CLEAN DEVELOPMENT MECHANISM PROJECT DESIGN DOCUMENT FORM (CDM-PDD) Version 03 - in effect as of: 28 July 2006 CONTENTS

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1 page 1 CLEAN DEVELOPMENT MECHANISM PROJECT DESIGN DOCUMENT FORM (CDM-PDD) Version 03 - in effect as of: 28 July 2006 CONTENTS A. General description of project activity B. Application of a baseline and monitoring methodology C. Duration of the project activity / crediting period D. Environmental impacts E. Stakeholders comments Annexes Annex 1: Contact information on participants in the project activity Annex 2: Information regarding public funding Annex 3: Baseline information Annex 4: Monitoring plan

2 page 2 SECTION A. General description of project activity A.1. Title of the project activity: Title: Municipal Solid Waste (MSW) Composting Project in Ikorodu, Lagos State Version: 1.3 Date: 03/08/2010 A.2. Description of the project activity: Brief description of project activity and baseline: The project activity involves production of high quality compost from Municipal Solid Waste (MSW) by using advanced composting technology. The compost facility would processes 1500 tonnes of solid waste per day. The Project Proponent (PP), EarthCare Nigeria Limited (ENL) in collaboration with its technology partner EarthCare Technologies Inc (ECTI) is developing a world class composting facility in Lagos, Nigeria with an aim to provide environment friendly waste disposal option and produce high quality compost for use in Nigerian farms. Solid Waste Management sector in Nigeria, is highly neglected and the common practice is to dump the waste in landfills. In the absence of the project activity, the MSW would have been diverted to ordinary unmanaged landfills, resulting in methane emissions due to development of anaerobic conditions. Methane is a potent greenhouse gas and its mitigation is major focus of global efforts in fighting the current climate change problem. The project proponent has sought to rectify this situation, by importing a highly successful technology that, in addition to treating waste, would also provide high quality compost to Nigerian farmers for use in agriculture and horticulture. The compost produced in the site is a proven grade A manure and would be sold under the name of Compost Plus which is proven to improve the fertility and texture of the soil and favors growth of friendly microorganisms that aid agriculture and resist disease causing bacteria. This manure is free from the adverse effects of chemical fertilizers like ground water contamination and is full of micronutrients that are absent in chemical fertilizers. The primary objectives of the project can be summarized as: i. Production of high quality compost for sale to Nigerian farmers providing them an environment friendly and cost effective alternative to chemical fertilizers. ii. To aid the global efforts in fighting the current climate change problem by curtailing methane emissions from MSW dumped in landfills in the city Lagos iii. Help Nigerian people in general by improving soil quality and crop yield thus strengthens the food security iv. Contribute to sustainable development of the region The contribution of project activity to sustainable development: The impact of the project activity on sustainable development of the area has been discussed below in four categories: Social well being:

3 page 3 The use of excellent compost produced in the facility will aid the Nigerian farmers in increasing productivity and will help fight the Nigerian government achieve the goal of self sufficiency in food production 1. Economic well being: The project activity in its full scale operation, would employ over 90 skilled and unskilled workers in the facility. Indirect employment is also generated in supporting functions of the project (drivers, garbage collectors, equipment providers etc.) also helping in the efforts to control unemployment 2. In addition, the business generated for service providers is also expected to positively impact the local economy. The success of this project activity will mean, more such projects coming up in future, generating more employment for the Nigerian population. The increased production due to the use of compost will improve the profitability of the Nigerian farmers leading to a better economic outlook for the agriculture dependent. As economic and social issues are more or less interlinked, all such economic benefits are also expected to bring social benefits. Environmental well being: This project activity will contribute to effective MSW management in Lagos region. Moreover, success of this project will mean more investment in clean waste management technologies in the future, that would bring significant improvement to MSW management scenario in the region. The project uses aerobic treatment for biological waste to produce compost thus avoiding the methane that would otherwise have been released to the atmosphere. Also, effective waste management practices mean less garbage in and around the city centre leading to an improved hygiene and environment for the general population 3. Technological well being: Although, the technology employed in this project is state of the art and has already been proven in varied conditions in the US, China, Vietnam and Malaysia. But it is a first-of-its-kind project in Nigeria. The successful implementation of this project will boost investors confidence, bringing more investment to the neglected sector of Solid Waste Management in Nigeria. A.3. Project participants: Name of Party involved (*) ((host) indicates a host Party) Private and/or public entity(ies) Project participants (*) Kindly indicate if the party involved wishes to be 1 Nigeria: Global Food Crisis - World Bank Ready to Assist Nigeria 2 Unemployment in Nigeria 3 The Lagos city with an estimated population of 12 million is one of the most populous African city. The city is the industrial and commercial hub of Nigeria and due to continued migration from other parts, its population is expected to grow to over 22 million by 2015 making it one of the world s largest cities. This continued unplanned expansion is expected to put enormous strain on the almost nonexistent MSW management infrastructure. According to a study conducted by the Economic Intelligent Unit (EIU), Lagos was ranked as the fifth worst in terms of Livability amongst the largest 139 cities in the world. It is estimated that 70% of all patients arriving at Lagos hospitals are woman and children and 50% of their problems can be traced back to environmental waste related.

4 page 4 (as applicable) considered as project participant (yes/no) Nigeria EarthCare Nigeria Ltd. No (Host Party) (Private Party) Portugal International Bank for Yes Reconstruction and Development as the Trustee for the Carbon Fund for Europe (CFE) (*) In accordance with the CDM modalities and procedures, at the time of making the CDM-PDD public at the stage of validation, a Party involved may or may not have provided its approval. At the time of requesting registration, the approval by the Party(ies) involved is required. A.4. Technical description of the project activity: A.4.1. Location of the project activity: Federal Republic of Nigeria A Host Party(ies): Nigeria A Region/State/Province etc.: Lagos A City/Town/Community etc.: Odogunyan A Details of physical location, including information allowing the unique identification of this project activity (maximum one page): The project activity is located Odogunyan in Ikorodu Local Government Council of Lagos State. The project site is well connected with Lagos city by road. The nearest airport is Murtala Muhammed International Airport Lagos at 55 km from project site. The following maps show the location of the proposed project activity (Fig. a.1):

5 page 5 Fig. a.1. Maps showing the location of project

6 page 6 The latitude and longitude of the sites are; Latitude: Longitude: Physical address of the project site: EarthCare Nigeria Limited EarthCare Road, Flower Bus Stop Ikorodu - Shagamu Express Road Odogunyan, Ikorodu Lagos State, Nigeria West Africa. A.4.2. Category(ies) of project activity: The project activity is a large scale potential CDM project under the Sectoral Category 13: Waste Handling and Disposal. A.4.3. Technology to be employed by the project activity: Technology: Composting is a biological process for decomposition of the organic fraction of MSW (OFMSW) to carbon dioxide (CO 2 ), water vapour, ammonia (NH 3 ), stable humus like materials and compost by microorganism in a warm, moist and aerobic environment. The decomposition process is represented by the following equation (Tchobanoglous et al., 1993) 4 : Proteins Amino acids Lipids Carbohydrate + Cellulose Lignin Ash O 2 + Nutrient + Microorganism s Compost + New cells + CO 2, H 2 O, NO 3 -, SO Heat The composting process to be adopted in this project is the unsheltered windrow system and will consist of a number of compost pads, a processing unit and a wastewater collection pond. The process of open windrow aerobic composting is a simple biological process in which Organic Fraction of municipal (OFMSW) converts into valuable resource- nutrient rich compost. The compost is a stabilized product, the soil application of which leads to the following positive impacts on the soil - improved soil structure, improved nutrient content of the soil, improved moisture retention capacity of the soil, and improved agricultural productivity of the soil. Aerobic composting process is an environment friendly process with no harmful by products formation during the entire process. 4 Tchobanoglous, G., Theisen, H., Vigil, S.A., Integrated Solid Waste Management, Engineering Principles and Management Issues, McGraw Hill International Edition. McGraw-Hill Companies, Singapore.

7 page 7 Earthcare Nigeria Composting processes: The process flow diagram of ENL composting facility is as given below. The entire process can be divided into following three stages. Stage 1: Receipt and Weighing of MSW: The number of trucks, quantity of garbage arriving and compost leaving the ENL composting facility is recorded. The records include truck identification numbers, weight of the garbage or compost, the manifest number and other relevant data. The system is equipped with state of the art weighing scale and computers for record keeping and is manned by operators and security personnel. Collection and transportation of MSW MSW receipt and weighing at project site Grinder / Shredder Water Dry and Liquid Inoculants Windrow formation Stabilized compost Aerobic composting process Screener Left overs Storage of screened product i.e., Compost Used in road construction and as fillers Bagged Compost Fig. a.2 Flow diagram of Composting Process Stage 2: Windrow Composting: In this step garbage is unloaded in the shredding area, where it is shredded in pieces < 7 cm for efficient composting due to increased surface area and uniformity. A discharge conveyor loads the shredded garbage in dump trucks for transport to active compost site. This is a continuous operations and provisions of hopper /push wall has been made to maintain continuous operation even in the absence of loading and unloading trucks.

8 page 8 The dump trucks unload the shredded material in the active composting row under the supervision of compost technicians. The rows are formed from successive unloading of shredded garbage. Before starting a compost row, the ground is treated with polymer and portland cement for strength, durability and reduced permeability to prevent leachate permeation. A tiller is used to cut a trench in the row for addition of water for optimal moisture level in the shredded material. The water added to the trench is derived from a pond that has been constructed in the premises for rainwater storage (as well as occasional leachate generated in the compost plant) and has been designed in such a way that all rainwater drains into the pond. During the moisture addition step, dry and wet inoculants are also added for increased rate of compost formation. The inoculants are proprietary mix of chemicals that accelerate degradation of organic waste and speed up the decay of oily and greasy waste that impede organic decay. These inoculants are added using dry spreader unit and liquid spray unit for uniformity throughout the row. Once the inoculants have been added and proper moisture levels have been reached, the final finishing of the rows is completed. In the monitoring stage of the composting process, daily sampling is done and readings are taken for governing parameters like temperature, moisture, CO 2 and O 2. Daily reports are generated for each row and suitable steps are taken by the site managers and compost technicians to maintain optimum conditions. Daily reports also inform the site managers when composting in a particular row is complete. Stage 3 Preparation of final compost: After the completion of composting in a particular row, the finished compost is taken for testing and graded for the presence of heavy metals, pathogens and soil nutrients according to national and USEPA standards. Once quality has been established the compost is established, it is loaded on dump trucks and transported to the bagging area. The finished compost is screened for gravels or particles larger than 6.35 mm. The overs are screened and conveyed outside the bagging plant where upon accumulation it is transported to be used as construction material or layering in composting plant. The fine compost is either sold in bulk or packed in bags of 25 kg each. The ENL bagging unit is managed by four professionals and has a capacity of 4800 bags per day. A.4.4. Estimated amount of emission reductions over the chosen crediting period: Years Estimation of annual emission reductions in tones of CO 2 e , , , , , , , ,132 Total estimated reductions (tonnes of CO 2 e) 1,972,468 Total number of crediting years 7 Annual average of estimated reductions over 281,781 5 For 2 months duration starting November 1, 2010 (Start of Crediting Period) to December 31, For 10 months duration starting January 1, 2017 to October 31, 2017

9 page 9 the first crediting period (tonnes of CO 2 e) A.4.5. Public funding of the project activity: No Public Funding for the project activity has been provided. SECTION B. Application of a baseline and monitoring methodology B.1. Title and reference of the approved baseline and monitoring methodology applied to the project activity: Following approved baseline & monitoring methodology is applied; a) AM0025 Avoided emissions from organic waste through alternative waste treatment processes - Reference: Version 11, EB 44 Tool to determine methane emissions avoided from disposal of waste at a solid waste disposal site - Reference: Version 05, EB 55 Tool for the demonstration and assessment of additionality - Reference: Version 05.2, EB 41 Tool to calculate the emission factor for an electricity system - Reference : Version 02, EB 50 B.2. Justification of the choice of the methodology and why it is applicable to the project activity: Applicability criteria of the methodology AM0025 and the suitability of project activity are discussed in following table; Table: Applicability justification the methodology AM0025 S.No. Applicability Criteria Project Status 1 The project activity involves one or a combination of the following waste treatment options for the fresh waste that in a given year would have otherwise been disposed of in a landfill: The project activity involves the commissioning new facility for fresh waste treatment i.e., composting process in aerobic conditions. In the absence of the proposed facility the fresh waste would have been disposed of in a landfill in a A composting process in aerobic conditions; given year. Therefore the project activity meets the applicability criterion. Gasification to produce syngas and its use; Anaerobic digestion with biogas

10 page collection and flaring and/or its use; Mechanical/thermal treatment process to produce refuse-derived fuel (RDF)/stabilized biomass (SB) and its use. The thermal treatment process (dehydration) occurs under controlled conditions (up to 300 degrees Celsius). In case of thermal treatment process, the process shall generate a stabilized biomass that would be used as fuel or raw material in other industrial process. The physical and chemical properties of the produced RDF/SB shall be homogenous and constant over time; Incineration of fresh waste for energy generation, electricity and/or heat. The thermal energy generated is either consumed on-site and/or exported to a nearby facility. Electricity generated is either consumed on-site, exported to the grid or exported to a nearby facility. The incinerator is rotating fluidized bed or hearth or grate type. In case of anaerobic digestion, gasification or RDF processing of waste, the residual waste from these processes is aerobically composted and/or delivered to a landfill 3. In case of composting, the produced compost is either used as soil conditioner or disposed of in landfills; 4. In case of RDF/stabilized biomass processing, the produced RDF/stabilized biomass should not be stored in a manner that may result in anaerobic conditions before its use; 5. If RDF/SB is disposed of in a landfill, project proponent shall provide degradability analysis on an annual basis to demonstrate that the methane generation, in the life-cycle of the SB is below 1% of related emissions. It has to be demonstrated regularly that the characteristics of the produced RDF/SB should not allow for re-absorption of moisture of more than 3%. Otherwise, monitoring the fate of the produced RDF/SB is necessary to ensure that it is not subject to The proposed project activity does not involve anaerobic digestion, gasification or RDF processing of waste treatment technology. Therefore, this criterion is not applicable for proposed project activity. The produced compost will be used as a soil conditioner. Therefore, proposed project activity meets the applicability criterion. In the proposed project activity RDF processing is not involved. Therefore, this criterion is not applicable for project activity. No RDF/SB disposal will be implied to the proposed project activity. Therefore, this criterion is not applicable for project activity.

11 page 11 anaerobic conditions in its lifecycle; 6. In the case of incineration of the waste, the waste should not be stored longer than 10 days. The waste should not be stored in conditions that would lead to anaerobic decomposition and, hence, generation of CH 4 ; 7. The proportions and characteristics of different types of organic waste processed in the project activity can be determined, in order to apply a multiphase landfill gas generation model to estimate the quantity of landfill gas that would have been generated in the absence of the project activity; 8. The project activity may include electricity generation and/or thermal energy generation from the biogas, syngas captured, RDF/stabilized biomass produced, combustion heat generated in the incineration process, respectively, from the anaerobic digester, the gasifier, RDF/stabilized biomass combustor, and waste incinerator. The electricity can be exported to the grid and/or used internally at the project site. In the case of RDF produced, the emission reductions can be claimed only for the cases where the RDF used for electricity and/or thermal energy generation can be monitored; 9. Waste handling in the baseline scenario shows a continuation of current practice of disposing the waste in a landfill despite environmental regulation that mandates the treatment of the waste, if any, using any of the project activity treatment options mentioned above; 10. The compliance rate of the environmental regulations during (part of) the crediting period is below 50%; if monitored compliance with the MSW rules exceeds 50%, the project activity shall receive no further credit, since the assumption that the policy is not enforced is no longer tenable; 11. Local regulations do not constrain the No incineration of the waste will be implied in the project activity. Therefore, this criterion is not applicable for project activity. The proportions and characteristics of different types of organic waste processed in the project activity can be determined routinely as per the procedure and frequency mentioned in monitoring section in order to apply a multiphase landfill gas generation model to estimate the quantity of landfill gas that would have been generated in the absence of the project activity. Therefore, proposed project activity meets the applicability criterion. The project activity does not include electricity generation and/or thermal energy generation from the biogas, syngas captured, RDF/stabilized biomass produced, combustion heat generated in the incineration process, respectively, from the anaerobic digester, the gasifier, RDF/stabilized biomass combustor, and waste incinerator. Therefore, this criterion is not applicable for project activity. Waste handling in the baseline scenario shows a continuation of current practice of disposing the waste in a landfill (refer section B.4) as there is no environmental regulation that mandates the treatment of the waste. Therefore, proposed project activity meets the applicability criterion. During (part of) the crediting period, there is no relative environmental regulation in host country. Therefore, this criterion is not applicable for project activity. This criterion is not applicable for project

12 page 12 establishment of RDF production plants/thermal treatment plants nor the use of RDF/stabilized biomass as fuel or raw material; 12. In case of RDF/stabilized biomass production, project proponent shall provide evidences that no GHG emissions occur, other than biogenic CO 2, due to chemical reactions during the thermal treatment process (such as Chimney Gas Analysis report); 13. The project activity does not involve thermal treatment process of neither industrial nor hospital waste. 14. In case of waste incineration, if auxiliary fossil fuel is added into the incinerator, the fraction of energy generated by auxiliary fossil fuel is no more than 50% of the total energy generated in the incinerator. activity. This criterion is not applicable for project activity. The project activity does not involve thermal treatment process of neither industrial nor hospital waste. This criterion is not applicable for project activity. The project activity does not involve combustion of fossil fuels. This criterion is not applicable for project activity. Conclusion: The project activity meets the applicability criteria of approved methodology AM0025. B.3. Description of the sources and gases included in the project boundary: The spatial extent of the project boundary is the site of the project activity where the waste is treated. This includes the composting facility and the landfill site. MSW Generation MSW shoritng & shredding MSW residue Landfill MSW Composting process Onsite electricity consumption Electricity from grid Compost Onsite fossil fuel consumption Fossil fuel End User

13 Project activity Baseline CDM Executive Board page 13 Fig. b.1 Diagram to show the project boundary The greenhouse gases included in or excluded from the project boundary are shown in Table below. Table: Emissions sources included in or excluded from the project boundary Source Gas Included Justification / Explanation Emissions from CH 4 Yes The major source of emissions in the baseline. decomposition of N 2 O emissions are small compared to CH 4 waste at the landfill N 2 O No emissions from landfills. Exclusion of this gas is site conservative. CO 2 No CO 2 emissions from the decomposition of Emissions from electricity consumption Emissions from thermal energy Generation On-site fossil fuel consumption due to the project activity other than for electricity generation Direct emissions from the waste treatment processes. Emissions from on-site electricity use Emissions from wastewater Treatment organic waste are not accounted. CO 2 Yes Electricity may be consumed from the grid or generated onsite in the baseline scenario CH 4 No Excluded for simplification. This is conservative. N 2 O No Excluded for simplification. This is conservative. CO 2 Yes If thermal energy generation is included in the project activity. CH 4 No Excluded for simplification. This is conservative. N 2 O No Excluded for simplification. This is conservative. CO 2 Yes May be an important emission source. CH 4 No Excluded for simplification. This emission source is assumed to be very small. N 2 O No Excluded for simplification. This emission source is assumed to be very small. N 2 O Yes May be an important emission source for composting activities. CO 2 No CO 2 emissions from the decomposition of organic waste are not accounted. CH 4 Yes The composting process may not be complete and result in anaerobic decay. CO 2 Yes Electricity may be consumed from the grid or generated onsite CH 4 No Excluded for simplification. This is conservative. N 2 O No Excluded for simplification. This is conservative. CO 2 No Not applicable CH 4 No Not applicable N 2 O No Not applicable B.4. Description of how the baseline scenario is identified and description of the identified baseline scenario:

14 page 14 The scenarios given in the approved AM 0025 are discussed below to identify the most plausible baseline scenario: Procedure for the selection of the most plausible baseline scenario: Step 1: Identification of alternative scenarios To identify all realistic and credible baseline alternatives step 1 of the latest version of the Tool for demonstration and assessment of additionality (version 05.2); EB 39 is applied. Methodology AM 0025 further delineates that in doing so, relevant policies and regulations related to the management of landfill sites should be taken into account. Such policies or regulations may include mandatory landfill gas capture or destruction requirements because of safety issues or local environmental regulations. Other policies could include local policies promoting productive use of landfill gas such as those for the production of renewable energy, or those that promote the processing of organic waste. In addition, the assessment of alternative scenarios should take into account local economic and technological circumstances. Realistic and credible alternatives to the project activity(s) that can be (part of) the baseline scenarios are identified through the following sub-steps: Sub-step 1a. Define alternatives to the project activity: As per AM 0025 following alternatives for the disposal/treatment of the fresh waste in the absence of the project activity, i.e. the scenario relevant for estimating baseline methane emissions, to be analysed should include; M 1: The project activity (i.e. composting of waste) not implemented as a CDM project: This alternative involves processing of waste in a composting plant as envisaged in the project with the objective of producing compost which could be sold in the market to earn returns on investment. Successful implementation of the composting plant requires substantial capital investment and high operation and maintenance costs. In addition, continuous monitoring of the processes is required to maintain the quality of compost that could be sold in the market. The option therefore requires skilled and trained manpower. In this option, the project sponsors, in the absence of CDM, would rely only on the sale of compost - a product which does not enjoy ready-made markets in the developing economies, and more so in Nigeria. As per the guidance of the methodology this is considered as a plausible baseline scenario. M 2: Disposal of the waste at a landfill where landfill gas captured is flared: There are three active landfills; Olusosun, Abu-Egba and Solus in Lagos state. None of these sites have the landfill gas capture facility 7. Currently, no landfill site is equipped with landfill capture and flaring facility in Nigeria. In addition, at present there are no regulatory requirements in the country to collect and flare or utilize landfill gas. Instalment of landfill gas collection and combustion facilities requires huge investment without any commensurate monetary benefits. Therefore, installation of the landfill gas capture and flaring facility would also face the financial and technical barriers similar to the project activity. Therefore this alternative is not the plausible baseline scenario. M 3: Disposal of the waste on a landfill without the capture of landfill gas: 7 The study for construction of an Integrated Waste Management Facility (IWMF) in Lagos City, Lagos City, Volume 03, May Waste management practice in Lagos State, Federal Ministry of Environment.

15 page 15 This is the business as usual scenario. Currently, all waste is collected by the various agencies, transported to the designated landfill sites. As mentioned in previous section, these facilities are not equipped with landfill gas capture measures. The current practice is the common practice and does not face any technological or investment barriers like the other options described above. It is economically the most feasible option. Therefore this alternative is a realistic and credible baseline alternative. The proposed project does not involve power or heat generation therefore, the baseline scenarios of power/heat generation or energy export are not applicable. Outcome of Step 1a: Identified realistic and credible: Out of the identified scenarios (M1, M2 and M3), scenario M2 was dropped from any further consideration as it was not considered realistic. The two realistic and credible scenarios that have been subject to further assessment include M1 and M3. Sub-step 1b. Consistency with mandatory laws and regulations: The two alternatives M1 and M3 are consistent with the laws and regulations in Nigeria. None of these options are mandated by law. Therefore both the alternatives have been further considered for the purpose of determining the baseline scenario. Step 2: Identify the fuel for the baseline choice of energy source taking into account the national and/or sectoral policies as applicable. The proposed project activity does not deal with fuel, so this step is not applicable. Step 3: Step 2 and/or Step 3 of the latest approved version of the Tool for demonstration and assessment of additionality shall be used to assess which of these alternatives should be excluded from further consideration (e.g. alternatives facing prohibitive barriers or those clearly economically unattractive). As per the guidance of the methodology both the alternatives M1 and M3 have been subject to barrier analysis for the purpose of determining the baseline. Alternative M1 which represents the project without CDM is a first of its kind activity and consequently faces the following barriers (i) barriers due to prevailing practice, (ii) investment barriers, (iii) market barriers and (iv) technological barriers -, as discussed in details in section B.5. On the contrary, alternative M3 represents the current situation on the ground i.e., disposal of waste on landfill without the capture of landfill gas, and does not face the barriers that are faced by alternative M1. Therefore alternative M1 is eliminated from being considered as a baseline scenario. Therefore alternative M3 is the only realistic and credible baseline alternative. Step 4: Where more than one credible and plausible alternative remains, project participants shall, as a conservative assumption, use the alternative baseline scenario that results in the lowest baseline emissions as the most likely baseline scenario. The least emission alternative will be identified for each component of the baseline scenario. In assessing these scenarios, any regulatory or contractual requirements should be taken into consideration. Only one alternative M3, i.e., current practice is identified as the baseline scenario by Step1 to Step 3, so the Step 4 is not applicable.

16 page 16 B.5. Description of how the anthropogenic emissions of GHG by sources are reduced below those that would have occurred in the absence of the registered CDM project activity (assessment and demonstration of additionality): Additionality of the project activity is determined based on Tool for the demonstration and assessment of additionality (version 05.2); EB39. This tool provides a step-wise approach to demonstrate and assess additionality of the project activity as shown in the flowchart given below. These steps include: Identification of alternatives to the project activity; Investment analysis to determine that the proposed project activity is either: 1) not the most economically or financially attractive, or 2) not economically or financially feasible; and/or Barriers analysis; Common practice analysis Figure b.2: Flowchart to assess the additionality of the project activity Step 1: Identification of alternatives to the project activity consistent with current laws and regulations: Sub-step 1 a. Defines alternatives to the project activities:

17 page 17 As discussed in section B.4, alternatives to the project activity are as follows; M 1: The project activity (i.e. composting of waste) not implemented as a CDM project M 2: Disposal of the waste at a landfill where landfill gas captured is flared M 3: Disposal of the waste on a landfill without the capture of landfill gas Outcome of Step 1a: Identified realistic and credible: As explained in section B.4, installation of landfill gas collection and combustion facilities requires huge investment without any commensurate monetary benefits. At present, Nigeria does not have any such operational facilities, and hence no experience on these kind of projects. Therefore, the option of installation of the landfill gas capture and flaring facility (M2) is not considered a realistic option. Option M3 disposal of solid waste in a landfill without any capture of landfill gas - represents the current situation on the ground in Nigeria, and hence is considered a realistic option. Therefore, the two options that merit further assessment are Option M1 and M3. Sub-step 1b: Consistency with mandatory laws and regulations: Both the options M1 and M3 are consistent with the mandatory laws and regulations. Thus both the options M1 and M3 have been subject to further analysis for the purpose of demonstrating additionality of the project. The Tool for the demonstration and assessment of additionality stipulates that either Step 2 (Investment Analysis) or Step 3 (Barrier Analysis), or both can be selected to demonstrate additionality. As the Project is first of its kind project in the country and the barriers faced are clearly evidenced (as explained in the subsequent sections), the PP has applied only the barrier analysis (Step 3) to demonstrate the project s additionality. Step 3: Barriers analysis This Step is used to determine whether the proposed project activity faces barriers that: (a) Prevent the implementation of this type of proposed project activity (Option M1 in this case); and (b) Do not prevent the implementation of at least one of the alternatives (Option M3 in this case). Sub-step 3a: Identify barriers that would prevent the implementation of the proposed CDM project activity: According to the Tool for the demonstration and assessment of additionality under this section, PP needs to; Establish that there are realistic and credible barriers that would prevent the implementation of the proposed project activity from being carried out if the project activity was not registered as a CDM activity. Identified barriers should be justified in line with Guidelines for objective demonstration and assessment of barriers Annex 13, EB 50. The PP has opted to use the following barriers- (i) barrier due to prevailing practice, (ii) investment barrier, (iii) market barrier and (iv) technological barrier to justify the additionality of the project. The project is first-of-its-kind project in Nigeria

18 page 18. i. Barriers due to Prevailing Practice The prevailing practice for municipal solid waste disposal in Nigeria is to dispose the solid waste in landfills. This is clearly evidenced in the fact that even the larger cities including Lagos and Abuja dispose off their wastes in the landfills. All the waste generated in Lagos is disposed off in 3 large landfills Olushosun, Abulegba and Solus. Alternative methods of disposal of solid wastes are yet to gain popularity in the African countries including Nigeria. Alternative methods of waste disposal such as composting, anaerobic digestion etc., involve heavy capital investments, and require dedicated project management that involves managing the technology, managing the process and moreover managing the product - all of which pose challenges. This is also confirmed by a study undertaken by the United Nations 8 which states that, even though the organic content of the MSW in the typical African city may exceed 70% (wet basis), centralised composting, anaerobic digestion, and gas recovery are not significant components of African MSWM practice. In most African cities, MSW is disposed of near the perimeter of the city, within easy reach of vehicles and collection crews. The waste collection and disposal services are provided largely by the public agencies, and the role of the private sector is mostly limited to collection of wastes, which does not involve significant capital investment and the revenue is linked to the tonnage of waste collected and transported to the landfills, which does not involve any technical sophistication. The same study by the United Nations referred above also mentions that few composting plants that were set up in African cities have been reported to be financially unsuccessful, plagued by mechanical problems, and ultimately closed. Given these issues and challenges of alternative methods of disposal, and the fact that there are no mandatory requirements to go for advanced disposal options, disposal of wastes in the landfills remains the prevailing practice and act as a barrier for adoption of any new technology including composting. This is clearly evidenced in the fact that the proposed composting project by ENL is the first of its kind not only in Lagos, but also in the whole of Nigeria. Another prevailing practice that acts as a barrier to adoption of alternative waste disposal methods particularly composting is the practice of waste collection. Lagos, like most of the other Africa cities, does not have any system for segregation of wastes. The solid waste infrastructure (collection, transport and disposal) in Lagos is managed by LAWMA through a large number of private operators, who are primarily responsible for collection and transport of waste to the disposal sites. Source segregation of waste is not practiced in Lagos and the operators are paid based on tonnage of waste hauled rather than the type of waste hauled. As a result, the waste that is available for composting is of mixed type and the composting plants have to be designed to be able to process mixed waste threatening the quality of compost and its acceptability and marketability. The prevailing practice of mixed waste collection thus acts as a barrier for commercial and sustainable composting. ii. Investment barriers 8

19 page 19 For alternatives undertaken and operated by private entities: Similar activities have only been implemented with grants or other non-commercial finance terms. Similar activities are defined as activities that rely on a broadly similar technology or practices, are of a similar scale, take place in a comparable environment with respect to regulatory framework and are undertaken in the relevant country/region. No private capital is available from domestic or international capital markets due to real or perceived risks associated with investment in the country where the proposed CDM project activity is to be implemented, as demonstrated by the credit rating of the country or other country investments reports of reputed origin. As per Guidelines for objective demonstration and assessment of barriers Annex 13, EB 50, while demonstrating barriers related to the lack of access to capital, technologies and skilled labour, the Project Proponent should provide information on nature of companies and entities involved in the financing and implementation of the project. As the project is first-of-its-kind in Nigeria, similar activities are not available for comparison as required by the tool to demonstrate additionality of projects undertaken by private entities. The investment barriers being faced by the project activity are discussed in terms of lack of access to long term capital.. Lack of access to long term capital Nigeria s economy is primarily driven by abundant petroleum resources and the petroleum sector is responsible for 99% of export and 85% of revenue generation in the country. So far, industrial development in other sectors has been negligible. Due to instabilities in the past and easy opportunities available in the petroleum sector, banks and other financial institutions are not keen on provide loans to new business. According to the World Bank - Long-term finance is very rare and only the most creditworthy have access to it. Less than 16 percent of the sample reported having loans of more than one year in term, mainly medium and large firms. Service sector companies such as hotels have better access to long-term loans because of collateral availability. If entrepreneur s finance long term investments by short term debts, project risk increase sharply and failure rates increase substantially. 9 The following table demonstrates the state of availability of finance to enterprises in Nigeria. Table: Statistics on availability of finance to enterprises in Nigeria 10 Parameter Value % of Firms Identifying Access/ cost of Finance as a Major Constraint 53.1 % of Firms Using Banks to Finance Investments 2.7 Internal Finance for Investment (% of firms) 92.8 Value of Collateral Needed for a Loan (% of the Loan Amount) An assessment of Private sector in Nigeria (pages 15 & 92) 10 Nigeria 2007 Enterprise Survey based on survey of 1891 enterprises from all sectors in Nigeria

20 page 20 The data provided in the above table clearly demonstrates the issue of limited availability of bank finance to enterprises for investments. The value of collateral required for loan is approx. 140% of the loan amount. The situation is expected to be even worse for new companies entering into new business areas as they normally do not possess enough assets during the start up period to use as collateral as needed by the banks. The owners of these kind of firms generally end up either using their personal properties as part of their equity increase exercise and/or raise the money using short term loans, normally at higher interest rates. These short term loans are often provided with a line of credit with no guarantee that the lender will renew the same once the line is matured. This forces the companies again to look for other lenders. Approval of the short term loans, in some cases, required the sponsors to pledge their personal properties. ENL, the project promoter, being new company venturing first time into the MSW composting business has faced the barriers described above. The sponsors of ENL are individuals from different fields of expertise and do not have any prior experience with implementation of waste management projects. The ownership of the company as of December, 2007 is summarized in the table below. Sl. No. Name Company / Shares % Shareholding Individual (Naira) 1 Gen. Theophilus Danjuma Individual 40,000, Dr. Benjamin Ohiaeri Individual 80,000, Hon. Olawale Oshun Individual 39,985, Total 190,000, % For ENL, the problem of accessing long term loan for the composting project is even worse as the project is of first of its kind in the country and the banks and financial institutions do not have any prior experience of dealing with such projects. The prevailing attitude of the investors/ banks and other financial institutions towards a new business area strangled the arrangements of long term financing for the project. The uniqueness of the project could not win the confidence of the financial institutions. The sponsors could only secure short term debts 11 to execute the project. As of December, 2007, the company could raise only Naira 837,036,091, as short term loans from the banks, which represents only 53.7 % of the total investment required for the project. The remaining 46.3% of the total investment had to be raised in form of equity and shareholders loan. Generally, projects are financed at a debt equity ratio of 70: 30. The fact that the company could raise only 53.7% of the capital from the banks as short term loans, clearly confirms the barrier with regard to access to long term capital from the banks. With uncertain market conditions for compost, which is documented to be a major factor for failure of many compost plants in the developing countries, implementing a compost project with high cost short term borrowings is even considered riskier for the sponsors, as there is no guarantee for secured revenues from the project.. In such difficult environment, the sponsors of ENL have decided to proceed with the project implementation risking their own capital and personal properties along with paying higher interest rates on short term loans considering the potential upsides possible from sale of carbon credits from the project. The potential of the project to earn additional revenues through sale of carbon credits was recognized early in May, Faced with the challenge of accessing long term loan from commercial banks, the shareholders decided to bring in more capital into the project, in form of shareholders loans, and short 11 Supportive Documents are provided to DoE during validation.

21 page 21 term loans pledging their personal properties, based on the consideration that the project could ultimately benefit from CDM 12. The financial struggle of the project continues even today. Considering the CDM benefits, the sponsors have been able to set up the plant and start operation although with a smaller processing capacity. iii. Market Barrier: The success of a compost project largely depends on the size of the regional compost market. Although compost is a highly effective soil conditioner, which can reduce the need for chemical fertilisers, unfortunately, it does not enjoy a ready-made market. A number of factors account for this fact, including: Lack of awareness and knowledge on how, how much and when to use compost; Misunderstanding about what compost is (e. g. expecting it to behave in the same way as a chemical fertiliser); Concerns about the quality of compost made from organic urban waste sometimes based on negative associations or past experience; Inclination of many farmers to focus on optimising their yield within a short time; Competition with chemical fertilisers, High transport costs relative to product value, as compost is often produced far from its market; Unfair regulations and policies (e. g. subsidies for chemical fertilisers) hindering the composting approach. Revenue from sales of compost is particularly important in low and middle-income countries where subsidy and tipping fees are much less readily available than in Europe or the United States. In Europe, composting plants charge a fee to all commercial enterprises dumping waste (e. g. tree surgeons and gardeners), which is slightly lower than the cost of dumping waste in landfills. This is backed up by legislation, which encourages (or makes compulsory) the recycling of green waste. Therefore, in some cases compost can be given away free because tipping fees cover all costs. Few such situations exist in low and middle-income countries, so costs need to be covered by sales. Absence of a ready-made market hinders the sale and thus acts as a prohibitive barrier. Absence of ready-made market is reported to be one of the significant reasons for failure of compost facilities by United Nations Environment Programme, Division of Technology, Industry and Economics 13..Finished compost can become, but is not automatically, a valuable commodity: its value depends on external demand for soil enhancers, on perceptions of its value, on its quality, and on its accessibility to potential users in the immediate vicinity Ref: Minutes of Board meeting, 18th May,

22 page 22 Lack of market for sale of compost has been well documented to be one of the major barriers to composting activities in the low and middle income countries in the report titled Marketing of Compost A Guide for Compost Producers in Low and Middle Income Countries 14. Prior to the project activity, composting as a technology to manage MSW was non-existent in Nigeria. Market for compost therefore did not exist. The project sponsors face the challenge of not only producing high quality compost, but also of creating demand and market for compost with additional costs allocated for the same. The potential of the project to earn additional revenues through sale of carbon credits was recognized as an upside to the investment 15 and the sponsors decided to pursue the project based on the consideration that they could ultimately benefit from the CDM revenues. iv) Technological Barriers: Lack of infrastructure for implementation and logistics for maintenance of the technology Risk of technological failure: the process/technology failure risk in the local circumstances is significantly greater than for other technologies that provide services or outputs comparable to those of the proposed CDM project activity, as demonstrated by relevant scientific literature or technology manufacturer information The particular technology used in the proposed project activity is not available in the relevant region. Nigeria does not have an existing framework for safe disposal of Solid waste. The project is a first-of-itskind activity and consequently faces several technological barriers, as mentioned below: The proposed CDM project would introduce a new technology for processing of solid wastes in Nigeria for the first time. The fact that Nigeria does not have any solid waste composting facilities of equivalent scale as of the project, the experience in operating large scale compost plants is limited. The successful composting process depends on quality of MSW. MSW in developing countries, such as Nigeria has high organic content and is highly suitable for composting. However, due to lack of source segregation, presence of inert like sand, gravel and plastics in the waste makes the composting process less efficient 16. As reported by United Nations Environment Programme, Division of Technology, Industry and Economics...composting has the distinction of being the waste management system with the largest number of failed facilities worldwide. In cities of developing countries, most large mixed-waste compost plants, 14 m/marketing_compost_low.pdf 15 Ref: Minutes of Board meeting, 18th May, Benefits and constraints of composting