Criteria for the Selection of

Investment Project Proposals

Renaissance Finance International

Deltcho Vitchev

Selection Criteria Associated Risk

1. The project sponsor

(person or entity which
initiates, owns and
promotes the project and Management Risk
has decision making
power on borrowing or
equity distribution) must
have a proven track
record in their line of
business, must
demonstrate that is able
to implement the project
and ability to carry any
required administrative or
management changes.

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 Selection Criteria Associated Risk

2. The project owner is able

to develop and implement a
proper management plan to
ensure sustainable Management Risk
operation of the proposed
project.

Selection Criteria Associated Risk

3. The project must

demonstrate that there is a
strong ownership and
commitment by the project Shareholders, Management
partners and should be and Technical Risk
funded with a significant
contribution from the project
sponsor, normally at least
25 per cent. In cases
including special industrial
projects where special
technical and management
skills are needed the project
sponsors are expected to
have a majority
shareholding or adequate
operational control.

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 Selection Criteria Associated Risk

4. Projects should be based

on significant equity
contributions, usually
from more than one Commitment Risk
investor and have
sufficiently developed
financing plan.

Selection Criteria Associated Risk

5. The project sponsor must

have the legal entitlement to
borrow; clear ownership,
legal title or property rights, Regulatory, Legal Risk
including licenses and rights
to use the methane,
necessary to implement the
investment.

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 Selection Criteria
6. The project sponsor must
be certifiably creditworthy
and have identified suitable
commercial, municipal or
national government
guarantees or guarantee
mechanisms for the
proposed investment.
S e le c tio n C rite ria
7 . A p ro je ct s h o u ld
d e m o ns trate s u fficie n t
c a s h -flo w s a n d p o sitive
N e t P res e n t V a lu e a n d
In te rn a l R a te o f R e tu rn
a b o ve th e o p p o rtu n ity
c o st of c a p ita l.
Associated Risk
Credit, Guarantees Risks
A s s o c ia te d R is k
F in a n c ia l ris k
O p p o rtu n it y c o s t o f c a p ita l =
R e q u ire d R a te o f R e tu rn (fro m
th e p e rs p e c tiv e o f th e fu n d e rs ).
C o s t o f C a p ita l = C o s t o f E q u ity
x R a tio o f E q u ity + C o s t o f D e b t
x R a tio o f D e b t
C o s t o f D e b t = In te re s t R a te s x
(1 - T a x R a te )
C o s t o f E q u ity = R is k -fre e R a te
+ (β x E q u ity R is k P re m iu m )
N e t P re s e n t V a lu e = Σ
(d is c o u n te d c a s h flo w s -
d is c o u n te d c a s h o u tflo w s )
In te rn a l R a te o f R e tu rn =
in te re s t ra te w h ic h th e
in v e s tm e n t o f c a p ita l w ill re tu rn
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 Selection Criteria Associated Risk

8.The project sponsor

should demonstrate that
there is a legal and Policy, Regulatory Risks
administrative framework
allowing an appropriate
level of tariffs to be applied,
maintained and collected.

Selection Criteria Associated Risk

9. Funds could be available

either in local or hard
currency depending on the Exchange Risk
financial intermediary. If
funding is provided in hard
currency, the project m ust
dem onstrate the ability to
generate hard currency or
the ability to absorb
increases in local currency
financing costs should there
be any depreciation during
the loan period.
.

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 Selection Criteria Associated Risk

10. Projects should

demonstrate to have a
significant potential for the Incremental Benefits
reduction of greenhouse
gas emissions.
Identification, credit analysis
and supervision of loans or
investments will be carried
out with special regard and
analyse the baseline
emission and the potential
reduction of carbon
emissions and related
environmental benefits.