52127 Innovative Financial Mechanism to Implement Energy Efficiency Projects in Mexico Formal Report 338/09 Innovative Financial Mechanism to Implement Energy Efficiency Projects in Mexico Formal Report 338/09 Energy Sector Management Assistance Program Energy Sector Management Assistance Program (ESMAP) Purpose The Energy Sector Management Assistance Program is a global technical assistance partnership administered by the World Bank and sponsored by bilateral official donors since 1983. ESMAP's mission is to promote the role of energy in poverty reduction and economic growth in an environmentally responsible manner. Its work applies to low-income, emerging, and transition economies and contributes to the achievement of internationally agreed development goals. ESMAP interventions are knowledge products including free technical assistance, specific studies, advisory services, pilot projects, knowledge generation and dissemination, trainings, workshops and seminars, conferences and roundtables, and publications. ESMAP's work focuses on four key thematic programs: energy security, renewable energy, energy-poverty, and market efficiency and governance. Governance and Operations ESMAP is governed by a Consultative Group (the ESMAP CG) composed of representatives of the World Bank, other donors, and development experts from regions that benefit from ESMAP assistance. The ESMAP CG is chaired by a World Bank Vice President and advised by a Technical Advisory Group (TAG) of independent energy experts that reviews the Program's strategic agenda, work plan, and achievements. ESMAP relies on a cadre of engineers, energy planners, and economists from the World Bank, and from the energy and development community at large, to conduct its activities. Funding ESMAP is a knowledge partnership supported by the World Bank and official donors from Australia, Austria, Denmark, France, Germany, Iceland, the Netherlands, Norway, Sweden, the United Kingdom, and the U.N. Foundation. ESMAP has also enjoyed the support of private donors as well as in-kind support from a number of partners in the energy and development community. Further Information For further information, a copy of the ESMAP annual report, or copies of project reports, please visit the ESMAP Web site, www.esmap.org. ESMAP can also be reached by email at esmap@worldbank.org or by mail at: ESMAP c/o Energy, Transport and Water Department The World Bank Group 1818 H Street, NW Washington, D.C. 20433, USA Tel.: 202-458-2321; Fax: 202-522-3018 Formal Report 338/09 Innovative Financial Mechanism to Implement Energy Efficiency Projects in Mexico Energy Sector Management Assistance Program Copyright © 2009 The International Bank for Reconstruction and Development/THE WORLD BANK GROUP 1818 H Street, NW Washington, DC 20433, USA All rights reserved Manufactured in the United States of America First printing June 2009 ESMAP Reports are published to communicate the results of ESMAP's work to the development community with the least possible delay. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, or its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. The Boundaries, colors, denominations, other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the ESMAP Manager at the address shown in the copyright notice above. ESMAP encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Contents Units of Measure ................................................................................................................ vii Abbreviations and Acronyms ............................................................................................... ix Preface ............................................................................................................................... xi Acknowledgments ............................................................................................................. xiii Executive Summary ............................................................................................................ xv Introduction ........................................................................................................................ 1 1. Structure, Benefits and Ownership of Special Purpose Entities .......................................... 3 2. Energy Sector Overview in Mexico ................................................................................. 13 Projected Energy Supply and Demand Outlook in Mexico .......................................... 13 Electricity Market Demand and Supply ...................................................................... 14 Legal and Regulatory Environment ........................................................................... 16 General Regulatory Framework ........................................................................... 16 Energy Efficiency Regulatory Framework ............................................................... 16 Electricity Tariff-setting Policies ............................................................................. 17 3. Market Potential for Energy Efficiency Investments .......................................................... 19 Comparative Electricity Prices ................................................................................... 19 Comparative Costs of Capital .................................................................................. 22 Policy and Institutional Context ................................................................................. 23 National Energy Efficiency Commission ................................................................ 23 National Program for Budget Austerity ................................................................. 24 Trust for Electrical Energy Efficiency ...................................................................... 24 Japan Bank for International Cooperation/NAFIN ................................................ 25 Current ESCOs' Activity in Mexico ............................................................................ 26 4. Current Financial Conditions, Availability of Financing and Barriers to Implementation of Energy Efficiency Projects ............................................................. 29 Market Barriers ........................................................................................................ 29 Commercial Lending ................................................................................................ 30 Equity Investment Environment in Mexico .................................................................. 32 Utility Programs ....................................................................................................... 33 Supplier Credit ........................................................................................................ 35 iii 5. Innovative Financial Structures ­ Pilot Projects ................................................................ 37 Public Sector SPE Pilot Project ................................................................................... 37 Private Sector SPE Pilot Project .................................................................................. 39 Project requirements ............................................................................................ 41 6. Current Status of Pilot Projects and Next Steps ............................................................... 43 Public Sector SPE ...................................................................................................... 43 Resolution of outstanding legal issues .................................................................. 43 NADB approval of a loan agreement ................................................................... 44 Legal structure for the SPE financing arrangement ................................................ 44 Preparation of local projects ................................................................................ 44 Private Sector SPE .................................................................................................... 44 Outstanding legal issues ..................................................................................... 44 NADB approval of loan agreement ...................................................................... 44 Legal Structure of SPE Financial Arrangement ....................................................... 44 Preparation of local projects ................................................................................ 44 7. Lessons Learned ........................................................................................................... 47 Annex 1: SPE By-laws ........................................................................................................ 49 FIRST CHAPTER ................................................................................................................. 49 Name, Domicile, Purpose, Duration and Nationality ................................................. 49 SECOND CHAPTER ........................................................................................................... 51 Association Capital and Association Interests ............................................................ 51 THIRD CHAPTER ............................................................................................................... 53 Administration ......................................................................................................... 53 FOURTH CHAPTER ............................................................................................................ 57 Inspection ................................................................................................................ 57 FIFTH CHAPTER ................................................................................................................ 58 Associates' Meetings ................................................................................................ 58 SIXTH CHAPTER ................................................................................................................ 60 Financial Information ............................................................................................... 60 SEVENTH CHAPTER ........................................................................................................... 61 Profits and Losses ..................................................................................................... 61 EIGHTH CHAPTER ............................................................................................................. 61 Liquidation of the Association ................................................................................... 61 Articles of Formation ................................................................................................ 62 Annex 2: Trust Agreement .................................................................................................. 69 Translation ............................................................................................................... 69 Recitals .................................................................................................................... 69 Annex 3: NADB Term Sheet ............................................................................................... 81 Proposed Loan Terms and Conditions ....................................................................... 81 Loan Terms .............................................................................................................. 81 Loan Conditions ...................................................................................................... 82 Covenants ............................................................................................................... 83 Events of Default and Remedies ................................................................................ 86 iv CONTENTS Annex 4: Assets Pledge Agreement Between SPE and Creditors ........................................... 89 Asset Pledge Agreement Without Transfer of Possession ............................................. 89 Recitals .................................................................................................................... 89 Clauses ................................................................................................................... 91 Annex 5: Assignment Agreement Between ESCO and SPE .................................................. 99 Recitals .................................................................................................................... 99 Statements ............................................................................................................. 100 Clauses ................................................................................................................. 100 Annex 6: Assignment Agreement Between SPE and Trustee ............................................... 105 Recitals .................................................................................................................. 105 Statements ............................................................................................................. 106 Clauses ................................................................................................................. 106 Annex 7: Current Official Mexican Standards for Energy Efficiency .................................... 111 Annex 8: Electricity Rates Under CRE's "Public Services" Category ..................................... 113 List of Formal Reports ...................................................................................................... 115 v Figures Figure 1.1: SPE ­ Finance Structure/Flow of Funds ............................................................. 5 Figure 1.2: SPE Legal Documents and Agreements ............................................................ 6 Figure 1.3: SIMEPRODE Financing Structure .................................................................... 11 Figure 2.1: Mexico Oil Demand (1980-2010) ................................................................. 14 Figure 2.2: Mexico Energy Demand (1980-2010) ........................................................... 14 Figure 2.3: Consumption of Combustible Fuels for Electricity Generation in Mexico, 1998-2003 ................................................................................... 15 Figure 2.4: Electricity Prices by User-type ......................................................................... 17 Figure 3.1: Flow of Funds of JBIC/NAFIN Program .......................................................... 26 Figure 4.1: Mexico: Commercial Bank Lending Rate ........................................................ 31 Figure 5.1: SIMEPRODE Financing Structure .................................................................... 38 Figure 5.2: SPE Finance Structure/Flow of Funds ............................................................. 40 Figure 5.3: SPE Legal Documents and Agreements .......................................................... 40 Tables Table 3.1: Electricity Prices for Households (Mex$ per kWh) .............................................. 19 Table 3.2: Electricity Prices for Industry (Mex$ per kWh) .................................................... 21 Table 3.3: Short-term Interest Rate (percent, per annum) .................................................. 22 Table 3.4: NAFIN Guarantee Fees and Coverage ............................................................ 25 Annex 7: Current Official Mexican Standards for Energy Efficiency ................................ 111 Annex 8: Electricity Rates under CRE's "Public Services" Category ................................. 113 vi CONTENTS Units of Measure bbl barrels (of oil) CO2 carbon dioxide GW/MW/kW giga/mega/kilo watt (s) (1x109/1x106/1x103) Wh watt hours (unit of energy equivalent to one watt of power expended for one hour of time) vii Abbreviations and Acronyms APF Federal Public Administration (Administración Publica Federal) CAINTRA Industrial Chamber for the Transformation of Nuevo León (Camara de la Industria de Transformacion de Nuevo León) CCP commercial bank's average cost of funds CDM Clean Development Mechanism CEC North American Commission for Environmental Cooperation CHP combined heat and power CFE Federal Electricity Commission (Comisión Federal de Electricidad) CONAE National Energy Efficiency Commission (Comisión ­ Nacional para el Ahorro de Energía) CRE Energy Regulatory Commission (Comisión Reguladora de Energía) DSR Debt Service Reserve Fund EE energy efficiency EIA Energy Information Administration (U.S.) ESCO energy services company EU European Union FIDE Trust for Electrical Energy Efficiency (Fideicomiso para el Ahorro de Energía Electrica) FLACES Fondelec Latin American Clean Energy Services FONACOT Fondo de Fomento y Garantía para el Consumo de los Trabajadores GDP gross domestic product GoM government of Mexico IEA International Energy Agency IMSS Mexican Social Security Institute (Instituto Mexicano del Seguro Social) INFONAVIT Instituto del Fondo Nacional de la Vivienda para los Trabajadores JBIC Japan Bank for International Cooperation JV joint venture ix LCRE Ley de la Comisión Reguladora de Energía (Energy Regulatory Commission Act) LIBOR London Interbank Offered Rate LFC Luz y Fuerza del Centro LSPEE Ley del Servicio Público de Energía Eléctrica (Public Electricity Service Act) NADB North American Development Bank NAFIN The national development bank (Nacional Financiera) NAFINSA Nacional Financiera, SNC NAFTA North American Free Trade Agreement NOM Mexican official norms OECD Organisation for Economic Co-operation and Development PEMEX Mexican National Oil Company (Petrólios Mexicanos) RE renewable energy SAR social security, retirement system (Sistema de Ahorro para el Retiro) SENER Mexico Department of Energy (Secretaría de Energía) SHCP The Department of Treasury and Public Credit (Secretaría de Hacienda y Crédito Público) SIMEPRODE (Sistema Integral para el Manejo Ecológico y Procesamiento de Desechos) SPE special purpose entity SRL Sociedad de Responsabilidad Limitada T&D transmission and distribution TLP total loan portfolio TIIE interbank balance rate USAID United States Agency for International Development USDoE The United States Department of Energy x Preface The purpose of this ESMAP activity is to create a 50 percent of debt financing for the SPE on dynamic financing structure to support favorable terms (approximately 9 percent peso implementation of energy efficiency projects in loans or 5-6 percent dollar loans) and would Mexico. The project was designed to leverage obtain the balance of debt financing from other previous technical assistance efforts to promote leading institutions. If equity investments in the greater energy efficiency investments, and to help SPE are deemed necessary, investors will be establish an energy services company (ESCO) identified and their contribution will be industry in Mexico. Notwithstanding the integrated in the SPE structure. considerable efforts of multilateral institutions, donor agencies and Mexican national government The objectives of the SPE are to: (a) lower initiatives, investments in energy efficiency projects transaction costs by developing standard in Mexico have been very limited. transaction documents; (b) mitigate risk by spreading the lending over a portfolio of The project is unique in that it seeks to create a qualified projects; (c) provide umbrella credit special financial model in order to attract enhancement facilities for the pool of projects; commercial lending for energy efficiency (d) improve the comfort of both borrowers and projects. The innovative financial model involves lenders by creating a process that is standard, the creation of a special purpose entity (SPE) to transparent and predictable; and (e) create a bundle several energy efficiency projects for critical mass of projects to attract financing from financing through a single process and a single commercial banks. debt instrument. This model has been very successful in pooling small-scale projects for This project undertook the groundwork to financing, and has been widely used in the establish a special purpose entity for energy United States and other industrial countries. efficiency projects in Mexico. There remains a need for additional activity in order to close the The SPE is designed to serve as a conduit for financial transaction. Actual financial structures the North American Development Bank (NADB) are still under discussion, and their final form or other commercial bank financing. Under the may ultimately differ from the structures proposed structure, NADB would provide discussed in this report. xi Acknowledgments This report was made possible thanks to the considerable insights into the Mexican energy financial and technical support by the Energy efficiency market; Mr. Scott Storment of the North Sector Management Assistance Program American Development Bank (NADB) for his (ESMAP). The report was prepared by Mr. Brad guidance on banking matters; and the Johnson, President of Resource Mobilization California State Energy Commission for funding Advisers with the assistance of Ms. Helen Tobar preliminary energy audits of several potential of ManattJones Global Strategies. Mr. Juan projects. Casillas and Mr. Allan Holst in the Mexico City office of ManattJones Global Strategies also The legal documents contained in this report contributed to the report. EPS Capital performed relating to the SPE structure were drafted by the technical reviews of preliminary energy audits. law firm of Cacheaux, Cavazos and Newton, The team completed its work in 2006, while the , LLP with offices in San Antonio, Texas. Mr. Jose consulting firm made their final report available Luis Garcia Cantu of Mexico City drafted the to the team in 2007. After undergoing a series "fideicomiso" for the public sector street lighting of internal and external reviews, the report was projects. The documents contained in this report put into production in 2008, under the are designed to guide both lenders and energy publishing guidance of ESMAP Although the . efficiency project developers in the process of authors note that the energy costs and terms of financing projects through an SPE or financing in the Mexican market cited in the "fideicomiso." report have undergone numerous changes, the These documents are not deemed enforceable report's conclusions and lessons learned remain by their terms. Local counsel should be retained valid. to review these documents and modify them to Special thanks to Ms. Karin Berry of the United meet the unique circumstance of a particular States Department of Energy (USDoE) who energy efficiency or SPE transaction. The World provided initial funding to design this project Bank team included Mr. Charles Feinstein and and offered valuable input throughout its Mr. Peter Johansen. Mr. Daniel Farchy prepared implementation; Mr. Carlos Dominguez and the Executive Summary and edited the report. Mr. Diego Arjona from Comisión Nacional para Ms. Marjorie K. Araya and Ms. Ananda Swaroop el Ahorro de Energía (CONAE), the national coordinated the final editing, production and energy efficiency commission, for their dissemination of the report. xiii Executive Summary Although renewable energy (RE) has captured energy usage. It also established a program for much of the attention in the recently heightened energy efficiency in public buildings. However, discussion on actions to limit climate change, it CONAE do not engage in financial issues that is energy efficiency that offers ­ at least in the surround private sector involvement in energy short- to medium-term ­ the richest vein of efficiency. To try to address these issues, the "win-win" emission reduction opportunities. government has established Fideicomiso para el Much of the energy that is currently consumed Ahorro de Energía Electrica (FIDE), the trust for is wasted through inefficient use. Mexico has electrical energy efficiency, to lend to energy comparatively high industrial electricity tariffs efficiency, and a collaborative project between the for the region, meaning that electricity Nacional Financiera (NAFIN), the national consumption is often amongst the larger budget development bank, and Japan Bank for items of many large firms and public entities ­ International Cooperation (JBIC). However, both offering a large number of lucrative energy are perceived to be somewhat burdensome in their requirements, and have so far failed to develop efficiency project opportunities. much activity in the sector. Despite this, the energy efficiency market in Mexico Energy Service Companies remains dormant, facing both financial, market and institutional barriers. This Energy Sector The conditions would appear to be right for the Management Assistance Program (ESMAP) activity entry of ESCOs into the energy efficiency scene, sought specifically to address some of the financial as they have in other countries: high energy barriers. These financial barriers include costs, relatively low financing costs, favorable conservative lending practices in Mexico (along policy initiatives and increased awareness due with high collateral requirements), a lack of to CONAE's activities. However, so far there has widespread understanding of the nature or been little activity, and there are only 14 ESCOs potential returns of energy efficiency projects by active in all of Mexico. Energy efficiency activities local lenders, and the small size of most energy are simply too small to justify any one ESCO efficiency projects, leading to prohibitively high overcoming all the various market, institutional transaction costs for most potential lenders. and financial barriers to their implementation Background In particular, most ESCOs are thinly capitalized, and financial barriers mean that they cannot In 1989, the Mexican government established raise debt for energy efficiency activities, and CONAE to develop and disseminate training are limited to that which they can undertake with materials, operational guides and self-assessment their own capital, that of local private investors, tools to allow organizations to self audit their or their customers' own lines of credit. xv INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO Financial Barriers to Energy investments are usually equal to the rates Efficiency Projects in Mexico obtainable through energy efficiency projects so that, without leveraging, the projects cannot In the first place, as mentioned above, the generate a profit and are not worthwhile. typically small size of energy efficiency projects means that they are difficult to finance. Special purpose entities (SPEs) can offer a The transaction costs associated with legal number of potential solutions to overcome these arrangements, due diligence, acquiring financing difficulties. SPEs can be either in the institutional experience for the lenders, and private sector, or public entities in the form of generally in time to overcome the barriers government agencies or parastatal institutions. associated with a new area of business, are They are usually characterized by being prohibitively high given the scale of the potential not-for-profit, limited lifespan entities rewards. This related to the second barrier, established for financial engineering purposes. namely, a lack of sectoral experience for most Unlike an equity fund, they usually mix both local lenders. Amongst other things, this equity and debt, and their project information translates into a lack of standardized financing is made publicly available to enhance deal flow. vehicles for energy efficiency. They have successfully been used in some Organisation for Economic Co-operation and Mexico has, in general, a very low commercial Development (OECD) countries to finance lending rate, and, furthermore, most local small-scale local government infrastructure commercial banks in Mexico finance on a projects. balance sheet basis, and will not recognize energy efficiency savings as collateral. An SPE can provide affordable and predictable Unfamiliarity with the sector (and especially with financing to energy efficiency projects by performance- based contracts), results in high bundling these small-scale loans together to risk perceptions, and not only restrictive form a critical mass attractive to a lender. They collateral requirements, but also high use standardized documents to minimize demanded rates of interest. ESCOs are not well suited to equity fund investments as they have transaction costs, and can achieve a lower a relatively long-time horizons, while most equity interest rates due to the lower risk profile they funds are focused on short-term growth achieve through project bundling. This credit opportunities. Venture capital investments are rating will be further enhanced as they establish also unsuitable as they focus instead on a successful track record in this "new" area. providing early stage development with a For energy efficiency projects in Mexico, SPEs potential for rapid growth. As mentioned above, could also be used as a pooling agent for FIDE is considered overly burdensome by many, carbon revenues from the Clean Development and is consequently underutilized. In addition, Mechanism (CDM). The costs are simply those FIDE covers only activities in the electricity sector, of the initial set-up (of legal arrangements, missing rich opportunities in the coal, gas and documentations, and so on, and so forth), and fuel oil sectors. One source which has been used the cost and due diligence requirements to to some extent is vendor financing, but this is lenders is no greater than a traditional, large, limited to foreign equipment, and bears infrastructure project. SPEs can, therefore, currency risk and tends to lead to distorted potentially provide the terms under which "oversizing" of equipment supplied. ESCOs can access capital. Pure equity investment is not usually attractive: The purpose of this ESMAP activity was to the high rates of return demanded on equity create just such a pilot pooled financing xvi EXECUTIVE SUMMARY intermediary to bundle projects through an SPE assurance to lenders, which would then repay that would serve as both project aggregator and directly to the lenders ­ making payments to assessor. The SPE would be managed by experts the SPE only after these payments were made. with both financial and technical experience in The SPE would be staffed by personnel the energy efficiency field and ESCO markets. experienced in project intake, screening and so The pilot SPE would use standardized on, and so forth, alleviating the pressure on procedures on project intake, evaluation and the inexperienced banks. transaction documents, and would be used as a vehicle to formulate standardized Current Status of Pilot documentation for dissemination and use in Implementation and Key future projects. Pilot projects would be Lessons Learned undertaken in both the public and private sectors. In the public sector, the creation of a fideicomiso has run into a legal barrier. Current In the public sector, pilot Sistema Integral para interpretation of the law suggests that if the el Manejo Ecológico y Procesamiento de fideicomiso is created by the state, then its debt Desechos (SIMEPRODE), the integrated system would, in turn, appear on the state's balance for ecological management and processing of sheet ­ something the state government is not waste, an established agency of the Nuevo León prepared to countenance. A fideicomiso state government would be used as a bundling established by SIMEPRODE would not run into agency, with NADB as the major project lender. these problems, but SIMEPRODE was initially The pilot project selected was in the city of established as a tool for managing solid waste Allende, for the installation of new, more and its charter does not include scope for this. efficient street lighting equipment in 10 separate A number of potential solutions are being circuits, offering a 25 to 35 percent energy considered, and, in the meantime, the legal saving with a 100 percent illumination structure has been prepared, and a loan improvement. The structure was designed as application has been filed to NADB. In the follows: a fideicomiso (or trust) would be private sector, legal arrangements have already established by the state, with SIMEPRODE acting been drafted, and three potential projects as trustee. NADB would make a loan to the are already under preparation. NADB has fideicomiso, which would then finance and indicated that it would like to bring some U.S. execute street lighting projects on behalf of ESCOs on-board to provide a performance 51 municipalities. Local authorities would sign guarantee, before it grants the loan. agreements to repay the fideicomiso, and pledge transfer payments as collateral to Since neither SPE is yet up and running, the improve creditworthiness. The project lessons learned so far are limited to those investment costs would be shared between a involving the creation of such entities, and not NADB loan and State grants. their function. However, as these entities start to perform their function, they should provide In the private sector, a limited liability company valuable experience to allow the sector to grow would borrow money from a commercial bank, in Mexico. Clearly, given the problems the public and use the loan to purchase energy savings sector pilot has encountered, an important contracts from ESCOs, acquiring the collection lesson learned has been the significance of rights through purchase/acquisition reviewing legal and technical capacity of the agreements. A separate fideicomiso is institutions involved before proceeding to the established to hold all the purchased contracts institutional design, and screening for potential and other assets as a means of providing conflicts of interest before project xvii INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO implementation ­ in the pilot project several least two years from project inception to the first parties had to withdraw as potential conflicts of investment. Finally, efforts should include interest became apparent. The process will, at funding for upfront project identification and least at this early stage, also clearly require energy audits in order to establish a healthy patience, as the process takes a long time: at pipeline. xviii Introduction This report provides a summary of ESMAP- through an SPE. The SPE would use standard supported activities in Mexico focused on the transaction documents for all qualified energy creation of a pooled financing program for efficiency projects. multiple energy efficiency projects through a single debt instrument. The SPE would be managed by a group of experts with extensive financial and technical experience The energy efficiency market in Mexico is in the energy efficiency market and ESCO substantial and growing with the global increase operations; designed to address the knowledge in energy prices. Notwithstanding the efforts of gap that exists in the banking community. multilateral institutions, bilateral donor agencies, and the Mexican government to promote energy NADB is a partner in this project and is efficiency investments in the public and private seeking to finance numerous energy efficiency sector, the energy efficiency market remains projects through a bundling process to relatively dormant due to market, institutional streamline their project evaluation and review and financial barriers. process for this sector. NADB lends against international lending standards and is not This ESMAP activity was designed to address the captive to the restrictive lending market in financial barriers to energy efficiency project Mexico. This addresses the liquidity issue as implementation. These barriers are numerous, it relates to the first rounds of pooled energy but essentially boil down to the following: efficiency projects. · Conservative lending environment with high The SPE would have a legal architecture built collateral requirements; on standard project intake, evaluation and transaction documents for all projects · Lenders' lack of understanding of energy financed through the entity. These documents efficiency project structures and technology; and would be built around an actual energy · Project size deters lending as commercial efficiency transaction in Mexico. The pilot banks consider the deal size too small to project would be tied to other related projects justify the costs of project intake, evaluation, under development, so that once the first due diligence and final approval. project obtains NADB financing, a deal flow of other projects will be prepared for SPE The activity specifically sought to reduce financing. Standard documentation and SPE transaction costs for borrowers by creating a technical and financial review of projects pooled financing intermediary to bundle addresses the transaction costs impediments several energy efficiency projects for finance to financing. 1 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO Chapter 1 provides additional details regarding efficiency and ESCO projects in Mexico with a the ownership, structure and operation of an focus on financial issues. SPE; it discusses the flexibility of this structure and how it can serve a pool of private or public Chapter 6 provides an overview of the pilot sector projects. The general overall design of SPE structures under development for the the SPE is provided with a brief commentary on pool financing of multiple projects. A separate issues unique to the Mexican context. SPE is being created for public and private projects. The design of each SPE is set forth with Chapter 2 provides an overview of the Mexican an explanation of the flow of funds, and a energy sector with a focus on the electricity discussion of the legal architecture for each. supply, demand and pricing. Chapter 7 reviews the current status of each Chapter 3 reviews the market potential for SPE initiative, and takes a look into the future energy efficiency investments and provides with a discussion of next steps. comparative data on Mexico's energy prices and costs of capital in other countries where Chapter 8 provides a summary of lessons the energy efficiency and ESCO market is learned from this project, and their application active. It also reviews policy drivers in the to future efforts in this area. Mexican market, and the current status of A companion report entitled "Special Purpose ESCO activity in Mexico. Entity Financing of Energy Efficiency Projects Chapter 4 reviews the current financial market in Mexico: Financial Structure and Legal conditions in Mexico, and the restrictive nature Architecture" has been prepared and is available of commercial lending. It discusses the from the ESMAP library. This report contains availability and terms of debt, equity, and utility copies of model transaction documents and vendor financing for energy efficiency and necessary to establish an SPE, and finance a ESCO projects. pool of energy efficiency projects. Note that actual financial structures are still under Chapter 5 identifies the market, institutional and discussion, and their final form may ultimately financial barriers to implementation of energy differ from the structures discussed in this report. 2 1. Structure, Benefits and Ownership of Special Purpose Entities Most energy efficiency projects are, by their nature, · Lower transaction costs through the utilization small-scale initiatives. This makes projects more of standard transaction documents; difficult to finance, as transaction costs relative to project size can be high, serving as a deterrent to · Utilize umbrella credit enhancement facilities project implementation. In addition, project to lower the risk profile of a pool of projects developers do not have the time and resources to by providing risk diversification to lenders; individually overcome many of the market, financial and institutional barriers to project · Establish a track record of successful financing implementation in Mexico. In this case, the of energy efficiency projects for proof of economic benefits to a developer for project concept to commercial lenders; and implementation may not outweigh the costs of · In addition to aggregation of small-scale resolving outstanding financial issues. projects for financing, the SPE could also Local financial institutions in Mexico have not serve as the pooling agent for carbon credits seen a sufficient market potential for energy generated by eligible projects. efficiency projects to justify the expenditure of An SPE may have any one of a number of bank resources to establish special financing legal forms. They may be public entities in the programs. As a result, local banks are generally form of government agencies or parastatal reluctant to finance individual energy efficiency institutions. In the United States, and in some projects, and are not willing to develop financial other Organisation for Economic Co-operation solutions for the unique nature of energy and Development (OECD) countries, public efficiency projects in Mexico. sector SPEs have been established for the To address these concerns, and to overcome many financing of small-scale local government of the key market and financial barriers to energy infrastructure projects. This method of financing efficiency project financing, this ESMAP activity was has been highly successful and has leveraged initiated to set up innovative financial mechanisms more than US$50 billion in private sector with a focus on establishing a Special Purpose financing for local government projects. Entity (SPE) to bundle projects for financing and implementation. An SPE created for this specific An SPE may also be a private sector entity in the purpose would seek to accomplish the following: form of a corporation, partnership, trust, or joint venture (JV). These forms of private sector SPEs · Provide affordable and predicable financing are common in Mexico and are used to finance for qualified projects; a wide variety of business transactions. As a recognized method of investment in Mexico, · Bundle projects for financing to attain critical SPEs do not, therefore, involve "first time" mass to attract commercial lending; risk considerations. 3 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO The common features that identify an SPE are: sector. If, however, local banks become more interested in energy efficiency and ESCO · "Auto-pilot" arrangements that restrict the projects, the SPE could be transferred to a decision-making capacity of the governing commercial bank in the form of a special board or management; lending program. Indeed, it is hoped that successful financing of projects through SPE · Use of professional directors, trustees structures will eventually facilitate local lending or partners; institutions to become more active in this sector. · Absence of an apparent profit-making motive, The major cost involved in creating an SPE is such that the SPE is engineered to pay out all establishing the financial structure, developing profits in the form of interest or dividend; underwriting criteria and drafting necessary transaction documents. However, once · A specified and limited lifespan; established, these can be utilized repeatedly for each new set of projects. The associated · Exists for financial engineering purpose; and administrative costs would be covered by fees · The creator or sponsor may transfer assets charged to each project financed through the SPE. to the SPE, often as part of a transaction Due diligence and project evaluation costs for involving financial assets. pooled project financing through an SPE are SPEs are distinct from equity funds in that they no more expensive than commercial bank mobilize debt and equity funding for projects lending for a single large project. The SPE and are entirely transparent. When equity fund structure, however, allows lenders to an SPE to managers establish a financing model or make one credit decision that will result in the program for particular kinds of projects (for financing of numerous small-scale projects. example, energy efficiency or renewable energy Creating an SPE for the financing of energy [RE]) in a particular country, they carefully guard efficiency projects calls on the participation of this information as proprietary. In contrast, the a number of key players. These include project SPE model is based on total transparency, where developers, potential lenders who help establish the SPE's standard financing documents (that the terms of financing acceptable to the SPE, is, loan agreements) are broadly disseminated government agencies, and international and to local project developers and communities to local financial and legal experts to design and help generate deal flow. structure the transaction. Since SPEs are structured around standard This report discusses the legal architecture lending documents, they also provide local necessary to establish a SPE for financing private energy services companies (ESCOs) with terms sector and public sector energy efficiency of financing that are acceptable to a source of projects in Mexico. It provides draft legal capital. As a result, the SPE uses standard documents for this purpose and includes financial documents as marketing material for commentary on each document to help explain local ESCOs, allowing dissemination of judgments made during the drafting process. valuable transaction material to ESCOs in Mexico. Private Sector Pilot Project This approach should not be considered an For private sector energy efficiency projects, the intrusion on commercial bank lending activities SPE serves as the focal point of the financial as local banks have shown little interest in this structure. Under the financial plan, the SPE 4 STRUCTURE, BENEFITS AND OWNERSHIP OF SPECIAL PURPOSE ENTITIES borrows funds from domestic or international The legal documents discussed in this report are: lenders and uses the loan proceeds to purchase energy savings contracts from local ESCOs or · Draft SPE by-laws; engineering firms. The SPE will acquire the collection rights of each ESCO project through · Terms of a "fideicomiso" or trust agreement; a purchase/assignment agreement. For · Asset pledge agreement between the SPE purposes of this structure, we assume that NADB will serve as the primary lender to the SPE. and NADB/lender; To provide lenders to the SPE with additional · Assignment agreement between the local assurance that payments from each project ESCO and the SPE; and acquired by the SPE will be used to repay loans, a trust or "fideicomiso" is established to hold · Assignment agreement between the SPE all contracts purchased by the SPE. The SPE, and trustee. through an assignment agreement with the To help understand the legal and financial trustee, transfers all contracts (which are considered assets), insurance policies, structure of a private sector SPE, Figure 1.1 warranties and other assets to the trust. The trust indicates the key players and flow of funds for will collect payments directly from the ESCO the SPE and Figure 1.2 identifies the legal clients under the various contracts and make agreements necessary for the creation of an timely debt service payments to the lenders. SPE structure. Income beyond debt service payments, operation and maintenance expenses, This report reviews the nature and purpose of contributions to a debt service reserve fund and these legal documents and the unique issues other contractual obligations will be paid to the of each in the Mexican context. SPE in the form of management fees. Figure 1.1: SPE ­ Finance Structure/Flow of Funds US$20 Million Financing Credit Enhancements Debt ­ 70% Equity ­ 30% NADB 50% = Mex$7 Million Mex$6 Million Equity Investors Other Debt Financing SPE 50% = Mex$7 Million OPIC NAFINSA Others EE Project EE Project EE Project EE Project Project Payments "Fideicomiso" Trust 5 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO Figure 1.2: SPE Legal Documents and Agreements Beneficiary of Trust Loan (3) "Fideicomiso" Irrevocable NADB Asset Pledge (4) Administration and SPE Payment Trust (2) Assignment By-laws Agreement Loan (3) (6) (1) Other Asset Pledge (4) Lenders (5) (5) Purchase/Assignment Purchase/Assignment Agreement Agreement ESCO ESCO Special Purpose Entity By-laws · Specified term of existence; Annex 1 · Existence for financial engineering purpose; and Overviews · Structure as a bankruptcy remote entity. SPEs are usually created for a single well-defined This last feature is of particular importance to and narrow purpose whose operations are an SPE serving as a financing intermediary or limited to the acquisition and financing of conduit for a number of projects. The bankruptcy specific assets. The SPE may have any one of a remote function is designed to minimize the number of legal forms, including corporation, likelihood that the SPE will file itself into partnership, JV, or trust. (voluntary) bankruptcy or will be filed by third parties into (involuntary) bankruptcy. SPEs are common in Mexico and are used to finance a wide variety of business transactions. To accomplish this goal, the following restrictions The common features that identify an SPE are: have been included in the SPE by-laws: · Auto-pilot arrangements that restrict the · Restrictions on objectives, powers and purposes; decision-making capacity of the governing board or management; · Limitations on ability to incur indebtedness; · Use of professional directors, trustees, · Restrictions or prohibitions on merger, or partners; consolidation, dissolution, liquidation, winding up assets; · Absence of an apparent profit-making motive, such that the SPE is engineered to pay out all · Incorporation of separateness covenants profits in the form of interest or dividends; restricting dealings with parents or affiliates; 6 STRUCTURE, BENEFITS AND OWNERSHIP OF SPECIAL PURPOSE ENTITIES · "Nonpetition" language (that is, a covenant Construction Financing not to file the SPE into involuntary bankruptcy); In some cases, the SPE could provide · Security interests over assets; and construction and long-term financing for qualified energy efficiency projects. However, · An independent director (or functional based on discussions with potential equity equivalent) whose consent is required in investors in the SPE, it was determined that the order to file a voluntary bankruptcy petition. SPE would focus exclusively on long-term financing. Equity investors did not want to enter Choice of Legal Entity the construction finance business and believed that construction financing was currently Based on a review of Mexican law, the SPE will available to qualified local ESCOs. be established as a Mexican limited liability association with variable capital (Sociedad de If the SPE determines that a project qualifies for Responsabilidad Limitada, generically referred long-term financing, it will issue a "take out" to as an SRL). An SRL in Mexico shares many letter to the local ESCO. The local ESCO can characteristics with a limited liability company present this letter to local banks to obtain in the United States. construction financing. A Mexican SRL must have at least two Banking Regulatory Issues owners, who may be non-Mexican entities While the SPE is designed to be a special financial or individuals. The minimum capitalization intermediary for specific classifications of projects, requirement is Mex$3,000 pesos it will not engage in banking activities. It will not (approximately US$285). Forming the SRL take deposits from the general public or provide involves obtaining a permit from the Mexican individuals with financial services. The SPE by-laws Department of Foreign Relations that reserves are carefully drafted to make this distinction in and confirms the availability of the proposed order to avoid subjecting the SPE to banking and SRL's name. The owners of the SRL typically security regulations. execute special powers of attorney authorizing local attorneys to appear before a notary public Tax Issues in Mexico to complete the formation of the SRL. For tax purposes, the SPE would take title to all The by-laws of the SRL, once drafted, are equipment involved in each project. Ownership formalized by a Mexican notary public and of equipment will transfer to the project host or recorded at the Public Registry of Commerce in beneficiary after the SPE financing is repaid. This the city where the SRL has its domicile. Such will allow the equity owners of the SPE to recordings are analogous to registration with depreciate the value of the equipment for tax the Secretary of State in the United States, which purposes during the financing period. The value is common in a U.S. incorporation or entity of depreciation would be factored into the return formation procedure. on investment for the equity investors. As a result, under this financial structure, all SPE assets will If the SRL has foreign investors, it will also need be assigned to the trust and pledged to the to register with the Mexican National Registry lender, while ownership of the equipment will of Foreign Investments. remain with the SPE. 7 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO Trust Agreement or "Fideicomiso" trust agreement between the SPE (settler), the trustee and trust beneficiaries (lenders to the SPE). Annex 2 The trust agreement is executed between the SPE and the trustee for the benefit of the lenders to Trust agreements, or "fideicomisos" in Mexico the SPE. Under the trust agreement, all assets of are one of the most versatile legal documents the ESCO projects, including ESCO contracts, will available for structuring a financial transaction. be transferred to the trust. Payments from ESCO In this transaction, a trust is established to clients will be made directly to the trustee, who protect the interest of the lenders. It is a way of will, in turn, make payments directly to the lenders controlling assets without legally owning them. before any funds flow to the SPE. It protects the The original owner of the assets (the SPE) places lenders from misuse of project payments by the the real or personal property, cash, investments, SPE and from SPE bankruptcy. or any other assets into a trust to be administered by a trust company bank (the Only financial institutions in Mexico can act as trustee). The trustee then administers the assets trustees. Under no circumstances can the creator for the benefit of others (the lenders to the SPE). of a trust or any other entity serve in this capacity. Traditionally, only Mexican banks were Up to four characters play a role in Mexican authorized to serve as trustees. Recently, trusts: the creator (fideicomitente), the trustee however, insurance companies have also been (fiduciario), the beneficiary (fideicomisario) and authorized in this regard. Trustees are required a fourth party ­ allowed but not required by to provide their services on a fiduciary basis. Mexican law ­ a technical committee (comité This means that they are held to a higher técnico). For this SPE structure, a technical standard in handling trust assets than they are committee is not established. in handling their own assets. They must always put the interests and wishes of the creator first. The creator of the trust, the SPE, decides what Assets in the trust do not belong to the trustee. property will be transferred to the trust, how the They belong to the trust and are maintained for assets will be managed, who will administer the the beneficiaries. property and who the beneficiaries are. In Mexico, the trustee is always a financial institution, and it The "fideicomiso" document contains the holds title to the property. Trustees are legally following provisions: bound to ensure that the trust agreement is adhered to. The beneficiaries of the trust, lenders · An acknowledgment of the transfer of trust to the SPE, receive the benefits of the property in property from the settler (SPE) to the trustee, trust, usually income, principal, or a combination subject to the terms of the trust deed; thereof. These benefits are almost always subject to restrictions as to how, when and under what · A provision whereby the trustee can accept circumstances the beneficiaries may enjoy them. further property as part of the trust fund, and the initial transfer need only be a The trust indenture or agreement establishes the nominal amount; rights, duties, responsibilities and remedies of the lenders and trustee, and determines the exact · A statement as to the duration of the nature of the security for the lenders. The trustee trust ­ in this case, it would be equal to the is generally empowered to enforce the terms of term of the financing; the trust on behalf of the lenders. · A statement identifying the beneficiaries by In the SPE structure, an irrevocable administration name or class ­ in this case, the lenders to and payment trust is established pursuant to a the SPE or NADB; 8 STRUCTURE, BENEFITS AND OWNERSHIP OF SPECIAL PURPOSE ENTITIES · A statement as to the circumstances under the lender (NADB) pursuant to the Mexican which the income and the capital of the trust General Law on Negotiable Instruments and fund are to be disbursed to beneficiaries; Credit Transactions. Under this agreement, the SPE acknowledges that the ESCO's client · The powers and duties of the trustee; (Bailee) has the possession but not the property title of all the equipment and assets · A statement as to the removal of the trustee that the SPE has derived from agreements with and the appointment of a new one; and the local ESCOs. An exhibit A "Inventory of · A statement of the law to which the trust Pledge Equipment " and an Exhibit B deed is subject. "Inventory of Pledge Assets" will be attached to this agreement for each of the projects There are no standard trustee fees and, thus, financed by the NADB loan to the SPE. fees are open to negotiation. The more complex the trust, the more expensive it is to administer, This agreement also requires the SPE to obtain and the higher the fees. If a trust is created for the required insurance policies that cover loss business purposes, it is considered a taxable or damage to the pledged assets and requires entity and the trustee or the beneficiaries must that the insurance policy names the lender obtain a tax identification number for the trust, (NADB) as the cobeneficiary of the insured file tax returns and pay taxes if due. The trust pledged assets. agreement for the SPE structure is carefully worded to ensure that it is not considered a trust The SPE and the ESCO's clients are required to for business purposes. maintain and conserve the pledged assets at all times. They are not allowed to transfer Loan Agreement possession of the pledge assets to a third party or remove the pledged assets. The lender Annex 3 (NADB) retains the right of inspection of the This agreement stipulates the terms under which assets for purposes of verifying their existence, a lender will provide funding to the SPE. No quality and general state and condition. loan agreement is provided in this report as each lender will have its own unique lending terms, Purchase/Assignment Agreement conditions and requirements. A proposed NADB between SPE and Local ESCO term sheet is provided in the Appendix 3 to give Annex 5 a general overview of lender terms and conditions. This document is provided for This agreement covers the assignment of the illustrative purposes only and should not be contractual rights between the ESCO and the considered a standard term sheet for NADB or ESCO's client to the SPE. This includes the any other lending institution to a SPE. collection rights that the ESCO obtained as a Asset Pledge Agreement without result of its energy efficiency investments as well Transfer of Possession between as all promissory notes from the client. SPE and NADB For banking purposes, an ESCO contract with Annex 4 a client, which involves a legal obligation of the client to make periodic payments to the ESCO, The asset pledge agreement without transfer is considered an asset. This asset is assigned by of possession is an agreement by which the the ESCO to the SPE through the purchase/ debt (SPE) gives a first priority lien pledge to assignment agreement. 9 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO The underlying contract between the ESCO and government agency financial structure in which its client must contain the rights of the ESCO to an agency is created for the purpose of pooling transfer the contract to a third party. This provision projects for financing without pledging the credit prevents the client from making a challenge to of the government that created the agency. This the authority of the SPE to enforce the terms of the model is well established in the United States contract executed between the ESCO and its client. and has been deployed in other markets. It has It is important to ensure that the authority of the successfully financed over US$50 billion of SPE, under local law and the provisions of the environmental projects in the United States, and SPE by-laws, is sufficient to be able to enforce all has been used to mobilize private sector measures in the ESCO contract. financing for small-scale municipal infrastructure projects in India and elsewhere. The assignment agreement will not cover the maintenance and operation agreement The creation of a special government agency to between the ESCO and the client, should such pool projects for presentation to private sector an agreement exist. The SPE, however, may lenders can be a lengthy process. For this reason, require the ESCO to pledge the operation an existing state government agency in the state contract as additional collateral for the purchase of Nuevo Leon was identified to serve this purpose. of the implementation contract. This would allow Sistema Integral para el Manejo Sistema Integral the SPE to use the operations contract as para el Manejo Ecológico y Procesamiento de leverage over the ESCO should some Desechos (SIMEPRODE), is a regional government disagreement emerge between the SPE and the authority established initially to engage in regional ESCO client. solid waste management. It was the government All insurance provisions, warranties and other agent that facilitated methane recovery from a collateral involved in the ESCO contract will be landfill project financed by the World Bank transferred to the SPE. The SPE will, in turn, Prototype Carbon Fund in 2005. pledge all these assets to the lenders to the SPE. The management of SIMEPRODE was familiar Assignment Agreement between the with the bundling concept and energy efficiency SPE and the Trustee project potential. It also had relationships with local governments in the region. SIMEPRODE Annex 6 representatives initially approached NADB seeking financing for 51 municipal street lighting projects Under this agreement, the SPE assigns all in the state. Representatives of NADB then collection rights for the energy efficiency approached the ESMAP team seeking technical, projects to the trustee. The provisions of this financial and legal assistance in establishing a agreement are similar to the provision in the pooled financing structure for this initiative. purchase/assignment agreement between the ESCO and the SPE. All the collection rights, To help advance the 51 municipal street lighting promissory notes and other pledge assets that proposals, SIMEPRODE conducted a pilot project were assigned by the ESCO to the SPE are, in in the city of Allende in October-November turn, pursuant to this agreement, assigned to 2005. This involved installation of new street the trustee. lighting technology for 10 separate street lighting circuits. Following the completion of this work, Public Sector Pilot Project Comisión Federal de Electricidad (CFE), the The public sector SPE is modeled on the federal electricity commission conducted a 10 STRUCTURE, BENEFITS AND OWNERSHIP OF SPECIAL PURPOSE ENTITIES validation study of the pilot project and balance in the form of grants to the local confirmed that levels of savings ranged at a governments. No equity financing is required minimum of 25-35 percent. in this structure, which helps keep the total cost of financing at lower rates. Under the public sector SPE financing structure, the NADB would make a loan to a "fideicomiso" State Debt Issues established by SIMEPRODE. Under the terms of The first legal question that had to be addressed the "fideicomiso," the implementation of each project would be assigned to SIMEPRODE. was how to establish SIMEPRODE as the pooled Contracts for project implementation would be financing SPE without adding debt to the state. signed between SIMEPRODE and each local This is possible under the state of Nuevo Leon municipal government. As such, SIMEPRODE government financing law that stipulates that would be the administrative agent of the trust and public agency debt is not the debt of the state. would implement each street lighting project. To While this answered the debt question, it raised credit-enhance this structure, each municipal other questions regarding the existing legal government would pledge transfer payments from authority of SIMEPRODE to implement energy the state government as collateral. efficiency projects. Based on a legal review of SIMEPRODE's charter, it appears that The financial structure is provided in Figure 1.3. SIMEPRODE does not have the authority to engage in energy projects. Under this arrangement, the financing of the 51 projects would not appear as debt on the As a result, an alternative structure is necessary state's budget. that may require another state agency with authority to engage in energy projects to The total estimated project cost is approximately establish the "fideicomiso." In this case, the US$30 million. NADB would finance 80 percent legal text of the "fideicomiso" would not change of the total cost and the state would provide the except for the identification of the "settler" of the trust agreement. Figure 1.3: SIMEPRODE Financing Structure Street Lighting Replacement Works Agreements Municipalities (treasury participation) SIMEPRODE Public Settlor Resources Transfer (supplies agreements payments) Disbursements for Works Municipal's Federal State Treasury Participations Loan NADB Drawdowns Repayment Retains and Deposits on of Loan Behalf of SIMEPRODE Trust 1st Beneficiary Payments to other beneficiaries 11 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO Procurement Issues Collateral Issues To streamline the implementation process and Each local community would be required to reduce costs, one entity should be selected pledge state government transfer payments to implement all 51 street lighting projects. If as collateral for the street lighting loans. This implementation were open to competitive bidding is common practice for local governments at each site, the review and approval process would seeking loans from the NADB and is required be cumbersome and timely. Moreover, it would be for NADB financing of the "fideicomiso." This difficult to finance the 51 projects with several collateral, in essence, replaces the need for different companies involved. For this reason, state government support for the projects or SIMEPRODE was selected as the implementing the "fideicomiso." Discussions with the state agent of the state. SIMEPRODE could also serve as treasury office have confirmed the ability of a technical adviser to the "fideicomiso" if it is local governments to do this and the determined that the settler should be another willingness of the Treasury Department to government agency or a private investor. facilitate the process. 12 2. Energy Sector Overview in Mexico Projected Energy Supply and the total exports; however, they provided the Demand Outlook in Mexico federal government with 37 percent of all its revenues. While Mexico has benefited from Mexico's energy sector is diverse and dynamic. rising oil prices and soaring export revenues, it Globally, Mexico ranks ninth in crude oil proven has also been harmed by sharp increases in reserves, 21st in natural gas proven reserves, the cost of imported natural gas and refined seventh in crude oil production and eighth in products, and the resulting pressure on natural gas production. electricity costs. The Mexican economy will be directly affected by its future net energy Notwithstanding Mexico's substantial energy trade balance, and the evolution of global supply, the demand for natural gas and energy prices. electricity will outpace supply over the next several decades, putting a premium on effective Mexico has the fastest growing population utilization of energy resources. Moreover, the among the OECD countries, and nearly price of energy in Mexico will be greatly 29 million people will be added to Mexico's influenced by global energy factors that go population in the first three decades of the beyond the supply and demand equation in 21st century (a rate of over one million new Mexico itself. Mexico is vulnerable to price spikes citizens per year). The total population is in energy due to a heavy dependence on expected to peak at 131 million inhabitants and imported natural gas for electricity generation. stabilize after 2050. Population growth alone Nearly 66 percent of electricity generation in will thus tend to increase energy consumption. Mexico is oil- and-gas based, as compared to Add falling poverty and increasing wealth, only 33 percent in the United States. together with an expansion of public services, Approximately, 85 percent of Mexico's primary and there will be significant additional energy energy supply is based on hydrocarbons, and supplies required over the coming years. while Mexico is a net exporter of primary energy, it is a net importer of secondary energy (it According to a study by the North American imports gasoline and gas for its internal Energy Working Group, reflected in Figures 2.1 markets). and 2.2, Mexico's energy demands have grown more rapidly than supply since 1980 and will The Mexican government runs, to a large extent, continue on this path for the balance of this on revenue from oil. In 2004, oil exports decade and beyond. Given these factors, the accounted only for 8.4 percent of Mexico's gross energy market in Mexico is primed for extensive domestic product (GDP) and 12.5 percent of implementation of energy efficiency investments. 13 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO Figure 2.1: Mexico Oil Demand (1980-2010) 800 700 Thousand Barrels/Day 600 500 400 300 200 100 0 1980 1985 1990 1995 2000 2005 2010 Liquefied Petroleum Gas Motor Gasoline Jet Fuel Residual Fuel Oil Other Oil Source: www.eia.doe.gov/emea/northamerica/engdata.htm#_VPID_3,2002. Figure 2.2: Mexico Energy Demand (1980-2010) 120 300 Meters/Tera Watt Hours 100 250 Million Metric Tons Billion Cubic 80 200 60 150 40 100 20 50 0 0 1980 1990 2000 2010 "Natural Gas Demand (billion cubic meter)" "Coal Demand (million metric tons)" "Electricity Demand (tera watt hours)" Source: www.eia.doe.gov/emea/northamerica/engdata.htm#_VPID_3,2002. Electricity Market Demand and Supply electricity system (excluding private generators) consumes fuel oil, followed by coal and natural According to Mexico's Secretaría de Energía gas. In 2003, SENER reported that fuel oil (SENER), the department of energy, the country represented 51 percent of the thermal feedstock had 45.9 giga watt (s) per hour (GWh) of for the national electricity system, natural gas installed electricity generating capacity in 2004, 25 percent and coal 20 percent. The general trend and generated 209.2 billion kilo watt (s) per in the sector is for natural gas to replace fuel oil hour (BkWh) of electric power in 2003. Of this, as the feedstock of choice, and most new 83 percent came from conventional thermal construction has focused on gas-fired generation sources, 9 percent from hydroelectricity, capacity. In the case of private power producers, 5 percent from nuclear power and 3 percent nearly all generating capacity runs on natural gas. from other renewables. Consumption in 2003 was 193.9 BkWh. According to most recent official statistics, electricity demand in Mexico will grow at an As Figure 2.3 indicates, the bulk of the annual rate of 6.3 percent during 2002-11. In conventional thermal capacity in the national order to meet such an increase in demand, 14 ENERGY SECTOR OVERVIEW IN MEXICO Figure 2.3: Consumption of Combustible Fuels for Electricity Generation in Mexico, 1998-2003 1,600 1,400 1,200 Diesel Billion BTUs 1,000 Natural Gas 800 Coal 600 400 Fuel Oil 200 0 1998 1999 2000 2001 2002 2003 Source: SENER. Years 30,300 mega watt (s) (MW) of additional capacity, moderate the need for tariff increases generation capacity will have to be added to the to pay for new investments and reduce Mexico's electricity system during that period, thereby nearly dependence on imported natural gas. doubling the total current generation capacity of The Comisión Federal de Electricidad (CFE), the 38,519 MW. Of this amount, self-supply and federal electricity commission, is the dominant combined heat and power (CHP) schemes will player in the generation sector, controlling contribute 4,864 MW. Also, according to SENER, 70 percent of the installed generating capacity, the total transmission capacity has to grow at an and with a monopoly on electricity transmission annual growth rate of 21 percent during 2001- and distribution (T&D) outside of Mexico City and 06, also very high compared to the annual historic a few other municipalities. Within metropolitan growth rate of less than 4 percent. Mexico City, another State-owned company, Luz President Fox, in his 2005 state of the nation y Fuerza del Centro (LFC) holds the monopoly annual report, announced that the government on generation and distribution. would need to spend Mex$45.4 billion to While the CFE has recently turned to private firms expand and modernize generation, transmission to provide needed investments in generation and and distribution (T&D) infrastructure in the period transmission infrastructure, CFE effectively 2004-11, or about Mex$5.7 billion a year, to retains control of these assets and continues to meet growing demand. The federal budget for operate the supply system as a vertically the electricity sector in 2005 was Mex$5.5 integrated monopolist. billion, 34.1 percent more than 2004, but 2.7 percent below annual requirements. Through In December 1992, the Ley del Servicio Público the five years of Fox's administration from de Energía Eléctrica (LSPEE), the public electricity January 2001-July 2005, national electricity service act, was amended to allow private generation capacity has expanded by 33.9 participation in generation activities. Article 3 percent, or 13,731 MW, compared to 2000. of this Act lists five areas that are not considered Total generation in the first half of 2005 as public service, and are open to private sector increased 6.4 percent to 8,486 GWh compared participation: (i) self-supply; (ii) cogeneration; to the same period in 2004. (iii) independent power producer; (iv) imports and exports; and (v) small-scale generation. Aggressive energy efficiency initiatives in Mexico Just under 350 permits were issued for such could slow the demand for new generating projects in the period 1994-2005. 15 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO Self-supply and cogeneration are areas where exclusive purpose of implementing identified some Mexican ESCOs are active in project strategic activities such as the electricity sector. development and implementation. These ESCOs typically focus on self-generation as a means of In October 1995, the Ley de la Comisión reducing peak period electricity rates for Reguladora de Energía (LCRE), the Energy business and industries. In cases where Regulatory Commission Act, transformed the cogeneration is financially viable, it will usually Comisión Reguladora de Energía (CRE), the serve as a means of self-supply. energy regulatory commission, from an advisory body on gas and electricity into an autonomous Several political figures and economists have agency which regulates the electricity and called for the gradual phase out of consumer natural gas industries. The main functions of subsidies for electricity over the next 10 years. CRE are to grant permits, authorize prices and Analysts at Bear Stearns predict the cut in rates, approve terms and conditions for the subsidies will drive consumer electricity bills up provision of services, issue directives, resolve to 83 percent. Aggressive energy efficiency disputes, request information and impose initiatives could help mitigate the impact of sanctions, among others. CRE promotes and reductions in subsidy support. enforces the efficient development of the following activities: Despite being heavily subsidized, commercial tariffs in Mexico are still the fourth most Regulated activities (natural gas) expensive in Latin America and the Caribbean, and higher than prevailing industrial power · Natural gas first hand sales; tariffs in the other two North American Free Trade Agreement (NAFTA) partners. · Liquefied petroleum processing; and The high cost of electricity in the commercial · Natural gas transportation, distribution and service sectors should, in theory, drive strong and storage. growth in energy efficiency investments and ESCO activities as potential savings could make Regulated activities (electricity) industries more competitive in the global · Public service electricity supply; economy. In other countries, electricity prices at these levels have served as a major incentive · Electricity generation of private parties ; for the development of ESCO industries. · Exports and imports between private parties; Legal and Regulatory Environment · Electricity acquisitions for public service; General Regulatory Framework · Transmission services between the supplier In Mexico, constitutional provisions set the legal and private generation permit holders; and framework for the electricity industry. Article 27 establishes that generation, T&D and supply of · Verification of compliance with the applicable electricity for public service is the exclusive law and prevention of cross-subsidies among responsibility of the federal government. Article different businesses lines. 28 further establishes that all strategic activities carried out by the federal government shall not Energy Efficiency Regulatory Framework be considered a monopoly. Article 25 provides that the federal government is empowered to Mexico has mandatory energy efficiency codes own and operate public companies with the for lighting systems and building shells in 16 ENERGY SECTOR OVERVIEW IN MEXICO commercial buildings. The code for lighting standards are properly implemented. Three systems, which was created in 1995, applies to government organizations have teamed up to all offices, schools and educational centers, accredit two certification boards, 47 testing hospitals and clinics, hotels and motels, laboratories and 379 verification units. In 2002, restaurants and cafeterias and commercial these standards are estimated to have reduced establishments (stores) that have an electricity electricity demand by 9,120 GWh and capacity load of more than 20 kilo watt (s) (kW). needs by 1,543 MW. Annex 7 provides a brief summary of standards The code for building shells, which was for appliances and pumps that have been established in 2001, applies to all new established in Mexico, the number of units sold commercial buildings and extensions to them. that comply with these standards and projected Complaints have been made by energy energy savings. efficiency advocates that the code for buildings have not been aggressively enforced by Electricity Tariff-setting Policies government officials, and often ignored by developers. A comprehensive understanding of utility rate-setting and billing policies, as well as Standards have been established for a broad consumer accounting and payment procedures range of appliances including refrigerators, is essential to the structuring of an energy freezers, washing machines, air conditioners, efficiency financing program. This information fluorescent lamps, indoor and outdoor lighting is especially important when dealing with public sector clients. systems and water heaters. They have also been established for industrial equipment including CFE does not establish electricity rates in Mexico. boilers, motor pumps and transformers. The authority for rate-setting is vested with the In addition, most appliances are required to Secretaría de Hacienda y Crédito Público carry labels which specify their relative energy (SHCP), the department of treasury and public efficiency as compared to similarly tested and credit, which works with CFE and SENER to set certified products. Testing laboratories and the rates. However, it is the information that certification boards have been established to CFE has and provides on generation and T&D certify new equipment and verify that appliance costs that are the basis for the rate-setting. Figure 2.4: Electricity Prices by User-type 2.0 Average Prices 1.8 1.6 Mex$ 2004/pesos 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Residential Commercial Services Agricultural Industrial Source: SENER. 17 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO During 2004, the overall yearly average tariff another one for service that can be was US¢6.33/kWh. The lowest tariffs were found interrupted (Servicio interrumplible). The last in the agricultural sector (US¢3.13/kWh) where two are for customers with very high electricity prices are subsidized by the state consumption (thus, high-voltage installations). to promote agricultural development, while the highest are in the commercial sector, Municipal services, specifically street lighting which paid an average of US¢13.03kWh. The and pumping of potable and sewerage water, average price for domestic customers was fall under "specific rates" in the "public US¢6.07/kWh. services" category. There are three particular rates under this category, two for public Electricity rates in Mexico are structured under lighting1 and one for water pumping ­ these two sets: (a) specific; and (b) general. are given in detail in Annex 8. Beyond the distinction for street lighting or water Specific rates are subdivided by the type of customer: pumping, there are no distinctions in rates as far as kinds of usage are concerned. · Residential (Domésticas); Most of what is charged for electricity in Mexico · High consumption residential (Domésticas de is based on meter readings, but street lighting alto consumo); is one of the exceptions, given the fact that less than 40 percent of all street lighting circuits have · Public services (Servicios públicos); meters. In circuits without meters, electricity · Agricultural (Agrícolas); and charges are based on load and time of use. Load is the sum of the watts of all of the · Seasonal (Temporal). inventoried lamps in the streets, multiplied by a "ballast factor." Time of use is set at 11.5 hours General rates are subdivided by voltage level: a day (for every day of the year). · Low-voltage (Baja tensión); CFE billing practices should not create difficulties for ESCOs. In the case of billing based on · Medium-voltage (Media tensión); and metering, there should be no problem. In the · High-voltage (Alta tensión). case of billing based on inventories of lamps (street lighting), the issue is the acceptance of · There are also two more types of rates, one CFE to modify the inventory (ballast factor) it for backup services (Servicio de resplado) and uses to determine the bill. 1 Public lighting includes street lighting, traffic lights and lighting of parks and public spaces. 18 3. Market Potential for Energy Efficiency Investments Comparative Electricity Prices Details in Tables 3.1 and 3.2 are comparative average household and industrial energy prices The market for energy efficiency investment is in a number of countries provided by the Energy Information Administration (U.S.) (EIA). These driven by two major economic factors, energy prices reflect an average energy price based on a prices and the costs of capital. Energy prices in unique formula developed by the EIA and do not Mexico vary based on source of energy, time of differentiate between various country peak energy use and sector of consumer. In assessing the prices, for example. They may, therefore, impact of energy prices on the energy efficiency understate market demand for energy efficiency market in Mexico, it is helpful to look at the investments in certain instances. Although the energy prices in other countries where these information available lags behind existing prices, markets are active. the Tables are useful for comparative purposes. Table 3.1: Electricity Prices for Households* (Mex$ per kWh) Countries 2002 2003 2004 2005 Argentina NA 0.037 0.038 NA Bolivia NA 0.055 0.072 NA Brazil NA 0.079 0.093 NA Canada 0.054 0.062 NA NA Chile NA 0.086 0.088 NA Colombia NA 0.071 0.084 NA Costa Rica NA 0.060 0.065 NA Cuba NA 0.137 0.138 NA Czech Republic 0.076 0.085 0.097 NA (continued...) 19 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO (...Table 3.1 continued) Countries 2002 2003 2004 2005 Ecuador NA 0.123 0.128 NA El Salvador NA 0.135 0.129 NA France 0.105 0.127 0.141 0.141 Guatemala NA 0.79 0.156 NA Honduras NA 0.045 0.045 NA Hungary 0.080 0.103 0.137 0.149 Italy 0.156 0.186 0.191 NA Jamaica NA 0.169 0.187 NA Japan 0.174 0.186 0.196 NA Mexico 0.092 0.091 NA NA Nicaragua NA 0.135 0.140 NA Peru NA 0.115 0.113 NA Poland 0.084 0.095 0.103 NA Spain 0.114 0.137 NA NA United Kingdom 0.105 0.116 0.138 NA United States 0.085 0.087 0.09 NA Uruguay NA 0.103 0.113 NA Venezuela, R.B. de NA 0.055 0.046 NA Source: Energy Information Administration, Table Posted: February 28, 2006. Note: NA = Not applicable. * Energy end use prices including taxes, converted using exchange rates. Household energy prices in Mexico are Industrial energy prices in Mexico are considerably higher than similar prices in the considerably higher than prices in the United United States and Canada where ESCO industries States and Canada. They are also considerably have been active for many years. Mexican higher than prices in Argentina , Brazil, Uruguay household energy prices are comparable to those and República Bolivariana de Venezuela and in Poland and the Czech Republic where ESCOs comparable to prices in Eastern Europe. The cost have been established and have obtained of electricity in Mexico is sufficiently high to financing from local commercial banks. support a strong ESCO industry and bank 20 MARKET POTENTIAL FOR ENERGY EFFICIENCY INVESTMENTS Table 3.2: Electricity Prices for Industry* (Mex$ per kWh) Countries 2002 2003 2004 2005 Argentina NA 0.025 0.033 NA Barbados NA 0.197 0.197 NA Bolivia NA 0.041 0.051 NA Brazil NA 0.037 0.047 NA Canada 0.041 0.049 NA NA Chile NA 0.056 0.057 NA Colombia NA 0.064 0.081 NA Costa Rica NA 0.067 0.069 NA Cuba NA 0.081 0.078 NA Czech Republic 0.049 0.056 0.066 NA Denmark 0.070 0.092 0.096 NA Ecuador NA 0.098 0.089 NA El Salvador NA 0.123 0.120 NA France 0.037 0.045 0.050 0.050 Guatemala NA 0.075 0.116 NA Honduras NA 0.035 0.035 NA Hungary 0.059 0.078 0.090 0.097 Italy 0.113 0.147 0.162 NA Jamaica NA 0.115 0.130 NA Japan 0.115 0.122 0.127 NA Mexico 0.056 0.063 NA NA Nicaragua NA 0.124 0.128 NA Peru NA 0.060 0.079 NA Poland 0.084 0.056 0.060 NA Spain 0.048 0.054 NA NA United Kingdom 0.052 0.055 0.067 NA United States 0.049 0.051 0.053 NA Uruguay NA 0.040 0.055 NA Venezuela, R.B. de NA 0.028 0.032 NA Source: Energy Information Administration. Table Posted: February 28, 2006. Note: NA = Not applicable. * Energy end use prices including taxes, converted using exchange rates. 21 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO financing of energy efficiency projects. Even in Table 3.3 provides a comparative analysis France and Brazil, where industrial energy prices of Mexico's short-term cost of capital to are lower than in Mexico, government policies other countries. focused on partial financing of certain energy efficiency projects have created an active market Mexico's short-term rates are considerably for local ESCOs. higher than most other OECD countries or that of the Euro area. These rates will Comparative Costs of Capital limit the number of energy efficiency projects The cost of capital is the other major market that can be financed by commercial banks to factor that impacts on the energy efficiency those with substantial energy savings. However, market, as high interest costs can substantially interest rates in Mexico have declined reduce net savings from projects and require considerably in the last three years, while interest longer payback periods before projects reach rates in many other countries, particularly in financial viability. Eastern Europe, have increased. Table 3.3: Short-term Interest Rate (percent, per annum) Countries 2001 2002 2003 2004 2005 2006 2007 Australia 4.9 4.7 4.9 5.5 5.7 5.7 5.7 Canada 4.0 2.6 3.0 2.3 2.8 4.1 4.3 Czech Republic 5.2 3.5 2.3 2.4 1.9 2.3 3.3 Denmark 4.6 3.5 2.4 2.1 2.1 2.2 2.9 Euro Area 4.3 3.3 2.3 2.1 2.2 2.2 2.9 Hungary 10.8 8.9 8.2 11.3 6.8 5.8 5.5 Japan 0.1 0.1 0.0 0.0 0.0 0.0 0.7 Korea, Rep. of 5.3 4.8 4.3 3.8 3.6 4.4 5.4 Mexico 13.4 8.5 7.2 7.4 9.5 8.9 7.4 New Zealand 5.7 5.7 5.4 6.1 7.1 7.6 7.6 Norway 7.2 6.9 4.1 2.0 2.2 3.5 4.7 Poland 15.7 8.8 5.7 6.2 5.2 4.1 4.1 Slovak Republic 7.5 7.5 5.9 4.4 2.6 2.9 3.7 Sweden 4.0 4.1 3.0 2.1 1.7 2.4 3.4 Switzerland 2.9 1.1 0.3 0.5 0.7 1.4 2.0 Turkey 92.4 59.5 38.5 23.8 15.9 12.5 10.5 United Kingdom 5.0 4.0 3.7 4.6 4.7 4.5 4.5 United States 3.7 1.8 1.2 1.6 3.5 4.8 4.9 Source: OECD Economic Outlook. Note: Individual Euro area countries are not shown after 1998 (2000 for Greece) since their short-term interest rates are equal to the Euro Area rate. 22 MARKET POTENTIAL FOR ENERGY EFFICIENCY INVESTMENTS As Table 3.3 indicates, Mexico's current · Training programs for the development of short-term rates today are below interest rates local Mexican ESCOs; in Poland and Hungary in 2000 and 2001, when ESCO industries were able to obtain debt · Training programs for federal building financing for energy efficiency projects. The cost managers to allow them to perform lighting of capital in Mexico, therefore, may have assessments and report the information to some limited impact on the growth of the ESCO CONAE by e-mail; and industry, but is unlikely to be a barrier to finance. · The development of an operational guide for Indeed, Mexico's short-term rates could increase facility managers to implement "no cost" by more than 150 basis points and still remain operational measures to reduce energy below levels than prevailing in Eastern Europe consumption. when ESCO companies emerged as viable business concerns. Although these technical tools, training materials and manuals were designed for federal facilities Policy and Institutional Context and managers, they are fully applicable to government facilities at the state and local level. In addition to market forces, there are numerous policy drivers and facilitators that promote However, CONAE's assessment tools and energy efficiency investments in Mexico. energy audits do not meet investment standards; The government of Mexico (GoM) and the energy audits are only preliminary various Mexican private sector institutions are assessments of energy use and potential savings. actively promoting energy-efficient industrial They do not include implementation plans and technologies, clean and efficient energy precise estimates of savings from new production and RE sources to reduce pressure technology. Full investment grade audits would on the national electrical grid system. be still needed to obtain commercial financing for energy efficiency projects. National Energy Efficiency Commission However, these preliminary audits are very useful Recognizing the importance of energy in helping facility managers set priorities and conservation in public buildings, the Mexican assess the potential benefits of energy efficiency government, in 1989, established the Comisión project implementation. Preliminary audit Nacional para el Ahorro de Energía (CONAE), programs in several European countries have the national energy efficiency commission. Since proven very effective as a marketing tool for its inception, CONAE has facilitated: energy efficiency investments. This is especially true where local government officials are · A voluntary pilot project called "100 Public reluctant to spend limited resources on Building" to assess electricity consumption in preliminary audits without knowing whether the public buildings through audits and studies; audit will result in investments and real energy · The establishment of the Programa de Austeridad savings. This reluctance on the part of local Presupuestaria (National Program for Budget officials is often matched by the reluctance of Austerity) in the Administración Publica Federal ESCOs, knowing that their preliminary audit (APF), the federal public administration; work will ultimately lead to a competitive bidding process. These circumstances, which · The development of technology tools are unique to the public sector, have been a and software systems that allow facility major impediment to energy efficiency project managers to carry out preliminary energy development in public facilities. CONAE's studies autonomously; preliminary audit material can help to overcome 23 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO this impediment and serve as an effective technologies were offered for qualified marketing tool in the local government sector. personnel in air conditioning, power equipment and lighting. Subsequent guidelines required Given the focus on federal buildings and the participating agencies to prepare an annual limited ability of federal agencies to finance report stating their 1999 energy consumption projects, CONAE has not been extensively levels, quarterly reports on the energy involved in private sector financing for public efficiency actions performed and data from projects. As a result, they have not developed their electricity bills. model transaction documents to date. CONAE, however, is increasingly interested in developing APF guidelines for 2001 enlarged the program's transaction documents for financing ESCO and/ scope and required buildings between 1,000 or energy saving investments. and 3,000 square meters to register with CONAE, and buildings with more than The absence of standard financial transaction 3,000 square meters and high indices of energy documents in Mexico for public sector projects consumption to propose a biannual working underscores the lack of financing of energy plan, provide CONAE with quarterly reports and efficiency projects in the country. In addition to send representation to participate in energy a "model" ESCO contract, there is a need for efficiency courses and workshops. To date, 877 "model" lending documents for energy efficiency buildings, with more than 4.6 million square meters projects. The nature of these contractual of floor space, have registered with CONAE. documents would vary depending on the nature of the financial structure. Guaranteed Notwithstanding these efforts and mandates, savings and shared savings structures require very few energy efficiency projects have been somewhat different lender and ESCO implemented in federal buildings due to contracting provisions. procurement rules that prevent government agencies from signing long-term contacts National Program for Budget Austerity (more than one year) for goods and services. In an effort to reduce energy consumption in Trust for Electrical Energy Efficiency federal buildings, the Mexican Minister of Energy issued a decree in 1999, creating the APF, Fideicomiso para el Ahorro de Energía Electrica designed to create incentives for energy (FIDE), the trust for electrical energy efficiency, conservation, and to provide technical assistance is another institution established by the Mexican to government agencies. Under the initial APF government for the promotion of energy program guidelines, all federal government efficiency initiatives with a primary focus on the agencies were mandated to participate in the private sector. FIDE has implemented a number Energy Savings Program to be designed of lending programs focused on high efficiency by CONAE. motors and appliances, and is currently working with the North American Development Bank All agencies with buildings of at least (NADB) on a financing program for replacement 5,000 square meters were directed to create an of inefficient refrigerators. FIDE is also currently Energy Savings Internal Committee to be launching a new program to provide financing supervised by a high-level official. These to high efficiency air conditioning units with a representatives were trained through specific credit line from the Nacional Financiera workshops on performance assessment and the (NAFIN), the national development bank. use of tools for energy audits. In addition, Customers will repay loans for new units through specialized courses in different energy saving their electricity bills. Each loan will be credit 24 MARKET POTENTIAL FOR ENERGY EFFICIENCY INVESTMENTS enhanced by a reserve account, equal to collateral pledges equal to 200 percent of a loan 20 percent of the loan amount, funded by amount. And as is detailed below, banks do not Comisión Federal de Electricidad (CFE), the accept ESCO guarantees of savings as federal electricity commission, FIDE also has collateral, reflecting a bias toward balance sheet established lending programs for energy analysis of project creditworthiness. efficiency projects in the industrial sector, which are described in greater detail below. NAFIN will also provide a guarantee of repayment to first floor banks for qualified Japan Bank for International projects. Guarantee fees are assessed annually Cooperation/NAFIN for the life of the loan (Table 3.4). The guarantee fees and coverage are as follows: JBIC funds In addition to FIDE's lending programs, the only may cover up to 80 percent of the total amount other special lending facility in Mexico for energy of a project. The remaining 20 percent must be efficiency projects involves a JV between the contributed by the company requesting the Japan Bank for International Cooperation (JBIC) credit. The minimum amount NAFIN may and NAFIN. Under this program, JBIC has made request from JBIC is US$1 million (Figure 3.1). a Mex$138 million line of credit available to NAFIN for renewable energy and energy efficiency Several first floor banks are unhappy with the projects. NAFIN, in turn, funds projects through program's extensive paperwork and inflexibility "first floor" banks in Mexico that identify projects, while local ESCOs complain that the collateral conduct due diligence on project proposals and requirements of first floor banks are overly perform credit review of borrowers. restrictive. As a result, only a small number of energy efficiency projects were financed through NAFIN provides funds for peso loans to first floor this program. According to JBIC officials, banks at the Mexican 28-day interbank balance approximately 50 percent of the JBIC loan rate (TIIE) (currently 9-10 percent). Funds for have been disbursed. However, a portion of dollar loans are provided at the three or six the loan has been used to finance RE products month London interbank offered rate (LIBOR) which account for a substantial amount of plus 1 percent. First floor banks may add a 2 dispersed funds. percent margin on dollar loans and a 4 percent margin on peso loans. Interest is calculated on The key lesson learned from this program is that the remaining loan balance and payable even with the provision of liquidity and quarterly or semiannually. guarantees, local banks in Mexico are not inclined to fund ESCO projects for a number of First floor banks use their own collateral and financial reasons. The program also highlighted credit review policies in determining borrower the conservative lending environment in eligibility. This has been a concern for ESCOs Mexico, and the financial barriers to ESCO in Mexico, as most banks generally require projects financing. Table 3.4: NAFIN Guarantee Fees and Coverage Fees Coverage 2.5% 50% Working Capital 2.5% 70% Equipment Construction 2.15% 80% New Machines 25 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO Figure 3.1: Flow of Funds of JBIC/NAFIN Program JBIC First NAFIN Floor Borrowers Banks ~ 9.5% Peso Maximum 4% Premium + 2.5% Guarantee Fee ~ 3.5% Mex$ Maximum 2% Premium + 2.5% Guarantee Fee Total Cost of Capital to Borrower Peso Loans 15-16% Mex$ Loans 7-8% Current ESCOs' Activity in Mexico ESCO industry in Mexico, there are only 14 ESCOs in operation today, as opposed to Although the economic trends ­ higher energy more than 100 ESCOs in the United States costs and lower borrowing costs ­ in Mexico certified by the U.S. Department of Energy. favor energy efficiency projects, very limited Many Mexican ESCOs have difficulty investments have been made in this sector. While obtaining financing for projects. This is an Mexico has advanced policy initiatives and indicator of the financial impediments to capacity-building efforts for energy conservation, energy efficiency project development in and has raised the awareness of the value of Mexico ­ many more ESCOs would be in energy efficiency projects, the market remains operation if the market for their services relatively dormant. began to grow. ESCOs and local engineering firms are generally A few U.S. ESCOs are currently exploring JV thinly capitalized and unable to finance or obtain arrangements with their counterparts in Mexico. financing for energy efficiency projects on a These strategic alliances are designed to provide regular basis. Because of their economic additional expertise and credibility to Mexican condition, these ESCOs are unable to provide firms, particularly in areas where Mexican energy savings guarantees that are considered ESCOs have limited experience. Based on of value to their customers or lenders. Moreover, discussions with Mexican ESCOs, these most local providers of energy services do not partnerships are focused on joint marketing and have the financial resources to work through all project development. U.S. ESCOs appear to the market, institutional and financial barriers have neither the financial resources nor the to project implementation. Each project is too inclination to be a major source of capital for small to support these expenses. In Mexico, local their potential Mexican partners. ESCOs can provide the technical resources, but are generally unable to provide the financial None of these proposed partnerships have needs of the energy efficiency sector. materialized to date for several reasons. Firstly, the terms offered by U.S. ESCOs and investors Notwithstanding the considerable efforts of have been seen as unattractive to their Mexican CONAE, the United States Agency for counterparts. As one Mexican ESCO executive International Development (USAID) and stated, they are not interested in "selling cheap" multilateral lending agencies to promote an to foreign investors. Secondly, the price offered 26 MARKET POTENTIAL FOR ENERGY EFFICIENCY INVESTMENTS by U.S. ESCOs reflects their assessment of credit line with a local bank; and market growth potential in Mexico based on past experience. The lack of robust growth in this ­ ESCOs that have developed a relationship sector is viewed by U.S. ESCOs as a result of with equity funds that provide third-party market barriers that may not be easily overcome financing for ESCO projects. in the near term. As a result, U.S. ESCOs believe that substantial investments in technology and Given the restrictive lending environment in training of local partners may not result in Mexico, several ESCOs have developed corresponding economic returns. Finally, most alternative means of financing. Each of these Mexican ESCOs, although in need of financing, alternatives is expensive and/or difficult to are unwilling to give up control or management market to customers. Direm, a Mexican ESCO of their companies in exchange for the possibility in operation for over eight years, has a strong of additional financing. Nevertheless, two JVs client base and sound business plan based on are under consideration at this time. self-financing projects for its customers. While this allows Direm the opportunity for strong rates As part of this project, interviews were held with of return, its business is limited to the capital the more active Mexican ESCOs in the market. raised from individual local investors. If Direm Based on these interviews, the following general had access to affordable debt financing, it could observations can be made: expand operations considerably. · Most ESCOs in Mexico are relatively small, Empress is another ESCO with several years of privately-owned companies with an average operation in Mexico. Its financing structure number of employees between 5 and 10; basically requires its client to finance the energy efficiency project with an Empress guarantee of · Most ESCOs are thinly capitalized and have energy savings. Under this structure, Empress limited access to financing; signs a guaranteed energy saving agreement with its clients, and Empress obtains a · None of the local ESCOs surveyed have a broad ESCO practice comparable to large performance bond to back up its energy savings U.S. ESCOs such as Johnson Controls or guarantees for which they pay between 2.5 and Honeywell; 3.0 percent. Unfortunately, the local banks do not consider the performance bond as collateral. · Virtually, all successful ESCOs in Mexico have As a result, Empress is paying 2.5 percent for a focused on a particular specialty in the bond that is helpful in marketing its services to market. For example, one has focused on customers, but is of little help with the financial hotels in Cancun, another on power factor aspects of the project. projects in Monterrey and a third on self-generation and cogeneration; and Optima Energia is a third local ESCO in Mexico with another unique financing arrangement. · Each ESCO's business model is driven by its Optima has access to debt and equity financing source of capital. These business models can through Fondelec Latin American Clean Energy be divided into three general categories: Services (FLACES), a special equity fund created ­ ESCOs that have raised funds internally from to finance renewable and energy efficiency friends and local investors (these ESCOs are projects. FLACES' capital is limited, and its constrained by the amount of equity funds transaction documents are proprietary, as is the that can be raised from these sources); custom with equity funds of this type. This precludes broader dissemination of successful ­ ESCOs that convince a client to go forward financial structures in the local energy efficiency with a project by using the client's existing market and with local lending institutions. 27 4. Current Financial Conditions, Availability of Financing and Barriers to Implementation of Energy Efficiency Projects Market Barriers Additional barriers to implementation of energy efficiency projects in the public In Mexico, energy efficiency projects are sector include: generally viewed by private sector businesses (end use consumers) as a low priority · Insufficient information and expertise "infrastructure" investment versus investing in the about energy efficiency technologies, growth and development of their core business. products and practices among government This results in energy efficiency projects rarely facility managers; being funded with internal capital as even the most creditworthy businesses typically have · Separation of functions between the facility capital needs for core business activities that management and procurement departments; exceed their annual capital budgets and debt capacity ceilings. Unless the energy efficiency · Rigid procurement practices that do not projects can meet very aggressive hurdle rates allow (or appear to allow) life- cycle in many private industries, which often equal a costing, services procurement, multiyear simple payback of less than one year, they contracting or other mechanisms to cannot compete for their limited internal capital. encourage the adoption of energy Requiring collateral or reducing current credit efficiency equipment and systems; capacity for end use industrial customers further reduces their likelihood of implementing · Lack of access to multiyear financing, either any projects. through budgeting or appropriate financing, for typical three- to five-year energy efficiency In addition to government budget limitations, a projects; and number of other barriers impede energy efficiency investments in the Mexican public · Lack of incentives to promote energy savings sector. At the national government level, projects, since energy costs are budgeted procurement laws preclude agencies and centrally, but accounted as an expense to building managers from engaging in long-term each government facility. As a result, if energy (that is, greater than one year) contracts for costs are reduced by an energy efficiency services. This procurement policy serves as an project, the local facility manager is not absolute barrier to ESCO projects regardless of allowed to retain operational savings for the potential energy savings or support by other purposes. Instead, the facility budget government facility managers. is reduced in the next year. 29 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO Untested local contract law on performance-based Nevertheless, in 2001, a World Bank study found contracting for ESCO projects creates risks that that bank credit extended to the private sector an ESCO or its lenders are typically amounted to less than 20 percent of the GDP in uncomfortable assuming. If the ESCO or lender Mexico, compared to an international average cannot get comfortable with this risk, it will of 136 percent. typically require substantial cash down payments or other forms of collateral from the customer After years of relative stagnation, bank lending to ensure its financial protection on the project. in Mexico has very recently become more dynamic. Private sector bank financing slightly A final major barrier for an ESCO, entering a declined in 2003-04, measured as a share nascent market, is the lack of adequate sales, of GDP, this figure is affected by the fast financial and energy engineering experience write-off of bad loans. However, from the end in the local market to expeditiously develop of 2003 through mid-2005, commercial bank and implement performance projects. These private lending increased at an annualized rate skills are particularly specialized to the ESCO's of about 26 percent, compared to an annual performance-based business model, which growth rate of 8.5 percent in 2000-03. requires individuals who are highly talented in Notwithstanding this growth in lending, as of the technical, financial and legal aspects of March 2005, the total commercial bank lending selling and structuring energy savings projects. in Mexico as a share of GDP was less than half the Latin American average. Commercial Lending Although approximately 90 percent of Mexico's Mexico's financial market is dominated by banking industry is now foreign-owned, Mexican risk-averse, local commercial banks that finance banks have failed to develop broad-based almost exclusively on a balance sheet basis. lending programs and continue to serve a As mentioned above, none of the banks in relatively small and elite group of companies, Mexico is willing to recognize energy savings as leaving medium and small companies with collateral, and is generally unfamiliar with limited credit access to commercial lenders. energy savings concepts and unwilling to fully The historic shortage of bank credit and high engage this sector until there is sufficient deal financing costs has put Mexico at a disadvantage flow to justify the costs of developing special in relation to its global competitors, and has financial products. inhibited lending to local start-up ESCOs in Mexico. The banking sector in Mexico has experienced tremendous changes in the past 15 years. As Figure 4.1 indicates, the cost of capital in In the early 90s, the sector was quickly privatized Mexico has been declining recently from the and liberalized, and financial intermediation grew highs of the summer of 2005 and is now at at a fast pace. The 1994 financial crisis caused levels approaching 2004 interest rates. This is massive losses for banks and the government good news for energy efficiency projects as put in place a rescue package over several years, reductions in financing costs will make more with a cumulative cost in the order of US$64 projects economically viable. billion, or 13 percent of the gross domestic product (GDP) in 1999. Local bank credit evaluation procedures and policies are not as sophisticated as U.S. lenders, Since 1996, reforms have been steadily and in the absence of a fully mature credit rating implemented, improving most aspects of how system, the differential in interest rates is banks operate and compete in Mexico. relatively flat. Nevertheless, there is a discernible 30 CURRENT FINANCIAL CONDITIONS, AVAILABILITY OF FINANCING AND BARRIERS TO IMPLEMENTATION OF ENERGY EFFICIENCY PROJECTS Figure 4.1: Mexico: Commercial Bank Lending Rate 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% May-2002 Nov-2002 May-2003 Nov-2003 May-2004 May-2005 Nov-2004 Nov-2005 Source: Mexican Central Bank. difference in rates charged to borrowers based In addition to a conservative lending environment, on their credit quality, and local ESCOs, with ESCOs in Mexico face particular challenges in limited credit histories and limited years of obtaining financing for projects from local operation, are likely to pay higher interest rates commercial banks. These barriers can be than well established companies. summarized as follows: Taking advantage of the reticence of Mexican · Lack of understanding by financial institutions banks, nonbank institutions have played a critical ­ due to the lack of understanding of this role in the intermediation of funds in the economy. market and the contracting characteristics Bank of Mexico data shows that nonbank lenders (that is, performance contracts), the have increased their share of total credit from 35 commercial banks consider it a risky business. percent in 1997, to 58 percent in 2002. Nonbank This generally equates to above market interest lenders such as retailers Elektra (appliances), Sears rates and excessive collateral requirements. and car manufacturers expanded their credit operations, while banks showed an increased · Lack of supporting collaterals by the preference for government bonds and profit ESCOs ­ commercial banks, in general, centers. In addition, financing by other financial demand collaterals as a guarantee for the intermediaries, mainly specialized nonbank funding. The ESCOs, small/medium-size intermediaries ­ known as Sofoles ­ and pension service companies in general, are most often funds (through the purchase of commercial unable to offer these guarantees. The paper), expanded at a fast pace. These sources greatest barriers to ESCO financing are not of capital, however, are not readily available to high interest rates ­ many projects have small enterprises or ESCOs. sufficient energy savings to carry this cost ­ it is the very restrictive collateral requirements Barriers to commercial financing of energy of local banks. Virtually all Mexican banks efficiency projects in Mexico can be assessed limit their lending to balance sheet from two perspectives. Firstly, the local financial transactions. Under this approach, the institutions perspective of energy efficiency energy savings generated by energy projects and, secondly, the general financial efficiency projects are not given any collateral conditions of local ESCOs that are seeking value. This is a particular challenge for local, financing for energy efficiency projects. thinly capitalized ESCOs. This is compounded 31 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO by the fact that equipment in an energy concerning an "investment period" and a efficiency project, due to the retrofit nature, subsequent period, for "disinvestment." pledged as collateral, is usually valued at 20 ESCO projects typically have investment time percent of the acquisition costs; frames that go beyond the typical equity fund mandates; · Project size limitation ­ the average project size of an ESCO project is too small in · The funds in general have specific mandates relation to the transaction costs, which serves over sectors of the economy and/or stage of as a deterrent for financing; and development of the companies to be invested, and carry out a business prospect · Most commercial banks are not familiar with within these parameters. There are only two the intricacies of financing energy efficiency equity funds active in Mexico with a projects and, therefore, have limited internal mandate that includes investments in capacity to properly evaluate the risks and ESCOs and ESCO projects; benefits of their design, nor to structure their financing in a way acceptable to the market. · In general, private equity investments need to be approved by an investment committee Equity Investment Environment which represents the main investors. in Mexico This process tends to extend the necessary Direct equity investments in Mexican ESCOs term for carrying out the investments; and have been limited, and have come primarily · The venture capital funds, in general, focus from family and friends of ESCO company their investments in companies with a owners. Investors in private equity and venture potential for rapid growth as well as sound capital seek to purchase interest in companies profit generation. The private equity funds, which have a potential of appreciation, which besides seeking companies with a sound significantly exceed the returns available through potential for profit generation, may specialize investments in securities. in strategies such as investments in The principal source of equity investments has companies with financial difficulties, come from FE Clean Energy's Mexican affiliate, management buyout, mezzanine financing, FLACES. The new Clean Tech Fund, with a focus and so on, and so forth. The ESCO industry on renewable and energy efficiency projects in in Mexico has not shown sufficient growth to Latin America, has not invested in ESCO projects attract financing from these sources. in Mexico. Barriers to equity financing of ESCOs in Mexico The core strategy of equity funds determines the can be summarized as follows: ESCOs are seen selection of the invested companies, their as companies in the services sector. In general, stage of development and prospected sectors equity fund managers are predisposed against of the economy, among other items. Some investments in services companies. There is a characteristics of investment funds common perception, widespread throughout the industry, throughout the world that have relevance for that services' companies tend to grow at a Mexican ESCOs are: slower rate than companies that commercialize products. There is also a perception that service · Venture capital and private equity funds in companies, due to lower market entry costs, general are incorporated in the form of suffer greater pressure on their profit margins, closed-end funds. The funds have a and that gains in economies of scale are not predetermined duration, with provisions easily practicable. 32 CURRENT FINANCIAL CONDITIONS, AVAILABILITY OF FINANCING AND BARRIERS TO IMPLEMENTATION OF ENERGY EFFICIENCY PROJECTS The tax burden on payroll in Mexico is extremely ­ FIDE finances 50 percent of the high, causing many small- and medium-sized project investment. services companies to operate informally, Projects of electric energy savings in hiring employees as service providers, which companies with high consumption and gives rise to significant contingencies. Such recovery of financial cost contingencies frequently make the investment of equity funds untenable. · Companies with demands above 1,000 kW: The cost of capital of equity funds is very close ­ Maximum loan amount Mex$2,000,000. to the average return of energy efficiency projects. Without leveraging the invested capital · Companies with demands below 1,000 kW, via debt, in a manner to reduce the average but above 300 kW: cost of the capital employed, the equity investors ­ Maximum loan amount Mex$750,000. will continue to be reluctant to enter the sector. The difficulty in raising finance via debt for Almost 100 percent of the cost will be financed projects has been, and continues to be, the when the measures are implemented. greatest impediment for the growth of equity The maximum term to cover the loan are investment in ESCOs and energy efficiency 12 quarterly fixed payments with an interest rate projects in Mexico. of the commercial bank's average cost of funds (CCP)+3 at the moment ­ in which FIDE Utility Programs authorizes the project. FIDE is the single largest supplier of credit in Electricity energy savings projects in Mexico for energy efficiency projects and corporate groups and industrial products. It provides financing under a number companies with intensive energy consumption: of programs with different terms and conditions. A selected summary of these programs is · Corporate Group: provided below: ­ Maximum loan amount Mex$5,500,000; Electric energy savings projects in corporate groups and companies that are ­ At least three companies of the group representative of industry with intensive should be included, with a demand above energy consumption. 1,000 kW; and · Companies with electric energy demand ­ FIDE finances up to 50 percent of the total above 3,000 kW: cost of the projects with an interest rate of CPP+3. ­ Maximum loan amount Mex$5,500,000; and · Companies with electric energy demand above 1,000 kW: ­ FIDE finances 50 percent of the project investment. ­ Maximum loan amount Mex$2,000,000; and · Companies with electric energy demand from 1,000 to 3,000 kW: ­ FIDE finances up to 60 percent of the total cost of the project, and can include the cost ­ Maximum loan amount of the energy audit, with an interest rate Mex$2,000,000; and of CCP+3. 33 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO · Companies with electric energy demand · Financing of 100 percent of the measures below 1,000 kW. application cost, with a limit of Mex$1,500,000; ­ Maximum loan amount Mex$500,000; and · The interest rate will be charged over the unpaid balances, and will be fixed and equal ­ Same as the case above, financing to the value of the CCP at the moment in reimbursement will take place in eight which FIDE authorizes the project, plus quarterly terms, calculated according to the 3 percentage points; simple payback period. · In the case of chains with more than Installation of electric energy savings 50 facilities, a minimum of 10 projects can equipment in new buildings: This program be developed simultaneously as long as the is designed to promote subcontracting user provides at least 50 percent of the total companies to install in new buildings more project cost; and efficient equipment and systems, even though they have a higher price: · Financing is for up to three years · Mex$1,500,000 per project; (12 quarterly payments). · The interest rate will be charged over unpaid Replacement of air cooling systems (chillers): balances, and will be fixed and equal to the This program is designed to achieve electric average percentage costs at the moment that energy savings through the replacement of air FIDE authorizes the project plus 3 points; cooling equipment with chilled water (chillers): · Users are: Hotels, restaurants, retail and · Financing available up to Mex$1,800,000 self-service stores, educational facilities, per project; hospitals, buildings and service provider companies; · The interest rate that will be charged is the CCP+3 fixed annual over the · Equipment includes: air conditioning unpaid balances; equipment, heating systems, fluorescent lamps T-8 and T-5, electronic ballasts, · Type of users: Chains and independent refrigeration systems, automation and control users of hotels, hospitals, department and systems, aluminum reflectors, compact self-supply stores, educational facilities, fluorescent lamps, high efficiency motors; buildings and service provider companies, that have cooling equipment of chilled water · Equipment subject to financing must have to (chillers) that use refrigerants that do not be approved by FIDE; and harm the ozone layer; · Financing is up to two years · Financing is up to three years (12 quarterly (eight quarterly payments). payments); and Electric energy saving projects in · The user will reimburse the financing commercial and service establishments, provided by FIDE in a term no greater than with financial cost recovery: This program 36 months. provides the use of commercial financing sources to develop feasible electric energy While the FIDE program has been highly savings projects: successful in particular areas, Mexican ESCOs 34 CURRENT FINANCIAL CONDITIONS, AVAILABILITY OF FINANCING AND BARRIERS TO IMPLEMENTATION OF ENERGY EFFICIENCY PROJECTS have not fully utilized FIDE programs to date for ESCOs, and is limited primarily to foreign a variety of reasons: ESCOs generally believe the suppliers, typically, therefore, involving currency administrative and reporting requirements are exchange risk. Optima is the only Mexican ESCO overly burdensome and that since the amount of that has utilized supplier credit on a regular basis funding provided for each project is not sufficient and has effectively incorporated it into its project to cover all of the project costs, it does not often financial model. justify the time and expense of compliance with FIDE's regulation. Also, FIDE only is able to finance Supplier credit is more commonly utilized electric savings technologies, which eliminates a by individual companies purchasing significant amount of the thermal savings foreign technology, but has the following opportunities in Mexico's industrial sector from associated shortcomings: (1) terms of financing reducing gas, coal, fuel oil and other fossil fuels are not usually transparent to the buyer; (2) in their manufacturing processes. suppliers will seek to oversize their product to client needs; and (3) optimum integration of Supplier Credit technology into a system of operations can be sacrificed. The utilization of supplier credit Although supplier credit is available to ESCOs through ESCO projects provides the best in Mexico, it is not broadly utilized by Mexican integration of technology for the customer. 35 5. Innovative Financial Structures ­ Pilot Projects In an effort to establish SPE structures for public the government agent that facilitated the landfill and private sector projects, the ESMAP team methane recovery project with the World Bank spent considerable time attempting to identify Prototype Carbon Fund in 2005. potential energy efficiency projects for financing. This effort required extensive outreach, including The management of SIMEPRODE was familiar consultation with local and international ESCOs, with the bundling concept, and the potential industrial associations, industrial park of energy efficiency projects. It also had managers, state and local government officials relationships with local governments in the region. and equipment suppliers. These discussions SIMEPRODE representatives initially approached initially focused on identification of potential the NADB seeking financing for 51 municipal projects to pool under as SPE for financing, and street lighting projects in the state. Representatives then moved to discussions regarding an of NADB then approached the ESMAP team appropriate pooling agent to run the SPE. seeking technical, financial and legal assistance in establishing a pooled financing structure for Public Sector SPE Pilot Project this initiative. In the public sector, efforts were focused in the NADB has expressed an interest in financing state of Nuevo León, which is known for its energy efficiency projects in the U.S./Mexico innovative approach to government services and border region over the last two years. NADB interest in energy efficiency improvements in the was established by Acts of Congress in Mexico public sector. After exploration of a number of and the U.S. as a part of the NAFTA. NADB's possible agents for bundling local projects like mandate is to finance environmental projects the integrated system for the ecological within 300 km of the U.S./Mexico border. management and processing of waste While NADB initially focused on water and Sistema Integral para el Manejo Ecológico y other municipal infrastructure projects, it has Procesamiento de Desechos2 (SIMEPRODE), a determined that energy-related projects are regional government agency of the State was deserving of attention, and within its investment identified as a key candidate for this function. charter. NADB officials felt, however, that each energy efficiency project was too small to justify SIMEPRODE was initially established to engage the time and expense of a full NADB review in regional solid waste management, and was and approval on an individual basis, but that 2 Integrated System for the Ecological Management and Processing of Waste. 37 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO establishing a credible project pooling agent would be organized through a trust or would facilitate NADB financing. "fideicomiso" structure. To help advance the 51 municipal street As stated previously in this report, a SPE can lighting projects proposal, SIMEPRODE take many forms. In this case, the SPE will be a conducted a pilot project in the city of Allende trust, or "fideicomiso" established by the state in October-November 2005. The pilot project with SIMEPRODE serving as the trustee involved installation of new street lighting agent. In this structure, NADB would provide a technology for 10 separate street lighting circuits. loan to a "fideicomiso" which would, in turn, Following the completion of this work, CFE execute and fund the 51 municipalities street conducted a validation study of the pilot project, lighting projects. and confirmed that levels of savings ranged at a minimum of 25 to 35 percent. A separate SIMEPRODE would be the administrative agent illumination study was commissioned and found of the "fideicomiso" and would implement each that street lighting had improved 100 percent street lighting project. The local governments over previous levels. would sign an agreement with the trust to repay the costs of the project. To credit enhance this The CFE study allows SIMEPRODE to use the structure, each municipal government would approved technology and it confirms (but does pledge transfer payments from the state not guarantee) that 25 to 35 percent savings government as collateral. can be achieved from the installation of new street lighting equipment, helping to address Details of the financial structure are provided in the credibility issue associated with energy Figure 5.1. efficiency projects. The report will be used for discussions with all other municipalities in Under this arrangement, the financing of the the state. 51 projects would not appear as debt on the state's budget. The financial structure is designed Based on a number of meetings and discussions to allow the state to facilitate financing of the with SIMEPRODE, NADB and state representatives, projects without the loan appearing on the it was initially decided that the financing state's balance sheet. Figure 5.1: SIMEPRODE Financing Structure Street Lighting Replacement Works Agreements Municipalities SIMEPRODE (treasury participation) Public Settlor Resources Transfer (supplier agreements payments) Disbursements for Works Municipal's Federal State Treasury Participations Loan NADB Drawdowns Repayment Retains and Deposits on of Loan Behalf of SIMEPRODE Trust 1st Beneficiary Payments to Other Beneficiaries 38 INNOVATIVE FINANCIAL STRUCTURES ­ PILOT PROJECTS The total estimated project costs will be will collect payments under the various contracts, approximately US$30 million. NADB will finance and pay the lenders directly. The trustee will 80 percent of the total costs, and the state will make payments for operation and maintenance provide the balance in the form of grants to the expenses, contributions to a debt service reserve local governments. No equity financing is fund and other contractual obligations, before required in this structure which will help keep payment are made to the SPE. the total costs of financing at lower rates. The SPE would be managed by highly A more detailed discussion of the financial experienced experts in energy efficiency finance. structure and legal architecture of this financial It will conduct initial project intake evaluations model is provided in a companion report entitled and assess the technical and financial viability "Special Purpose Entity Financing of Energy of each project proposed for financing. As such, Efficiency Projects in Mexico: Financial Structures the SPE will have the in-house technical and and Legal Architecture." financial expertise in energy efficiency project financing that local banks lack. Private Sector SPE Pilot Project To provide lenders to the SPE with additional The private sector SPE will be structured rather financial comfort, the managers of the SPE differently from the public sector SPE. would be required to make an equity investment While the public sector SPE is modeled on a in the SPE equal to 30 percent of the total of government agency financing structure which projects financed. The SPE management will, has been extremely successful in the United therefore, be in a first loss position on all projects States and in some emerging economies, the financed. The SPE will bundle industrial energy private sector SPE takes a more corporate form efficiency projects together and present them as with equity investor involvement. a package to NADB. Standard operating procedures, transaction documents and The private sector SPE will be a limited liability underwriting criteria will be developed for use company established under the Mexican law. by the SPE. This SPE serves as the focal point of the financial structure. Under the financial plan, the SPE A flow of funds of this financial structure is borrows funds from domestic or international provided in Figure 5.2. lenders (NADB for purposes of this example) and uses the loan proceeds to purchase A diagram of the legal agreements necessary energy savings contracts from local ESCOs or to build an SPE structure is provided in engineering firms. The SPE will acquire the Figure 5.3. collection rights of each ESCO project through a purchase/assignment agreement. Lenders to the SPE will look at the legal architecture and all transaction documents To provide lenders to the SPE with additional before investing or lending to the SPE. This will assurance that payments from each project include the loan or lease agreements for energy acquired by the SPE will be used to repay loans, efficiency projects, the underwriting criteria, a trust or "fideicomiso" is established to hold project intake protocols and evaluation all contracts purchased by the SPE. The SPE, procedures, disbursement policy, sanction through an assignment agreement with the procedures and post-project evaluation policy. trustee, transfers all contracts (which are All legal and transaction documents must be considered assets), insurance policies, fully prepared for lender review before funding warranties and other assets to the trust. The trust is provided. 39 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO Figure 5.2: SPE Finance Structure/Flow of Funds US$20 Million Financing Credit Enhancements Debt ­ 70% Equity ­ 30% NADB 50% = Mex$7 Million Mex$6 Million Equity Investors Other Debt SPE Financing 50% = Mex$7 Million OPIC NAFINSA Others EE Project EE Project EE Project EE Project Figure 5.3: SPE Legal Documents and Agreements Beneficiary of Trust Loan (3) "Fideicomiso" Irrevocable NADB Asset Pledge (4) SPE Administration and Payment Trust By-laws (2) Loan (3) (1) Assignment Agreement Other Asset Pledge (4) (6) Lenders (5) (5) Purchase/Assignment Purchase/Assignment Agreement Agreement ESCO ESCO To avoid conflicts of interest or the appearance of The SPE will assign all mortgages, insurance favorable treatment, SPE activities would be policies, equipment warranties and bonds to the limited to the purchase of existing ESCO contracts. NADB and colenders. It will not compete with local ESCOs in the delivery of services and would not independently Based on discussions with NADB officials and develop energy efficiency or ESCO projects in local ESCOs, preliminary underwriting criteria Mexico. are being developed. An outline of the preliminary criteria are provided below: 40 INNOVATIVE FINANCIAL STRUCTURES ­ PILOT PROJECTS Project requirements · Credit Report. A credit report (such as Dunn & Bradstreet) prepared within six months of · All projects must be based on an investment the application date to the SPE; grade energy audit. The SPE will provide standard acceptable energy audit guidelines; · Credit report and creditor bank references contain no material adverse information; · All projects must have a simple payback period of five years or less, pursuant to · Audited statements adequately disclose standard audits; financial conditions and were prepared according to accounting principles that afford · Maximum maturity of SPE financing will be a reasonable basis for reliance on the seven years; information provided; · Equipment installed in company facilities will · Auditor's statement is either: (a) unqualified be pledged as collateral to the SPE; and or (b) qualified with respect to amounts and · All equipment must involve proven technology. circumstances not considered material to creditworthiness; General information and company references of project beneficiaries · Positive operating profit and net income in each of the last two fiscal years; · Background Data. Concise description of company origin, legal status, ownership, · Total liabilities do not exceed 1.75 times facilities and business activities; tangible net worth at the end of the last · Financial Statements. Independently audited fiscal year; and balance sheets, income statements and cash flow statements for the last three fiscal years; · SPE exposure does not exceed 40 percent of tangible net worth at the end of the last · Bank Reference. A creditor bank reference; fiscal year. 41 6. Current Status of Pilot Projects and Next Steps Public Sector SPE SIMPEPRODE's charter indicates that it does not have the specific authority to engage in projects Resolution of outstanding legal issues in the electricity sector, including implementation of energy efficiency projects. Projects to be financed by the public sector SPE have been identified, SIMEPRODE had been A number of potential solutions are under identified as the implementing agency for the consideration which include: 51 street lighting projects, and a trust or "fideicomiso" agreement has been drafted to · Amend SIMEPRODE's charter; facilitate NADB lending for these projects. However, a number of issues remain outstanding · Identify another state agency with the as to the relationship of the state of Nuevo León necessary legal authority to engage in energy to the project structure which must be resolved projects that could establish the trust; or before projects move forward. · Creation of a special ESCO. Local counsel retained for this project, representatives from NADB and SIMEPRODE The creation of an independent ESCO for the officials have begun discussions of this issue and purpose of implementing the local street lighting are seeking a means by which the state can help projects was considered as an off-balance sheet create the "fideicomiso" without creating a debt option to the state. While this would resolve the burden on the state. This will require assessment debt burden issue, it raises serious procurement of state law and the Mexican legal framework issues. An independent ESCO would have to for municipal finance. Current reading of the engage in competitive bidding for each local law indicates that if the "fideicomiso" is created government street lighting project. Under the by the state, the debt of the trust would be SIMEPRODE structure, the agency could be considered debt of the state. While state officials retained for the implementation of the street are willing to support this project, they are not lighting projects without competitive processes. willing to put the debt on their balance sheet. This is possible because SIMEPRODE, an agency of the state, is exempt from competitive bidding As an alternative, SIMEPRODE could establish procedures for its services. a "fideicomiso." Under state law, this would not create a debt burden for the state. The challenge If an ESCO is created as the SPE financial here involves SIMEPRODE's charter and legal intermediary, there would be no assurance that authority to operate. While SIMEPRODE could it would be able to win all competitively bid establish a trust, it must do so within the limits projects. This would defeat the purpose of the of its legal authority to operate. A review of ESCO option, as NADB would not know what 43 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO level of projects could be bundled by the than finalization of the drafted transaction SPE/ESCO. document. Modifications to the legal agreements will be made as the SPE project moves forward, Additional discussions are moving forward on and as NADB official review these documents. this topic and will have to be resolved before the final structure is put in place. NADB approval of loan agreement NADB approval of a loan agreement An application for financing has not been filed with NADB for the private sector SPE, as NADB SIMEPRODE has filed a loan application with is seeking the involvement of a U.S. ESCO that NADB which officially begins the NADB review can provide a performance guarantee for the process. In addition, NADB officials, in accordance pool of projects to establish the SPE and with the guidance provided by the Board that "fideicomiso." This will remove performance risk NADB seek case-by-case authorization to for NADB and make Board approval easier. proceed with the development of studies and Discussions with U.S. ESCOs is active and a projects in new sectors, has requested and selection of an ESCO should be made in the received authorization from the Board to near future. proceed in developing the Nuevo León project. Legal Structure of SPE At this time, the lender and the agent for Financial Arrangement the SPE facilitator are fully authorized to advance the loan process. This process All necessary documents for the SPE have been will take time as NADB's project review procedures drafted and include: require public hearings and independent environmental analysis. · Draft SPE by-laws; · Terms of the "fideicomiso," or trust agreement; Legal structure for the SPE financing arrangement · Asset pledge agreement between SPE and NADB/lender; The "fideicomiso" has been drafted for the 51 street lighting projects, pending the resolution · Assignment agreement between local ESCO of the legal issues described above. and SPE; and Preparation of local projects · Assignment agreement between SPE and trustee. SIMEPRODE continues to work with local officials on the street lighting projects. Technology for the Each of these documents will be subject to projects has been verified by CFE, and the review and modification as negotiations certified savings from the pilot project in Allende between NADB and the SPE move forward. are being provided to each local mayor. They have been drafted for preliminary Consultation with local officials will move forward discussion and do not represent binding simultaneously with the NADB loan approval. agreements as to their terms. Private Sector SPE Preparation of local projects Outstanding legal issues Three potential groups of projects are under preparation for possible inclusion in the first There are no outstanding legal issues to be set of pooled energy efficiency projects for resolved in the private sector SPE structure other the SPE. 44 CURRENT STATUS OF PILOT PROJECTS AND NEXT STEPS Mexicali. The San Diego Regional Energy Office park is the city of Reynosa which contracted out is currently conducting preliminary diagnostics the management of the park to a private energy audits of seven industrial sites in Mexicali operator. The newly elected Mayor of Reynosa funded by NADB. Four additional set of studies has expressed an interest in moving this project will be prepared by the same company with forward and has expressed a willingness to funding from the California Energy Commission. provide support for the project. These audits will be used for discussions with industrial site owners to assess their interest in Monterrey. The local Mexican ESCO, Direm, and implementing energy efficiency investments at a U.S. firm, EPS, have entered into a JV their facilities. arrangement for the identification and implementation of energy efficiency projects in Reynosa. Preliminary energy audits of six the Monterrey region. Their general approach industrial sites in the PEMSA industrial park have is to work with existing Direm clients that have been performed by Vince and Brown Associates implemented power factor projects and now under contract to the California Energy seek to implement more comprehensive energy Commission. These studies have shown efficiency projects. Direm currently has sufficient potential energy savings to justify approximately 30 projects of this nature in place financing. The owner of the PEMSA industrial which is serving as the focus of these discussions. 45 7. Lessons Learned A project of this nature, which calls for the were involved in other core activities during creation of a financial intermediary to finance project implementation. a pool of energy efficiency projects, requires the identification and extensive cooperation Identification of energy efficiency projects for of a number of key players including potential financing through an SPE is critical to project lenders, project developers, potential project success. This aspect of the project was aggregators and government officials. During time-consuming as key players, initially identified the course of this project implementation, key as having the necessary deal flow for the SPE, players initially identified for cooperation withdrew from the project. The project was also withdrew from the process due to potential hampered by the lack of resources to fund conflicts of interest or lack of capacity. To avoid preliminary energy audits of potential projects. the appearance of a conflict of interest arising This was funded either by project developers or from the concerns that certain participants interested third parties. The California Energy retained to assist in the design of the SPE may Commission and the San Diego Regional Energy also benefit from the SPE, parties that could Office Energy were very helpful in providing potentially benefit from the SPE in the future resources for preliminary energy audits of decided to withdraw from the project. potential projects. However, the consultants hired This required a search for new key players and a through this process were not accountable to delay in project implementation. Potential conflicts the ESMAP team. As a result, the ESMAP team of interest should be carefully considered prior to could not influence the timing or the quality of project implementation and due diligence review these studies. Future efforts of this nature should of potential key players should include a review include funding for project identification and of their legal capacity to undertake a particular initial audits. role in the financial structure. Although SPE financing was not in place by the A project of this nature requires patience, time this ESMAP activity terminated, tremendous flexibility and perseverance. Patience is required; progress was made toward that end. Given the ESMAP team was not in control of the the continued interest of NADB, SIMEPRODE decision-making process of all parties involved. and project developers, we are confident that In many cases, the ESMAP project was captive the effort will continue beyond the life of the to delays while key players engaged in decision activity, and are hopeful that the financing making. Flexibility is required; unexpected will be successful. developments changed the nature and condition of key players in the process. Perseverance is The time frame for an activity of this nature can required; all the key players in the process be extensive relative to an ESMAP study of market 47 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO barriers, or other energy policy issues. As a The SPE conflict of interest issue could also be reference point, the Clean Energy equity fund resolved by making all SPE transaction that obtained Board approval from the documents available for broad dissemination. Multilateral Investment Fund in 2000 did not The SPE operator selected for implementation make its first investment until 2005. The time would not have proprietary rights to these frame from equity fund inception to first financial documents. The operator would, however, be investment can typically take two or more years. subject to first round funding and operations A similar time frame should be expected for the risk. All transaction documents would be creation of a SPE debt financing program. available for broad dissemination, removing any special advantage to the first SPE operator. As a Selection of an SPE operator is critically important result, the ESMAP team was unable to partner earlier in the process of establishing a SPE with a potential SPE operator early in the process structure, as the design of the SPE operation should without creating the appearance of special be undertaken with the operator's extensive input. treatment and a competitive bidding for an SPE This created a unique conflict of interest issues for operation at the start of the project. Future the ESMAP activity. Selection of an SPE operator projects of this nature should address this issue through competitive bidding at the start of the before the project begins. project did not appear to be a useful process because selection of an operator without a One possible solution to this issue is the selection defined, detailed structure in place would have of an SPE based on initial interest expressed by been extremely complicated and time-consuming. qualified candidates. Bidders would not have known the full nature of their financial responsibilities and duties until JVs between Mexican and U.S. ESCOs would the SPE documents were completed. be one means of addressing technology and financial risk and accelerate the energy efficiency Selection of the SPE was left to the NADB. In this market. Based on discussion with ESCOs in both regard, a number of established Mexican and countries, these efforts have not moved forward U.S. ESCOs were consulted on this issue and due to cultural, financial and control issues. asked to bring forward projects for pooling as It was not the ESMAP's objective or mandate to an expression of interest. No projects have been help negotiate these difference as it was believed brought forward to the ESMAP team's or NADB's that the private market will find the most attention by Mexican or U.S. ESCOs. appropriate means of cooperation. 48 Annex 1 SPE By-laws By-laws of _________________, S. DE R.L. DE C.V. FIRST CHAPTER Name, Domicile, Purpose, Duration projects executed directly or through a third party, and Nationality including but not limited to the creation of any kind of property, business, guarantee and FIRST ARTICLE. BY-LAWS. The association of administration trusts for investing in any kind of limited liability of variable capital will be energy efficiency projects; planning, developing, governed by the following by-laws. In the event implementing and finalizing and facilitating the that the by-laws do not cover a particular matter, access to this kind of projects to any person, the provisions of the General Law of Business partnership or corporation without the necessary Associations and Foreign Investment Law shall or sufficient resources to develop an energy apply. efficiency project; 2. To facilitate, develop, consult, provide the necessary economic SECOND ARTICLE. NAME. The name of the resources, acquire the obligations derived from association shall be "_______________" and it the energy efficiency projects set forth in shall always be followed by the words Schedule A [CCN: it will be recommendable to "SOCIEDAD DE RESPONSABILIDAD LIMITADA include in this section the content of Schedule DE CAPITAL VARIABLE" (Limited Liability A, because such document, if left apart, will be Association with Variable Capital) or its a part of this by-laws and can only be changed abbreviation thereof, "S. DE R. L. DE C.V." with the formalities set forth in/by the THIRD ARTICLE. DOMICILE. The association's amendment of by-laws], developed with domicile shall be in Monterrey, Nuevo León, persons, partnerships and corporations, in Mexico, though it may establish other agencies, conformity with the laws, regulations, norms and branches or representative offices elsewhere other legislation that is applicable, including within or outside the Mexican Republic and may those in matters of foreign investment and choose conventional domiciles. environmental development (collectively the "energy project assets"); 3. Acquire, own, lease, FOURTH ARTICLE. ASSOCIATION transfer, sell, assign and, otherwise, deal with PURPOSES. The association's purposes shall (a) energy project assets; (b) leases, loans and consist of the following activities: 1. To carry out conditional or installment sale contracts, notes any commercial activity related to the and security agreements related to energy development, implementation, consulting and project assets; (c) receivables and proceeds from providing all the necessary economic resources energy project assets; and (d) interests in the for the execution of any kind of energy efficiency items described in clauses (a) through (c) (items 49 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO (a) through (d) being collectively called "Specified fairly and reasonably among the association and Assets"); and 4. Carry out all types of contracts, other persons or entities sharing such space or acts and activities whether of a civil, expense); (vi) enter into all transactions on an administrative, mercantile or any other nature arm's length basis and in those with affiliates or in order to comply with the purposes mentioned related third parties the association will have to above. The association shall not engage in any comply with all applicable laws, regulations and business or activity other than that set forth in treaties signed by Mexico for transfer pricing; this Section. (vii) not guarantee or become obligated for the debts of any other person or entity or hold out NOTWITHSTANDING any other provision of its credit as being available to satisfy the this document: obligations of others; (viii) not pledge its assets for the benefit of any other person or entity, or Obligations and Indebtedness. The make any loans or advances to any person or association shall not incur indebtedness for entity, except as contemplated or permitted or borrowed money except as permitted under any required by the association purposes; (ix) not instruments or agreements related to the acquire obligations or securities of its associates activities set forth in the association purposes. or affiliates; (x) promptly correct any known Maintain Separateness. The association shall: misunderstanding regarding its separate identity; (i) at all times hold itself out to the public as a (xi) maintain adequate capital so as to remain legal entity separate and distinct from the solvent in accordance with applicable Mexican associates and their affiliates by, among other laws; (xii) maintain its own deposit account or things, maintaining a separate telephone accounts with commercial banking institutions number, suite number, stationery, invoices and separate from those of any affiliate and not divert checks from such persons or entities and the funds of the association to any other person conducting business from office space that is or entity or for other than authorized uses of the separate from that of its associates (other than association; (xiii) take reasonable measures to an associate to the limited extent required or ensure that if the association and any of its appropriate in connection with its servicing or associates or affiliates have offices in the same management of the Specified Assets); (ii) file its location, there shall be a fair and appropriate own tax returns, if any, as may be required under allocation of overhead costs among them, and applicable law, to the extent not part of a that each such entity shall bear its fair share of consolidated or combined group filing a such expenses; (xiv) conduct its affairs strictly in consolidated or combined return or returns, and accordance with this document, and observe all pay any taxes required to be paid under necessary and customary association company applicable law; (iii) not comingle its assets with formalities, including (a) holding all regular and assets of the associates or their affiliates, or any special meetings of its associates and managers other third parties; (iv) conduct its business only (or obtaining written consents in lieu of such under its own name and hold all of its assets in meetings) required under this document or the its own name; (v) pay its own liabilities, debt General Law of Business Associations to and obligations solely from its own funds, and authorize association action, (b) keeping not pay from its assets any liabilities, debt, or separate and accurate records of any such obligations of others (provided that overhead meetings and its actions, (c) adopting all for shared office space and other shared resolutions or consents necessary to authorize expenses may initially be paid by the associates actions taken or to be taken, and maintaining or an affiliate so long as it is promptly allocated appropriate association records, including 50 ANNEX 1: SPE BY-LAWS written consents of associates, as applicable, to portion. The minimum fixed capital is actions required to be approved by such persons Mex$3,000.00 pesos (Three Thousand and 00/ or entities and copies of the minutes of meetings 100 Mexican pesos), and paid by the associates. of the board (or written consent approving The variable capital is unlimited. The association resolutions adopted by consents in lieu of interests representative of the association capital meetings), and (d) maintaining accurate and shall have two series, the Series "A" association separate books, records and accounts, including interests are to be issued to Mexican associates; payroll and inter company transaction accounts; the Series "B" association interests are to be and (xv) not to consolidate or combine its assets with other entity's, liquidate, wind up, merge or issued to foreign associates. The association sell substantially all of its assets without interests representative of the fixed capital shall prior written consent of any lender that the be the Series "A-1" and "B-1", respectively. The association may have as allowed by the association interest representatives of the association purposes. variable capital shall be the Series "A-2" and "B-2," respectively. The value of the contributions FIFTH ARTICLE. DURATION. The duration of in kind shall be authorized and approved by the association will be ninety-nine (99) years, the associates. No associate may have more starting from its incorporation, and shall be than one association interest in the same series automatically extended for another ninety-nine of the association capital. When an associate (99) years, unless otherwise specified by a realizes a new contribution or acquires the totality resolution adopted by an extraordinary meeting of the associates. or a fraction of an association interests from a coassociate, the value in the association capital SIXTH ARTICLE. NATIONALITY. The association shall be increased in the respective amount. is of Mexican nationality; all physical persons The associates' meeting that authorizes the and/or entities of Mexican nationality or increase in association capital shall determine foreigner may participate; the founding the characteristics and conditions of the said associates agree and establish for future associates increase and the association interests that should as follows: "All foreigners who, upon the be issued. association or at any later time, acquire an interest or a participation in the association, by said act EIGHTH ARTICLE. CERTIFICATES OF done before the Ministry of Foreign Affairs are CONTRIBUTION. The association shall issue deemed to be Mexican with respect to each other, and toward the goods, rights, concessions, certificates of contribution which shall not be participation or interests owned by the association considered as credit instruments. The transfer or with respect to the rights and obligations derived of association interests, provided they are from contracts entered into with Mexican authorized under the terms of the by-laws and authorities and have waived the right to invoke do not imply liquidation of the association, shall the protection of their government. This waiver is be carried out through the execution of the made under penalty of forfeiting said interests, corresponding agreement. The associates of this rights or participation to the Mexican Nation." association of limited liability shall have a vote for each peso, national currency (Mex$1.00 peso), SECOND CHAPTER contributed to the capital of the association. Association Capital and Association Interests NINTH ARTICLE. REGISTRATION OF ASSOCIATES. The association shall maintain SEVENTH ARTICLE. CAPITAL. The association a registration book, setting forth the name, capital is composed of a fixed and a variable nationality and domicile of each associate, as 51 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO well as the number of association interests issued and whose entries shall be signed by the to each associate. Any transfer of association President or the Secretary of the Board of interest made by the associates, provided they Managers and/or by a legal representative of have been authorized under the terms of the the association that has a general power of by-laws, shall be registered in the said registry attorney for acts of administration. book, which entries shall be signed by the Sole Manager or the Secretary of the Board of In the event that any associate desires to transfer Managers and/or a legal representative of the through a sale of their association interest, such association who has general powers of attorney transfer or sale shall require the unanimous for acts of administration. consent of the associates of the association who shall have the right of first refusal to acquire the TENTH ARTICLE. INCREASES IN CAPITAL association interest being sold or transferred. AND TRANSFER OF ASSOCIATION Likewise, in the event of a admittance of a new INTERESTS OR CONTRIBUTIONS BY NEW associate into the association as a result of ASSOCIATES AND RESTRICTIONS ON acquisition of a previously issued association TRANSFERS OF ASSOCIATION INTERESTS. interest or as a result of an association capital The association's capital may be increased by a increase subscription, the associates' admission resolution from an extraordinary associates' shall be conditioned upon the unanimous meeting except in case of an increase in the consent of the associates of the association under variable part of the association's capital, which the terms of the applicable provisions of the may be carried through a resolution at an General Law of Business Associations. ordinary meeting of the associates. In the event the capital is increased, as a result of a capital THIRD CHAPTER contribution proposed by a new prospective associate, the associates will have a preferential Administration right to subscribe a portion of the increase of ELEVENTH ARTICLE. ADMINISTRATION OF the capital stock in proportion to the number of THE ASSOCIATION. The administration of the interests they own. Such preferential right must association will be directed by the Board of be exercised within fifteen (15) working days from the date of notification of the resolution to Managers. The Managers shall be appointed increase the capital is given and the eventual by an ordinary associates' meeting. The sole admission of the new associate. The said manager or managers may or may not be notification must be sent either: (i) via personal members of the association and once appointed, delivery or (ii) via internationally recognized continue their position until the person courier service. However, if at the time of voting, designated to substitute them takes charge of the total association capital is represented at the the position. In addition, the association may meeting, whether personally or by means of appoint a manager who acts as the assistant powers of attorney, the said time limit will secretary without a right to vote. The Board of commence on the date the meeting was held Managers shall receive compensation, if there and the associates will be considered as advised is some that the general ordinary associates' of the resolution approving the increase in meeting determines. The managers may be association capital at said time. removed at any time by the ordinary meeting of the associates. The association shall have a capital variations book in which it will record the increase or To the fullest extent permitted by law, the decrease in the social capital of the association Independent Manager shall, in acting or 52 ANNEX 1: SPE BY-LAWS otherwise voting on the matters referred to in to the institution of bankruptcy or insolvency the Fourth, Twelfth, Thirteenth and Fifteenth proceedings against it or could file a petition Article hereof: (i) consider only the interests of seeking relief under any applicable federal or the association and the association's creditors; state law relating to bankruptcy; and (ii) is and (ii) not be required to act in the best interest employed with one or more entities that provide, of the associates. The Independent Manager in the ordinary course of their respective shall not at any time serve as a judicial inspector, businesses, advisory, managerial or placement auditor or trustee in bankruptcy for any affiliate services to issuers of securitization or structural of the association. No resignation or removal finance instruments, agreements or securities. of the Independent Manager, and no appointment of a successor Independent The Managers of the association, as the case Manager, shall be effective until a successor has may be, shall jointly have the following powers accepted his or her appointment as an and authorities to administrate the association: Independent Manager by a written instrument. GENERAL POWER OF ATTORNEY FOR ACTS If a vacancy in the position of Independent OF OWNERSHIP. With all the general and Manager occurs, the associates shall, as soon specific authorities under the terms of the third as practicable, appoint a successor Independent paragraph of Article 2554 of the Civil Code for Manager. The replacement for an Independent the Federal District, including the corresponding Manager must also be an Independent sections in the Federal Civil Code and the other Manager, unless there remains at least one current Civil Codes for the States of the Mexican Independent Manager on the Board. Republic. The attorneys in fact designated herein shall have all the necessary authorities to sign "Independent Manager" means a Manager that: any type of document related to the transfer of (A) is not and has not been at any time during any good belonging to the association, the preceding five years (i) a stockholder, director, including, but not limited to, the execution of officer, employee, manager, or partner of The any act related with the transfer of any asset of Andersons, Inc., or any affiliate of The the corporation, including, but not limited to, Andersons, Inc. (other than a Special Purpose the execution of any type of public deed related Affiliate), (ii) a direct or indirect holder of any with the transfer of the property of any asset of voting securities of The Andersons, Inc., or any the corporation, as well as any type of request, affiliate of The Andersons, Inc., (iii) a creditor, notification, declaration or document related supplier, contractor or any other person who with the above indicated. derives any of its purchases or revenues from its activities with any of the associates or any of GENERAL POWER FOR ACTS OF their affiliates, other than solely for ADMINISTRATION. All the general and specific compensation for its services as Independent powers which require a special grant, in Director, or (iv) a member of the immediate accordance with the law, under the terms of the family of any stockholder, director, officer, second paragraph of Article 2554 of the Civil employee, partner, customer, supplier or Code in force of the Federal District, and the contractor of any of the associates or any of corresponding sections of the Federal Civil Code their affiliates; and (B) has (i) prior experience in force and other Civil Codes in force in all as an independent director for a corporation the states of the Mexican Republic, as well as whose charter documents required the grant and subscribe all types of public and unanimous consent of all independent directors private documents, civil, renouncements and thereof before such corporation could consent declarations of civil nature, mercantile, 53 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO administrative or any other kind in accordance claims of any type, to represent the association with the law, to sign and subscribe all types of in any penal process, to be coadjutors to the tax declarations, including the Sistema de Ahorro public ministry, to grant pardons to the accused, para el Retiro (SAR), the social security, retirement when such is appropriate, to present evidence system, the Instituto del Fondo Nacional de la in penal proceedings, in accordance with that Vivienda para los Trabajadores (INFONAVIT), set forth in the Ninth Article of the Code of Penal the public housing authority, and that which Procedure for the Federal District, and the corresponds to federal or local taxes of any sort, corresponding articles of the penal code of the including the payroll tax. The powers will include states of the Mexican Republic and of the Federal those to carry out all types of petitions, Code of Penal Procedures. consultations, measures or solicitations before all types of authorities, of any type, whether they SPECIAL POWER OF ATTORNEY FOR LABOR be federal, state and/or municipal, including the MATTERS. The named individuals will have solicitations for the refund of the value added the powers of employer representation in tax. In addition, they shall have the authority to accordance and for the purposes of Articles 11, request all types of permits and/or authorizations 46, 47 and 134, Section III, 523 and 692, before any governmental agency, the import and Sections I, II and III, 786, 878, 880, 883 and export permits and related permits, as well as any 884 of the Federal Labor Law; the power that is types of measures and transactions of customs granted and the employer representation which before the Department of Finance and Public is conferred will be exercised in accordance with Credit and any other agency, whether federal, state the following powers which are enumerated for or local. descriptive, but not limitative purposes, being able to appear in front of or before the unions GENERAL POWER OF ATTORNEY FOR with which there exists an executed collective LAWSUITS AND COLLECTIONS. All the bargaining agreement; before or in the presence general and special powers that require a of those considered confidential workers and in specific grant, in accordance with the law and general for all employer/employee matters, and under the terms of the first paragraph of Article to exercise before any of the authorities for labor 2554 of the Civil Code of the Federal District, and social services for the matters referred to in and the corresponding sections of the Federal Article 523 of the Federal Labor Law; and also Civil Code and other Civil Codes in force in all may appear before the Boards of Conciliation the states of the Mexican Republic, to exercise and Arbitration, whether such be local or federal, said power before all types of persons and and to carry out the employer representation judicial and administrative authorities, whether for the purposes of Articles 11, 46 and 47 of such be civil, penal, federal or local labor the Federal Labor Law and also for the legal authorities, especially to desist from lawsuits, representation of the association for the bind in arbitrations, articulate and dissolve purposes of verifying its identity and capacity in positions, challenge judges, accept transfer of suits or outside of such, according to the terms assets, receive payments and issue receipts and of Article 692, Sections II and III of the Federal cancellations, prosecute civil, mercantile, tax or Labor Law; they may appear at the labor trial administrative actions and any other type of for the evidentiary questioning of the employee, civil or criminal actions, including the according to the terms of Article 787 and 788 presentation and/or desist of Amparo lawsuits of the Federal Labor Law, with the powers to in representation of the association, make all arbitrate and eliminate positions and present the types of denouncements, claims, accusations or evidence at all times; they may denote the 54 ANNEX 1: SPE BY-LAWS association domicile for receiving notifications, adopted by a majority. In the event of a tied in accordance with the terms of Article 876 of vote, the President of the Board of Managers the Federal Labor Law; they may appear in the shall decide by casting his vote. Minutes of the capacity of the employer, with all the authority meetings shall be recorded in the association's and legal responsibility necessary for the minute book and will be signed by the president hearings, which are referred to in Article 873 of of the Board of Managers and another manager the Federal Labor Law, in the three phases of: will be entered in the book carried out for this conciliation, complaint and defense; admission purpose. If the President of the Board of of evidence, in accordance with the terms of Managers is absent from the meeting, it will be Articles 875 and 876, Sections I and IV, 877, presided over by any other manager. In order 878, 879 and 880 of the Federal Labor Law; to be able to establish an annual budget of and they may also attend the hearing on the expenses, investments and costs and the monthly admission of evidence according to the terms contributions of the associates, the Board of of Articles 883 and 884 of the Federal Labor Managers shall receive from the officers of the Law; they may make settlements, execute association documentation, receipts, invoices, compromises, make all types of decisions, budgets and all other documentation necessary negotiate and sign legal agreements, and they in order to be able to determine the economic may also execute individual and collective and financial conditions of the association, labor agreements, as well as terminating or its budgets and association contributions. rescinding such agreements. The associates shall have the opportunity to take resolutions that are within their POWER OF ATTORNEY FOR EXCHANGE corresponding competency. AND BANKING. Powers of attorney to: (i) execute, grant and subscribe all types of credit Limitation on Actions. Without the prior transactions, evidenced in public or private unanimous consent of the Members and the documents, as well as authority to subscribe, Board of Managers (including each Independent endorse, guarantee, collect, accept and, in Manager, at least one of whom must at the time general, negotiate negotiable instruments in be serving on the Board in such capacity in order accordance with the terms of Articles 9 and 85 for any such action to be taken), the association, of the General Law of Negotiable Instruments associate, Manager or other person or entity on and Credit Transactions; and (ii) general power behalf of the association shall not: (i) commence for banks to carry out, in the name of the any voluntary bankruptcy (as defined below), association, all types of banking transactions and consent to any bankruptcy proceeding to be operations, open, administer and cancel all taken against it by any other person or entity or types of accounts and banking operations, cooperate or take any association action in including the power to instruct credit institutions furtherance of any such action or admit in writing concerning the authority to sign checks, to carry the association's inability to pay its debts out deposits, withdrawals or endorsements in generally as they become due, or to the fullest all types of bank accounts. extent permitted by law, to take any action in furtherance of any such action; (ii) except to the TWELFTH ARTICLE. MEETINGS OF THE extent required by law, dissolve or liquidate, in MANAGERS. The managers will meet at the whole or in part; (iii) merge, consolidate, or association's principal place of business, unless reorganize with or into any other person or entity; otherwise agreed by resolution of the majority. (iv) convey or transfer all or substantially all of Resolutions of the Managers will be valid when its properties and assets to any other person or 55 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO entity (except for the direct or indirect pledge be the legal representative of the association, or conveyance of Specified Assets in and shall have powers of attorney for acts of compliance with the association's purposes); ownership, administration and lawsuits and (v) engage in any business or activity or incur collections, and special powers of attorney, in any debt other than as expressly permitted in accordance with the law that require a special the Fourth Article; (vi) amend this Article or clause under the terms of the first two any of the first four Articles of the by-laws of paragraphs of Article 2554 of the Civil Code of the association; or (vii) so long as any the Federal District, and the corresponding Securities are outstanding, cooperate to sections of the Federal Civil Code and other Civil amend, alter, change or repeal the definition Codes in force in all the states of the Mexican of "Independent Manager." The association Republic. Likewise, the Sole Manager, the Board shall do or cause to be done all things of Managers and/or the Manager/President, as necessary to preserve and keep in full force the case may be, shall have those powers and effect its existence, rights (by-laws and necessary to subscribe, negotiate and endorse statutory) and franchises. negotiable instruments, as well as to undertake credit transactions on behalf of the association, "Bankruptcy" will be construed as defined by including all types of banking, exchange and the Commercial Bankruptcy Law of Mexico credit transactions in accordance with Articles 9 ("Ley de Concursos Mercantiles") and 85 of the General Law of Instruments and Credit Operations; to file and contest lawsuits, THIRTEENTH ARTICLE. RESOLUTIONS OF challenge venue and jurisdiction of judges, THE MANAGERS BY UNANIMOUS CONSENT. negotiate, enter into arbitration, make and Any type of resolution that requires the receive payments, enter into all types of intervention of the managers, including those agreements, represent the association in any referred to in the contents of the Article above, type of court of civil, labor or commercial may be taken without a meeting of the managers procedures, prepare and answer interrogatories, so long as a unanimous consent, in writing, of present accusations or criminal complaints and the resolution is reached. Whenever any notice ratify them, submit evidence to the District Attorney, is required to be given under the General withdraw accusations or complaints presented Law of Business Associations, a waiver of such and issue criminal releases, carry out all types of notice in writing signed by all the managers, petitions, procedures and negotiations before whether before or after the time stated in the administrative authorities in matters pertaining to waiver, will be deemed equivalent to the giving the association, interpose all types of appeals, of such notice. including injunctions (Amparo lawsuits) and withdraw appeals and injunctions. FOURTEENTH ARTICLE. LIABILITY OF THE MANAGERS. Liability of the managers is In addition to the above-mentioned powers of governed by the provisions of Article 76 of the attorney, the Board of Managers may do the General Law of Business Associations. following, including, but not limited to: FIFTEENTH ARTICLE. POWERS OF THE · Represent the association before all types of MANAGER, BOARD OF MANAGERS AND judicial, administrative or labor authorities MANAGER/PRESIDENT. In addition to the with all the above-mentioned authorities; authorities granted in this association agreement, and subject to the limitations set forth · Carry out all acts and operations pertinent in this document, the Board of Managers will to comply with the association's purposes; 56 ANNEX 1: SPE BY-LAWS · Execute, grant and subscribe all types of credit directed by one or more officers or executives transactions, evidenced by public or private named by the Board of Managers or by a general documents, as well as the authority to ordinary or extraordinary meeting of the subscribe, endorse, guarantee, collect, accept associates. These officers and executives will have and, in general, negotiate negotiable the authority and obligations that the Board of instruments under the terms of Articles 9 and Managers or the associates indicates upon making 85 of the General Law of Negotiable their appointment and granting the necessary Instruments and Credit Transactions as well powers of attorney. The said officers will serve until as to undertake, on behalf of the association, their designations are revoked by the Board of all types of banking transactions, open, Managers, Manager or through an ordinary or administer and cancel all types of accounts extraordinary meeting of the associates. and banking transactions, including the authority to instruct the credit institutions EIGHTEENTH ARTICLE. GUARANTEES. The regarding the authorization to sign checks, managers, upon taking their duties, shall not undertake deposits, withdrawals or be obligated to provide guarantees for the endorsements in all types of bank accounts; fulfillment of their duties. · Name and remove officers, executives and FOURTH CHAPTER employees of the association, and set their duties, obligations and compensation; Inspection · Grant, delegate, substitute and revoke NINETEENTH ARTICLE. INSPECTION. general and/or special powers of attorney Auditing requirements of the association's with the authority they deem convenient; activities will be performed by a Board of Inspectors appointed by the associates at an · Summon ordinary or extraordinary associates' ordinary meeting or through a unanimous meetings and carry out all resolutions; and resolution by the associates. The said board will consist of two or more members. · Effect and/or formalize all types of liens or Guarantee regarding the association assets. TWENTIETH ARTICLE. NEW MEMBERS OF THE BOARD OF INSPECTORS. The members The President of the Board of Managers will have of the Board of Inspectors may or may not be the powers of attorney and faculties mentioned associates of the association, shall serve in such in this Article and the above Sections, if they are capacity until removed by the associates at an so previously authorized by the Board of ordinary meeting, and may be re-elected, in Managers of the association by resolution. which case they shall continue to serve until the persons designated to substitute them SIXTEENTH ARTICLE. AUTHORITY OF THE are appointed. MANAGER/PRESIDENT. The Manager/ President will be the legal representative of the TWENTY-FIRST ARTICLE. IMPEDIMENTS TO managers and the association and executor of BEING A MEMBER OF THE BOARD OF the resolutions without requiring special INSPECTORS. The following persons cannot be authorization to execute those resolutions. members of the Board of Inspectors: SEVENTEENTH ARTICLE. DIRECT · Those who lack the legal capacity to engage ADMINISTRATION. The association will be in commerce; and 57 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO · Direct descendants of managers, their relatives FIFTH CHAPTER within the fourth degree and relatives by marriage within the second degree. Associates' Meetings TWENTY-SECOND ARTICLE. AUTHORITIES TWENTY-FOURTH ARTICLE. ASSOCIATES' AND OBLIGATIONS. The authorities and MEETING. A legally held meeting of the obligations of the Board of Inspectors are associates is the governing body of the as follows: association, and its decisions bind not only those who are present but also those absent, as well · To undertake a review of the operations, as dissidents. documentation, registrations and other relevant evidence to the extent necessary to TWENTY-FIFTH ARTICLE. CLASSIFICATION ensure proper inspection of activities as OF THE MEETINGS. The meetings of the required by law, and to render the report associates may be ordinary and extraordinary. mentioned in the following paragraph; and Except as stated herein, all meetings will be ordinary, including those relating to increases · To furnish the general ordinary associates' in the variable part of the association capital. meeting with an annual report regarding the Meetings held to deal with any of the following accuracy, sufficiency and reasonableness of matters will be extraordinary meetings: the documentation submitted by the administrators to said associates' meeting. · Increase or reduction of contributions in the Such report shall at least include: fixed capital of the associates; ­ The opinion of the Board of Inspectors as · Admission of new associates; to whether the policies, accounting standards followed and information · Transfer of the association interests; supplied by the association are adequate · Amendment of the association agreement; and sufficient in light of the particular circumstances of the association; · Merger, spin-off or transformation of the association; ­ The opinion of the Board of Inspectors as to whether the association's policies and · Early dissolution of the association; and accounting standards have been consistently applied by the managers; · Any other matter that requires an extraordinary meeting in accordance with the ­ The opinion of the Board of Inspectors as provisions of this association agreement. to whether, as a result of the foregoing, the information and reports supplied by the All the matters that require an extraordinary managers reflect the financial status of the meeting will have to comply with the requirements association in a truthful and sufficient set forth in these by-laws, particularly in Articles form; and 4, 13 and 15 of these by-laws. ­ Other matters as provided by law. Resolutions by unanimous written consent without the need to hold a meeting of the associates may TWENTY-THIRD ARTICLE. GUARANTEES. be adopted in all cases, provided that all terms The members of the Board of Inspectors shall and conditions indicated in Article 82 of the not be obligated to post guarantees for the General Law of Business Associations are met. fulfillment of their duties. In these cases, internationally recognized courier 58 ANNEX 1: SPE BY-LAWS service from either Mexico or the United States a notice, the court having jurisdiction in the city may be used. Associates representing more where the association is domiciled, may be than one-third of the association's capital asked to call a meeting, petitioned by those shall have the right to call a meeting, as set interested associates representing at least thirty- forth in the second paragraph of Article 82 three percent (33%) of the association capital, of the General Law of Business Associations. who shall accredit their capacity as associates. TWENTY-SIXTH ARTICLE. ANNUAL MEETING. The ordinary and extraordinary meetings must An ordinary associates' meeting should be held be called by means of a notice through certified at least once a year, within four months following mail, return receipt requested, directed to each the end of the association's fiscal year, and in of the associates in the registry book, even when addition to dealing with the subject matters the said domicile is outside Mexico, except when included in the agenda, the meeting should a resolution is approved through an unanimous include the following: consent of the associates. · Discuss, approve or amend the report of the TWENTY-EIGHTH ARTICLE. FULL MEETINGS. administrators, referred to in Article 36 of this A meeting may be held without the requirement association agreement, the annual budget, of publishing the call to meet nor with the investments and distributions proposed by the notification referred to above and the resolutions managers for the corresponding fiscal year, will be valid if adopted, in the following cases: taking into account the members of the Board of Inspectors' report and adopting such steps · When the total association interests are as the associates deem appropriate; represented one hundred percent (100%) during the entire meeting; and · Name, confirm and/or remove the members of the Board of Managers, as may be the · When a meeting is a continuation of one in case, and the members of the Board which notice of the day and the time was of Inspectors; and properly given, however, no other matter may be dealt with, except those originally scheduled. · Set the corresponding compensation payable to the members of the Board of Managers This provision does not apply to resolutions taken and the members of the Board of Inspectors. by the associates through unanimous consent, in accordance with Article 82 of the General TWENTY-SEVENTH ARTICLE. SUMMONS. Law of Business Associations. The summons for either the ordinary or the extraordinary associates' meeting shall be made TWENTY-NINTH ARTICLE. REPRESENTATION. by the Sole Manager, the Managers, or the Associates have the right to be represented at Board of Inspectors. Associates representing at meetings by the person or persons designated least thirty-three percent (33%) of the association by them through proxy letters signed by the capital may request the Sole Manager or the corresponding associate and two witnesses. The Managers or the Board of Inspectors, by written associates may not be represented by members notice at any time, to summon an ordinary or of the Board of Managers or members of the extraordinary meeting, in order to address the Board of Inspectors. matters indicated in the proposed agenda. THIRTIETH ARTICLE. MINUTES OF THE If the Board of Managers or the Board of MEETINGS. Minutes of the associates' general Inspectors refuse or fail to call a meeting within meetings or resolutions agreed to by a fifteen (15) days following the date they received unanimous written consent of the associates 59 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO (if no meeting held) shall be entered in the requirements set forth for the first meeting are minute book and signed by, at minimum, the met at the second or subsequent meeting. President and Secretary of the meeting, as well as members of the Board of Inspectors in THIRTY-FIFTH ARTICLE. GENERAL attendance. In the case of resolutions adopted ASSOCIATES MEETING MINUTES ADOPTED by unanimous consent, the Manager/President BY UNANIMOUS CONSENT. Any type of or any other Manager shall certify the existence resolution(s) that are to be addressed in general ordinary or associates' ordinary or extraordinary of the resolution and sign the minute book. meeting minutes may be adopted outside the THIRTY-FIRST ARTICLE. PRESIDENT AND meeting without the necessity of calling for an SECRETARY OF THE MEETINGS. The meetings associates' meeting and shall be valid so long shall be presided over by the Manager/President as all of the associates sign the minute(s) that or, in his absence, thereof, by the person have been adopted with the respective meeting designated by the majority vote of the associates minute addressing the respective matter(s) present. The Secretary of the meeting will addressed therein being signed by all of the be designated by a majority vote of the associates with voting rights. associates present. SIXTH CHAPTER THIRTY-SECOND ARTICLE. RESOLUTIONS Financial Information ADOPTED AT ORDINARY MEETINGS. For an ordinary associates' meeting to be legally held THIRTY-SIXTH ARTICLE. ANNUAL REPORT. on first call, it is necessary for at least fifty-one The association under the responsibility of the percent (51%) of the association's capital to be Board of Managers shall submit an annual represented, and resolutions will be valid only if report which shall at least include: approved by a majority of the total amount of the association's capital, regardless of what · A report from the Board of Managers percentage is represented at a legally held describing the operation of the association meeting, except, in specific cases, when the during the fiscal year, as well as the policies association agreement require a higher followed by the Board of Managers, and, percentage. when appropriate, an explanation of the principal projects for the association; THIRTY-THIRD ARTICLE. RESOLUTIONS ADOPTED AT THE EXTRAORDINARY · A report in which the principal policies, MEETINGS. An extraordinary meeting may information and accounting standards used be legally held on first call, when at least in preparing the financial statements is seventy-five percent (75%) of the association's set forth; capital is represented, and resolutions will be valid only if approved by a majority of the total · Statements showing the financial condition of the association at the fiscal year end; amount of the association capital, regardless of what percentage is represented at a legally · Statements showing the annual financial held meeting. results of the fiscal year, duly explained THIRTY-FOURTH ARTICLE. SECOND CALL and categorized; FOR MEETING. If the ordinary or extraordinary · Statements showing changes in the financial meetings cannot be held on the day indicated, condition during the fiscal year; a second or subsequent meeting shall be called and held to decide the items set forth in the · Statements showing changes in the entries agenda, provided the quorum and resolution of the association patrimony; and 60 ANNEX 1: SPE BY-LAWS · Footnotes and remarks which may be application of other entries from the patrimony necessary to clarify or complete the information or the reserves formed by the association. furnished in the above statements. FORTIETH ARTICLE. FOUNDING ASSOCIATES. The foregoing information should be presented Founding associates are not entitled to special in addition to the Board of Inspectors' reports participation in the association because of their referred to in the Twenty-second Article of this position as original founding associates. association agreement. EIGHTH CHAPTER SEVENTH CHAPTER Liquidation of the Association Profits and Losses FORTY-FIRST ARTICLE. LIQUIDATION. The THIRTY-SEVENTH ARTICLE. PROFITS. The association shall be dissolved upon the profits that result will be distributed in the occurrence of any of the events set forth in Article following manner: 229 (two hundred twenty-nine) of the General Law of Business Associations. · First. At least five percent (5%) will be set aside annually, as a legal reserve. This FORTY-SECOND ARTICLE. LIQUIDATORS. procedure will continue until the legal Once the association has been dissolved, it will reserve accumulates an amount equivalent be liquidated by one or more liquidators to twenty percent (20%) of the capital of appointed at an extraordinary meeting of the the association; associates. In those cases in which such · Second. An amount determined in the procedure is not carried out, the Judge of the meeting shall be set aside as a special reserve Civil or District Court having jurisdiction over for future investments by the association; the association domicile shall appoint liquidators at the request of any associate. · Third. Amounts required by the Federal Labor Law for employee profit-sharing shall be FORTY-THIRD ARTICLE. LIQUIDATION set aside; and RULES. Unless there are specific instructions to the contrary from the meeting dissolving the · Fourth. Once the associates have approved association, or by judicial resolution, the the financial statements for the corresponding liquidation of the association will be carried out fiscal year, the remaining sums shall be according to the following general rules: capitalized, retained in the association's treasury, reinvested or distributed among the · Termination of pending transactions in the associates in proportion to the amount of least harmful way to the creditors and their contributions or in accordance with that the associates; determined at a meeting of the associates. · Preparation of the balance and general inventory; THIRTY-EIGHTH ARTICLE. LOSSES. Losses, if any, will be covered by the existing reserves. · Collection of credits and payment of debts; and THIRTY-NINTH ARTICLE. AMORTIZATION · Transfer of the association's property and OF LOSSES. There should not be any application of the proceeds first to pay creditors distribution of profits until losses suffered in prior and then to the associates, in proportion to fiscal years are restored or absorbed by their ownership interests. 61 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO Articles of Formation Messrs.___________CPA and __________CPA shall function as members of the Board of FIRST ARTICLE. FISCAL YEARS. Fiscal years Inspectors of the association. [It is a legal will begin the first day of January and will end requirement to have a Board of Inspectors the 31st of December of each year. The first fiscal so we need to designate them.] year, however, will be irregular, and will begin from the date of signature of this document and It is certified that the members of the Board of end on December 31, 2006. Managers and members of the Board of Inspectors appointed have accepted their positions without SECOND ARTICLE. CAPITAL STOCK. The the need to guarantee their performance as association's minimum fixed capital of described in the association agreement. Mex$3,000.00 (Three Thousand and 00/100 Mexican pesos) has been fully subscribed and FOURTH ARTICLE. POWERS OF ATTORNEY. paid in the following manner: 1. ________, _______, [please provide full names as shown in passports] Rene __________________, [please provide] Cacheaux Aguilar, Daniel Cavazos, Joseph subscribes one Series "B-1"association interest Bradshaw Newton, Felipe Chapula Almaraz, Robert Michael Barnett, Mario Melgar with a face value of Mex$2,999.00 Fernandez, Sergio Mario Ostos Iturbe, Jorge Raul Ojeda Santana, Juan Francisco Lopez National Currency Mex$2,999.00 Montoya, Floriberto Morales Molina, Justo Bautista Elizondo, Claudio Eloy Vazquez __________________, [please provide] Cardenas, Francisco Jose Peña Valdes, Jose Soto Soberanes, Miriam Name Almanza, Iker Jose subscribes one Series "B-1" association interest Dieguez Bonilla, Jorge Sanchez Cubillo, Jose with a face value of Mex$1.00. Aaron Rodriguez Cadena and Ramon Concha Hein who shall have, jointly or individually, the Total of two contributions of capital with a total following powers to represent the association: value of Mex$3,000.00. GENERAL POWER FOR ACTS OF THIRD ARTICLE. ADMINISTRATION. Unless ADMINISTRATION. All the general and specific otherwise established by an ordinary meeting powers which require a special grant, in of the associates: accordance with the law, under the terms of the second paragraph of Article 2554 of the Civil The association shall be administered by a Board Code in force of the Federal District, and the of Managers integrated in the following manner: corresponding sections of the Federal Civil Code in force and other Civil Codes in force in all Managers Position the states of the Mexican Republic, which _________________ Manager/President include the power to grant and subscribe all types of public and private documents, civil, _________________ Manager/Secretary mercantile, administrative or any other form of renouncements or declarations, in accordance _________________ Manager/Treasurer with the law, to sign and subscribe all types of _________________ Independent Manager tax declarations, including the SAR, INFONAVIT and that which corresponds to federal or local [Please provide full names as shown taxes of any sort, including the payroll taxes. in passports] The powers will include those to carry out all 62 ANNEX 1: SPE BY-LAWS types of petitions, consultations or solicitations actions or any other type of civil or criminal before all types of authorities, of any type, actions, including presenting Amparo suits in whether they be federal, state and/or municipal, representation of the association and/or including the request for refund of the value dismissing such suits, make all types of added tax. Also included is the authority to denouncements, accusations or claims of any request all types of permits and/or authorizations type, to represent the association in any penal before any governmental agency, import and process, to be a coadjutor to the public ministry, export permits related thereto, as well as customs to grant pardons to the accused, when such is requests and transmittals, before the Department proper, to present evidence in penal of Finance and Public Credit, and before any proceedings, in accordance with that set forth other agency whether such be federal, state in the Ninth Article of the Code of Penal or municipal. Procedure for the Federal District and the corresponding Articles of the Penal Codes of the Messrs. ___________, ________, [please States of the Mexican Republic and of the Federal provide full names as shown in passports] Code of Penal Procedures. Rene Cacheaux Aguilar, Daniel Cavazos, Joseph Bradshaw Newton, Felipe Chapula Almaraz, Messrs. _________, __________, [please Robert Michael Barnett, Mario Melgar provide full names as shown in passports] Fernandez, Sergio Mario Ostos Iturbe, Jorge Rene Cacheaux Aguilar, Daniel Cavazos, Joseph Raul Ojeda Santana, Juan Francisco Lopez Bradshaw Newton, Felipe Chapula Almaraz, Montoya, Floriberto Morales Molina, Justo Robert Michael Barnett, Mario Melgar Bautista Elizondo, Claudio Eloy Vazquez Fernandez, Sergio Mario Ostos Iturbe, Jorge Cardenas, Francisco Jose Peña Valdes, Jose Soto Raul Ojeda Santana, Juan Francisco Lopez Soberanes, Miriam Name Almanza, Iker Jose Montoya, Floriberto Morales Molina, Justo Dieguez Bonilla, Jorge Sanchez Cubillo, Jose Bautista Elizondo, Claudio Eloy Vazquez Aaron Rodriguez Cadena and Ramon Concha Cardenas, Francisco Jose Peña Valdes, Jose Soto Hein, who shall have, jointly or individually, the Soberanes, Miriam Name Almanza, Iker Jose following powers to represent the association: Dieguez Bonilla, Jorge Sanchez Cubillo, Jose Aaron Rodriguez Cadena, and Ramon Concha GENERAL POWER FOR LAWSUITS AND Hein, who shall have, jointly or individually, the COLLECTIONS. All the special and general following powers to represent the association: powers of attorney in accordance with the law that require a special grant, under the terms SPECIAL POWER OF ATTORNEY FOR LABOR of the first paragraph of Article 2554 of Civil MATTERS. The attorneys-in-fact shall have all Code in force of the Federal District, and the the authorities of employer representation in corresponding sections of the Federal Civil Code accordance and for the purposes of Articles 11, in force and other Civil Codes in force in all the 46, 47 and 134, Section III, 523 and 692, states of the Mexican Republic, and to exercise Sections I, II and III, 786, 878, 880, 883 and the said powers before all types of persons and 884 of the Federal Labor Law; the power that is judicial and administrative authorities, whether granted and the employer representation which such be civil, penal, federal or local labor is conferred will be exercised in accordance with authorities, specifically those necessary to answer the following powers which are enumerated for suits, enter into arbitration, articulate and descriptive, but not limitative purposes: being dissolve positions, challenge the jurisdiction of able to appear in front of or before the unions judges, accept assignments of goods, collect with which there exists an executed collective payments and issue receipts and cancellations, bargaining agreement; before or in the presence prosecute civil, mercantile, tax or administrative of those considered and in general for all 63 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO employer/employee matters, and to exercise as representatives of the association, shall all before any of the authorities for labor and social have the necessary authority to: (i) execute, grant, services for the matters referred to in Article 523 and subscribe all types of credit transactions, of the Federal Labor Law; and also may appear evidenced in public or private documents, as well before the Boards of Conciliation and as the authority to subscribe, endorse, guaranty, Arbitration, whether such be local or federal, collect, accept and, in general, negotiate and to carry out the employer representation negotiable instruments in accordance with the for the purposes of Articles 11, 46 and 47 of terms of Articles 9 and 85 of the General Law of the Federal Labor Law and also for the legal Negotiable Instruments and Credit Transactions; representation of the association for the and (ii) general power for banking to carry out, purposes of verifying its identity and capacity in in the name of the association, all types of suits or outside of such, according to the terms banking transactions and operations, open, of Article 692, Sections II and III of the Federal administer and cancel all types of accounts and Labor Law; they may appear at the labor trial banking operations, including the power to for the evidentiary questioning of the employee, instruct credit institutions concerning the authority according to the terms of Articles 787 and 788 to sign checks, to carry out deposits, withdrawals of the Federal Labor Law, with the powers to or endorsements in all types of banking arbitrate and eliminate positions and present the accounts. evidence at all times; they may denote the corporate domicile for receiving notifications, in Messrs. __________, _________, [please accordance with the terms of Article 876 of the provide full names as shown in passports] Federal Labor Law; they may appear in the who shall have, jointly or individually, the capacity of the employer, with all the authority following powers to represent the association: and legal responsibility necessary for the GENERAL POWER FOR ACTS OF hearings, which are referred to in Article 873 of the Federal Labor Law, in the three phases of: ADMINISTRATION. All the general and specific conciliation, complaint and defense; admission powers which require a special grant, in accordance with the law, under the terms of the of evidence, in accordance with the terms of Articles 875 and 876, Sections I and IV, 877, second paragraph of Article 2554 of Civil Code 878, 879 and 880 of the Federal Labor Law; in force of the Federal District, and the corresponding sections of the Federal Civil Code and they may also attend the hearing on the admission of evidence according to the terms in force and other Civil Codes in force in all the of Articles 883 and 884 of the Federal Labor states of the Mexican Republic, which include the power to grant and subscribe all types of Law; they may make settlements, execute compromises, make all types of decisions, public and private documents, civil, mercantile, negotiate and sign legal agreements, and they administrative or any other form of waivers or declarations, in accordance with the law, to sign may also execute individual and collective labor agreements, as well as terminating or and subscribe all types of tax declarations, rescinding such. including SAR, INFONAVIT and that which corresponds to federal or local taxes, of any sort, Messrs. _________, _________, [please including the payroll taxes. The powers will provide full names as shown in passports] include those to carry out all types of petitions, who shall have jointly or individually the following consultations or solicitations before all types of powers to represent the association: authorities, of any type, whether they be federal, state and/or municipal, including the request POWER OF ATTORNEY FOR BANKING AND for refund or offset of all types of taxes, including EXCHANGE MATTERS. The attorneys-in-fact, the value added tax as well as the authority to 64 ANNEX 1: SPE BY-LAWS receive checks or any other type of document The power of attorney will include those used to receive a refund of any type of tax to necessary to carry out any type of requests, grantor. Also included is the authority to request consultations and petitions before any authority all types of permits and/or authorizations before of any type, whether federal, state and/or local, any governmental agency, import and export including all the necessary authorities for the permits related thereto, as well as customs request, measures, collection and receipt in requests and transfers, before the Department representation of the grantor of any refund or of Finance and Public Credit, and before any compensation of the value added tax, including other agency whether such be federal, state or the receipt of checks or any other document municipal. In addition, the above-mentioned through which a refund of any tax is received by attorney-in-fact shall enjoy the authorities to the grantor. undertake before, with and/or in relation to any authority, whether federal, state or municipal, Messrs. _________, _________, [please provide the company's accounting, tax and financial full names as shown in passports] who shall obligations, limited to the Secretaría de have, jointly or individually, the following powers Hacienda y Crédito Público (SHCP), the to represent the association: department of treasury and public credit, the Taxpayer's Administration Service, Instituto SPECIAL POWER OF ATTORNEY FOR Mexicano del Seguro Social (IMSS), the Mexican CUSTOMS MATTERS. All of the authority social security institute, INFONAVIT, SAR and the necessary to enter into, comply, and follow up state agencies for Finances or Treasury, including on all types of public or private documents and but not limited to the acts necessary to obtain notifications, as well as all types of commercial and use the "advanced electronic signature" and or administrative documents, whether such be those acts necessary for the fulfillment of all the of a tax, customs or accounting nature necessary obligations of the company of an accounting, in conformity with the applicable legislation, tax and financial nature. appear before customs authorities and carry out customs transactions on behalf of the SPECIAL POWER FOR ACCOUNTING AND association. In addition, the attorneys-in-fact TAX MATTERS. With all the necessary faculties shall have all of the authority necessary to to comply with the obligations of an accounting, tax and financial character, including the formulate all types of petitions and requests for faculties to grant and subscribe all types of public the issuance of permits for importing, including and private documents, waivers, notices, extensions of same; they shall enjoy the authority notifications, manifestations and declarations of necessary to formulate and present customs an administrative, financial, accounting and tax documents for the manifestation of the value of nature. This special power of the attorney includes merchandise, request for the acquisition all the necessary abilities to sign all types of notices, of development programs, including all declarations, notifications, manifestations and types of inventory transfers before the Department petitions of an administrative, financial, accounting of Economy and SHCP and any other and tax nature that are required before the governmental authority, as well as to request any federal, state or municipal authorities, including other additional permit necessary for the the IMSS, SAR and the INFONAVIT, as well as importation, as well as all types of permits, the applications or notices for return or offsetting including those related to customs procedures of all types of taxes and fees. The special , carried out before SHCP including the Mexican attorneys-in-fact may represent the association customs authorities, for purposes of authorizing in all administrative procedures relating to him to act as customs representative of the consultations, confirmations of criteria and association, during the management of its tax-type applications. business. The attorneys-in-fact shall have the 65 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO authority to request and obtain development association. The attorneys-in-fact shall have programs for the export and support for foreign authorities to deliver and agree with the agencies commerce, including, but not limited to, the on the text for the respective bond policies, as maquila export program and its extensions, as well as to carry out all legal and/or material well as the program for the temporary import acts necessary for compliance and make for articles of export and its extensions. The valid the bond policies issued in benefit of attorneys-in-fact shall have the authority to the association. intervene in all acts or procedures related to customs matters, as well as other procedures Messrs. __________, _________, [please regarding the investigation or inspection of provide full names as shown in passports] customs matters. In addition, they shall enjoy who shall have, jointly or individually, the full authority to guaranty and carry out all legal following powers to represent the association: acts related to customs operations, in conformity with the applicable provisions of the Customs SPECIAL POWER OF ATTORNEY FOR Law in force. ENVIRONMENTAL MATTERS. With all the authorities and special powers required in Messrs. __________, ________, [please provide accordance with the law in order to carry out, in full names as shown in passports] shall have, the name and representation of the association, individually or jointly, the following powers and the necessary transactions before the competent authorities to represent the association: authorities of the Department of Environment, Natural Resources and Fishing, the National SPECIAL POWER OF ATTORNEY FOR Institute of Ecology, the General Office of OBTAINING BONDS. With all the authorities Environmental Protection, the National Water that are necessary for the purposes, in the name Commission, the Council of Water and Sewer and representation of the association, that said of Mexico City, Federal District, and any other attorneys-in-fact may execute any type of bond federal, state or municipal entity where the agreements with any bond agency authorized association realize activities, and, in general, in the Mexican Republic or other countries, offer before any federal, state or local administrative and commit guarantees and counter-guarantees authority, centralized, decentralized and/or whether real or personal, obtain bond policies, deconcentrated, authorized for the granting of carry out payments and claims for the purpose licenses, permits, concessions and authorizations of guaranteeing obligations charged to the contemplated in the General Law of Ecological association or third parties, including the Equilibrium and the legal provisions, whether authorities to obligate the association as a sole federal, state or local that are ecological obligator or creditor with respect to bonds in nature. contracted by third parties, as well as those authorities necessary for committing and In addition, the above-mentioned attorneys-in-fact granting in guarantee the assets of the shall enjoy the authorities to subscribe all types association. The attorneys-in-fact shall be of public and private documents, as well as all authorized to present and substantiate claims types of requests, notices, manifestations and under the terms of the applicable legal public and private documents related with provisions, execute transaction agreements and environmental and zoning matters in which the contracts of any type to finalize obligations association is involved before any authority, guaranteed by the contracts and respective bond whether federal, state and/or local, including policies. The attorneys-in-fact may also receive the necessary authorities to request, transact and checks and indemnifications and payments obtain ecological guides; they shall enjoin the charged to the bonds issued in benefit of the authorities to initiate and maintain all types of 66 ANNEX 1: SPE BY-LAWS administrative procedures, contentious or not, as SPECIAL IMMIGRATION POWER. The well as to impose all types of recourses available aforementioned representatives of the to the association relating to environmental and association shall have the authority to request zoning matters above-mentioned, in relation to in the name of the association all documents acts before federal, state and/or local authorities. that are required in order to obtain visas of any type, in the name of the association, for the Messrs. _________, __________, [please employees and workers of the association that provide full names as shown in passports] are required and, in addition, to present all types who shall have, jointly or individually, the of reports and documentation before the following powers to represent the association: departments of governments and before any consulates that have competence with respect SPECIAL POWER OF ATTORNEY FOR to immigration matters. The attorneys-in-fact ADMINISTRATIVE PROCEEDINGS. They will shall be able to request all types of have sufficient and extensive authorities to authorization with respect to immigration matters represent the association in those administrative and to present all types of reports required proceedings conducted in terms of daily according to the terms of the applicable operations, before the competent authorities legal provisions. and officers of the federal public administration, state and local, including its centralized or Messrs. _________, __________, [please decentralized entities, such as Fondo de Fomento provide full names as shown in passports] y Garantía para el Consumo de los Trabajadores who shall have, individually or jointly, the (FONACOT), INFONAVIT; as well as to sign all following powers and authorities to represent types of documents, statements, formats, the association: petitions, waivers and other instruments related to administrative proceedings above-mentioned. SPECIAL POWER OF ATTORNEY FOR The named attorneys-in-fact will have the REGISTRATION OF AUTOMOBILES. With all authority to delegate, grant or substitute this the sufficient and extensive authorities to power of attorney, only to those third parties that represent the association in those administrative are employees of the association, and must in proceedings conducted in terms of daily all cases grant, delegate or substitute the said operations, before the competent authorities and power of attorney for specific and private officers of the federal, state and local public purposes, without it being considered as administrations, including its centralized or general powers. In addition to the above, the decentralized entities, as well as any agency or attorneys-in-fact will be able to intervene in all public or private institution that is related to the types of matters related to transactions, registration of automobiles, vehicles and motor warnings, notices, contracts, quitting or vehicles of any type and all the necessary cancellations of FONACOT, INFONAVIT, SAR, transactions for the purpose of obtaining the IMSS immigration proceedings of any type registration, vehicle ownership, obtaining license before the National Institute of Immigration plates for circulation and circulation cards, and all types of proceedings, notices and decals, permits, and authorizations and/or requests before the Department of Labor and concessions that correspond and the necessary Social Security. permits for the vehicles the property of the association may circulate on the roads, highways Messrs. _________, _________, [please provide and tollways in the Mexican territory. The full names as shown in passports] who shall attorneys-in-fact shall have authorities to request have, individually or jointly, the following powers and contract insurance for the above-mentioned and authorities to represent the association: vehicles, as well as carry out any measure or 67 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO transaction, sign all types of documents, association signing the corresponding statements, formats, petitions, waivers and other instruments or receipts. instruments related to administrative proceedings above-mentioned. In the event of The aforementioned general and special powers an accident, embargo or confiscation of any of attorney may not be delegated, substituted vehicle the property of the association, the or granted to third parties by the named attorneys-in-fact shall have authorities to carry attorneys-in-fact with the exception of the powers out all the legal and/or material acts necessary of attorney for labor matters conferred above to obtain the release of said vehicles, said which may be delegated, substituted or granted attorney-in-fact may pick up the vehicle of the by the named attorneys-in-fact. 68 Annex 2 Trust Agreement Translation Multiple Banking Institution, Trust Division, represented by its TRUSTEE delegate, In the City of __________, State of ___________, ______________, Esq., who shall hereinafter be it being the ___ day of the month of __________ referred to as the "TRUSTEE". of the year 2006, I, ____________, Esq., Notary Public Number ______ in this city hereby certify: Based on the foregoing, the parties appearing THE CREATION OF AN IRREVOCABLE herein enter into this Trust Agreement in conformity with the following recitals and ADMINISTRATION AND PAYMENT TRUST, clauses: which is identified as the "_______________," under number ____ (hereinafter referred to as Recitals the "TRUST"), entered into by: the business association _________, anonymous corporation The SETTLOR and SECOND PLACE with variable capital, [SPE] represented in this BENEFICIARY, the business association legal act by Mr. ___________________, which ____________, Anonymous Corporation with shall hereinafter be referred to as the Variable Capital, through Mr. ______________, "SETTLOR" and/or "SECOND PLACE states that: BENEFICIARY"; the International Finance · It is a corporation duly incorporated and Corporation (IFC) represented in this legal act existing in conformity with the laws of the by Mr. ________________, which shall Mexican Republic as certified and shown in hereinafter be referred to as "FIRST PLACE the corresponding chapter of this Public BENEFICIARY A"; the Overseas Private Instrument; Investment Corporation (OPIC), represented in this legal act by Mr. _______________, which · The legal acts memorialized in this Instrument shall hereinafter be referred to as "FIRST PLACE are included within its corporate purposes BENEFICIARY B"; the North American and are duly authorized through Development Bank (NADB), represented in this corresponding corporate legal actions, and legal act by Mr. ______________, which shall do not violate any provision of its By-laws or hereinafter be referred to as "FIRST PLACE contractual provision whatsoever; BENEFICIARY C "; Nacional Financiera, · The capacity in which its legal representative National Credit Association, Development appears in this legal act is shown in the Banking Institution (NAFIN), represented in Incorporation Deed that has been described this legal act by Mr. _______________, which in paragraph a) above; shall hereinafter be referred to as "FIRST PLACE BENEFICIARY D"; the business association · The authority granted to its legal ________________, Anonymous Corporation, representative has not been revoked or 69 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO limited in any way whatsoever so that no · It is an international organization established impediment exists to his/her binding his/her through a Charter among its member principal in accordance with that agreed countries, including the Mexican Republic; to herein; · The legal acts being certified in this instrument · That it is and will be the creditor, beneficiary are within its authority and do not violate its and holder of various Loan Agreements and charter or any other legal provision; Promissory Notes through which it will provide the resources necessary for corporations or · The capacity in which its legal representative individuals to carry out energy efficiency appears in this legal act has been shown projects with respect to which rights of in________________; collection will be assigned to it on each and · The authority granted to its legal every one of the agreements entered into in representative has not been revoked or order to carry out such energy efficiency limited in any way whatsoever so that no projects. The repayment obligations impediment exists to his/her binding his/her related to such agreements are secured by principal in accordance with that agreed one or more Promissory Notes signed by to herein; and the beneficiaries of the specific energy efficiency projects; · That it appears to enter into this TRUST in compliance with and in conformity with the · That it is the owner of equipment acquired in Loan Agreement dated ______ __, 2006, order to carry out the energy efficiency entered into with the SETTLOR and the other projects by virtue of the Loan Agreement FIRST PLACE BENEFICIARIES for the dated ____ __, 2006, entered into with the purpose of providing the funds necessary to BENEFICIARIES which shall be granted in a facilitate carrying out energy efficiency pledge guaranty to the FIRST PLACE projects to parties requiring such projects, BENEFICIARIES through the execution and by virtue of which the SETTLOR will of a Pledge Agreement without Transfer provide the resources necessary for the of Possession; companies or persons to execute projects of this nature. · It desires to enter into a trust for the purposes contained herein ownership of the Collection FIRST PLACE BENEFICIARY B, the Overseas and Payment Rights derived from the energy Private Investment Corporation (OPIC), efficiency agreements in order to constitute represented in this legal act by Mr. _________, the Trust Corpus; and states that: · That it appears in order to enter into this · It is an agency of the government of the TRUST in compliance and in conformity with United States of America, established the Loan Agreement dated ___ __, 2006, through_______; entered into with the FIRST PLACE BENEFICIARIES, by means of which it will · The legal acts being certified in this instrument obtain the necessary resources to carry out are within its authority and do not violate its the energy efficiency projects. charter or any other legal provision; First place BENEFICIARY A, the International · The capacity in which its legal representative Finance Corporation (IFC), represented in this appears in this legal act has been shown legal act by Mr. ________________, states that: in _____________; 70 ANNEX 2: TRUST AGREEMENT · The authority granted to its legal Loan Agreement dated _____ __, 2006, representative has not been revoked or entered into with the SETTLOR and the other limited in any way whatsoever so that no FIRST PLACE BENEFICIARIES for the impediment exists to his/her binding his/her purpose of providing the funds necessary to principal in accordance with that agreed facilitate carrying out energy efficiency to herein. projects to parties requiring such projects and by virtue of which the SETTLOR will provide · That it appears to enter into this TRUST in the resources necessary for the companies compliance with and in conformity with the or persons to execute projects of this nature. Loan Agreement dated ______ __, 2006, entered into with the SETTLOR and the other FIRST PLACE BENEFICIARY D, Nacional FIRST PLACE BENEFICIARIES for the Financiera, National Credit Association, purpose of providing the funds necessary to Development Banking Institution (NAFIN), facilitate carrying out energy efficiency represented in this legal act by Mr.____________, projects to parties requiring such projects and states that: by virtue of which the SETTLOR will provide the resources necessary for the companies · It is a national credit association created by or persons to execute projects of this nature. the Mexican government through an incorporation decree dated August 31, 1933; FIRST PLACE BENEFICIARY C, the North American Development Bank (NADB), · The legal acts being certified in this instrument represented in this legal act by Mr.____________, are within its authority and do not violate its states that: charter or any other legal provision; · It is an international organization established · The capacity in which its legal representative through a charter entered into by the appears in this legal act has been shown governments of the United Mexican States in ________________; and the United States of America and charged with funding projects in the border · The authority granted to its legal region of such countries; representative has not been revoked or limited in any way whatsoever so that no · The legal acts being certified in this instrument impediment exists to his/her binding his/her are within its authority and do not violate its principal in accordance with that agreed charter or any other legal provision; to herein; and · The capacity in which its legal representative · That it appears to enter into this TRUST in appears in this legal act has been shown compliance with and in conformity with the in __________________; Loan Agreement dated ______, 2006, · The authority granted to its legal entered into with the SETTLOR and the other representative has not been revoked or FIRST PLACE BENEFICIARIES for the limited in any way whatsoever so that no purpose of providing the funds necessary to impediment exists to his/her binding his/her facilitate carrying out energy efficiency principal in accordance with that agreed projects to parties requiring such projects to herein; and and by virtue of which the SETTLOR will provide the resources necessary for the · That it appears to enter into this TRUST in companies or persons to execute projects compliance with and in conformity with the of this nature. 71 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO The business association________, Anonymous charge the Settlor or Beneficiary, as the case may Corporation, Multiple Banking Institution, be, or the principal absenting itself from paying Trust Division, through its TRUSTEE delegate the amount. states that: Any agreement contrary to that set forth in these · His principal is a credit institution duly two paragraphs will have no legal effect. incorporated and authorized to enter into this legal act and that he has sufficient authority The Trust, Mandate or Commission agreements to appear and sign this agreement, whose shall contain, in a conspicuous manner, the two authority as of this date has not been revoked paragraphs above and a declaration of the or modified in any way whatsoever, as shown Trustee that it has unequivocally made the parties in the certified copies of the public instruments from which it received assets for investment number __________, granted before the aware of its content: attestation of _______________, Esq., Notary Public number ______, dated ____ ___ and · It agrees to execute this Trust Agreement the ___ day of ___________ before the in its exclusive capacity as Trustee such that attestation of ________________ Esq., Notary in no event will it assume any liability in Public number ____ and registered under regard to compliance with the TRUST's Folio _____ of Volume ______ in the Public purposes; and Registry of Property and Commerce of ___________________. · It is its intention and desire to execute this Trust Agreement and accept its designation · The Trustee's representative continues stating as Trustee and undertake each and every one that it unequivocally advises the SETTLOR, of the activities, instructions and actions that BENEFICIARIES and other parties hereto, are necessary or convenient for the fulfillment through their representatives, of the content, of the purposes of the Trust. the scope and legal effect of paragraph b) of Section XIX (nineteen) of Article 106 (one The Parties jointly state that: hundred six) of the Law of Credit Institutions that states: a) The acknowledgment of desire is given without any reservation, free of all duress and/or duress Article 106. Credit Institutions are prohibited to: and same constitutes the real and exact ... undertake transactions referenced in interpretation of their will. Section XV (fifteen) of Article 46 (forty-six) of this law: FIRST. TRUST CREATION. In this legal act, the SETTLOR _____________________, · Be liable to the settlors, or principals for a Anonymous Corporation with Variable breach of the debtors, for the loans granted, Capital, represented in this legal act by or for the issuers for the securities acquired, Mr. ______________, hereby creates an unless it is its fault as set forth in the final Irrevocable Administration and Payment Trust part of Article 356 (three hundred fifty-six) of which shall be identified hereinafter as the the General Law of Negotiable Instruments and Credit Transactions or guarantee the "___________" under number _______, in receipt of profits for the funds whose conformity with the terms and conditions set forth investment has been entrusted to it. in this Public Instrument to be contributed in order to comply with the purposes of this Trust, If at the end of the Trust, Mandate or Commission each and every one of its collection rights under created for the granting of loans, these have the agreements derived from energy efficiency not been paid by the debtors, the institution shall projects funded by the SETTLOR, including the 72 ANNEX 2: TRUST AGREEMENT endorsement of Promissory Notes and any in compliance with the terms contained in other negotiable instruments executed in order this TRUST; to guarantee payment of the rights assigned, as mentioned in the Recitals section of SECOND PLACE BENEFICIARY, the mercantile this Agreement. corporation named____________, Anonymous Corporation with Variable Capital, in SECOND: RECEIPT AND ACCEPTANCE OF compliance with the terms contained in PROPERTY. The TRUSTEE shall acquire in trust this TRUST; and ownership of the rights transferred by SETTLOR. TRUSTEE: __________________, Anonymous The TRUSTEE, through its TRUSTEE Delegate Corporation, Multiple Banking Institution, _______________________, hereby accepts in Trust Division. accordance with the terms of the law and this instrument the responsibility conferred to it and FOURTH. TRUST CORPUS. The corpus of the attests to its faithful and loyal performance, with trust shall be constituted by: the parties agreeing to fulfill strictly the purposes All of the economic rights of collection from each of this TRUST. and all of the agreements derived from energy THIRD. TRUST PARTIES. The parties to this Trust efficiency projects funded by the SETTLOR, are the following: through agreements of assignments of right and contribution into trust entered into between the SETTLOR: SETTLOR and TRUSTEE, including Promissory Notes and any other negotiable instrument 1______________, the business association executed in order to guarantee payment of the named __________, Anonymous Corporation rights assigned and that are endorsed in favor with Variable Capital, in compliance with the of the TRUSTEE according to the terms of the terms contained in this TRUST. Recitals of this Agreement; BENEFICIARIES: The cash, rights, investments, fruits and returns related to the property and rights referred to in FIRST PLACE BENEFICIARY A, the the paragraph above received or delivered to International Finance Corporation (IFC), in the TRUSTEE; and compliance with the terms contained in this TRUST; In general, any property or rights contributed into TRUST CORPUS by SETTLOR or acquired FIRST PLACE BENEFICIARY B, the Overseas by the TRUSTEE upon instructions from the Private Investment Corporation (OPIC), in TECHNICAL COMMITTEE in order to fulfill the compliance with the terms contained in Trust's purposes or which formed a part as the this TRUST; TRUST CORPUS through any other legal form. FIRST PLACE BENEFICIARY C, the North FIFTH. TRUST PURPOSES. The purposes of the American Development Bank (NADB), in Trust, in addition to creating an autonomous compliance with the terms contained in TRUST CORPUS, are the following: this TRUST; That the TRUSTEE receive and maintain at all times ownership of the TRUST CORPUS; FIRST PLACE BENEFICIARY D, Nacional Financiera, National Credit Association, That the TRUSTEE enter into agreements of Development Banking Institution (NAFIN), collection rights and contribution into trust with 73 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO the SETTLOR with respect to agreements related relation to the loan agreement entered into to the energy efficiency projects, as well as the among SETTLOR and the FIRST PLACE receipt of Promissory Notes and any other BENEFICIARIES, in conformity with the written negotiable instruments that are endorsed in instructions of the TECHNICAL COMMITTEE favor of the TRUSTEE, which guarantee of this Trust; payment of the assigned collection rights; That the TRUSTEE follow the instructions given That the TRUSTEE receives the cash, fruits, and in writing by the TECHNICAL COMMITTEE of returns from the property and rights related to this Trust, granted in favor of those individuals the collection rights assigned in favor of the designating those powers of attorney necessary TRUSTEE in order to invest and distribute such to defend the TRUST CORPUS so that in case in accordance with this Trust and the instructions of any judicial or extrajudicial controversy arising given by the TECHNICAL COMMITTEE of during the term of this Trust, based on the property this Trust; or rights placed in Trust, the purposes of this Agreement or the effects produced by compliance That the TRUSTEE may negotiate, sign or with said purposes, as well as to carry out any execute all legal acts, actions, documents, other type of administrative transfer with respect instruments, contracts, agreements and trusts to the said rights; necessary to fulfill the purposes of this Trust; That the TRUSTEE carry out all those legal acts The TRUSTEE shall administer, invest and apply necessary to fulfill the purposes contained in this the TRUST CORPUS in conformity with the TRUST or any legal act related to the TRUST written instructions of the TECHNICAL CORPUS, in accordance with the written COMMITTEE of this Trust; instructions of the TECHNICAL COMMITTEE of the Trust; and The TRUSTEE shall, once the collection rights of Pagares and other instruments placed into The purposes mentioned above may not be Trust become payable, require, collect and added to, modified, amended or cancelled receive the fruits and income of the property and except by an amendment agreed to in writing rights placed in Trust and, as the case may be, and entered into by the SETTLOR and FIRST carry out all judicial and extrajudicial collection PLACE BENEFICIARIES. procedures that are necessary, whether by itself or through parties designated for such purposes SIXTH. ORDER OF APPLICATION OF CASH in writing by the TECHNICAL COMMITTEE of FLOW. The TRUSTEE shall apply cash flow this Trust; and the proceeds and income of the TRUST CORPUS in accordance with the That the TRUSTEE receive, maintain and following order: administer in conformity with the instructions of the TECHNICAL COMMITTEE the economic · Expenses related to debt service on the Loan resources and funds derived from the collection Agreement entered into among the SETTLOR or payment of the property and rights placed in and the FIRST PLACE BENEFICIARY; the Trust; · Transaction expenses and maintenance of That the TRUSTEE make payment in the name the debt of the Loan Agreement referred of and on the account of the SETTLOR to the to above; FIRST PLACE BENEFICIARIES, in the order of priority established in this Agreement, based on · An expense reserve related to service of the the payment obligations of the SETTLOR in debt of Loan Agreement referred to above; 74 ANNEX 2: TRUST AGREEMENT · Transaction expenses and maintenance according to the terms of Article 80, Third reserve for the debt of the Loan Agreement Paragraph of the Law of Credit Institutions, which referred to above; and shall consist of two representatives of each one of the BENEFICIARIES. · The remainder of the property and rights placed in trust, once all of the principal and The designation or removal of each one of the interest of the debt in favor of the FIRST members of the TECHNICAL COMMITTEE PLACE BENEFICIARIES has been paid, shall shall be made freely and independently by the be delivered to the SECOND PLACE legal representative of each one of the BENEFICIARY. BENEFICIARIES. The application of cash flow shall be made by The members of the TECHNICAL COMMITTEE the TRUSTEE in accordance with previous shall serve in their positions during the time this instructions in writing received from the Trust remains in force, but may be removed at TECHNICAL COMMITTEE of the Trust. any time by agreement of the BENEFICIARY that originally nominated such individual which, (THE FORM AND ORDER OF PAYMENT upon clear notification given to the TRUSTEE, AMONG THE FIRST PLACE BENEFICIARIES shall be obligatory. REMAINS TO BE DETERMINED. IN ADDITION, THE ORDER OF PAYMENT IN Ordinary Meetings. The TECHNICAL CASE OF A DEFICIT OF FUNDS FOR COMMITTEE shall meet at least once each PAYMENT OF ALL LOANS NEEDS TO month. Monthly meetings will not require any BE DEFINED.) previous notice, because by agreement entered into by the Committee during its first session of SEVENTH. ASSIGNMENTS OF RIGHTS. The the year, it will schedule the dates, times and SETTLOR may not assign, transfer or in any way places, each month for holding the meeting and alienate or dispose of the rights derived from this will be understood as constituting sufficient this trust without obtaining prior written consent notice for all of the members of the Committee. from all of the FIRST PLACE BENEFICIARIES. Changes in the date, place or time of these monthly meetings of the Committee shall be EIGHTH. MANAGEMENT OF TRUST. The notified to each one of the members of the TRUSTEE shall manage the TRUST CORPUS Committee by the means set forth for of this TRUST in accordance with the authorities extraordinary meetings. and obligations established in Article 356 of the General Law of Credit Instruments and The quorum to legally hold an ordinary meeting Transactions, and according to the terms of shall be half of all of the members of each one this TRUST. of the groups designated by the SETTLOR. The TRUSTEE shall not have any other Extraordinary Meeting. The TECHNICAL obligations than those expressly agreed to in COMMITTEE may meet at any time through a this TRUST. notice provided 10 calendar days in advance with such notice being provided to any one of NINTH. TECHNICAL COMMITTEE OF THE the members of the TECHNICAL COMMITTEE TRUST. To supervise and carry out all of the or the TRUSTEE, and may be delivered through purposes of this TRUST, as well as to take written communications sent in person or by fax decisions with respect to the same that are not to the address or telephone number of each one expressly reserved to the BENEFICIARIES, a of the members. In order to be duly convened, TECHNICAL COMMITTEE shall be created, the TECHNICAL COMMITTEE on the first call 75 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO to the meeting shall require attendance of all For the FIRST PLACE BENEFICIARY B: members of the Committee. 3. ___________________________________ Upon the second notification of an extraordinary meeting, the TECHNICAL COMMITTEE will be 4. ___________________________________ considered duly convened with the attendance of at least one representative of each one of the For the FIRST PLACE BENEFICIARY C: BENEFICIARIES. 5. ___________________________________ Decisions. At ordinary or extraordinary meetings, decisions of the TECHNICAL COMMITTEE shall be taken by a majority of their members and no 6.___________________________________ party shall have the right to break a tie vote. For the FIRST PLACE BENEFICIARY D: Resolutions taken outside of a meeting of the TECHNICAL COMMITTEE may be taken at any 7. ___________________________________ time and place. These Resolutions shall be mandatory if they are taken by a unanimous vote 8. ___________________________________ of the TECHNICAL COMMITTEE's members. For the SECOND PLACE BENEFICIARY At each meeting of the TECHNICAL COMMITTEE minutes shall be taken and signed 9. ___________________________________ by all those in attendance. One copy of said meeting minutes shall be delivered to the 10. ___________________________________ TRUSTEE. All of the instructions to the TRUSTEE shall be in writing and any one of the members In case of the resignation, incapacity, death or of the TECHNICAL COMMITTEE may be any other situation causing a vacancy of any designated to communicate with the TRUSTEE. member of the TECHNICAL COMMITTEE, the The TRUSTEE shall have the authority to require, BENEFICIARY in question shall name a new if it deems necessary, a ratification of signatures member within a term of no more than 15 days before a Notary Public. from the date it becomes aware of such vacancy. The TECHNICAL COMMITTEE shall have as its The position of member on the TECHNICAL charge and responsibility oversight of the COMMITTEE is honorific, which means that no administration and application of resources member shall have the right to receive any forming part of the TRUST CORPUS, determining compensation whatsoever. the date and amount of the application of cash flow in accordance with the order set forth in The TECHNICAL COMMITTEE of the Trust shall Clause 6, and all other decisions related to the have the following authority and obligations: purposes of this Trust. The initial TECHNICAL COMMITTEE shall enter into its positions upon · To be the executive and oversight body executing this Agreement and shall consist of the concerning resolutions adopted by the following individuals: BENEFICIARIES; For the FIRST PLACE BENEFICIARY A: · To instruct the TRUSTEE with respect to the values and time periods in which to invest or 1. ___________________________________ reinvest the economic resources which comprise, as the case may be, the TRUST 2. ___________________________________ CORPUS of this Trust; 76 ANNEX 2: TRUST AGREEMENT · To instruct the TRUSTEE to designate the TENTH. STATEMENTS OF ACCOUNT AND person or persons to defend the TRUST REPORTS. For the purpose of providing CORPUS, in case such is necessary; adequate follow-up on the state of the TRUST CORPUS, the TRUSTEE shall prepare a monthly · To notify the TRUSTEE of any unforeseen report for review by the TECHNICAL situation that could affect the TRUST CORPUS; COMMITTEE including statements of account and reports that shall contain at least the · To review and, as the case may be, approve following information: the monthly account statement sent by the TRUSTEE when liquid resources exist; · The statement and results of investments made with the TRUST CORPUS; · To order application of the cash flow and fruits and income from the rights and property · The statement and balance of all assets and placed in Trust in compliance with the order values that comprised the TRUST CORPUS; set forth in this Agreement; · The statement and situation with respect to collections of rights and property placed · To order and evaluate those judicial and in Trust; extrajudicial actions and procedure, as well as to grant powers of attorney with respect · The agreements, contracts, legal acts and to late loan payments related to the rights trusts entered into by the TRUSTEE in the and property placed in Trust; immediate prior period; · To order and designate the person or persons · The statement of judicial and/or extrajudicial that shall act as attorneys-in-fact to initiate proceedings initiated by the TRUSTEE to any judicial or extrajudicial action necessary defend the TRUST CORPUS; and for collection of the rights and property placed in Trust; · In general, all the important and relevant information regarding the purposes and · To approve and evaluate other actions and corpus of this Trust. decisions made in compliance with the present Agreement which require The TECHNICAL COMMITTEE shall have the previous approval of the TECHNICAL right to add and order the TRUSTEE to include COMMITTEE; and additional information that it considers in its sole judgment necessary to make informed decisions · In general, to have all of the authority and with respect to purposes and corpus of this Trust. obligations necessary to resolve any conflict In addition, it shall be authorized to immediately that could present itself with respect to the request any type of information which shall be purposes of this Trust with the understanding provided by the TRUSTEE within five (5) working that the said authority is annunciated but days following receipt in writing of such request not limitative. by the TECHNICAL COMMITTEE. The parties agree that the TECHNICAL COMMITTEE shall The SETTLOR and BENEFICIARIES expressly have a term of 15 days counting from the date state that when the TRUSTEE acts upon the of issuance of the mentioned statements of instructions of the TECHNICAL COMMITTEE, account and reports in order to, as the case may the TRUSTEE shall have no liability whatsoever be, make clarifications to such, and request and will be held free and harmless in case of corrections of irregularities, and if the said term any conflict with third parties. passes, the statements of account and reports 77 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO shall be considered accepted without the fees of such, and, in the event of an emergency, necessity of any previous requirement. the TRUSTEE may undertake indispensable acts to conserve the TRUST CORPUS without ELEVENTH. REVOCABILITY. The Trust established prejudice to the obligation of the TECHNICAL pursuant to this Agreement shall be irrevocable. COMMITTEE to designate as soon as possible the attorney-in-fact referenced in the paragraph TWELFTH. AMENDMENT. In order to amend above, with the TRUSTEE being immediately the Trust Agreement, any such amendment shall reimbursed for the costs incurred. require an agreement by the BENEFICIARIES, TRUSTEE and SETTLOR, which amendment The attorney-in-fact fees, as well as the costs shall be formalized before a Notary Public. and expenses incurred, shall be covered by the SETTLOR or charged to the TRUST CORPUS THIRTEENTH. TERM. The Trust shall exist for as far as possible without any liability to the term necessary to fulfill its purposes without the TRUSTEE. exceeding the maximum term set by the law, and shall be dissolved once all the purposes FIFTEENTH. FEES AND EXPENSES. All the fees have been fulfilled, with the Trust being subject and expenses originating from the preparation, to termination for any of the reasons set forth in execution and registration of this public Article 375 of the General Law of Credit instrument, including expenses related to the Instruments and Transactions, with the exception issuance of the first testimony of such document, of Paragraph VI of such article. as well as notary expenses, shall be paid by the SETTLOR. FOURTEENTH. DEFENSE OF TRUST CORPUS. The TRUSTEE shall not be responsible SIXTEENTH. RESIGNATION AND SUBSTITUTION for the acts or actions of the parties, of the OF TRUSTEE. The parties' agreement that the TECHNICAL COMMITTEE, of third parties or TRUSTEE may resign its charge or be substituted any authorities that impede or make difficult by the SETTLOR by means of the TECHNICAL fulfillment with the purposes of this Trust. The COMMITTEE who will designate the substitute TRUSTEE shall have, with regard to the TRUST financial institution. In the event of a resignation CORPUS, the authority and rights attributed in or substitution of the TRUSTEE, the interested the first part of Article 356 of the General Law party shall communicate its interest in writing of Negotiable Instruments and Credit no less than 30 days in advance. The TRUSTEE Transactions; but shall not be obligated to that resigns or is substituted shall prepare an exercise it on its own, given that in the event of inventory of the property and investment held in a conflict or the need to defend the TRUST trust that covers the term from the last report CORPUS, it shall only grant special power of made to the date in which the said resignation attorney to the person(s) indicted by the or substitution is effective. TECHNICAL COMMITTEE under their responsibility and by means of written instruction The TECHNICAL COMMITTEE shall have a accompanied by the acceptance of the term of fifteen (15) calendar days to examine attorney-in-fact and the declaration of the report and present clarifications that agreement; the costs and fees incurred, or to they consider pertinent. Once this term has be incurred, shall be exclusively charged to them expired, the report shall be considered as tacitly jointly or to the Trust's funds without liability to approved if no objection has been made. Upon the TRUSTEE. designation of a successor for the Trustee duties, the new Trustee(s) shall be invested with all the The TRUSTEE shall not be responsible for the authority, rights, powers and obligations that acts of the attorneys-in-fact or for the costs and subject matter of the Trust with the TRUSTEE 78 ANNEX 2: TRUST AGREEMENT obligating itself to delver the corpus · The amount of US$___________ and documentation relative to the Trust to the (_______________ pesos, Mexican currency), new Trustee. for entering into any type of contract or agreement, for each agreement related to SEVENTEENTH. ADDRESSES. For all legal the Trust; purposes that take place according to the terms of this TRUST, the parties designate of their · For each amendment of this Trust Agreement, addresses the following: the amount of US$___________ (_______________ pesos, Mexican currency), SETTLOR and SECOND PLACE BENEFICIARY: on each occasion; FIRST PLACE BENEFICIARY A: ___________ · For granting powers of attorney, the amount FIRST PLACE BENEFICIARY B: ___________ of US$_______ (_______________ pesos, Mexican currency), on each occasion; and FIRST PLACE BENEFICIARY C: ___________ · All of the expenses and fees generated by FIRST PLACE BENEFICIARY D: ___________ the contracting of accounting firms, auditors, attorneys, Notaries Public, expert appraisers, TRUSTEE: ______________________________ as well as the expenses from the issuance of powers of attorney, trips, traveling expenses, TECHNICAL COMMITTEE: _______________ and so on, and so forth, shall be paid by the funds making up the TRUST CORPUS, if The notices to be made by the TRUSTEE to the incurred therefore, or, as the case may be, SETTLOR and the BENEFICIARIES or the by the SETTLOR and BENEFICIARIES. TECHNICAL COMMITTEE shall be made pursuant to the terms set forth herein and in the The fees agreed to herein shall be subject to the event of a change of address, the TRUSTEE corresponding value added tax, and the should be notified of such change in writing; TRUSTEE shall be authorized to collect late failing to do so will result in the notices to be interest concerning those amounts that have not made to be sent to the last known address with been paid for in form of fees or any other such delivery having full legal effect and expense it incurs, with the resulting amount being releasing the TRUSTEE from any liability. subject to the following interest rate ________ EIGHTEENTH. TRUSTEE FEES. The TRUSTEE for the time such balance remains, plus shall have the right to receive from the TRUST corresponding value added tax. CORPUS or from the SETTLOR the following amounts established below in the form of fees: In addition, the TRUSTEE may resign from its position when for any reason fees or any agreed · For the review, preparation and acceptance to amounts have not been paid by the SETTLOR of this Agreement, the amount of US$______ or BENEFICIARIES, without prejudice to its right (________ pesos, Mexican currency), at one to exercise any legal action to obtain collection time at the moment of execution of the Trust; of such, in which case the TRUSTEE shall only have the obligation of notifying the SETTLOR · For administration and annual management or BENEFICIARIES, as the case may be, within of the Trust the amount of US$_______ a term of no less than 30 days following (_______________ pesos, Mexican currency), designating a substitute Trustee or resolving the for each _______ years, paid in the following cancellation of the Trust with the TRUSTEE manner: __________________; ceasing to have any liability whatsoever. 79 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO NINETEENTH. EXPRESS WAIVER. The lack TWENTY-SECOND. JURISDICTION AND or delay of any of the parties in enforcing at any APPLICABLE LAW. This Trust shall be governed time any one of the provisions of this Agreement, in conformity with the provisions of General Law or in requiring at any time compliance by the of Credit Transactions and Instruments and the other parties of any provision shall not be Civil Code of the state of Nuevo León. In case interrupted as a waiver of compliance of such of any controversy concerning the application, provisions, nor shall it affect the validity of this interpretation, validity, form, performance, Agreement or any part of it, nor shall it affect execution or any other element related to this the rights of the other parties to subsequently Trust, the parties have expressly agreed to submit enforce each one of the said provisions. Any themselves to the jurisdiction of the competent waiver of the parties to any of the provisions of courts of the City of Monterrey, Nuevo León, the Agreement shall be made in writing. México, waiving any other jurisdiction or court that could correspond by reason of their present TWENTIETH. SEVERABILITY. The invalidity, or future domiciles, nationalities, or for any other illegality or lack of foundation of one or more reason. [It is probable that due to the nature of the provisions of this Agreement shall in no of some of the beneficiaries, sovereign way affect the validity and enforcement of all of immunity will exist, and they may not be the other provisions of this Trust, the Loan able to submit themselves to jurisdiction of Agreement or the assignment of Collection Mexican courts or enjoy certain benefits, Rights Contracts. and it will be necessary to discuss and adjust this based on the circumstances.] TWENTY-FIRST. PROVISIONS REGARDING PUBLIC POLICY. The parties agree that any TWENTY-THIRD. HEADINGS. The headings in this Agreement are exclusively for the agreement established in this Trust, the Loan convenience of the parties and for their reference Agreement or the assignments of Collection and identification and, as such, they will not be Rights Contracts that is contrary to the provisions considered for purposes of interpretation or of Mexican public policy shall have no affect compliance with such. with the understanding that whenever possible the parties will negotiate an equivalent [Legal Personality and Authorization of the agreement to replace said terms. Notary Public]. 80 Annex 3 NADB Term Sheet Proposed Loan Terms and Conditions SPC for Energy Efficiency projects ­ state of Nuevo León Project: SPC for energy efficiency projects in the state of Nuevo León Sponsor: SPC owned by U.S. ESCO Borrower: SPC Lender: North American Development Bank (NADB) through the Corporación Financiera de América del Norte, S.A. de C.V. (COFIDAN). Project Cost: US$10 million. Loan Terms Principal Amount: Up to US$10,000,000 (ten million dollars) Loan Uses: The loan proceeds will be used to finance energy efficiency projects developed by ESCOs in the state of Nuevo León Repayment Sources: 1. Energy savings 2. All available reserve funds. Collateral and Additional SPC guarantee secured by equity placed in an escrow account, Security: ESCO guarantees, equipment, insurance, bonds and warranties. Interest Rate: A market interest rate based on NADB's loan and guaranty policies and procedures for Class II borrowers. Currency: US$ Exchange Rate Hedge: NA 81 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO Repayment Period: Up to ten (10) years, including twelve (12) months grace period. Grace Period: Twelve (12) months on principal payments. Disbursement Period: Twelve (12) months following the first disbursement. Loan Disbursements: In accordance with NADB's disbursement policies and procedures. Principal and Interest In accordance with the exchange hedge mechanism. Payments: Prepayment Provisions: The borrower may prepay the loan when authorized by NADB. Penalty Interest: In the event that NADB has not received the full amount of any payment due on the payment date, an annual penalty interest rate of 24 percent shall be applied to such amount until such payment has been received in full by NADB. Penalty interest may be assessed at the discretion of NADB. Cuotas y Gastos: Application Fee: US$1,500 or its equivalent in Mexican pesos. Commitment Fee: 0.75% annually on the undisbursed balance of the loan. The fee will begin accruing after the first disbursement, and payments will be made quarterly. Expenses: The borrower shall pay NADB the legal, technical and financial expenses of the transaction pursuant to an acceptance agreement. Applicable Taxes: The borrower is responsible for paying all applicable taxes. Exchange Hedge: Any other expenses resulting from the execution and termination or substitution of the exchange hedge coverage. Loan Proceeds Flow: The borrower will repay the loan to NADB in dollars. Subsequent Program The borrower may apply to NADB for additional loan funds to Phases: finance future phases of the program. In that case, NADB will submit the corresponding loan proposal to the Board for approval. Loan Conditions Closing: Prior to signing the loan agreement, the borrower and guarantor must provide the following information: · Original or certified copy of the documents evidencing their legal existence and the legal status of their representatives; 82 ANNEX 3: NADB TERM SHEET · Certified copy of the Federal Taxpayer Registration and proof of address; and · Certified copy of an official ID (passport or voter registration card) for each of its representatives. Disbursements: Prior to the first disbursement of the loan proceeds: · The borrower must establish the loan administration, payment and guaranty mechanism, through a mandate agreement; · The mandate agreement must have entered into force; · The borrower must record the NADB loan and loan guaranty in the appropriate debt registry; · The borrower must provide an executed legal opinion, in form and substance satisfactory to NADB, issued by the borrower's chief legal officer, indicating that the loan agreement, mandate agreement and all related documents have been duly executed, are valid and have entered into force; · The borrower must provide evidence that a construction supervisor has been hired to verify and certify the physical and financial status of the project; · The borrower must provide, in terms satisfactory to NADB, the final construction and disbursement schedules; · The borrower must provide the construction contract(s) for the corresponding disbursement, in terms satisfactory to NADB; · The borrower must provide to NADB copies of all permits, licenses, contracts and any other document necessary to carry out the project; · The technical review of the final design for works associated with the corresponding disbursement must have been satisfactorily completed by a consultant selected by NADB; and · The borrower must be in full compliance with its obligations under the loan agreements with NADB or the Guarantees furnished to NADB. Covenants During the term of the loan: Project Management The borrower will ensure the proper administration, execution and and Execution: maintenance of the project. 83 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO Project Completion: The borrower will be responsible for covering any costs in excess of the loan amount needed to complete construction of the project. Sufficiency of Funds: The borrower will establish the necessary budgetary line item(s) as the source of repayment of all obligations set forth in these Loan terms and conditions. The borrower will ensure that monthly energy savings from projects exceed 120 percent of monthly debt service payments, and will guarantee debt service payment from equity funds held in reserve accounts if energy savings fail to meet debt service payments. Project Supervisor: The borrower will be responsible for hiring a construction supervisor to verify and certify the physical and financial status of the project. Procurement: Loan proceeds may only be used in accordance with the provisions set forth in NADB's procurement guidelines. Specific Project The borrower will ensure that the project meets all the specific Requirements: construction requirements imposed by NADB. Lender's Supervisor: NADB may hire a Lender's Supervisor to review the execution of the project during the life of the loan. The tasks to be performed by the Lender's Supervisor will be consistent with NADB's project supervision policy. The Lender's Supervisor will report directly to NADB. If NADB, based on its own or through its Supervisor's review, determines that the loan proceeds have been disbursed for ineligible expenditures, or actions have been taken that are not in accordance with the terms of the loan agreement, NADB will suspend future disbursements of its funds until the situation has been remedied. Debt Service Reserve Fund: The Debt Service Reserve (DSR) Fund will be funded within twenty-four (24) months after the first disbursement of the loan. The DSR will be available to cover debt service payments to NADB in the event energy savings are insufficient to make debt service payments. The DSR requirement will, at all times, be equal to two (2) months of principal and interest payments, and will be maintained throughout the life of the loan. If the DSR is used, the borrower shall replenish it within three months. DSR funds shall be maintained in a designated account. Any balance on the account after meeting the objectives and replenishments of the fund will be available to the borrower. Debt Service Coverage Ratio: The borrower shall maintain a debt service coverage ratio for each fiscal year equal to or greater than 1.20, calculated as the ratio of a) gross energy savings less operating and maintenance costs, taxes, and interest and principal payments on the NADB loan. 84 ANNEX 3: NADB TERM SHEET Credit Rating: The borrower shall maintain a minimum credit rating of BBB (Mex), or the equivalent of three grades below the Mexican federal government. Compliance with Laws The borrower must manage the project in compliance with all the and Regulations: laws, rules, regulations, orders and directives applicable to the project or the borrower, enacted by any legislative, executive, administrative or judicial body having lawful jurisdiction (whether federal, state or local). Audits of Project Operations: The borrower shall notify NADB of all audits that are performed on borrower and provide copies of those audits that NADB requests. NADB reserves the right to conduct spot financial and technical audits of the SPC. Annual Income and The borrower must deliver to NADB, at least thirty (30) days after Expense Budget: the commencement of each fiscal year, an annual financial statement Capital Investment Budget: Prior to the commencement of each fiscal year, the borrower shall deliver to NADB the capital investment budget for the project in the coming fiscal year. Annual Operations and Forty-five (45) days prior to the commencement of each fiscal year, Maintenance Budget: the borrower must deliver to NADB the annual operations and maintenance budget for the SPC. Reports: The borrower will submit the following reports to NADB: · No later than 45 days following the end of each fiscal year, a certificate as to the debt service coverage ratio for the fiscal year ending. Such certificate will be based on the borrower's records and financial statements, and must be signed by the legal representative of the borrower; · No later than 180 days following the end of each fiscal year, a copy of its audited financial statements prepared in accordance with generally accepted accounting principles by an independent public accountant; · No later than forty-five (45) days following the end of each quarter, the financial statements, including a quarterly balance sheet, income and expense statement, cash flow statement, signed by its legal representative; · No later than fifteen (15) days following the end of the reporting period, quarterly project performance reports; · Promptly upon the occurrence of an event which is material to 85 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO the financial condition or operating effectiveness of the project, the borrower will notify NADB of such event and its expected impact on the project; and · The borrower will report to NADB any litigation or proceeding filed against the borrower, as well as any anomaly or circumstance which may compromise the operation of the project. Limitation on Additional The borrower shall not contract any additional debt with a guarantee Indebtedness: on par with or superior to its guarantee with NADB without the prior written authorization of NADB. The borrower shall submit a written request for authorization to NADB that must include information about the new debt to be contracted and, in particular, about the sufficiency of gross revenues for debt service payments, including the proposed debt. Limitation on Liens: The borrower may not contract any liens on the project equity, assets, revenues or funds, without the prior written authorization of NADB. Sale, Lease or The borrower may not sell, lease or encumber all or any part of the Encumbrance: project without the prior written authorization of NADB. Insurance and Bonds: The borrower and/or construction contractor will secure and maintain all the insurance policies and bonds necessary for all the project components, for the term agreed upon with NADB. In particular, the borrower must ensure the following policies are contracted: · Performance bonds, advance payment bonds, warranties and/or any other required bond; and · Liability insurance. The borrower may cover acts of God and force majeure events on its own account or by securing insurance policies. Events of Default and Remedies Events of Default: The following situations shall constitute events of default: · Failure to make payment when due of any principal, interest or fees under the loan agreement in accordance with the established schedule, which continues unremedied for 30 or more days; or · Any representation or warranty made by the borrower in the loan agreement proves to have been incorrect or false in any material respect; or · The validity of the loan agreement or any other agreement between the NADB and the borrower is contested by the borrower, 86 ANNEX 3: NADB TERM SHEET the United Mexican states or any government authority thereof, or the borrower denies liability under the loan agreement, or any part of the loan agreement is, for any reason whatsoever, deemed invalid and unenforceable; or · Failure of the borrower to perform any of the obligations or covenants contained in the loan agreement or in any other agreement between NADB and the SPC, which continues unremedied for a period of 30 days from the date the borrower receives written notice of such failure from NADB; or · Any proceeding concerning its solvency is instituted by the borrower; or · Significant adverse changes in the legal and financial position of the borrower that jeopardize its capacity to fulfill its obligations in the manner and under the terms agreed in the loan agreement; or · Failure to comply with any of the provisions under the mandate agreement or such agreement ceases to be valid and enforceable. Remedies: Upon occurrence and continuance of an event of default, NADB may exercise any or all of the following remedies: · Refuse to advance any funds to the borrower; · Accelerate or terminate the loan; · Exercise the remedies provided to enforce the guarantees, as set forth in each respective contract; and · Exercise such other rights and remedies as may be available at law or equity. Waiver of an Event NADB may waive any event of default. Such waiver will not release of Default: the borrower from any of its obligations under the terms of the loan agreement. Law: The agreement shall be governed by, and construed in accordance with the laws of the United Mexican states. Jurisdiction: The borrower and COFIDAN will submit to the jurisdiction of the competent federal courts in Mexico City, Federal District, Mexico, for any action or proceeding arising out of, or relating to, the loan agreement, hereby waiving any other jurisdiction to which they may be entitled by reason of their present or future address. 87 Annex 4 Assets Pledge Agreement Between SPE and Creditors Asset Pledge Agreement Without is an international organization duly created by Transfer of Possession the Organizational Agreement between the member countries, and is legally represented in ASSET PLEDGE AGREEMENT WITHOUT this Agreement; (ii) Overseas Private Investment TRANSFER OF POSSESSION (the Corporation is an agency of the United States "Agreement"), dated as of __________, 2006, of America government, and is legally by and between _______________ (SPECIAL represented in this Agreement; (iii) North PURPOSE ENTITY, OR SPE), S. DE R.L. DE American Development Bank is an international C.V., represented by Mr. _______________, as organization duly created by the Organizational its legal representative (hereinafter the "Debtor Agreement between the United States of America Pledgor "); and the INTERNATIONAL and the United States of Mexico, and is legally FINANCE CORPORATION, represented by Mr. represented in this Agreement; and (iv) Nacional _____________, the OVERSEAS PRIVATE Financiera is national credit corporation created INVESTMENT CORPORATION, represented by by the Mexican government, and is legally Mr. ____________, the NORTH AMERICAN represented in this Agreement. DEVELOPMENT BANK, represented by Mr. ____________, the NACIONAL FINANCIERA, WHEREAS, the activities that comprise part of S.N.C., represented by Mr. ____________, as the purposes of Debtor Pledgor include, among creditors under the Credit Agreement referenced others, commerce in general, including, the below (hereinafter jointly referred as the facilitation, developing, consulting, providing the "Creditor Pledgee"), and _____________[Final necessary economic resources, acquiring the client] represented by Mr. _____________, obligations derived from the energy efficiency (hereinafter the "Bailee"), pursuant to the projects, developed with persons, partnerships, following Recitals and Clauses: and corporations without the necessary or sufficient resources to develop this kind of Recitals projects or any type of energy efficiency projects. WHEREAS, the Debtor Pledgor is a Mexican WHEREAS, on _______, 2006, the Debtor company duly organized under and operating Pledgor, as Borrower, and the Creditor Pledgee, in accordance with the laws of the United as Lenders, executed a Credit Agreement (as Mexican States, and is legally represented in amended, restated and modified from time to this Agreement. time, the "Credit Agreement") for the principal sum of US$_______.00 (___ million dollars 00/ WHEREAS, the Creditor Pledgee, is comprised 100 of the United States of America), to provide of several entities, that are organized or created the economic resources to third parties for the as follows: (i) International Finance Corporation development and execution of energy efficiency 89 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO projects in Mexico, in accordance with the terms WHEREAS, the Debtor Pledgor and the Bailee and subject to the conditions set forth in the represent and warrant that by virtue of the Credit Credit Agreement. Agreement dated ______, ___ 2006, between the Debtor Pledgor as Creditor and WHEREAS, on ___________, 2006, the Debtor ______________ [ESCO], and the infrastructure Pledgor, as Assignor, and the Management and and service agreement dated ______, __ 2006, Payment Trust known as ______________ as between _____________ [ESCO] and the Bailee, Assignee, executed an Assignment Agreement this last one has the possession, but not the of the collection rights that come from the property title of all of the equipment and assets Development, Construction, Installation, that the that the Debtor Pledgor has, derived Maintenance and Service Agreements and any from the mentioned agreements. other related Agreements of the energy efficiency projects, including the endorsement of any WHEREAS, the representatives of the parties promissory notes or secured interested appearing herein have the authority to execute executed as a collateral for the payment of the this Agreement and said authority has not been above-mentioned agreements, executed by the revoked, limited or modified in any form. Debtor Pledgor with third parties. Such Assignment Agreement between the Debtor WHEREAS, the Debtor Pledgor represents Pledgor, as Assignor and the Management and and warrants: Payment Trust known as _______________, as Assignee, was executed as part of the terms and · That the execution, signature and delivery of conditions of the Credit Agreement. this Agreement, as well as the compliance with its derived obligations and the granting WHEREAS, Debtor Pledgor desires to guarantee, of the pledge and lien under this Agreement, by virtue of this Agreement, all of the Borrowers' do not contravene: (a) its by-laws; (b) any obligations derived, or that will derive or relate applicable law, regulation, decree or to the Credit Agreement, the Assignment Agreement, as well as any other document authorization; or (c) any binding contractual related or referred by or in the Credit Agreement or other restriction, that affects it or any of its (hereinafter the "Guaranteed Obligations"). assets and/or rights, and will not create or require the creation of any lien, guarantee, WHEREAS, in order to guarantee the Guaranteed charge, affectation, limitation of ownership, Obligations, the Debtor Pledgor has agreed to third party rights or with respect to any of its give the Creditor Pledgee a first priority lien assets, besides the pledge granted under pledge, without transfer of possession, pursuant this Agreement; to the Mexican General Law of Negotiable Instruments and Credit Transactions (hereinafter · That it has sufficient capacity and necessary the "LGTOC") of the equipment and assets that powers to execute this Agreement; the that the Debtor Pledgor has, derived from Credit Agreement dated ______, ___ 2006, · That it has obtained the necessary corporate between the Debtor Pledgor as Creditor and authorizations and approvals; _____________ [ESCO], and the infrastructure and service agreement dated ______, __ 2006, · That it does not need to obtain or request between _________________ [ESCO] and the governmental authorization, approvals or Bailee, in order to upgrade the systems of registries to: (a) execute this Agreement, the Bailee, free of any and all liens, in order to (b) create the lien as described in this create a first priority lien in accordance with Agreement; or (c) comply with its obligations this Agreement. under this Agreement; 90 ANNEX 4: ASSETS PLEDGE AGREEMENT BETWEEN SPE AND CREDITORS · There are no pending or existing threatened of and compliance with all of the Guaranteed suits before any court, governmental agency Obligations, including, without limitation, the or arbitral tribunal or any action or procedure timely and total payment of all the amounts that may adversely affect in any manner the owed under the Credit Agreement, the Debtor legality or validity of this Agreement, or the Pledgor, by this act, creates in favor of the lien that is created through the execution of Creditor Pledgee, which for its part accepts, a this Agreement; first priority lien by means of a Pledge without transfer of possession, pursuant to the terms of · There are no contractual restrictions, Articles 346 and 354 and other relative Articles prohibitions or impediments or judicial orders or resolutions that restrict, prohibit or impede of the LGTOC and the provisions of this the execution of this Agreement or the Agreement with regards to all equipment and compliance of the same by the Debtor assets, derived from the infrastructure and Pledgor according to the terms and service agreement executed by the ____________ conditions established herein; [ESCO] with the Bailee in order to upgrade its systems, assets that are in the possession of the · That it has obtained each and every required Bailee, as referred to in Exhibit "A" Inventory of authorization or approval and has complied Pledged Equipment, and in Exhibit "B" Inventory with each and every registration required of Pledged Assets, (the "Pledged Assets"). Such from any governmental authority, agency or exhibits are attached to this Agreement and by Debtor Pledgor's by-laws, in order for the constitute part of this Agreement and have been pledge granted under this Agreement to be duly signed by the parties. The Debtor Pledgor valid and enforceable; acknowledges and agrees that the pledge created · That there are no pending debts or liabilities by this Agreement will be governed by the or any tax or labor liabilities that may Second Title, Fourth Chapter, Seventh Section constitute a preferred lien on any or all of of the LGTOC. the Pledged Assets; and SECOND. REPRESENTATIONS · This Agreement constitutes a legal, valid, and AND WARRANTIES OF THE binding obligation of the Debtor Pledgor, DEBTOR PLEDGOR enforceable against it pursuant to its terms. The Debtor Pledgor represents and warrants to WHEREAS, unless otherwise defined herein, the Creditor Pledgee, the following: capitalized terms used herein shall have the meanings ascribed to such terms in the · That all the Pledged Assets, under this Credit Agreement. Agreement are owned solely, validly and legally by the Debtor Pledgor, which are free IN CONSIDERATION OF THE ABOVE, and the of liens, attachments and limitations and promises and agreements between the parties restrictions of ownership; and other good, valuable, and legal consideration, the receipt and sufficient of which, · That there have been no assignments, that is recognized by the parties, the parties transfers, cancellations, set offs or liens on subject themselves to the following: any of the Pledged Assets under this Agreement; and Clauses · That it has the legal capacity and authority FIRST. CREATION OF THE PLEDGE to pledge either existing or future Pledged WITHOUT TRANSFER OF POSSESSION Assets pursuant to this Agreement, from time For purposes of guaranteeing the timely payment to time. 91 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO THIRD.USE OF THE PLEDGED ASSETS Pledged Assets. The Debtor Pledgor and/or the Bailee shall be responsible for the deterioration, In accordance with that set forth in Article 356 loss and damage suffered by the Pledged Assets of the LGTOC, so long as there is no breach of due to its fault or negligence. All costs necessary any of the Guaranteed Obligations or of this for the preservation, repair, administration and Agreement, the Debtor Pledgor and the Bailee relocation of the Pledged Assets shall be at the shall have the right to have possession and use Debtor Pledgor's and/or Bailee's expense. of the Pledged Assets, and use them in combination with other assets for the benefit of The Debtor Pledgor shall not transfer the the energy efficiency project. The Debtor Pledgor possession to third parties except to the Bailee will not be allowed to sell or transfer the property nor remove the Pledged Assets from their or title of the Pledged Assets without the prior respective establishments or from any other written consent of the Creditor Pledgee. locations in which they are required for the energy efficiency projects, unless it has the prior FOURTH. INSURANCE written consent by the Creditor Pledgee or except as otherwise provided in this Agreement. The Debtor Pledgor is obligated to obtain the required insurance policy that covers loss Except as otherwise provided in this Agreement, damages and thefts of the Pledged Assets. In the Debtor Pledgor by this act expressly waives the respective insurance policy, the Creditor its right to create, transfer, assume or allow the Pledgee will be appointed as the co-owner and existence of any lien, pledge, guarantee or any beneficiary for the insured Pledged Assets. other charge or property limitation with or in The Debtor Pledgor is obligated to deliver to connection with any of the Pledged Assets that it the Creditor Pledgee a copy of the insurance currently owns or that are acquired in the future policy referenced in the paragraph above at the after this act by the Debtor Pledgor on behalf of time of the execution of this Agreement. its creditor in accordance with Article 358 of the LGTOC. If a loss occurs, the outstanding balance of the amounts due from the credit will be reduced SIXTH. REPLACEMENT OF PLEDGED with the insurance proceeds amounts received ASSETS DUE TO LOSS by the Creditor Pledgee, and if there is any OR DETERIORATION difference, the Creditor Pledgee will deliver them The Creditor Pledgee has the right to request to the Debtor Pledgor no later than the third from the Debtor Pledgor the replacement of the labor day following the reception date of the Pledged Assets in case of loss or deterioration insurance proceeds. of such. Upon the loss of or deterioration of the FIFTH. POSSESSION AND PRESERVATION Pledge Assets, the Debtor Pledgor shall replace OF THE PLEDGED ASSETS. the Pledged Assets. The Debtor Pledgor and/or the Bailee shall SEVENTH. INSPECTION OF THE maintain the possession of the Pledged Assets PLEDGED ASSETS at all times, except as otherwise provided in this Agreement, pursuant to Articles 346 and 361 From time to time and during the term of this of the LGTOC and will be subject to the liability Agreement, the Debtor Pledgor and the Bailee established by Article 380 of the LGTOC. shall allow the Creditor Pledgee to inspect the Pledged Assets for the purposes of verifying their The Debtor Pledgor and/or the Bailee obligate existence, quantity and their general state themselves to conserve and maintain the and condition. 92 ANNEX 4: ASSETS PLEDGE AGREEMENT BETWEEN SPE AND CREDITORS The said inspection shall be done on behalf of the first place and lien created by this Agreement Creditor Pledgee by a person so designated by or to allow to the Creditor Pledgee to exercise the Creditor Pledgee and made known to the and enforce its rights and remedies in Debtor Pledgor and Client by means of written accordance with this Agreement and in notice at least 24 (twenty-four) hours in advance. connection with the Pledged Assets; The said inspections should be undertaken · Immediately after the knowledge of any during business hours and business days without action or lawsuit that might affect any of the interfering with the operations of the Debtor Pledged Assets or any of the rights, titles or Pledgor and Bailee. liens of the Creditor Pledgee in the Pledged Assets, deliver a written notice to the Creditor EIGHTH. DEBTOR PLEDGOR'S AND Pledgee providing detailed information BAILEE'S OBLIGATIONS and documentation relating to such action or lawsuit; Pursuant to Article 357 of the LGTOC, as long as the Guaranteed Obligations remain in force, · Regardless of the powers of attorney granted the Debtor Pledgor shall maintain the Pledged in this Agreement, at any time and under its Assets in the Bailee's facilities located in own expense, defend its rights, ownership ______________ and will not be allowed to and capacities in the Pledged Assets, remove them from such location without prior including its preference grade, against any written consent of the Creditor Pledgee. The and all the lawsuits; Debtor Pledgor and the Bailee will also be obligated to: · Not create, issue, assume or allow the existence of any pledge, lien or any other · Carry out any necessary or convenient act to charge or attachment in or in connection with maintain the value and status of the Pledged any of the Pledged Assets; Assets and abstain from carrying out any act that may cause a decrease of value or · Not carry out or accept any modification, limitation of the Pledged Assets; change or release with respect to the Pledged Assets, nor celebrate any agreement · Provide to the Creditor Pledgee all the or allow any limitations as to any of the information relating to the Pledged Assets that Pledged Assets; and may be requested from time to time by the Creditor Pledgee. The Debtor Pledgor will · Not take any action that; (i) in any way may allow the Creditor Pledgee or any person decrease or restrict the value of the Pledged designated by the Creditor Pledgee to make Assets or the enforceability of the Creditor photocopies of the documents and registries Pledgee's rights under this Agreement or of the Pledged Assets. The Debtor Pledgor (ii) as a result of the same, it could be shall provide to the Creditor Pledgee such expected that the value or the enforceability documents if required in writing by the of this Agreement could be affected. Creditor Pledgee or by the persons designated by the Creditor Pledgee; NINTH. INDIVISIBILITY AND TERM · From time to time, execute and deliver the The pledge in first place and grade and the lien documents, instruments or guarantees or created by this Agreement is indivisible and all carry out any necessary or convenient act that and any of the Pledged Assets guarantee the may reasonably request the Creditor Pledgee timely and total payment of the Guaranteed in order to perfect and protect the pledge in Obligations, regardless that whether any party 93 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO at this time or in the future, partially or totally representation in the exercise of any right of the guarantees the payment of obligations by means Debtor Pledgor derived or related with the of other pledges or any other guarantee. Pledged Assets, considering that the Creditor The Debtor Pledgor by this act expressly waives Pledgee will not act until an Event of Default its right to request the division or reduction of occurs. For such purposes, the Debtor Pledgor the Pledged Assets in proportion to any partial has granted general and special powers of payments of the Guaranteed Obligations attorney to the Creditor Pledgee, as legally pursuant to Article 349 of the LGTOC. The necessary, with the purpose that the Special pledge in first place and grade and the lien Representative, acting in the name and created by this Agreement will remain in force representation of the Debtor Pledgor exercise, and effect until all the Guaranteed Obligations defend and request, pursuant to this Pledge have been totally satisfied and have been Agreement without transmission of possession, cancelled pursuant to this Agreement. the compliance with any and all of the obligations or rights of the Debtor Pledgor in TENTH. RELEASE OF THE connection with the Pledged Assets. Within the PLEDGE GUARANTEE powers of attorney, the Special Representative will have the following capacities: Once all of the Guaranteed Obligations have been fully satisfied, the Credit Agreement and · General power for lawsuits and collections, all documents related thereto have been with all the powers of attorney, in accordance terminated, the Creditor Pledgee is obligated, with the law, that require a special grant as at the expense of the Debtor Pledgor, to release well as a general power for acts of the pledge on the Pledged Assets, complying administration and acts of ownership, under with the same formalities as those used in the the terms of Article 2554 of the Civil Code of execution of this Agreement. In order to proceed the Federal District, as well as the with the release and cancellation of this corresponding sections of the other Civil Agreement, the Creditor Pledgee shall have to Codes of the Mexican Republic, as well as issue a release letter after the Creditor Pledgee the Federal Civil Code, including but not has determined under its own judgment the full limiting the following capacities: satisfaction of the Guaranteed Obligations. ­ Prosecute or dismiss all kind of procedures, ELEVENTH. RATIFICATION OF including the Amparo; AGREEMENT AND RECORDING IN THE PUBLIC REGISTRY ­ Negotiate; OF COMMERCE ­ Enter into arbitration; Pursuant to Articles 365 and 366 of the LGTOC, the parties are obligated to ratify their signatures ­ Articulate and dissolve positions; before a Mexican Notary Public and to record ­ Challenge the jurisdiction of judges; this Agreement in the Public Registry of Commerce at the corporate domicile of the ­ Accept assignments of goods; Debtor Pledgor. ­ Collect payments and issue receipts TWELFTH. POWERS OF ATTORNEY and cancellations; and The Debtor Pledgor has irrevocably appointed ­ Make all types of denouncements, the Creditor Pledgee as its special representative accusations or claims of any type, to ("Special Representative") to act in its name and represent the Debtor Pledgor in any penal 94 ANNEX 4: ASSETS PLEDGE AGREEMENT BETWEEN SPE AND CREDITORS process, to be a coadjutor to the public charged to the Debtor Pledgor. Pursuant to ministry, to grant pardons to the accused. Article 1391 of the Commerce Code, this instrument, for the purposes referenced herein, The authority granted to the Special shall be considered as an executory instrument. Representative pursuant to A) above is limited to carrying out acts or procedures related with FOURTEENTH. EXECUTION PROCEDURE the Pledged Assets. Should there be any breach of the Guaranteed · General powers of attorney for acts of Obligations or this Agreement, the parties ownership and acts of administration, as expressly submit themselves to the execution broad as necessary, to carry out, in the name procedure established in Third Title of the of the Debtor Pledgor, any necessary or Commerce Code, regardless of any other action convenient act, in the Debtor Pledgor's or remedy that the Creditor Pledgee may have judgment, to carry out the sale, transfer or pursuant to applicable law. enforcement of the Pledged Assets pursuant to this Agreement. In this act, the Debtor FIFTEENTH. ACTIONS Pledgor ratifies all the acts that the Creditor The failure to exercise or the exercise by the Pledgee may carry out in exercise of these Creditor Pledgee of any action derived from this powers of attorney. Agreement or the Credit Agreement does not These powers of attorney are irrevocable, imply a waiver of any other action that it pursuant to Article 2596 of the Civil Code may have. of the Federal District and its correlatives SIXTEENTH. REMEDIES pursuant to the other Civil Codes of the Mexican Republic, considering that they are Upon the existence or occurrence of an Event of granted as an instrument to comply with the Default pursuant to the Credit Agreement, as obligations acquired by the Debtor Pledgor well as the breach of any of the Debtor's and/ under this Agreement. or Bailee's obligations under this Agreement of a false or inaccurate statement, representation The Debtor Pledgor expressly acknowledges and or warranty in this Agreement or in the Credit agrees that the Creditor Pledgee may request Agreement, the expiration date of the credit to the Debtor Pledgor at any time the granting, under the Credit Agreement will be accelerated formalization or protocolization of these powers to the date of the Event of Default and the total of attorney, or of any other similar powers of outstanding balance will become due, at the attorney or any other document that the Debtor moment or in any other moment thereafter, and Pledgor may consider convenient, and, in such the Creditor Pledgor may, in its sole discretion case, all the fees and expenses incurred in and without the need for judicial intervention, exercising such powers of attorney will be paid do, either partially or totally, any one or more by the Debtor Pledgor. of the following: (i) set off any amount owed by THIRTEENTH. ENFORCEABLE TITLE the Debtor Pledgor to the Creditor Pledgee under this Agreement, the Credit Agreement or any The parties agree that the original of this other legal relation; and/or (ii) upon notice to Agreement that contains the Public Registry of Debtor Pledgor and without any further liability, Commerce recording information shall be terminate or rescind this Agreement; and/or (iii) considered as an executory instrument either itself or through a third party, collect the (título ejecutivo) with regards to the economic payments, rents, income and revenues of the obligations contained and referenced herein and Pledged Assets; and/or (iv) exercise any other 95 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO right or remedy available to Creditor Pledgee members, executives, officers, employees, under this Agreement, the Credit Agreement and agents, and attorneys; and hold such harmless related documents or applicable law, including of any losses, liabilities, lawsuits or damages to the applicable provisions of the LGTOC; and which any of them could be subject to as a result the Creditor Pledgee may dispose, transfer, sell of the existence, compliance or enforcement of or enforce the Pledged Assets, considering that this Agreement or the Credit Agreement, and/ the Debtor Pledgor in this act grants to the or the Assignment Agreement, including, without Creditor Pledgee irrevocable powers of attorney, limiting to, the losses, liabilities, lawsuits or necessary and sufficient, to exercise, transfer, sell, damages derived from the Debtor Pledgor's pledge, collect, enforce or create other liens in breach of this Agreement , the Credit Agreement the Pledged Assets, upon the existence or and/or the Assignment Agreement, or in occurrence of an Event of Default. The remedies referred in this Agreement are not intended to connection with the investigation, litigation or be exclusive or limitative, but each shall be in any other procedure, including any investigation addition to any other remedy available to or procedure, related to the above, and Creditor Pledgee. the Debtor Pledgor shall reimburse the Creditor Pledgee and any of its counselors, Debtor Pledgor and Bailee shall grant all the members, executives, officers, employees, facilities in case of execution of the pledge in a agents and attorneys the incurred attorneys' fees, default event, including but not limited to, free expenses and costs related to the investigation access to inspect and remove the pledged or procedure. equipment and assets that have been sold to repay the debt. Therefore, such parties shall not NINETEENTH. GENERAL PROVISIONS engage in any act that may complicate or delay such execution. · Modifications. All modifications of the terms or conditions of this Agreement must be Debtor Pledgor shall pay Creditor Pledgee for made in writing and signed by the parties all costs and expenses incurred including, but that intervene. not limited to, attorneys' fees, expenses and costs incurred by Creditor Pledgee in exercising any · Notices. All notices between the parties of Creditor Pledgee's rights or remedies shall be in writing and delivered either hereunder, as well as in enforcing any of the personally or by an internationally provisions of this Agreement. recognized courier service. All notices shall be considered as duly delivered upon SEVENTEENTH. APPLICABLE LAW AND personal delivery or the third day after JURISDICTION sending the notice by means of a courier For the interpretation and fulfillment of this service and addressed as follows: Agreement, the parties shall submit themselves to the Mexican commercial laws and the To Debtor Pledgor: jurisdiction of the competent courts in Monterrey, _______________________________________ Nuevo León, Mexico. The parties expressly waive _______________________________________ any other forum that could have jurisdiction by reason of their present or future domicile or for _______________________________________ any other reason. Attention: _______________________________ EIGHTEENTH. INDEMNITY To Bailee: _______________________________________ The Debtor Pledgor shall indemnify the Creditor Pledgee, as well as any of its counselors, Attention: _______________________________ 96 ANNEX 4: ASSETS PLEDGE AGREEMENT BETWEEN SPE AND CREDITORS To Creditor Pledgee: change or limit the terms and provisions _______________________________________ expressed in this Agreement. _______________________________________ · Waiver and Consent: The terms and Attention: _______________________________ provisions of this Agreement may be waived or consent may be given to diverge from With a copy to: same only by means of a written agreement . Cacheaux, Cavazos & Newton, L.L.P 333 between the parties. Each waiver or consent Convent Street, San Antonio, Texas, shall have effect only for the event and USA, 78205 specific objective for which it was authorized Attention: Robert M. Barnett and shall not constitute a continuous waiver or consent. · Costs and Expenses: The Debtor Pledgor agrees to pay all costs and expenses incurred · Headings: The headings and titles to the in the preparation, execution, notification and various paragraphs and subparagraphs of administration of this Agreement, as well as this Agreement are solely for references of the release as the case might be, including purposes and do not modify or affect the the recording in the Public Registry of significance or interpretation of any of the Commerce in Monterrey, Nuevo León, Mexico. terms or provisions of this Agreement. · Languages: This Agreement has been · Divisibility: The provisions of this Agreement prepared in its original version in the Spanish are divisible and should any provision in this language. An English version of this Agreement be declared null or void, the Agreement has been prepared for reference validity and enforceability of the remaining purposes only. The parties agree that in provisions shall not be affected or adversely the event of a controversy, the Spanish affected in the understanding that if the said version prevails. provision is modified in such a manner that · Multiple Originals: This Agreement may be it becomes valid and enforceable as a matter executed in three or more originals, each of law, the said provision shall be considered of which will be considered as an original; as modified so that it may be valid and however, all of the originals shall be enforceable to extent allowed by Law. jointly considered as one and as the · Assignment: The Creditor Pledgee may assign same document. or transfer in any way, any of its rights or · Entire Agreement: This Agreement, along with obligations under this Agreement, or the its Exhibits attached hereto, contains the entire Agreement, to any person, without the prior agreement between the parties and consent of the Debtor Pledgor, and such other supersedes any and all prior agreements and person shall acquire all the benefits, rights, understandings, be they oral or written, and obligations with respect to the same between the parties to this Agreement as it granted to the Creditor Pledgee under this relates to the subject matter of same. No Agreement. Any of the rights or obligations declaration, representation, guarantee, pact, or the Agreement may not be affected, indemnification or agreement of any type not assigned or transferred in any way totally expressly set forth in this Agreement shall or partially by the Debtor Pledgor, without affect the terms and provisions contained in the prior express written consent of the this Agreement nor will it be used to interpret, Creditor Pledgee. 97 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO · Exhibits: All the Exhibits of this Agreement The parties fully understand the content are a main part of the same and the Debtor of this Agreement and execute such in Pledgor states under oath that all the Monterrey, Nuevo León, on the _______ day information in the Exhibits is true, exact, of ___________, 2006. correct and verifiable at any time. DEBTOR PLEDGOR: _________________, S. DE R.L. DE C.V. By:____________________________ Name: ______________________ Its: Legal Representative CREDITOR PLEDGEE: International Finance Corporation Overseas Private Investment Corporation By:____________________________ By:____________________________ Name: ______________________ Name: ______________________ Its: Legal Representative Its: Legal Representative North American Development Bank Nacional Financiera, S.N.C. By:____________________________ By:____________________________ Name: ______________________ Name: ______________________ Its: Legal Representative Its: Legal Representative BAILEE: _________________, By:____________________________ Name: ______________________ Its: Legal Representative 98 Annex 5 Assignment Agreement Between ESCO and SPE ASSIGNMENT AGREEMENT (THE · The obligations of the Lender to make the "AGREEMENT") ENTERED INTO BY AND Loan are conditioned upon, among other BETWEEN _______________ (ESCO), things, the execution and delivery by the ______________ COMPANY, (HEREINAFTER Assignor of this Agreement of all the REFERRED TO AS THE "ASSIGNOR") collection rights that come from the REPRESENTED BY __________________; AND Development, Construction, Installation, __________, (SPECIAL PURPOSE ENTITY, OR Maintenance and Service Agreements and SPE), LIMITED LIABILITY COMPANY WITH any other related Agreements of the energy VARIABLE CAPITAL , (HEREINAFTER efficiency project to the Lender, including the REFERRED TO AS THE "ASSIGNEE"), endorsement of any promissory notes or REPRESENTED BY ____________; HEREBY secured interest executed as a collateral for PURSUANT TO THE FOLLOWING RECITALS, the payment of the above-mentioned STATEMENTS AND CLAUSES: agreements, as specifically described in the Exhibit "A" of this Agreement ("Rights and Recitals Agreements") executed with _______ [Client] to change and upgrade its energy systems · Pursuant to the Credit Agreement dated as to make them more energy efficient than the of ____________, 2006 (as amended, ones that the Client has in its facilities; and amended and restated, supplemented or otherwise modified from time to time, the · Pursuant to the Credit Agreement dated as "Credit Agreement ") between of ________, 2006 the Borrower will assign ______________, [ESCO] (the "Borrower") all of his rights of collection that come from and _________________ [SPE] (the the Development, Construction, Installation, "Lender"), the Lender has agreed to make a Maintenance and Service Agreements loan to the Borrower for the development and and any other related Agreements of the execution of the energy efficiency project to energy efficiency project, including the change and update into energy systems that endorsement of any promissory notes or are more efficient than the ones that secured interest executed as a collateral ______________ [Client] has in its facilities, for the payment of the above-mentioned in accordance with the terms and subject to agreements, to the Lender in order to repay the conditions set forth in the Credit Agreement. the loan granted by the Lender, and will The terms used herein and not defined herein be also personally responsible for the shall have the meaning assigned to such terms payment of such Credit in case of default in the Credit Agreement; of the Client by any reason. 99 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO Statements ­ It has the power and authority to enter into this Agreement, it has obtained the required · The Assignor, through its legal representative, corporate, third party and governmental hereby declares that: authorizations and approvals, and has made all filings necessary to, enter into ­ It is a ___________ [corporation or any this Agreement, to perform its obligations type of entity or person] duly organized, hereunder and to permit the Trustee validly existing and in good standing under to exercise any rights granted to it the laws of Mexico; hereunder; and ­ Its legal representative has the authority to ­ The entering into this Agreement and the obligate the Assignee in terms of this performance of its obligations hereunder Agreement, and such authority has not been do not contravene or result in any breach limited or revoked in any way; of: (i) its by-laws and articles of incorporation, (ii) any applicable law, rule, ­ It has the power and authority to enter into decree or authorization applicable to this Agreement, it has obtained the required Assignor, or (iii) any agreement of any corporate, third party and governmental nature whatsoever to which Assignor may authorizations and approvals, and has be a party. made all filings necessary to, enter into this Agreement, to perform its obligations This Agreement constitutes a legal, valid, and hereunder and to permit the Trustee to binding obligation of Assignee, enforceable exercise any rights granted to it hereunder; against Assignee in accordance with its terms. ­ The entering into this Agreement and the Based on the above, the Parties hereby state that performance of its obligations hereunder they consent that this Agreement is governed by do not contravene or result in any breach the aforementioned Recitals and Statements and of: (i) its by-laws and articles or by the following: incorporation, (ii) any applicable law, rule, decree or authorization applicable to the Clauses Assignor, or (iii) any agreement to which FIRST. Assignment. The Assignor, by means of Assignor may be a party; and this Agreement irrevocably assigns and transfers ­ This Agreement constitutes a legal, valid and to the Assignee all the economic and collection binding obligation of Assignee, enforceable rights and proceeds derived and/or contained against Assignee in accordance with in the Rights and Agreements until the its terms. Obligations under the Credit Documents have been paid to the satisfaction of the Lender. · The Assignee, through its Trust delegates, The Assignor and the Assignee agree: (i) that hereby declares that: the Rights and Agreements shall not be modified without the prior written consent of Assignee; ­ It is an association duly organized, validly and (ii) upon Assignee's request and during the existing and in good standing under the term of this Agreement, the Assignor shall carry laws of Mexico; out any necessary act to guarantee that the Rights and Agreements would not be modified ­ Its legal representative has the authority to or affected. obligate the Assignee in terms of this Agreement, and such authority has not been The assignment of the Rights and Agreements limited or revoked in any way; shall not constitute payment, release or novation 100 ANNEX 5: ASSIGNMENT AGREEMENT BETWEEN ESCO AND SPE of the obligations of the Borrower under the FIFTH. Joint and Several Obligation. In case of Credit Agreement and the Notes [if necessary], a default in payment from the Client of any rights unless such obligations are effectively being paid hereby assigned, the Assignor will be jointly and with the proceeds, economic and collection severally liable to the Assignee for the payment rights derived and/or contained in Rights and of all the proceeds, economic and collection Agreements. The Assignee will not assume any rights of the Rights and Agreements under default. Therefore, the Assignor will be entitled to collect obligations of the Assignor related to the Rights from either the Client as principal obligor and/ and Agreements. Such obligations shall remain or the Assignor as joint and several debtor, in with the Assignor, who shall comply with such case of default. obligations in their totality. The Assignor does not have or retain any rights to challenge the SIXTH. Subrogation. As a result of the assignment assignment of the Rights and Agreements. contained in this Agreement, the Assignee will be subrogated immediately and without the SECOND. Obligations. The Assignor, in addition necessity of previous authorization or notice in to complying with any other obligations under all the judicial and extrajudicial acts for the this Agreement or applicable law, shall: collection, claim and demand of the proceeds, economic and collection rights that come form · Give notice to the applicable parties [client] the Rights and Agreements. and comply with the applicable requirements and formalities in order to make effective The Assignor may require from the Assignee the such assignment of Rights and Agreements; execution and delivery of any document necessary for the execution of the Assignee rights · Carry out all the necessary or convenient in accordance to this Agreement. Also the acts to maintain the Rights and Agreements Assignor will be obligated to assist, cooperate and the rights of the Assignee under and execute all the necessary and required acts this Agreement; and to comply with the assignment of collection rights and to allow the Assignee to enforce the rights · Unless otherwise provided in this Agreement, contained in this Agreement. not sell, pledge, assign, transfer, lien or in any other way convey the Rights and SEVENTH. Notifications. All notices, claims, Agreements, or accept a lien on the Rights instructions, or other communications to be given and Agreement by any person other than under this Agreement shall be given in writing the Assignee. and will be deemed duly given when: (a) personally delivered; (b) sent by courier; or THIRD. Expenses. The Assignor shall be solely (c) sent by facsimile transmission (in each case, responsible to pay all the expenses derived from with written confirmation or acknowledgment of the preparation, execution, delivery and receipt) to the address/facsimile number set forth notification of this Agreement, including the below or such other address notified in writing notices to be given to the relevant and applicable from time to time to the other Parties, same which third parties. will be effective two days after receipt. FOURTH. Further Assurances. Parties hereto Assignor: hereby agree to execute and deliver such further _______________________________________ documents and to take such further actions as _______________________________________ may reasonably be required to effect the transactions contemplated hereby. _______________________________________ 101 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO Tel: division of this Agreement or of its Exhibits, are used only to enable references, for which they Fax: shall not affect the contents of the clauses, sections, subsections and other divisions of this To the attention of: Agreement, in the understanding that its contents Assignee: shall be ruled by the agreements of the Parties _______________________________________ established in this Agreement. _______________________________________ The Exhibits of this Agreement are part of it and for every legal effect, are taken as reproduced _______________________________________ as if literally inserted. Tel: TWELFTH. Taxes. Each party hereto will pay the Fax: taxes, if any, deriving from the execution of this Agreement, as provided by applicable law. To the attention of: THIRTEENTH. Total Agreement. This Agreement EIGHTH. Successors, Assignees and contains the total agreement between the Beneficiaries. The Agreement herein shall be Assignor and the Assignee and substitutes any obligatory and shall benefit the Assignor, the and all previous agreements or understandings Assignee and their respective successors, between such Parties referred to in this assignees and beneficiaries, in the understanding Agreement. There are no verbal agreements that neither Party shall be able to assign, totally between the Parties. In case there is any conflict or partially, its rights or obligations deriving from this Agreement, without previous written consent or inconsistency between the previous written from the other Party. communication between the Assignor and the Assignee and this Agreement, the terms used in NINTH. Amendments to the Agreement. The this Agreement shall prevail for all legal effects. Parties hereby agree that none of the terms or conditions established in this Agreement may FOURTEENTH. No Waiver. Except if expressly be amended, unless such amendments are modified or amended herein, each of the Rights evidenced in writing and signed by both Parties and Agreements shall continue to be, and shall and formalized as required by applicable law remain in full force and effect. This Agreement to be valid and binding. shall not be deemed to be a waiver of, or consent to, or a modification or amendment of, any other TENTH. Applicable Law and Jurisdiction. This term and condition contained in the Rights and Agreement will be governed by the laws of Agreements or to prejudice any other right or Mexico. For the interpretation, execution, and rights which the parties may now have or may fulfillment of this Agreement, the Parties have in the future under or in connection with irrevocably and expressly submit to the laws and such documents or any instruments or courts of Monterrey, Nuevo León, Mexico, agreements referred to therein, as amended expressly waiving any other jurisdiction that may correspond to them because of their actual or from time to time. future domiciles or for any other cause. IN WITNESS WHEREOF, the Parties execute this ELEVENTH. Headings and Exhibits. Every title of Agreement in [three copies] in _______________ the clauses, sections, subsections and any other on [__________], [_____], [_______________]. 102 ANNEX 5: ASSIGNMENT AGREEMENT BETWEEN ESCO AND SPE Assignor: Assignee: _________________________________ [ESCO] ___________________________________ [SPE] By: ____________________________________ By: ____________________________________ Name: ________________________________ Name: ________________________________ Title: __________________________________ Title: __________________________________ 103 Annex 6 Assignment Agreement Between SPE and Trustee ASSIGNMENT AGREEMENT (THE have the meaning assigned to such terms in "AGREEMENT") ENTERED INTO BY AND the Credit Agreement. BETWEEN _______________ (SPECIAL PURPOSE ENTITY, OR SPE), LIMITED · The obligations of the Lender to make loans LIABILITY COMPANY WITH VARIABLE are conditioned upon, among other things, CAPITAL, (HEREINAFTER REFERRED TO AS to the execution and delivery by the Assignor of this Agreement of all the collection rights THE "ASSIGNOR") REPRESENTED BY that come from the Development, ______________; AND_______, INSTITUCIÓN Construction, Installation, Maintenance and DE BANCA MÚLTIPLE, QS TRUSTEE OF THE Service Agreements and any other related MANAGEMENT AND PAYMENT TRUST Agreements of the energy efficiency projects _________ (LENDERS' TRUST) (HEREINAFTER to the Trust, including the endorsement of any REFERRED TO AS THE "ASSIGNEE"), promissory notes or secured interests REPRESENTED BY THE TRUST DELEGATES executed as a collateral for the payment of ________________AND ________________; the above-mentioned agreements, as HEREBY PURSUANT TO THE FOLLOWING specifically described in the Exhibit "A" of this RECITALS, STATEMENTS AND CLAUSES: Agreement ("Rights and Agreements") executed with ______________ [Client] to Recitals change and upgrade into more energy efficient systems than the ones that the Client · Pursuant to the Credit Agreement dated as has in its facilities. of ____________, 2006 (as amended, amended and restated, supplemented or · Pursuant to the Credit Agreement dated as otherwise modified from time to time, the of ___________, 2006 the Borrower will "Credit Agreement") between ____________, assign all of its rights of collection that come S. de R.L. de C.V. (the "Borrower") and from the Development, Construction, _____________ [Lenders] (the "Lender"), the Installation, Maintenance and Service Lender has agreed to make Loans to the Agreements and any other related Borrower to provide the economic Agreements of the energy efficiency projects, resources to third parties for the including the endorsement of any promissory development and execution of energy notes or secured interests executed as a efficiency projects in Mexico, in accordance collateral for the payment of the above- with the terms and subject to the conditions mentioned agreements, to the Trust in order set forth in the Credit Agreement. The terms to repay the loan granted by the Lender, and used herein and not defined herein shall will also be personally responsible for the 105 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO payment of such Credit in case of default of to perform its obligations hereunder and the Client by any reason. has been authorized to enter into this Agreement through all required internal Statements resolutions; · The Assignor, through its legal representative, ­ The Management and Payment Trust hereby declares that: Agreement allows the Assignee to receive in payment through an Assignment ­ It is an association duly organized, validly Agreement, totally or partially, the Rights existing and in good standing under the and Agreement subject of this Agreement; laws of Mexico; ­ Its legal representative has the authority to ­ Its trust delegates are duly authorized to obligate the Assignee in terms of this enter into this Agreement on behalf of the Agreement, and such authority has not been Trustee, whose authority has not been limited or revoked in any way; limited, revoked or modified in any way; ­ It has the power and authority to enter into ­ The entering into this Agreement and the this Agreement, it has obtained the required performance of its obligations hereunder corporate, third party and governmental do not contravene or result in a breach of: authorizations and approvals, and has (i) its trust purpose; or (ii) any applicable law made all filings necessary to, enter into this or any agreement to which it is a party; and Agreement, to perform its obligations hereunder and to permit the Trustee to ­ This Agreement constitutes a legal, valid and exercise any rights granted to it hereunder; binding obligation of the Trustee, enforceable against the Trustee in accordance with ­ The entering into this Agreement and the its terms. performance of its obligations hereunder do not contravene or result in any breach Based on the above, the Parties hereby state that of: (i) its by-laws and articles of they consent that this Agreement is governed by incorporation; (ii) any applicable law, rule, the aforementioned Recitals and Statements and decree or authorization applicable to by the following: Assignor; or (iii) an agreement of any kind to which Assignor may be a party; and Clauses ­ This Agreement constitutes a legal, valid, FIRST. Assignment. The Assignor, by means of and binding obligation of Assignee, this Agreement, irrevocably assigns and transfers enforceable against Assignee in accordance to the Assignee all the economic and collection with its terms. rights and proceeds derived and/or contained in the Rights and Agreements until the · The Assignee, through its trust delegates, Obligations under the Credit Documents have hereby declares that: been paid in satisfaction of the Lender. ­ It is a multiple banking institution (institución The Assignor and the Assignee agree: (i) that de banca múltiple) duly organized and the Rights and Agreements shall not be modified validly existing under the laws of Mexico; without the prior written consent of Assignee; and (ii) upon Assignee's request and during the ­ It has all the necessary and sufficient term of this Agreement, the Assignor shall carry authority to enter into this Agreement and out any necessary act to guarantee that the 106 ANNEX 6: ASSIGNMENT AGREEMENT BETWEEN SPE AND TRUSTEE Rights and Agreements would not be modified FOURTH. Further Assurances. Parties hereto or affected. hereby agree to execute and deliver such further documents and to take such further actions as The assignment of the Rights and Agreements may reasonably be required to carry out the shall not constitute payment, release or novation transactions contemplated hereby. of the obligations of the Borrower under the Credit Agreement, the Management and FIFTH. Joint and Several Obligation. In case of a Payment Trust Agreement and the Notes default in payment from the Client of any of the [if necessary], unless such obligations are assigned rights hereby assigned, the Assignor will effectively being paid with the proceeds, be jointly and severable liable to the Assignee for economic and collection rights derived and/or the payment of all the proceeds, economic and contained in Rights and Agreements. collection rights of the Rights and Agreements The Assignee will not assume any obligations of under default. Therefore, the Assignor will be the Assignor related to the Rights and entitled to collect from either the Client as principal Agreements. Such obligations shall remain with obligor and/or the Assignor as joint and several the Assignor, who shall comply with such debtor, in case of default. obligation in their totality. The Assignor does not SIXTH. Subrogation. As a result of the assignment have or retain any rights to challenge the contained in this Agreement, the Assignee will assignment of the Rights and Agreements. be subrogated immediately and without the necessity of previous authorization or notice in SECOND. Obligations. The Assignor, in addition all the judicial and extrajudicial acts for the to complying with any other obligations under collection, claim and demand of the proceeds, this Agreement or applicable law, shall: economic and collection rights that come form the Rights and Agreements. · Give notices to the applicable parties [client] and comply with the applicable requirements The Assignor may require from the Assignee the and formalities in order to make effective execution and delivery of any document such assignment of Rights and Agreements; necessary for the execution of the Assignee rights in accordance to this Agreement. Also the · Carry out all the necessary or convenient Assignor will be obligated to assist, cooperate acts to maintain the Rights and Agreements and execute all the necessary and required acts and the rights of the Assignee under to comply with the assignment of collection rights this Agreement; and and to allow the Assignee to enforce the rights contained in this Agreement. · Unless otherwise provided in this Agreement, shall not sell, pledge, assign, transfer, lien or SEVENTH. Notifications. All notices, claims, in any other way convey the Rights and instructions, or other communications to be given Agreements, or accept a lien on the Rights under this Agreement shall be given in writing and Agreement by any person other than and will be deemed duly given when: the Assignee. (a) personally delivered; (b) sent by courier or (c) sent by facsimile transmission (in each case, THIRD. Expenses. The Assignor shall be solely with written confirmation or acknowledgment of responsible to pay all the expenses derived from receipt) to the address/facsimile number set forth the preparation, execution, delivery and below or such other address notified notification of this Agreement, including the in writing from time to time to the other notices to be given to the relevant and applicable Parties, same which will be effective two days third parties. after receipt. 107 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO Assignor: courts of Monterrey, Nuevo León, Mexico, expressly waiving any other jurisdiction that may _______________________________________ correspond to them because of their actual or _______________________________________ future domiciles or for any other cause. _______________________________________ ELEVENTH. Headings and Exhibits. Every title of the clauses, sections, subsections and any other Tel: division of this Agreement or of its Exhibits, are used only to enable references, for which they Fax: shall not affect the contents of the clauses, sections, subsections and other divisions of this To the attention of: Agreement, in the understanding that its contents Assignee: shall be ruled by the agreements of the Parties established in this Agreement. _______________________________________ The Exhibits of this Agreement are a part of it _______________________________________ and for every legal effect, are taken as reproduced as if literally inserted. _______________________________________ TWELFTH. Taxes. Each party hereto will pay the Tel: taxes, if any, deriving from the execution of this Fax: Agreement, as provided by applicable law. THIRTEENTH. Total Agreement. This Agreement To the attention of: contains the total agreement between the EIGHTH. Successors, Assignees and Beneficiaries. Assignor and the Assignee and substitutes any The Agreement herein shall be mandatory and and all previous agreements or understandings shall benefit the Assignor, the Assignee and their between such Parties referred to this Agreement. respective successors, assignees and There are no verbal agreements between the beneficiaries, in the understanding that neither Parties. In case there is any conflict or Party shall be able to assign, totally or partially, inconsistency between the previous written its rights or obligations deriving from this communication between the Assignor and the Agreement, without previous written consent Assignee and this Agreement, the terms used in from the other Party. this Agreement shall prevail for all legal effects. NINTH. Amendments to the Agreement. The FOURTEENTH. No Waiver. Except if expressly Parties hereby agree that none of the terms or modified or amended herein, each of the Rights conditions established in this Agreement may and Agreements shall continue to be, and shall be amended, unless such amendments are remain in full force and effect. This Agreement evidenced in writing and signed by both Parties shall not be deemed to be a waiver of, or consent and formalized as required by applicable law to, or a modification or amendment of any other to be valid and binding. term and condition contained in the Rights and Agreements or to prejudice any other right or TENTH. Applicable Law and Jurisdiction. This rights which the parties may now have or may Agreement will be governed by the laws of have in the future under or in connection with Mexico. For the interpretation, execution and such documents or any instruments or fulfillment of this Agreement, the Parties agreements referred to therein, as amended irrevocably and expressly submit to the laws and from time to time. 108 ANNEX 6: ASSIGNMENT AGREEMENT BETWEEN SPE AND TRUSTEE IN WITNESS WHEREOF, the Parties execute this ASSIGNEE: Agreement in [three copies] in _______________ on [_________], [____], [______________]. ______________________________ [TRUST] Assignor: By: _____________________________________ _________________________________ [SPE] Name: _________________________________ By: _____________________________________ Name: _________________________________ Title: Trust Delegate Title: ___________________________________ 109 Annex 7 Current Official Mexican Standards for Energy Efficiency Standard/Equipment or System Effective Sold Units in Sold Units in Accrued Efficiency Date 2005 2005 (GWh) Units (GWh) (MV) NOM-001-ENER-2000 XII/2000 2,736 7 130 46 Vertical Pumps NOM-004-ENER-1995 VII/1996 384,658 1 32 97 Centrifugal Pumps NOM-005-ENER-2000 X/2000 1,830,236 97 435 0 Washing Machines NOM-006-ENER-1995 XI/1996 NA NA 2,312 52 Systems NOM-007-ENER-1995 IX/1996 NA 141 1,064 45 Lighting for Buildings NOM-006-ENER-2001 VI/2001 NA 54 197 48 Nonresidential Building NOM-010-ENER-1996 /1998 1,275 12 96 30 Waterproof Pumps NOM-011-ENER-2002 X/2002 11,402 34 204 27 Central Air Conditioner NOM-013-ENER-1996 V/1998 NA 1 19 4 Street Lighting NOM-014-ENER-1997 VII/1998 402,029 40 296 235 Single-phase Motors NOM-015-ENER-2002 V/2003 1,792,197 691 4,873 997 Refrigerators and Freezers NOM-016-ENER-2002 IV/2003 189,262 204 1,992 658 Three-phase Motors NOM-017-ENER-1997 VI/1998 159,432 41 120 4 Fluorescent Lamps NOM-018-ENER-1997 VI/1998 NA 3 76 7 Thermal Insulation for Buildings NOM-021-ENER-SCFINECOL 2000 VI/2001 533,365 237 1,670 232 Roof Air Conditioners NOM-022-ENER/SCFINECOL VI/2001 456,835 199 712 85 Commercial Refrigeration Equipment Source: FIDE/CONAE. Note: NA = Not applicable. 111 Annex 8 Electricity Rates Under CRE's "Public Services" Category · Tarifa 5, Public lighting in Distrito Federal (Mexico City), Monterrey and Guadalajara. This rate has charges differentiated by voltage (medium and low) Voltage Level Pesos/kWh (April 2003) Low 1.43 Medium 1.70 · Tarifa 5-A, Public lighting in any other urban area. This rate also has charges differentiated by voltage (medium and low) Voltage Level Pesos/kWh (April 2003) Low 1.18 Medium 1.41 · Tarifa 6, water pumping (potable or sewerage). This has a fixed charge and a charge for energy consumed Charge Pesos3 (April 2003) Fixed 161.11 Per kWh 0.89 Other uses of electricity, such as that for office buildings or warehouses, are billed under General rates (depending on the voltage demanded), just as any other customer (independent of economic activity). 3 Rate of exchange to Mex$ is around 10.7 pesos to US$. 113 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO General rates will vary, depending on the voltage and demand level: · Tarifa 3, services in low-voltage (up to 220 volts) with more than 25 kW of demand. This rate has two charges. Charge Pesos (April 2003) 4 Maximum Demand (kW) 138.37 Energy Consumed (kWh) 0.87 · Tarifa O-M, services in medium voltage with less than 100 kW of demand. This rate has two charges that depend on the region where the customer is located.5 Also, there are different charges by season for three of the regions. Charge Pesos (April 2003) 6 Maximum Demand (kW) From 68.03 to 87.69 Energy Consumed (kWh) From 0.52 to 0.85 · Tarifa H-M, hourly rate for general services in medium voltage, with a demand higher than 100 kW. This rate has four charges, one for what is called "demand to be billed" (demanda facturable) and three for energy at three different parts of the day (base, intermediate and peak). These charges vary by region and by time of year. Charge Pesos (April 2003) Demand to be Billed7 (kW) From 81.30 to 152.84 Energy Consumed (peak)8 From 1.40 to 1.74 Energy Consumed (intermediate) From 0.48 to 0.67 Energy Consumed (base) From 0.38 to 0.47 Source: Comision Reguldora de Energy. 4 It is the medium demand in the 15-minute interval with the greatest consumption in the billing period. 5 Baja California (Northern half of the Baja California peninsula), Baja California Sur, Baja California Sur (summer), Central (includes Mexico City), Northeast (mainly the northern part of the Gulf of Mexico Coast and Nuevo León, the state where Monterrey is located), Northwest (States located east of the Gulf of California), North (central northern states), Peninsular (Yucatan Peninsula) and Sur (Chiapas, Oaxaca and Guerrero). 6 It is the medium demand in the 15-minute interval with the greatest consumption in the billing period. 7 It is the medium demand in the 15-minute interval with the greatest consumption in the billing period. 8 Peak in some areas (mainly central Mexico) occurs at night (7 to 10 p.m.), but in other areas (mostly northern Mexico and the northern Pacific Coast) it occurs in the early afternoon. 114 List of Formal Reports Region/Country Activity/Report Title Date Number Africa Regional Anglophone Africa Household Energy Workshop (English) 07/88 085/88 Regional Power Seminar on Reducing Electric Power System Losses in Africa (English) 08/88 087/88 Institutional Evaluation of EGL (English) 02/89 098/89 Biomass Mapping Regional Workshops (English) 05/89 -- Francophone Household Energy Workshop (French) 08/89 -- Interafrican Electrical Engineering College: Proposals for Short- and Long-Term Development (English) 03/90 112/90 Biomass Assessment and Mapping (English) 03/90 -- Symposium on Power Sector Reform and Efficiency Improvement in Sub-Saharan Africa (English) 06/96 182/96 Commercialization of Marginal Gas Fields (English) 12/97 201/97 Commercializing Natural Gas: Lessons from the Seminar in Nairobi for Sub-Saharan Africa and Beyond 01/00 225/00 Africa Gas Initiative -- Main Report: Volume I 02/01 240/01 First World Bank Workshop on the Petroleum Products Sector in Sub-Saharan Africa 09/01 245/01 Ministerial Workshop on Women in Energy 10/01 250/01 and Poverty Reduction: Proceedings from a Multi-Sector 03/03 266/03 and Multi-Stakeholder Workshop Addis Ababa, Ethiopia, October 23-25, 2002 Opportunities for Power Trade in the Nile Basin: Final Scoping Study 01/04 277/04 Energies modernes et réduction de la pauvreté: Un atelier multi-sectoriel. Actes de l'atelier régional. Dakar, Sénégal, du 4 au 6 février 2003 (French Only) 01/04 278/04 Énergies modernes et réduction de la pauvreté: Un atelier multi-sectoriel. Actes de l'atelier régional. Douala, Cameroun 09/04 286/04 du 16-18 juillet 2003. (French Only) Energy and Poverty Reduction: Proceedings from the Global Village Energy Partnership (GVEP) Workshops held in Africa 01/05 298/05 Power Sector Reform in Africa: Assessing the Impact on Poor People 08/05 306/05 The Vulnerability of African Countries to Oil Price Shocks: Major 08/05 308/05 Factors and Policy Options. The Case of Oil Importing Countries Maximizing the Productive Uses of Electricity to Increase the 03/08 332/08 Impact of Rural Electrification Programs 115 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO Region/Country Activity/Report Title Date Number Angola Energy Assessment (English and Portuguese) 05/89 4708-ANG Power Rehabilitation and Technical Assistance (English) 10/91 142/91 Africa Gas Initiative - Angola: Volume II 02/01 240/01 Benin Energy Assessment (English and French) 06/85 5222-BEN Botswana Energy Assessment (English) 09/84 4998-BT Pump Electrification Prefeasibility Study (English) 01/86 047/86 Review of Electricity Service Connection Policy (English) 07/87 071/87 Tuli Block Farms Electrification Study (English) 07/87 072/87 Botswana Household Energy Issues Study (English) 02/88 -- Urban Household Energy Strategy Study (English) 05/91 132/91 Burkina Faso Energy Assessment (English and French) 01/86 5730-BUR Technical Assistance Program (English) 03/86 052/86 Urban Household Energy Strategy Study (English and French) 06/91 134/91 Burundi Energy Assessment (English) 06/82 3778-BU Petroleum Supply Management (English) 01/84 012/84 Status Report (English and French) 02/84 011/84 Presentation of Energy Projects for the Fourth Five Year Plan (1983-1987) (English and French) 05/85 036/85 Improved Charcoal Cookstove Strategy (English and French) 09/85 042/85 Peat Utilization Project (English) 11/85 046/85 Energy Assessment (English and French) 01/92 9215-BU Cameroon Africa Gas Initiative ­ Cameroon: Volume III 02/01 240/01 Cape Verde Energy Assessment (English and Portuguese) 08/84 5073-CV Household Energy Strategy Study (English) 02/90 110/90 Central African Republic Energy Assessment (French) 08/92 9898-CAR Chad Elements of Strategy for Urban Household Energy The Case of N'djamena (French) 12/93 160/94 Comoros Energy Assessment (English and French) 01/88 7104-COM In Search of Better Ways to Develop Solar Markets: The Case of Comoros 05/00 230/00 Congo Energy Assessment (English) 01/88 6420-COB Power Development Plan (English and French) 03/90 106/90 Africa Gas Initiative ­ Congo: Volume IV 02/01 240/01 Côte d'Ivoire Energy Assessment (English and French) 04/85 5250-IVC Improved Biomass Utilization (English and French) 04/87 069/87 Power System Efficiency Study (English) 12/87 Power Sector Efficiency Study (French) 02/92 140/91 Project of Energy Efficiency in Buildings (English) 09/95 175/95 Africa Gas Initiative ­ Côte d'Ivoire: Volume V 02/01 240/01 Ethiopia Energy Assessment (English) 07/84 4741-ET Power System Efficiency Study (English) 10/85 045/85 Agricultural Residue Briquetting Pilot Project (English) 12/86 062/86 Bagasse Study (English) 12/86 063/86 Cooking Efficiency Project (English) 12/87 Energy Assessment (English) 02/96 179/96 Gabon Energy Assessment (English) 07/88 6915-GA Africa Gas Initiative ­ Gabon: Volume VI 02/01 240/01 The Gambia Energy Assessment (English) 11/83 4743-GM Solar Water Heating Retrofit Project (English) 02/85 030/85 Solar Photovoltaic Applications (English) 03/85 032/85 Petroleum Supply Management Assistance (English) 04/85 035/85 116 LIST OF FORMAL REPORTS Region/Country Activity/Report Title Date Number Ghana Energy Assessment (English) 11/86 6234-GH Energy Rationalization in the Industrial Sector (English) 06/88 084/88 Sawmill Residues Utilization Study (English) 11/88 074/87 Industrial Energy Efficiency (English) 11/92 148/92 Corporatization of Distribution Concessions through Capitalization 12/03 272/03 Guinea Energy Assessment (English) 11/86 6137-GUI Household Energy Strategy (English and French) 01/94 163/94 Guinea Bissau Energy Assessment (English and Portuguese) 08/84 5083-GUB Recommended Technical Assistance Projects (English & Portuguese) 04/85 033/85 Management Options for the Electric Power and Water Supply Subsectors (English) 02/90 100/90 Power and Water Institutional Restructuring (French) 04/91 118/91 Kenya Energy Assessment (English) 05/82 3800 KE Power System Efficiency Study (English) 03/84 014/84 Status Report (English) 05/84 016/84 Coal Conversion Action Plan (English) 02/87 -- Solar Water Heating Study (English) 02/87 066/87 Peri-Urban Woodfuel Development (English) 10/87 076/87 Power Master Plan (English) 11/87 -- Power Loss Reduction Study (English) 09/96 186/96 Implementation Manual: Financing Mechanisms for Solar Electric Equipment 07/00 231/00 Lesotho Energy Assessment (English) 01/84 4676-LSO Liberia Energy Assessment (English) 12/84 5279-LBR Recommended Technical Assistance Projects (English) 06/85 038/85 Power System Efficiency Study (English) 12/87 081/87 Madagascar Energy Assessment (English) 01/87 5700- Power System Efficiency Study (English and French) 12/87 075/87 Environmental Impact of Woodfuels (French) 10/95 176/95 Malawi Energy Assessment (English) 08/82 3903- Technical Assistance to Improve the Efficiency of Fuelwood Use in the Tobacco Industry (English) 11/83 009/83 Status Report (English) 01/84 013/84 Mali Energy Assessment (English and French) 11/91 8423-MLI Household Energy Strategy (English and French) 03/92 147/92 Islamic Republic of Mauritania Energy Assessment (English and French) 04/85 5224- Household Energy Strategy Study (English and French) 07/90 123/90 Mauritius Energy Assessment (English) 12/81 3510- Status Report (English) 10/83 008/83 Power System Efficiency Audit (English) 05/87 070/87 Bagasse Power Potential (English) 10/87 077/87 Energy Sector Review (English) 12/94 3643- Mozambique Energy Assessment (English) 01/87 6128- Household Electricity Utilization Study (English) 03/90 113/90 Electricity Tariffs Study (English) 06/96 181/96 Sample Survey of Low Voltage Electricity Customers 06/97 195/97 Namibia Energy Assessment (English) 03/93 11320- Niger Energy Assessment (French) 05/84 4642-NIR Status Report (English and French) 02/86 051/86 Improved Stoves Project (English and French) 12/87 080/87 Household Energy Conservation and Substitution (English and French) 01/88 082/88 117 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO Region/Country Activity/Report Title Date Number Nigeria Energy Assessment (English) 08/83 4440-UNI Energy Assessment (English) 07/93 11672- Strategic Gas Plan 02/04 279/04 Rwanda Energy Assessment (English) 06/82 3779-RW Status Report (English and French) 05/84 017/84 Improved Charcoal Cookstove Strategy (English and French) 08/86 059/86 Improved Charcoal Production Techniques (English and French) 02/87 065/87 Energy Assessment (English and French) 07/91 8017-RW Commercialization of Improved Charcoal Stoves and Carbonization Techniques Mid-Term Progress Report (English and French) 12/91 141/91 SADC SADC Regional Power Interconnection Study, Vols. I-IV (English) 12/93 - SADCC SADCC Regional Sector: Regional Capacity-Building Program for Energy Surveys and Policy Analysis (English) 11/91 - Sao Tome and Principe Energy Assessment (English) 10/85 5803-STP Senegal Energy Assessment (English) 07/83 4182-SE Status Report (English and French) 10/84 025/84 Industrial Energy Conservation Study (English) 05/85 037/85 Preparatory Assistance for Donor Meeting (English and French) 04/86 056/86 Urban Household Energy Strategy (English) 02/89 096/89 Industrial Energy Conservation Program (English) 05/94 165/94 Seychelles Energy Assessment (English) 01/84 4693-SEY Electric Power System Efficiency Study (English) 08/84 021/84 Sierra Leone Energy Assessment (English) 10/87 6597-SL Somalia Energy Assessment (English) 12/85 5796-SO Republic of South Africa Options for the Structure and Regulation of Natural Gas Industry (English) 05/95 172/95 Sudan Management Assistance to the Ministry of Energy and Mining 05/83 003/83 Energy Assessment (English) 07/83 4511-SU Power System Efficiency Study (English) 06/84 018/84 Status Report (English) 11/84 026/84 Wood Energy/Forestry Feasibility (English) 07/87 073/87 Swaziland Energy Assessment (English) 02/87 6262-SW Household Energy Strategy Study 10/97 198/97 Tanzania Energy Assessment (English) 11/84 4969-TA Peri-Urban Woodfuels Feasibility Study (English) 08/88 086/88 Tobacco Curing Efficiency Study (English) 05/89 102/89 Remote Sensing and Mapping of Woodlands (English) 06/90 -- Industrial Energy Efficiency Technical Assistance (English) 08/90 122/90 Power Loss Reduction Volume 1: Transmission and Distribution System Technical Loss Reduction and Network Development (English) 06/98 204A/98 Power Loss Reduction Volume 2: Reduction of Non-Technical Losses (English) 06/98 204B/98 Togo Energy Assessment (English) 06/85 5221-TO Wood Recovery in the Nangbeto Lake (English and French) 04/86 055/86 Power Efficiency Improvement (English and French) 12/87 078/87 Uganda Energy Assessment (English) 07/83 4453-UG Status Report (English) 08/84 020/84 Institutional Review of the Energy Sector (English) 01/85 029/85 Energy Efficiency in Tobacco Curing Industry (English) 02/86 049/86 Fuelwood/Forestry Feasibility Study (English) 03/86 053/86 Power System Efficiency Study (English) 12/88 092/88 118 LIST OF FORMAL REPORTS Region/Country Activity/Report Title Date Number Energy Efficiency Improvement in the Brick and Tile Industry (English) 02/89 097/89 Tobacco Curing Pilot Project (English) 03/89 UNDP Terminal Report Energy Assessment (English) 12/96 193/96 Rural Electrification Strategy Study 09/99 221/99 Zaire Energy Assessment (English) 05/86 5837-ZR Zambia Energy Assessment (English) 01/83 4110-ZA Status Report (English) 08/85 039/85 Energy Sector Institutional Review (English) 11/86 060/86 Power Subsector Efficiency Study (English) 02/89 093/88 Energy Strategy Study (English) 02/89 094/88 Urban Household Energy Strategy Study (English) 08/90 121/90 Zimbabwe Energy Assessment (English) 06/82 3765-ZIM Power System Efficiency Study (English) 06/83 005/83 Status Report (English) 08/84 019/84 Power Sector Management Assistance Project (English) 04/85 034/85 Power Sector Management Institution Building (English) 09/89 -- Petroleum Management Assistance (English) 12/89 109/89 Charcoal Utilization Pre-feasibility Study (English) 06/90 119/90 Integrated Energy Strategy Evaluation (English) 01/92 8768-ZIM Energy Efficiency Technical Assistance Project: Strategic Framework for a National Energy Efficiency Improvement Program (English) 04/94 -- Capacity Building for the National Energy Efficiency Improvement Programme (NEEIP) (English) 12/94 -- Rural Electrification Study 03/00 228/00 Les réformes du secteur de l'électricite en Afrique: Evaluation de leurs conséquences pour les populations pauvres 11/06 306/06 EAST ASIA AND PACIFIC (EAP) Asia Regional Pacific Household and Rural Energy Seminar (English) 11/90 -- China County-Level Rural Energy Assessments (English) 05/89 101/89 Fuelwood Forestry Preinvestment Study (English) 12/89 105/89 Strategic Options for Power Sector Reform in China (English) 07/93 156/93 Energy Efficiency and Pollution Control in Township and Village Enterprises (TVE) Industry (English) 11/94 168/94 Energy for Rural Development in China: An Assessment Based on a Joint Chinese/ESMAP Study in Six Counties (English) 06/96 183/96 Improving the Technical Efficiency of Decentralized Power Companies 09/99 222/99 Air Pollution and Acid Rain Control: The Case of Shijiazhuang City and the Changsha Triangle Area 10/03 267/03 Toward a Sustainable Coal Sector In China 07/04 287/04 Demand Side Management in a Restructured Industry: How Regulation and Policy Can Deliver Demand-Side Management Benefits to a Growing Economy and a Changing Power System 12/05 314/05 A Strategy for CBM and CMM Development and Utilization 07/07 326/07 in China Development of National Heat Pricing and Billing Policy 03/08 330/08 119 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO Region/Country Activity/Report Title Date Number Fiji Energy Assessment (English) 06/83 4462-FIJ Indonesia Energy Assessment (English) 11/81 3543-IND Status Report (English) 09/84 022/84 Power Generation Efficiency Study (English) 02/86 050/86 Energy Efficiency in the Brick, Tile and Lime Industries (English) 04/87 067/87 Diesel Generating Plant Efficiency Study (English) 12/88 095/88 Urban Household Energy Strategy Study (English) 02/90 107/90 Biomass Gasifier Preinvestment Study Vols. I & II (English) 12/90 124/90 Prospects for Biomass Power Generation with Emphasis on Palm Oil, Sugar, Rubberwood and Plywood Residues (English) 11/94 167/94 Lao PDR Urban Electricity Demand Assessment Study (English) 03/93 154/93 Institutional Development for Off-Grid Electrification 06/99 215/99 Malaysia Sabah Power System Efficiency Study (English) 03/87 068/87 Gas Utilization Study (English) 09/91 9645-MA Mongolia Energy Efficiency in the Electricity and District Heating Sectors 10/01 247/01 Improved Space Heating Stoves for Ulaanbaatar 03/02 254/02 Impact of Improved Stoves on Indoor Air Quality in Ulaanbaatar, Mongolia 11/05 313/05 Myanmar Energy Assessment (English) 06/85 5416-BA Papua New Guinea (PNG) Energy Assessment (English) 06/82 3882- Status Report (English) 07/83 006/83 Institutional Review in the Energy Sector (English) 10/84 023/84 Power Tariff Study (English) 10/84 024/84 Philippines Commercial Potential for Power Production from Agricultural Residues (English) 12/93 157/93 Energy Conservation Study (English) 08/94 -- Strengthening the Non-Conventional and Rural Energy Development Program in the Philippines: A Policy Framework and Action Plan 08/01 243/01 Rural Electrification and Development in the Philippines: Measuring the Social and Economic Benefits 05/02 255/02 Solomon Islands Energy Assessment (English) 06/83 4404-SOL Energy Assessment (English) 01/92 979-SOL South Pacific Petroleum Transport in the South Pacific (English) 05/86 -- Thailand Energy Assessment (English) 09/85 5793-TH Rural Energy Issues and Options (English) 09/85 044/85 Accelerated Dissemination of Improved Stoves and Charcoal Kilns (English) 09/87 079/87 Northeast Region Village Forestry and Woodfuels Preinvestment Study (English) 02/88 083/88 Impact of Lower Oil Prices (English) 08/88 -- Coal Development and Utilization Study (English) 10/89 -- Why Liberalization May Stall in a Mature Power Market: A Review 12/03 270/03 of the Technical and Political Economy Factors that Constrained the Electricity Sector Reform in Thailand 1998-2002 Reducing Emissions from Motorcycles in Bangkok 10/03 275/03 Tonga Energy Assessment (English) 06/85 5498- Vanuatu Energy Assessment (English) 06/85 5577-VA Vietnam Rural and Household Energy-Issues and Options (English) 01/94 161/94 Power Sector Reform and Restructuring in Vietnam: Final Report to the Steering Committee (English and Vietnamese) 09/95 174/95 120 LIST OF FORMAL REPORTS Region/Country Activity/Report Title Date Number Vietnam Household Energy Technical Assistance: Improved Coal Briquetting and Commercialized Dissemination of Higher Efficiency Biomass and Coal Stoves (English) 01/96 178/96 Petroleum Fiscal Issues and Policies for Fluctuating Oil Prices 02/01 236/01 In Vietnam An Overnight Success: Vietnam's Switch to Unleaded Gasoline 08/02 257/02 The Electricity Law for Vietnam -- Status and Policy Issues -- The Socialist Republic of Vietnam 08/02 259/02 Petroleum Sector Technical Assistance for the Revision of the 12/03 269/03 Existing Legal and Regulatory Framework Western Samoa Energy Assessment (English) 06/85 5497- SOUTH ASIA (SAR) SAR Regional Toward Cleaner Urban Air in South Asia: Tackling Transport 03/04 281/04 Pollution, Understanding Sources Potential and Prospects for Regional Energy Trade in the 08/08 334/08 South Asia Region Trading Arrangements and Risk Management in International Electricity Trade 09/08 336/08 Bangladesh Energy Assessment (English) 10/82 3873-BD Priority Investment Program (English) 05/83 002/83 Status Report (English) 04/84 015/84 Power System Efficiency Study (English) 02/85 031/85 Small Scale Uses of Gas Pre-feasibility Study (English) 12/88 -- Reducing Emissions from Baby-Taxis in Dhaka 01/02 253/02 Improving Indoor Air Quality for Poor Families: A Controlled 03/08 335/08 Experiment in Bangladesh India Opportunities for Commercialization of Non-conventional Energy Systems (English) 11/88 091/88 Maharashtra Bagasse Energy Efficiency Project (English) 07/90 120/90 Mini-Hydro Development on Irrigation Dams and Canal Drops Vols. I, II and III (English) 07/91 139/91 WindFarm Pre-Investment Study (English) 12/92 150/92 Power Sector Reform Seminar (English) 04/94 166/94 Environmental Issues in the Power Sector (English) 06/98 205/98 Environmental Issues in the Power Sector: Manual for Environmental Decision Making (English) 06/99 213/99 Household Energy Strategies for Urban India: The Case of Hyderabad 06/99 214/99 Greenhouse Gas Mitigation In the Power Sector: Case Studies From India 02/01 237/01 Energy Strategies for Rural India: Evidence from Six States 08/02 258/02 Household Energy, Indoor Air Pollution, and Health 11/02 261/02 Access of the Poor to Clean Household Fuels 07/03 263/03 The Impact of Energy on Women's Lives in Rural India 01/04 276/04 Environmental Issues in the Power Sector: Long-Term Impacts And Policy Options for Rajasthan 10/04 292/04 Environmental Issues in the Power Sector: Long-Term Impacts 10/04 293/04 And Policy Options for Karnataka 121 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO Region/Country Activity/Report Title Date Number Nepal Energy Assessment (English) 08/83 4474-NEP Status Report (English) 01/85 028/84 Energy Efficiency & Fuel Substitution in Industries (English) 06/93 158/93 Pakistan Household Energy Assessment (English) 05/88 -- Assessment of Photovoltaic Programs, Applications, and Markets (English) 10/89 103/89 National Household Energy Survey and Strategy Formulation Study: Project Terminal Report (English) 03/94 -- Managing the Energy Transition (English) 10/94 -- Lighting Efficiency Improvement Program Phase 1: Commercial Buildings Five Year Plan (English) 10/94 -- Clean Fuels 10/01 246/01 Household Use of Commercial Energy 05/06 320/06 Sri Lanka Energy Assessment (English) 05/82 3792-CE Power System Loss Reduction Study (English) 07/83 007/83 Status Report (English) 01/84 010/84 Industrial Energy Conservation Study (English) 03/86 054/86 Sustainable Transport Options for Sri Lanka: Vol. I 02/03 262/03 Greenhouse Gas Mitigation Options in the Sri Lanka Power Sector: Vol. II 02/03 262/03 Sri Lanka Electric Power Technology Assessment (SLEPTA): Vol. III 02/03 262/03 Energy and Poverty Reduction: Proceedings from South Asia 11/03 268/03 Practitioners Workshop How Can Modern Energy Services Contribute to Poverty Reduction? Colombo, Sri Lanka, June 2-4, 2003 EUROPE AND CENTRAL ASIA (ECA) Armenia Development of Heat Strategies for Urban Areas of Low-income 04/04 282/04 Transition Economies. Urban Heating Strategy for the Republic Of Armenia. Including a Summary of a Heating Strategy for the Kyrgyz Republic Bulgaria Natural Gas Policies and Issues (English) 10/96 188/96 Energy Environment Review 10/02 260/02 Central Asia and The Caucasus Cleaner Transport Fuels in Central Asia and the Caucasus 08/01 242/01 Central and Eastern Europe Power Sector Reform in Selected Countries 07/97 196/97 Increasing the Efficiency of Heating Systems in Central and Eastern Europe and the Former Soviet Union (English and Russian)08/00 234/00 The Future of Natural Gas in Eastern Europe (English) 08/92 149/92 Kazakhstan Natural Gas Investment Study, Volumes 1, 2 & 3 12/97 199/97 Kazakhstan & Kyrgyzstan Opportunities for Renewable Energy Development 11/97 16855- Poland Energy Sector Restructuring Program Vols. I-V (English) 01/93 153/93 Natural Gas Upstream Policy (English and Polish) 08/98 206/98 Energy Sector Restructuring Program: Establishing the Energy Regulation Authority 10/98 208/98 Portugal Energy Assessment (English) 04/84 4824-PO Romania Natural Gas Development Strategy (English) 12/96 192/96 Private Sector Participation in Market-Based Energy-Efficiency 11/03 274/03 Financing Schemes: Lessons Learned from Romania and International Experiences. 122 LIST OF FORMAL REPORTS Region/Country Activity/Report Title Date Number Slovenia Workshop on Private Participation in the Power Sector (English) 02/99 211/99 Turkey Energy Assessment (English) 03/83 3877-TU Energy and the Environment: Issues and Options Paper 04/00 229/00 Energy and Environment Review: Synthesis Report 12/03 273/03 Turkey's Experience with Greenfield Gas Distribution since 2003 03/07 325/05 MIDDLE EAST AND NORTH AFRICA (MNA) Arab Republic Energy Assessment (English) 10/96 189/96 of Egypt Energy Assessment (English and French) 03/84 4157- Status Report (English and French) 01/86 048/86 Energy Sector Institutional Development Study (English and French) 07/95 173/95 Morocco Natural Gas Pricing Study (French) 10/98 209/98 Gas Development Plan Phase II (French) 02/99 210/99 Syria Energy Assessment (English) 05/86 5822-SYR Electric Power Efficiency Study (English) 09/88 089/88 Energy Efficiency Improvement in the Cement Sector (English) 04/89 099/89 Energy Efficiency Improvement in the Fertilizer Sector (English) 06/90 115/90 Tunisia Fuel Substitution (English and French) 03/90 -- Power Efficiency Study (English and French) 02/92 136/91 Energy Management Strategy in the Residential and Tertiary Sectors (English) 04/92 146/92 Renewable Energy Strategy Study, Volume I (French) 11/96 190A/96 Renewable Energy Strategy Study, Volume II (French) 11/96 190B/96 Rural Electrification in Tunisia: National Commitment, Efficient Implementation and Sound Finances 08/05 307/05 Yemen Energy Assessment (English) 12/84 4892-YAR Energy Investment Priorities (English) 02/87 6376-YAR Household Energy Strategy Study Phase I (English) 03/91 126/91 Household Energy Supply and Use in Yemen. Volume I: Main Report and Volume II: Annexes 12/05 315/05 LATIN AMERICA AND THE CARIBBEAN REGION (LCR) LCR Regional Regional Seminar on Electric Power System Loss Reduction in the Caribbean (English) 07/89 -- Elimination of Lead in Gasoline in Latin America and the Caribbean (English and Spanish) 04/97 194/97 Elimination of Lead in Gasoline in Latin America and the Caribbean - Status Report (English and Spanish) 12/97 200/97 Harmonization of Fuels Specifications in Latin America and the Caribbean (English and Spanish) 06/98 203/98 Energy and Poverty Reduction: Proceedings from the Global Village Energy Partnership (GVEP) Workshop held in Bolivia 06/05 202/05 Power Sector Reform and the Rural Poor in Central America 12/04 297/04 Estudio Comparativo Sobre la Distribución de la Renta Petrolera en Bolivia, Colombia, Ecuador y Perú 08/05 304/05 OECS Energy Sector Reform and Renewable Energy/Energy 02/06 317/06 Efficiency Options The Landfill Gas-to-Energy Initiative for Latin America and the Caribbean 02/06 318/06 123 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO Region/Country Activity/Report Title Date Number Bolivia Energy Assessment (English) 04/83 4213-BO National Energy Plan (English) 12/87 -- La Paz Private Power Technical Assistance (English) 11/90 111/90 Pre-feasibility Evaluation Rural Electrification and Demand Assessment (English and Spanish) 04/91 129/91 National Energy Plan (Spanish) 08/91 131/91 Private Power Generation and Transmission (English) 01/92 137/91 Natural Gas Distribution: Economics and Regulation (English) 03/92 125/92 Natural Gas Sector Policies and Issues (English and Spanish) 12/93 164/93 Household Rural Energy Strategy (English and Spanish) 01/94 162/94 Preparation of Capitalization of the Hydrocarbon Sector 12/96 191/96 Introducing Competition into the Electricity Supply Industry in Developing Countries: Lessons from Bolivia 08/00 233/00 Final Report on Operational Activities Rural Energy and Energy Efficiency 08/00 235/00 Oil Industry Training for Indigenous People: The Bolivian Experience (English and Spanish) 09/01 244/01 Capacitación de Pueblos Indígenas en la Actividad Petrolera Fase II 07/04 290/04 Brazil Best Practices in Mainstreaming Environmental & Social Safeguards Into Gas Pipeline Projects 07/06 322/06 Estudio Sobre Aplicaciones en Pequeña Escala de Gas Natural 07/04 291/04 Energy Efficiency & Conservation: Strategic Partnership for Energy Efficiency in Brazil (English) 01/95 170/95 Hydro and Thermal Power Sector Study 09/97 197/97 Rural Electrification with Renewable Energy Systems in the Northeast: A Preinvestment Study 07/00 232/00 Reducing Energy Costs in Municipal Water Supply Operations 07/03 265/03 "Learning-while-doing" Energy M&T on the Brazilian Frontlines Chile Energy Sector Review (English) 08/88 7129-CH Colombia Energy Strategy Paper (English) 12/86 -- Power Sector Restructuring (English) 11/94 169/94 Energy Efficiency Report for the Commercial and Public Sector (English) 06/96 184/96 Costa Rica Energy Assessment (English and Spanish) 01/84 4655-CR Recommended Technical Assistance Projects (English) 11/84 027/84 Forest Residues Utilization Study (English and Spanish) 02/90 108/90 Dominican Republic Energy Assessment (English) 05/91 8234-DO Ecuador Energy Assessment (Spanish) 12/85 5865-EC Energy Strategy Phase I (Spanish) 07/88 -- Energy Strategy (English) 04/91 -- Private Mini-hydropower Development Study (English) 11/92 -- Energy Pricing Subsidies and Interfuel Substitution (English) 08/94 11798-EC Energy Pricing, Poverty and Social Mitigation (English) 08/94 12831-EC Guatemala Issues and Options in the Energy Sector (English) 09/93 12160- Health Impacts of Traditional Fuel Use 08/04 284/04 Haiti Energy Assessment (English and French) 06/82 3672-HA Status Report (English and French) 08/85 041/85 Household Energy Strategy (English and French) 12/91 143/91 Honduras Energy Assessment (English) 08/87 6476-HO Petroleum Supply Management (English) 03/91 128/91 Power Sector Issues and Options 03/08 333/08 124 LIST OF FORMAL REPORTS Region/Country Activity/Report Title Date Number Jamaica Energy Assessment (English) 04/85 5466-JM Petroleum Procurement, Refining, and Distribution Study (English) 11/86 061/86 Energy Efficiency Building Code Phase I (English) 03/88 -- Energy Efficiency Standards and Labels Phase I (English) 03/88 -- Management Information System Phase I (English) 03/88 -- Charcoal Production Project (English) 09/88 090/88 FIDCO Sawmill Residues Utilization Study (English) 09/88 088/88 Energy Sector Strategy and Investment Planning Study (English) 07/92 135/92 Mexico Improved Charcoal Production within Forest Management for the State of Veracruz (English and Spanish) 08/91 138/91 Energy Efficiency Management Technical Assistance to the Comisión Nacional para el Ahorro de Energía (CONAE) (English) 04/96 180/96 Energy Environment Review 05/01 241/01 Proceedings of the International Grid-Connected Renewable Energy Policy Forum (with CD) 08/06 324/06 Innovative Financial Mechanism to Implement Energy Efficiency Projects in Mexico 06/09 338/09 Nicaragua Modernizing the Fuelwood Sector in Managua and León 12/01 252/01 Policy & Strategy for the Promotion of RE Policies in Nicaragua. (Contains CD with 3 complementary reports) 01/06 316/06 Panama Power System Efficiency Study (English) 06/83 004/83 Paraguay Energy Assessment (English) 10/84 5145-PA Recommended Technical Assistance Projects (English) 09/85 Status Report (English and Spanish) 09/85 043/85 Reforma del Sector Hidrocarburos (Spanish Only) 03/06 319/06 Peru Energy Assessment (English) 01/84 4677-PE Status Report (English) 08/85 040/85 Proposal for a Stove Dissemination Program in the Sierra (English and Spanish) 02/87 064/87 Energy Strategy (English and Spanish) 12/90 -- Study of Energy Taxation and Liberalization of the Hydrocarbons Sector (English and Spanish) 120/93 159/93 Reform and Privatization in the Hydrocarbon Sector (English and Spanish) 07/99 216/99 Rural Electrification 02/01 238/01 Saint Lucia Energy Assessment (English) 09/84 5111-SLU St. Vincent and the Grenadines Energy Assessment (English) 09/84 5103-STV Sub Andean Environmental and Social Regulation of Oil and Gas Operations in Sensitive Areas of the Sub-Andean Basin (English and Spanish) 07/99 217/99 Trinidad and Tobago Energy Assessment (English) 12/85 5930-TR GLOBAL Energy End Use Efficiency: Research and Strategy (English) 11/89 --- Women and Energy -A Resource Guide The International Network: Policies and Experience (English) 04/90 -- Guidelines for Utility Customer Management and Metering (English and Spanish) 07/91 -- 125 INNOVATIVE FINANCIAL MECHANISM TO IMPLEMENT ENERGY EFFICIENCY PROJECTS IN MEXICO Region/Country Activity/Report Title Date Number Assessment of Personal Computer Models for Energy Planning in Developing Countries (English) 10/91 -- Long-Term Gas Contracts Principles and Applications (English) 02/93 152/93 Comparative Behavior of Firms Under Public and Private Ownership (English) 05/93 155/93 Development of Regional Electric Power Networks (English) 10/94 -- Round-table on Energy Efficiency (English) 02/95 171/95 Assessing Pollution Abatement Policies with a Case Study of Ankara (English) 11/95 177/95 A Synopsis of the Third Annual Round-table on Independent 08/96 187/96 Power Projects: Rhetoric and Reality (English) Rural Energy and Development Round-table (English) 05/98 202/98 A Synopsis of the Second Round-table on Energy Efficiency: Institutional and Financial Delivery Mechanisms (English) 09/98 207/98 The Effect of a Shadow Price on Carbon Emission in the Energy Portfolio of the World Bank: A Carbon Backcasting Exercise (English) 02/99 212/99 Increasing the Efficiency of Gas Distribution Phase 1: Case Studies and Thematic Data Sheets 07/99 218/99 Global Energy Sector Reform in Developing Countries: A Scorecard 07/99 219/99 Global Lighting Services for the Poor Phase II: Text Marketing of Small "Solar" Batteries for Rural Electrification Purposes 08/99 220/99 A Review of the Renewable Energy Activities of the UNDP/ World Bank Energy Sector Management Assistance Program 1993 to 1998 11/99 223/99 Energy, Transportation and Environment: Policy Options for Environmental Improvement 12/99 224/99 Privatization, Competition and Regulation in the British Electricity Industry, With Implications for Developing Countries 02/00 226/00 Reducing the Cost of Grid Extension for Rural Electrification 02/00 227/00 Undeveloped Oil and Gas Fields in the Industrializing World 02/01 239/01 Best Practice Manual: Promoting Decentralized Electrification Investment 10/01 248/01 Peri-Urban Electricity Consumers -- A Forgotten but Important Group: What Can We Do to Electrify Them? 10/01 249/01 Village Power 2000: Empowering People and Transforming Markets 10/01 251/01 Private Financing for Community Infrastructure 05/02 256/02 Stakeholder Involvement in Options Assessment: 07/03 264/03 Promoting Dialogue in Meeting Water and Energy Needs: A Sourcebook A Review of ESMAP's Energy Efficiency Portfolio 11/03 271/03 A Review of ESMAP's Rural Energy and Renewable Energy 04/04 280/04 Portfolio ESMAP Renewable Energy and Energy Efficiency Reports 05/04 283/04 1998-2004 (CD Only) Regulation of Associated Gas Flaring and Venting: A Global 08/04 285/04 Overview and Lessons Learned from International Experience ESMAP Gender in Energy Reports and Other related Information 11/04 288/04 (CD Only) 126 LIST OF FORMAL REPORTS Region/Country Activity/Report Title Date Number ESMAP Indoor Air Pollution Reports and Other related 11/04 289/04 Information (CD Only) Energy and Poverty Reduction: Proceedings from the Global 11/04 294/04 Village Energy Partnership (GVEP) Workshop on the Pre-Investment Funding. Berlin, Germany, April 23-24, 2003. Global Village Energy Partnership (GVEP) Annual Report 2003 12/04 295/04 Energy and Poverty Reduction: Proceedings from the Global Village Energy Partnership (GVEP) Workshop on Consumer Lending and Microfinance to Expand Access to Energy Services, Manila, Philippines, May 19-21, 2004 12/04 296/04 The Impact of Higher Oil Prices on Low Income Countries 03/05 299/05 and on the Poor Advancing Bioenergy for Sustainable Development: Guideline 04/05 300/05 For Policymakers and Investors ESMAP Rural Energy Reports 1999-2005 03/05 301/05 Renewable Energy and Energy Efficiency Financing and Policy 07/05 303/05 Network: Options Study and Proceedings of the International Forum Implementing Power Rationing in a Sensible Way: Lessons 08/05 305/05 Learned and International Best Practices The Urban Household Energy Transition. Joint Report with 08/05 309/05 . RFF Press/ESMAP ISBN 1-933115-07-6 Pioneering New Approaches in Support of Sustainable 10/05 310/05 Development In the Extractive Sector: Community Development Toolkit, also Includes a CD containing Supporting Reports Analysis of Power Projects with Private Participation Under Stress 10/05 311/05 Potential for Biofuels for Transport in Developing Countries 10/05 312/05 Experiences with Oil Funds: Institutional and Financial Aspects 06/06 321/06 Coping with Higher Oil Prices 06/06 323/06 Designing Strategies and Instruments to Address Power 02/08 329/08 Projects Stress Situations An Analytical Compendium of Institutional Frameworks for 03/08 331/08 Energy Efficiency Implementation Regulatory Review of Power Purchase Agreements: A Proposed Benchmarking Methodology 09/08 337/08 127 Energy Sector Management Assistance Program 1818 H Street, NW Washington, DC 20433 USA Tel: 1.202.458.2321 Fax: 1.202.522.3018 Internet: www.esmap.org Email: esmap@worldbank.org