The United Nations Framework Classification for Resources (UNFC) is constructed to classify projects and the resource quantities associated with them. It was initially designed to serve the following principal applications:
- Energy and mineral studies
- Resource management functions
- Corporate business processes
- Financial reporting standards
UNFC is now a classification system for extractive activities (oil, gas, minerals and geothermal energy), renewable energy projects, subsurface storage projects and anthropogenic resources. It is a classification of projects on a 100% basis. As a consequence, of this and the evolution of needs over time, the applications may change, in particular the application to financial reporting standards.
Commerciality is generally understood as being “ready for buying and selling at scale”. In the classification there are two aspects of commerciality:
- The commerciality of the quantities that the project produces. To be commercial (ready for buying and selling at scale) the quantities need to be produced by a project that satisfies the conditions defining categories E1 and F1.
- The commerciality of the projects as assets where an asset is understood as a legal right to which value is attached. Most projects will on this basis be commercial regardless of categorisation, provided there is a market for buying, selling or exchanging project assets.
For these purposes, the interest in commerciality is generally not about the commerciality of the total quantities produced or the project assets on a 100% basis, but of the stakeholder’s interests in these. This in turn is determined by the legal rights and contracts. Government is considered a stakeholder in this context.
Commercial Applications Guidance
Report on UNFC Applied to Commercial Assessments – Update (April 2020)
This updated report of April 2020 (ECE/ENERGY/GE.3/2020/5 E, F, R) complements and updates the draft report of the Commercial Applications Working Group of 2019 (Note: The updated report uses the term commercial as “ready for buying and selling at scale”. For this, economics is important, but is not in itself sufficient for commercial transactions to take place. Many other conditions need to be satisfied as well, including the will to act.). The report takes full account of the United Nations Framework Classification for Resources (UNFC) Update 2019 (ECE/ENERGY/125 and ECE Energy Series 61) that was issued in December 2019. It is intended as a document for discussion of further work. It is not a guideline for commercial applications of UNFC, respecting that individual stakeholders may wish to tailor applications to their specific needs. The report distinguishes between commercial products and commercial assets, both of which are bought and sold. Commercial assets are the legal rights that stakeholders (including governments through the fiscal system and otherwise) hold in the projects that are classified in UNFC. Application of UNFC in conventional commercial assessments of both products and assets is described. Valuation is particularly important in making commercial assessments. This often requires information beyond the quantities to be produced, such as time series of costs, revenues, emissions, labour, material and other inputs. The projects carry this information and the legal rights define how they get included in the assets. Much of this is handled through conventional valuation. The potentially far more important issue of the consequences on valuation of the reforms required to reach the SDGs is also addressed. It is concluded that these two issues require further substantial work, to be related to decision analyses. The report clarifies the well-established truth that efficient development requires standards, in this case IT standards for inter alia commercial applications of UNFC. This issue is introduced and requires major follow-up. The report contains an Annex on accounting for UNFC that combines the technique of input-output tables used in national statistics with the design structure matrix techniques used in project management. Both techniques have proven powerful, and their proposed combination is expected to be useful in commercial applications of UNFC.
Working Group on Commercial Applications of UNFC
The Commercial Group will address:
- How commercial considerations may affect the classification of projects and of each stakeholder’s interest in the projects. It will advise on considerations relevant to applying the UNFC at the level of stakeholders.
- How the UNFC may be applied to facilitate capital allocation, including through lending, project finance, divestment, mergers and acquisition, fundraising and in reports to project and corporate owners. The Group will advise on how to inform users about the values that asset owners can expect to derive from the projects.
The group will not prescribe methodologies for making assumptions about future commercial conditions, but rather identify the considerations that need to be made to assess the commerciality of projects, including long lived projects.
In its work, the group may look at characteristics of projects in addition to the cumulative sum of sales and non-sales production, including but not limited to their future cash flows.