GEF/UNDP/DOE CBRED PROJECT

1. GEF/UNDP/DOE CBRED PROJECT • “Philippines: Capacity Building to Remove Barriers to Renewable Energy Development” Market Service Center Business Planning & Development Subcontract Presentation to REIAC DOE-AVR September 27, 2005 Presentation by :

2. REIAC Concerns 1. Organizational Form of the Spin-Off Organization (SOO) a. Organizational Options b. Fund utilization restriction/Retained Earnings c. Seed Fund  strategies for solicitation 2. Compatibility of Organizational Form of SOO with Provision of Services

3. 3. Spin-Off Trigger Indices 4. Product Mix (services offered) 5. Financial Projections for SOO  Strategies for Sustainability 6. Transitory Provisions 7. Contingency Plan

4. 1. Organizational Form of the Spin-Off Organization

5. a. Organizational Options 1. Government Corporation with Charter • Government Corporation under the Corporation Code • Private Corporation (Stock Corporation) • Private Corporation – (Non-Stock Corporation) • Private Corporation – (Non-Stock, Non-Profit) a. Association b. NGO c. Foundation

6. a. Organizational Options 1. Government Corporation with Charter • These corporations are created by an Act of Congress and their establishment will be a lengthy process; not a reasonable option. • Government Corporation under the Corporation Code • Its creation is a lengthy process as proven by the effort to establish the PNOC RE subsidiary. • It is subject to government control and political pressure and hence not attractive to target private RE sector clients.

7. 3. Private Corporation (Stock Corporation) • It is primarily organized for profit, hence its management will be focused mainly on the interests of the corporation which will redound to its stockholders. 4. Private Corporation (Non-Stock) • Donors may deduct 5-10% of their contribution/ donation to non-stock corporations from their taxable net income

8. 5. Private Corporation (Non-Stock, Non-Profit) a. Association - Organized for the benefit of its members - Will offer bias towards services that will benefit its members - Interest of the private RE project developer may be sacrificed and not served. b. NGO - Organized for the advocacy of specific ideals/interests and represent specific sector/s of society - Interest of the private RE project developer may be sacrificed and not served.

9. c. Foundation • Established to maintain charitable, educational, scientific, etc. activities through extending grants or endowments, but may also include undertaking projects aimed at advancing the development of these sectors. • Donations made to a foundation will be deductible in full (100%) from the donor’s gross income. This privilege could attract more donors to the foundation than to a regular non-stock corporation. • Administration expense may not exceed 30% of the total expenses.

13. Conclusion of Organization Study • A Foundation is the most appropriate type of organization for MSC mainly for following reasons : • Not viewed as a competitor of the RE Industry • Can accept fund donations and projects from national, bilateral and multilateral donors/sources to help support its operation • Donors can deduct 100% of their donations/contributions from their taxable income

14. b. Fund utilization restriction/Retained Earnings • A foundation will have no retained earnings because it will use all of its funds for projects. • Administrative expenses may not exceed 30% of total expenses

15. b. Fund utilization restriction/Retained Earnings • Per DOST, there are accepted ways of allocating more funds for administrative costs. Specifically, this is done by considering portions of the admin cost as part of project implementation cost. Per DOST, this approach is widely used and have not encountered problems in compliance to the 30/70 restriction for funds allocation.

16. c. Financial Strategies for Sourcing SEED Fund of the Foundation • Conduct donors’ meeting to solicit required seed money of Php 1 MM and pre-operating expenses • Offer Funds (3 Funds) monitoring services to DOE for a fee which may include a commitment from DOE to allocate a portion of interests earned by the LGF for the required seed money and pre-operating expenses of the Foundation.

17. Controlled Copy Uncontrolled Copy Doc. No.: TO Rev. No.: 0 Effective Date: Copy No.: Page 1 of 1 Table of Organization MSCF

18. 2. COMPATIBILITY OF ORGANIZATIONAL FORM WITH PROVISION OF SERVICES

22. 3. Spin-off Trigger Indices • MSC staff has completed the proposed capacity building program

23. HAVE NOT BEEN COMPLETED COMPLETED Capacity Building for MSC Staff • Loan Proposal Packaging • Permits/Licenses Processing • Understanding ISO 9001 • Operation of the MSC’s Management System • Project/Quality Planning • Management System Auditing • Document Control • Permits/Licenses Processing

24. HAVE NOT BEEN COMPLETED COMPLETED • Fundamentals of RE • RE Project Development & Management • RE Project Financing • RE Database Management System • Dynamics of RE Market • Entrepreneurial Skills • RE Technology Design, Installation and Maintenance • CDM

25. 3. Spin-off Trigger Indices • MSC staff has completed the proposed capacity building program • Organized and conducted 2 Donors’ meeting • 1 for potential private donors • 1 for potential bilateral/multilateral donors

26. Spin-off Trigger Indices (cont’d.) • Relationships built with at least 6 potential subcontractors • Relationships built with at least 6 financial institutions • Relationships built with at least 8 potential customers/companies • Signed MOA with donor of PhP1M endowment fund and pre-operating expenses

27. Spin-off Trigger Indices (cont’d.) • 4. Provided the following services/product mix: • Information services • Permits/Clearances/Licenses Facilitation • Project Development Services • Web Hosting • Project Finance and Fund Syndication- related services • Advisory Services/Training & Workshops on Business Systems Process Improvement

28. Spin-off Trigger Indices (cont’d.) • Provided the following number of services: • Information services 24 • Permits/Clearances/Licenses Facilitation 20 • Project Development Services 8 • Web Hosting 8 • Project Finance and Fund Syndication- 0 related services • Advisory Services/Training & Workshops 0 on Business Systems Process Improvement TOTAL 60

29. 5. Financial Projections for Foundation Strategies for Sustainability

44. Financial Strategies for Sourcing Supplementary Fund for the Foundation • Conduct donors’ meetings to solicit donations/grants to help support its operating expenses • Offer Funds (3 Funds) monitoring services to DOE for an annual fee which may come from the unused portion of interests earned by the LGF.

45. 6. Transitory Provisions • Phasing-in Strategy – Interim MSC simulates the operation of the SOO by providing services to the RE industry • Asset Transfer – All equipment purchased for the MSC shall be transferred to the Foundation through a Deed of Donation from UNDP. • Personnel Transfer – Services of IMSC staff shall be terminated at the end of operation of IMSC. They will however be given priority in hiring personnel for the MSCF, if they qualify. Years of service with the IMSC shall not be transferred to the Foundation.

46. 7. Contingency Plan • If the MSCF is not sustainable, the following are fallback options: • Continue to operate as a Foundation with scaled-down operation aimed at sustainability • Dissolve the Foundation – Transfer all MSCF assets to the DOE and DOE continues the functions of the MSCF

47. Cost Benefit Analysis Renewable Energy Policy Framework Target = 10 MMBFOE = 4,697 MW Assuming MSC provides services to 10% of the projects: Total MW = 469 MW MMBFOE = 1 MMBFOE Forex Savings = 50 million USD or equivalent to 2.75 Billion Pesos Potential MT CO2 emissions avoided = 310,440 At 7 USD per MT CO2 = 2.2 USD million

48. Thank you!!!