflected in the price paid for CERs. Risk allocation can be dealt with through measures such as: Conditions precedent to the entry into force of a contract Guarantees from Host Countries or parent companies Force majeure clauses Laying off risks to third parties such as contractors or DOEs Warranties, indemnities and rights of termination in a contract

    20. A final note about Pricing and Negotiations… Price is ultimately a function of overall market dynamics as well as asset quality, risk and sharing of risk Kyoto / Baseline / Regulatory risk Project risk Country risk Market risk

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