Saturday, June 19, 2010
Carbon Manna(SM) Economic-Rewards Allocation Guidelines
Carbon Manna(SM) Economic-Rewards Allocation Guidelines --
Fairness Standards for Carbon Micro-Profit-Sharing Projects
[ written during March-April 2009 and published here for the first time ]
David A. Palella
Carbon Manna Unlimited
San Diego, California
The guidelines and equations below are meant to set baseline standards for Fairness in allocating the economic rewards from Carbon Manna(SM) projects worldwide. Projects that do not meet these guidelines are not recognized as bona fide by Carbon Manna Unlimited HQs in San Diego, California, nor may such projects make use of or appropriate the "Carbon Manna(SM)" name to describe themselves.
(1) Carbon Manna(SM) projects based on improved cook stoves, solar cookers or solar lighting should include at least 5,000 families to ensure economies of scale. A minimum of 10,000 - 15,000 is better and more realistic.
(2) Gold Standard Organization-approved VER (Voluntary Emission Reduction) permits or offsets will vary in price from as low as US$ 5 - 10/ton of CO2 and go up over time. The lower the price goes, the more advantageous for the Poor, as the Rich will not find it worth their effort/time to produce offsets at low prices. In contrast, the higher the prices go, the better for Rich & Poor alike.
(3) Cook Stove costs will be in the range of US$ 5 - 15.
(4) Mobile phones used in Carbon Manna(SM) projects will cost in the range of US$ 10 - 25+. The handset cost in some programs may be subsidized by mobile carriers or corporate sponsors. In other programs such as in Kenya, a high percentage of families will already own a cell phone and not need one to participate in the program.
nr/tCO2 = Net Revenue per ton of CO2 -- net after all sales commissions
tCO2/Stove = Tons of CO2 offset per stove
XF = X number of Families in the project
GR = Gross Revenue for the entire project
NR = Net Revenue for the entire project
TC = Total direct Costs for the entire project = stoves & phones
GM = Gross Margin for the entire project
%GM = the % Gross Margin
SC/Unit = Stove Cost per Unit delivered, including training cost
PC/Unit = Phone Cost per Unit delivered, including training cost
%FP = Percentage of Families in the project needing a Phone
AExp = external Audit Expenses
MExp = Management Expenses (e.g., salaries)
LExp = Legal Expenses
CPAExp = Accounting (CPA) Expenses
OExp = Operational Expenses
* = Multiply or times
PM = Project Manager
CM = Carbon Manna(SM) = the share of Net Revenue paid to the Poor
PM:CM = Project Manager:Carbon Manna(SM) split of NR (Net Revenue)
(1) NR = GR - TC
-->> Net Revenue = Gross Revenue - Total direct Costs
(2) GR = nr/tCO2 * tCO2/Stove * XF
(3) TC = [(SC/Unit * XF) + (PC/Unit * XF * %FP)]
(4) NR = GR - [ (SC/Unit * XF) + (PC/Unit * XF * %FP) ]
(5) NR / GR * 100 = %GM
-->>[ Net Revenue / Gross Revenue ] * 100 = % Gross Margin
Because project credits are pre-sold every year, the variables above will change each year, and the final project % Gross Margin (%GM) will need to be re-calculated every year.
In Year 1, the %GM will be lower due to the start-up costs of buying stoves and phones. In Year 2 the %GM should be much higher. In Years 3 - 5, the %GM should be higher and about the same every year. In short, something like this:
Year 1 % GM = 10 %
Year 2 % GM = 35 %
Year 3 % GM = 60 %
Year 4 % GM = 70 %
Year 5 % GM = 80 %
Cook stoves have a 3 - 5 year lifetime. If they break or wear out, they can be repaired or replaced, of course. The higher the %GM, the better the economics of the project both for the poor families, and the Carbon Manna(SM) project manager. In the early years where the %GM is low, it is crucial for the Carbon Manna(SM) project manager to seek corporate sponsorships to offset indirect start-up expenses, and the ongoing direct and indirect expenses of managing the project.
Based on the foregoing, and subject to further fine-tuning with actual field data, the following split of the Net Revenue would be appropriate:
If %GM = 0 - 19 %, then the PM:CM Net Revenue (NR) split = 90:10
If %GM = 20 - 29 %, then the PM:CM Net Revenue (NR) split = 80:20
If %GM = 30 - 39 %, then the PM:CM Net Revenue (NR) split = 70:30
If %GM = 40 - 49 %, then the PM:CM Net Revenue (NR) split = 50:50
If %GM = 50 - 59 %, then the PM:CM Net Revenue (NR) split = 30:70
If %GM = 60 + %, then the PM:CM Net Revenue (NR) split = 20:80
If %GM = then ... PM:CM NR split =
0 - 19 % ........ 90:10
20 - 29 % ....... 80:20
30 - 39 % ....... 70:30
40 - 49 % ....... 50:50
50 - 59 % ....... 30:70
60 + % .......... 20:80
Why a Net Revenue Split & not a Net Income Split?
For those of you who are familiar with the history of the American movie industry, you know that net income splits or net profit-sharing agreements do not work. Why? Because unscrupulous accountants and/or managers can add overheads and other indirect costs into the cost structure until net income goes to Zero. Or becomes negative even.
The result? -- poor movie stars in the 70s and 80s who agreed to a net-income split ended up being paid Zero. Which is why all movie agreements now give movie stars a "% of the gross movie receipts". It is much harder for accountants and managers to manipulate receipt records or gross revenue numbers. In short, movie stars now take their money "right off the top" -- directly from the top line or revenue line.
Likewise in Carbon Manna projects, Poor families have no control over the cost structure. The only 2 costs that concern them are the expense of the stove and phone, if the latter is needed. And even these they have no control over.
But under the Carbon Manna(SM) System, they are required to pay back the project manager for the cost of the stove and phone. Hence, these are the only 2 costs that should affect their share of the economic rewards or Carbon Manna(SM).
As a corollary, in all bona fide Carbon Manna(SM) projects, participating families have the right to require the project manager to document the actual direct costs of the stove & phone. If requested by the families or by Carbon Manna Unlimited in San Diego, the project manager must provide certified receipts documenting the actual costs.
Project managers that do not provide documentation in a timely manner will not be allowed to use the Carbon Manna name and logo.
Summary / Conclusion:
Carbon Manna(SM) is based on the principles of Fairness, Disintermediation, Individual Empowerment, Micro-entrepreneurism, Micro Property Rights, Worldwide Standardization and Personal Freedom.
The guidelines above are meant to provide a fair and equitable framework for Carbon Manna(SM) projects worldwide. These guidelines are open to debate and refinement over time. Input/feedback from managers of bona fide Carbon Manna(SM) projects worldwide is highly welcome. Please contact us with your suggestions for improvement. We look forward to hearing from you.
Globally & warmly yours,
David A. Palella
The Robin Hood of Microfinance
CARBON MANNA UNLIMITED
The "Micro" Revolutions Institute(SM) Established by Carbon Manna
Carbon Manna announces The Micro Sustainability Prizes(SM)
I will be a speaker at:
4th Microfinance Investment Summit
06-07 October 2010, Central London