How to develop proposals for bankable cleaner production

How to develop proposals for bankable cleaner production projects Presentation 1 0 Presentation 10 – How to develop proposals for bankable cleaner production projects 1

What will we learn here? Cleaner Production Projects and Finance Requirements Mechanisms for financing cleaner production Services offered by CPCs on financing cleaner production Assistance to Borrowers Writing a loan proposal for externally bankable projects Assistance to Financial Institutions Presentation 10 – How to develop proposals for bankable cleaner production projects 2

Cleaner production and finance requirements Cleaner production options that are best financed internally by organizations - housekeeping, direct reuse/recovery/recycle, process rationalization and optimization, material substitution, upkeep of equipment maintenance etc. Cleaner Production options requiring moderate investment category where a mix of internal and external finance is sought - indirect reuse/recovery/recycle (requiring pre- treatment), process/equipment modification Presentation 10 – How to develop proposals for bankable cleaner production projects 3

Cleaner production and finance requirements Cleaner Production options requiring moderate to high investments principally from external finance - equipment/process change, installation of automated systems, product redesign etc To maximize benefits and comply with financial institutional requirements use the ‘right mix’ of all three option categories Presentation 10 – How to develop proposals for bankable cleaner production projects 4

Mechanisms for financing cleaner production · Seeking loans - Normal commercial lending: Suitable for low risk and moderate benefit interventions. IRR should be higher than the prime lending rate · Seeking loans - Accessing soft or concessional loans: Appropriate for medium risk, moderate to high benefit interventions. Relevant for projects with objectives in line with that of the special fund Presentation 10 – How to develop proposals for bankable cleaner production projects 5

Mechanisms for financing cleaner production · Seeking equity in the form of venture capital: Appropriate for medium to high risk but high benefit interventions. High investment oriented demonstration projects fall in this category. · Seeking equity in the form of a joint venture: Typically entails participation of a technology provider in the form of equity. Perhaps relevant where high capital and moderate risks are involved and there are restrictions on the transfer of technology. Presentation 10 – How to develop proposals for bankable cleaner production projects 6

Services offered by CPCs related to financing cleaner production Borrower enterprise CPC Technology provider or supplier Financial institutions Presentation 10 – How to develop proposals for bankable cleaner production projects 7

Assistance to the borrower enterprises For the enterprises, the Centre can provide following assistance: - Identify, appraise and prepare cleaner production investment projects for possible funding from financial institution and/or technology providers - Assist in the implementation and evaluation of cleaner production projects For the technology provider, the Centre can assist to: - Identify, appraise and prepare cleaner production investment projects for possible funding Presentation 10 – How to develop proposals for bankable cleaner production projects 8

Writing a loan proposal for externally bankable projects Past credit history and references Purpose of the loan Expected cash flows from the project Expected profitability of the project (e. g. NPV, IRR) Assessment of the risks of the project, risk management measures How the project relates to the company’s business. Past financial statements (balance sheet, profit and loss statements) Forecasted cash flows Information on the company’s management Presentation 10 – How to develop proposals for bankable cleaner production projects 9

Assistance to the financial institutions For the financing institutions, the Centre can help in the following ways: Reform the project appraisal process to incorporate the cleaner production approach in loan application forms and risks related to environmental liabilities Accompany the representatives of financing institution on field visits for technical advice (e. g. de-bottlenecking) during project implementation Conduct monitoring after the implementation of projects to assess extent of benefits Advise on setting up and operating special purpose environmental funds that are designed to promote cleaner production investments Presentation 10 – How to develop proposals for bankable cleaner production projects 10

Do’s and Don’ts on Interfacing with financial institutions Before approaching the financing institution, ensure that the feasibility analysis of the cleaner production project indicates that the project is bankable Ensure that the loan covenants and other conditions of the financial institution are clearly understood and apply The Centre should not enter into negotiations or be party to loan terms and conditions. This is to be kept between the stakeholders and the financial institution. Presentation 10 – How to develop proposals for bankable cleaner production projects 11