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Sustainable Island Resource

Framework Fund

OAS / Department of Environment Antigua and Barbuda

Marko Markov, St. John`s, 23 February 2016

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WHAT IS SIRFF

• Special Fund established under the EPMA

• Independent legal entity*

• Financial framework mechanism

• “Green” funding catalyst

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WHAT IS THE OPERATIONS MANUAL

• General framework for SIRFF operations

• Governance structure

• Project cycle details

• Risk and Investment policies

• Reporting

• Broad guidelines

• A living document

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WHAT THE OPERATIONS MANUAL IS NOT

• Fully comprehensive rulebook

• Guarantee for success

• “Silver bullet” for all possible problems

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SIRFF OPERATING PRINCIPLES

• Independent and autonomous entity

• Clear and firm investment criteria

• Equal opportunity for all applicants

• Protection of A&B`s biodiversity and natural

resources

• Promotion of environmental sustainability

• Transparent reporting

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SIRFF MAIN FINANCING SOURCES

• International and Bilateral financing institutions

• Donor agencies

• Fees and fines charged under the EPMA

• Protected areas entry fees at and other

ecotourism fees

• Designated funds provided by the Government /

Parliament

• Other – water levies, philanthropy, eco-taxes

• Own revenue from electricity sales

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THE GENERAL BOARD OF

DIRECTORS - COMPOSITION

• The composition of the General Board is set out

in section XIII of the EPM Act

• The Permanent secretary in the Ministries

responsible for environment

• Budget director or his/her representative

• Representative of the Ministry of finance

• Director of environment

• NGO representative

• All will serve voluntarily

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WHAT IS THE ROLE OF THE GENERAL

BOARD?

• Adopts and amends SIRRF`s internal regulations (incl. the

OM)

• Adopts the long term business strategy of the Fund

• Adopts assessment criteria for eligible projects

• Allocates funds among various thematic windows

• Approves Fund`s operational budget and annual report

• Procures independent external auditor

• Appoints the Executive Director

• Advises the Governor General on recruiting members on

the Board of Directors of thematic windows

• Approves financing of eligible investment projects

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THEMATIC WINDOW BOARD

• Separate and independent Board for each thematic window

• The members will be appointed by the Governor General

upon advice from the General Board

• The thematic window Board will:

• develop its own regulations and procedures

• develop and approve specific eligibility criteria for projects supported

under the respective thematic window

• establish and maintain an account for each thematic window

• keep proper records of accounts in compliance with SIRFF`s

financial management system and principles

• review, and approve or reject programs and project proposals

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THE EXECUTIVE DIRECTOR

• To be appointed by the General Board through an open

and transparent selection process

• A person with experience and sufficient capacity in project

and financial management

• Strong interest in environmental management

• Responsible for entire day-to day operations of the Fund

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THE EXECUTIVE DIRECTOR – ROLE AND

RESPONSIBILITIES

• Legal representation of SIRFF and implementation of

General Board`s decisions

• Administration and management of Fund`s operations

• Presentation of internal reports, business plans, fund

raising strategies for approval by the General Board

• Review of project proposals before submission to the

General Board

• Signing of contracts for project financing and power

purchasing agreements

• Management of Fund`s property

• Preparation of annual budget and implementation reports

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THE FINANCIAL CONTROLLER

• Develops and maintains the proper organization of the

financial and accounting functions

• Oversees the implementation of the Financial management

system and respective accounting software

• Prepares financial statements, annual financial reports,

financial monitoring reports, etc.

• Maintains the accounting records of the Fund

• Approves and accounts for all disbursements for approved

projects and investments

• Communicates with internal and external auditors, tax

offices and any other financial authorities

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PROJECT COORDINATION EXPERTS

• Supports applicants identify eligible projects and draft well

structured project proposals

• Helps project developers (applicants) on procurement

matters

• Conducts comprehensive project analysis

• Identifies and assesses project risks and potential

mitigation measures

• Takes ownership in a number of projects throughout their

whole project life cycle

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PROJECT COORDINATION TEAM -

EXPERTISE

Project finance expert(s) or Financial analyst

Renewable energy technical expert(s)

Environmentalist(s)

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SIRFF GENERAL BOARD SUPPORT STAFF

• Assist the ED in daily administrative and logistical activities

• Drafts the minutes at the General Boar meetings

• Back-up support to Project coordinators

• Handle Fund`s bookkeeping

• Assists the FC in preparation of financial statements and

other reports

• Assists the FC in fund disbursement and collection process

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TECHNICAL ADVISORY COMMITTEE

• An independent unit providing advise to the

General Board and the Thematic windows Boards

• Performs due diligence screening of submitted

project proposals

• Supports the decision making process

• Members – prominent technical and financial

experts

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RISK POLICIES OF THE FUND

Market risk policy

Operational risk policy

Reputational risk policy

Investment risk policy

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MARKET RISK POLICY

• Refers to the risk of losing earnings or decline in the

economic value of SIRFF. May also include:

the risk of a decline in net asset value (NAV) or loss in investment

earnings (due to changes in equipment / electricity prices)

the risk of a decline in the value of the securities held by the Fund

interest rate risk for debt instruments

• Risk identification and assessment

as part of the transaction approval process

on an ongoing basis for all investments in the Fund’s portfolio

• Risk mitigation

Proper PPA/equipment delivery agreements to transfer the risk of

changing prices to the other party

Adjustments to the financial structure of investments – e.g. swaps

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OPERATIONAL RISK POLICY

• Refers to potential losses caused by inadequate or failed

processes, people, systems. It may include:

IT risk, legal risk, risk of misconduct, etc.

• Risk identification and assessment

on an ongoing basis – each process owner will try to identify ways in

which the process could fail

assess the likelihood of a given risk to occur

assess the potential impact in case the risk materializes

• Operational risk reports – at least annually (more frequent

operational risk screening is however recommendable)

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REPUTATIONAL RISK POLICY

• Refers to impairment of Funds reputation due to adverse

public opinion on Fund`s operations.

• Risk identification – by monitoring the perceptions of

various stakeholders:

Clients (existing and potential)

Money providers (donors and lenders)

Government and public agencies

NGOs, Media, Fund`s staff

• Mitigation measures

Better communication with all stakeholders

Continuous improvement of Fund`s operational processes

Transparent and open reporting of Fund`s performance to all

interested stakeholders

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INVESTMENT RISK POLICY

• Refers to a loss caused by clients failing meet their

obligations to pay the Fund

• Financial risk appetite – SIRFF will set limits for:

Maximum risk exposure by sector (tourism, healthcare, education)

Maximum exposure to given sub-contractor or off-taker

Maximum exposure to a given technology

• Financial risk mitigation:

Contractual guarantees from clients (electricity off-takers)

Performance guarantees or cash retainers from subcontractors

Adjustments to the financial structure of a project (e.g. equity

participation from a client in exchange of lower electricity price)

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PROJECT ELIGIBILITY CRITERIA

• Relevance to EPMA implementation, thematic windows or

specific requests for proposals

• Sustainable project benefits

• Positive value for money

• Project can be linked with national and local strategies

related to climate change and environmental management

• Consultation with relevant stakeholders

• Project complies with existing legislation

• Environmental and Social safeguards

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THE PROJECT CYCLE - IDENTIFICATION

• Definition of thematic window eligibility criteria

• Proactive identification. The Fund Staff will:

Approach relevant stakeholders

Present SIRFF`s eligibility criteria

Perform sector analysis to identify potential beneficiaries

Prepare a list of potentially eligible stakeholders

• Launch a media/on-line awareness raising campaign to

promote the terms and conditions of an upcoming thematic

window

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INITIAL PROJECT SCREENING

• Project developers prepare IPPs, containing project

description, implementation timetable, goals and rationale.

• Fund`s staff may provide support to Project developers

upon request

• Initial appraisal – general eligibility check performed by the

Project Coordinator

• The Project Coordinator recommends to the ED an early

rejection or further evaluation of the IPP

• Project screening decision – the ED decides to reject the

IPP or proceed with it

• Project developers with rejected IPPs may appeal before

the Thematic window board

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COMPREHENSIVE PROJECT

APPRAISAL

• Technical feasibility assessment. Examination of:

Physical scale, design, engineering, location of the project

Technology to be used (incl. types of equipment or processes)

Major technical and organizational risks identification

Reliability of project costs estimates (incl. design, engineering,

installation and maintenance costs)

• Financial feasibility assessment. Checks:

The expected benefits exceed the project operational costs

(positive NAV)

Adequacy of the projected investment costs. Risk of cost overrun?

Project Developer`s level of expertise and track record

Financial soundness of the Project Developer (possibility to co-

finance if needed)

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COMPREHENSIVE PROJECT

APPRAISAL, CONTD.

• Environmental feasibility assessment – checks whether the

project complies with all regulations and permits

• The Project appraisal report – incorporates findings and

recommendations of all feasibility assessments. Covers:

Summary description of the project (incl. estimated “green” impact)

Project risk profile and possible mitigants

Project implementation timetable and financing structure

Recommendation for rejection or approval

• ”Non-objection” from the Technical advisory committee

• A refusal for “non-objection” may be appealed before the

General Board

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PROJECT APPROVAL AND

FINANCIAL CLOSURE

• Done by the Thematic window Board, based on ED`s

proposal and TAC “non-objection”

• The Board may approve / reject the project or

• Recommend changes to project design and scope

• All Project developers get notified of Boards decision (incl.

for declined project proposals)

• ED is authorized to sign approved projects

• Funds disbursement – according to the project

implementation timetable and in compliance with Fund`s

financial management rules

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PROJECT MONITORING

• The Project coordinator collects financial and project

progress and impact data

• Project monitoring plan – part of the project support

agreement. The purpose of the plan:

timely and adequate reporting

effective early warning system

tracks if the project contributes to SIRFF`s strategic objectives

• Project monitoring reports

• Reporting frequency – at least semi-annually

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INVESTMENT PROJECTS PROCESS

• Active market potential screening

• Continuous project identification and assessment (no calls

for proposals required)

• Financial structuring – Project Term sheet

• Power purchasing agreement – to reflect the Term sheet

• Rigorous analysis of the electricity off-taker`s financial

standing

• Final approval – to be done by the General Board

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PROCUREMENT AND COMMISSIONING

• Generally based on OECS procurement manual

• Conflict of interest / Fraud / Corruption precautions

• Automatic bid rejection in case of proven conflict of

interest or corruption

• Environmentally responsible procurement

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PROCUREMENT OF GOODS, WORKS

AND NON-CONSULTING SERVICES

• Invitation to bid procurement method - for

contracts exceeding USD 100,000

• Request for quotations (RFQ) with a minimum of

three quotations from different bidders - for

contracts between USD 10,001 and USD 100,000

• Shopping procurement method for contracts with

an estimated value below USD 10,000

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PROCUREMENT OF CONSULTING

SERVICES

• Restricted request for proposals with minimum

three bids/proposals for contracts of up to USD

75,000 (including taxes)

• Request for proposals open to all bidders for all

consulting services agreements with a total

contract value exceeding USD 75,000 (including

taxes).

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RESOLUTION OF DISPUTED CASES

• Complaints submission – via post service or

designated on-line form

• ED appoints complaint reporting officer within 2

days after submission

• The ED may involve external experts to support

the investigation

• The complaint officer issues a report with findings

and recommendations

• Overarching goal of the process – to find mutually

satisfying solution

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RESOLUTION OF DISPUTED CASES,

CONTD.

• In case an agreement cannot be reached, the

complainant may: • submit complaint to the office of the Permanent Secretary of the

Ministry of Health and the Environment

• contact the Office of the Minister of Environment

• proceed with legal action (if all previous steps proved unsatisfactory to

the claimant)

• Mediation or Arbitration is a recommendable

alternative to court procedures

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REPORTING REQUIREMENTS

Five-Year Business strategy

Annual operations and business plan

Annual report (incl. audited Financial statements)

Operational budget

Financial monitoring reports

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FIVE YEAR BUSINESS STRATEGY

• First draft due within 3 months after appointment of

ED

• Updated every 3 years

• Presents the strategic approach to running the

Fund

• Includes indicative long-term budget

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ANNUAL OPERATIONS AND BUSINESS PLAN

• Prepared annually by October 31st of the preceding year

• Describes the level of activity and financial result to which

the Fund management commits

• Lays out the thematic windows and RE investments the

Fund will focus on during the financial year

• Indicates the number of calls for proposals to be carried out

• Projects the volume of funds to be disbursed, broken down

by thematic window and type of investment

• Provides insight to Fund`s level of planned technical

assistance and marketing initiatives

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SIRFF ANNUAL REPORT

• To be prepared within 3 months after the end of the

financial year

• Presents the actual financial and operational results

achieved by the Fund

• Evaluates the actually achieved against the Fund`s

Business plan forecasts

• Includes SIRFF`s audited financial reports and the report of

the external auditor

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OPERATIONAL BUDGET

• Presents the budgeted level of revenues for the following

year, broken down by source (electricity sales, park entry

fees, water levies, grants, etc.)

• Provides estimate for expected operational costs (office

rental, communication, maintenance)

• Budgeted compensation of the ED and Fund staff

• Budgeted costs for technical assistance and marketing

activities

• Best case scenario – to be submitted together with the

annual business plan

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FINANCIAL MONITORING REPORTS

• Due semiannually

• Presentation of Fund`s intermediate financial performance,

physical progress and procurement status

• Financial indicators to be reported:

Net asset value of Fund`s investments

Budget variances

Electricity sales collection rate and past-due recovery rate

• Includes report on aggregate Green impact indicators

Cumulative energy demand reduction (MWh)

Cumulative estimated GHG reduction

• Other performance indicators – number of marketing and awareness

raising campaigns; number of NGOs and local community groups

supported

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AUDIT OF SIRFF`S OPERATIONS

• Independent External Audit

Review and Verification of Fund`s Annual financial report

Auditor to be selected upon fair and transparent procurement

procedure

To operate in compliance to internationally accepted audit standards

Has unrestricted access to Fund`s records

Reports directly to the General Board

• Independent Internal Audit

To carry out regular inspections

Reviews Fund`s processes and operations at least semi-annually

Not necessarily part of Fund`s permanent staff

Has unrestricted access to Fund`s records

Reports directly to the General Board

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THANK YOU!