NECaF Russian Carbon Fund - N20 Emission Reduction Project

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	546424
Company name	RCF
Country	Russian Federation
Sector	Finance & Insurance
Environmental category	FI
Department	Environment & Social Development
Status	Non-Invest Proj

Date SPI disclosed	March 27, 2007
Projected board date	April 27, 2007
Date revised SPI disclosed	June 4, 2007

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Russian Carbon Fund ApS (RCF), a project developer incorporated in Denmark, is implementing greenhouse gas mitigation projects across Russia. The projects will be principally in the following sectors:

- Methane leakage reduction by improving pipeline integrity;
- Nitrous oxide reduction;
- Landfill methane gas utilization.

RCF brings significant benefits to the local host party by providing entire capital required to implement the greenhouse gas mitigation projects by sourcing capital goods from world-class manufacturers, commercializing their carbon assets and introducing them to international business practices and standards. RCF has title to the resulting emission reductions from the project activity. Revenues are shared with the underlying project per a pre-determined project specific formula on a case by case basis.

This project activity will produce Emission Reduction Units (ERUs) under the Joint Implementation mechanism of the Kyoto Protocol, as well as “Early Reductions” prior to 2008.

Anticipated development impact of the project

Through this project, the Russian Carbon Fund will assist in greenhouse gas mitigation by implementing environment-friendly projects. Specifically, projects implemented in the nitrogenous fertilizer sector that will result in the abatement of nitrous oxide, a potent greenhouse gas, which is not required by Russian law. The project activity will produce Emission Reduction Units (ERUs) under the Joint Implementation mechanism of the Kyoto Protocol. Any early reductions prior to ERUs can be sold as “greened” Assigned Amount Units (AAUs) subject to approval and issuance by the Russian government.

IFC's expected development contribution

By sale of the Emission Reduction Units to the Government of Netherlands with IFC acting as an intermediary, the Russian Carbon Fund will help several nitrogenous fertilizer plants across Russia commercialize their carbon assets. The commercial benefits of this project, as an early adopter of technology to destroy emissions of nitrous oxide, will likely have a strong demonstration effect on the large nitrogenous fertilizer industry in Russia to adopt environment-friendly practices that help mitigate the effects of climate change.

IFC’s goal is to encourage emerging market private sector participation in the carbon market by providing value added services to support project’s long-term sustainability. As a global investor and advisor committed to developing sustainable private sector in emerging markets, IFC is well positioned to assist project sponsors to participate in the carbon market. IFC’s experience and knowledge in evaluating and financing private sector projects in developing countries is leveraged to structure contracts that minimize the risks associated with delivery of ERUs from projects.

Environmental and social issues - Category FI

This is a FI Category project according to IFC’s Environmental and Social Review Procedure. The financial intermediary is Russian Carbon Fund and nitrous oxide mitigation projects are considered as underlying sub-projects. The environmental appraisal included two field visits of IFC’s environmental specialist in October and November 2006 to a nitrogenous fertilizer complex that could provide delivery of ERUs/AAUs via RCF.

Through the appraisal, IFC confirmed that a sample project is in basic compliance with Russian Federation environmental laws and regulations. Exceedances of pollutants in the final effluent are authorized by local regulators and the sample project has presented a Corrective Action Plan to meet the local standards. This is acceptable and will be requested at a minimum of all projects that supply ERUs or replacement ERUs.

Evaluation of a sample project’s performance against IFC E&S Performance Standards has identified the areas for improvement beyond the minimum compliance requirement for FI projects. The following Performance Standards are applicable and will be used to indicate applicable best practices to projects by Russian Carbon Fund (complemented by the respective Guidance Notes, Guidelines and Good Practice Notes). IFC will encourage, through the Russian Carbon Fund, all projects to implement the better practices.

- PS1: Social and Environmental Assessment and Management Systems;
- PS2: Labor and Working Conditions
- PS3: Pollution Prevention and Abatement
- PS4: Community Health, Safety and Security
- PS5: Land Acquisition and Involuntary Resettlement
- PS6: Biodiversity Conservation and Sustainable Natural Resource Management
- PS7: Indigenous Peoples
- PS8: Cultural Heritage

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