PNGBiomassJointVentureASustainableandHighValueCleanEnergyProjectin

PapuaNewGuinea

Lae ChamberofCommerceandIndustryJune2016

• Background

• Market

• ProjectOutline

• FuelSupply

• LandownerOpportunities

• PowerPlant

• Environmental,SocialandEnvironmental

• Timing

• BenefitsforMorobe

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Contents

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Background

• PNGBiomassJVisasustainablepowerbusinessownedbyOilSearchLtd(OSL,strategicinvestor,70%)andAlignedEnergyLtd(AEL,projectdeveloperandoperator,30%)

• WehavebeenworkingcloselywithDepartmentsofForestry,AgricultureandLands;EnergyandPublicEnterprise;CEPA;ICCC;PNGFA;MarkhamlandownersandPNGPowerLimited(PPL)forover5years.OuroperationsandLOengagementcommencedin2010.

• TheJV’sfoundationproject,MarkhamBiomassIndependentPowerProducer(IPP),hasrecentlybeenapprovedafteramulti-yearcompetitivetenderprocess-- PowerPurchaseAgreement(PPA): 25-yeartermwithstate-ownedutility,PPL,signedDec2015aftera4-yearnegotiation process,asPPLdeveloped its“LowestCostDevelopmentPlanfortheRamuGrid”,offering PPLthemostreliable,flexiblegenerationmixandlowestrisk

- BiomassIPP: 15- 30MW(second15MWcalloption byPPL)biomass-fuelled IPPintheMarkhamValleynearLae,PNG’slargestindustrial centre.Firstpowertargetedlate2019

- RamuGrid: LargestandfastestgrowinggridinPNG.BiomassIPPisoneofthreenewIPPsselectedbyPPLfor theRamuGrid(total50MW +)supported withPowerPurchaseAgreements.

- Ramu 2contractorsshortlisted.(120MW)- Gridupgradewelladvanced.

BiomassIPP:“Anall-insolution”Alowrisk,worldclass,sustainablepowerbusinessforPNG

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• Sustainableenergyconcept- In2010weasked:whatwouldbeapowersolutionforPNGthatbenefits boththeenvironmentandPNG?

• Markhamidealsite:firsttreesplantedin2010

• Commitment toPNG- OilSearchendorsedthepowersolutionduetoitsclearPNGbenefits

• Jan2012- Landowneragreements, trialplantationsandservicesagreementwithPNGForestryResearchInstitute

• May2012- MOUsignedwithPPLtoconductaFeasibilityStudywithintenttomovetoaPPA

• Dec2012- PPLcommencedanopen tenderprocess

• PPLcompetitive tenderprocesscommencedDecember2012- PPLcallforEOIsfor30- 40MWatLae- EOIsubmitted- ShortlistedforLae30MWsolutioninMarch2012- March2013:EngineeringProcurementandConstruction (EPC)contractorsselected- Fulltechnicalandfinancial(PPA)proposalsubmitted30th May2013(sixbidders intotal)

• 2.5yearsofnegotiation withPPL- PPASignedinDecember2015

• 6monthsFEEDentrypreparation infirsthalfof2016

Journey:CompetitionandCollaboration

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Market

* CompoundAnnualGrowthRate (CAGR) ofrenewable powerinvestment over 10-years. 27.8%10year CAGRofrenewable power investment inAsia-Pacific, fromUS$12.9Bnin2004toUS$139.4Bnin2014

Source: UNEP,UNRenewable Energy Secretariat (REN 21),2015

• Renewablesinvestmentindevelopingcountries:- Nowmatchesdevelopedcountries(cUS$140billion)

- Butgrowingtwiceasfast(31%versus15%CAGR)*

• RenewablesinAsia-Pacific:- Approx.50%ofglobalmarket(cUS$140billion)

- Fastestgrowthglobally(28%CAGR)

Asia-Pacificlargestandfastestgrowing

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• PapuaNewGuinea(PNG)- LargestPacificisland

- Population over 8million; >850indigenouslanguages

- LongtermrealGDPgrowth6.0-8.0%pa

• Resourcerich- 7%ofglobalbiodiversity;14%ofglobaltunastocks;2.6%ofglobalgoldproduction

- Resources70%ofexportearnings:copper,gold,nickel,silver,gas,petroleum

• Developmentpoor- 156/187onHumanDevelopmentIndex

- 25%ofchildrenunabletoattendschool- 75%dependentonsubsistenceagriculture

• Only13%ofpopulationhaveaccesstoelectricity*

ManypeopleinPNGdon’thaveelectricity

* AEL andPPLdatasuggest penetration couldbeas lowas 6%ofthepopulationSource: WorldBank; AEL

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• PNGhasoneofthehighestpowertariffsglobally- Despitenaturalresources (hydro,biomass, sun,wind,oilandgas)

- Reliability ispoor

• Totalinstalledgenerationisonlyapproximately800MWfor8million+people- Threegrids:PortMoresby,Ramu,Gazelle

- Approximately50%ofgenerationisgridconnectedviaPNGPower

- Remainderoff-grid

• RamuGridisthelargestgridgeographicallyandhasthefastestdemandgrowth

Affordable,reliableelectricityrequired

Source: WorldBank; PNGPowerLimited(PPL);AEL

Generation InstalledCapacity(MW) Mix(%)

Hydro 148 19%HFO 281 36%Diesel 231 29%GasFired 75 9%Geothermal 56 7%Total 791 100%

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BiomassisaProvenTechnology

In California:

• 25 Biomass Plants• Distributed in 20 Counties• Generation Capacity 565MWe

USA Renewable Energy Mix

• Growthdrivers

• Ongridgrowth- Residential: Currentlyalownumberofconnectionsduetoshortageofreliablepower

- Commercialandindustrial:MajorcentressuchasLae

- Resources:Majornewprojects

• Off-gridgrowth- Economically, itslikely30-40%ofthepopulationinremoteareasofPNGwillrequiremini-gridormicro-gridsolutions

- e.g.PVsolar,mini-hydro,cleanburningsolutions

PNGseeksatriplinginelectricitysupply

Source: PNGMedium termDevelopment Plan;ANZ, PoweringPNGintotheAsianCentury, 201511

ProjectnearLaewithPNG’slargestdemand

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RamuGridcloseto50%ofPNG’spopulation

Source: AEL13 Confidential

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ProjectOutline

• Integratedbusiness:fuelsupplyandpowerplant

• 25-yearpowerpurchaseagreement(PPA)inplacewithPNGPower

• 30MWnet(15MW+15MW)biomasspowerstationtoenergizetheRamuGridclosetoLae

• Reliable,sustainablebaseloadpowerfortheindustrialportcityofLae(notdependentonnewloadsorconnections)

• Non-subsidisedcompetitivelypricedpower

• Oneoftheregion’slargestrenewableenergyprojects

MarkhamValleyBiomass:sustainablepower

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Currentunderutilisedkunaigrasslands

FlatalluvialplansintheMarkhamValley

Existinginfrastructure• SealedHighlandsHighway• Underneath132kVtransmissionlineforoperations;and22kVlineforconstruction

• NearErapswitchingstation• 60kmfromLae• ClosetoMarkhamRiver

Existingraintree(exoticweedtree)

Projectideallypositioned:“Allinsolution”Nootherexpenditure needed forgridconnection

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FuelSupply

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Successfultrialnurseriesandplantations

* NurseryphotoascaleIndonesianexample

• Newplantationsareunderdevelopment;335hectaresestablishedtodate

• Planfor16,000to18,000haofnewlygrown,dedicatedfuelwoodplantationsfor30MW(net)

• Shortrotationhighyieldingtreeplantations(EucalyptusandAcacia)

• InitialfuelfromexistingRainTree(introducedexoticweedthatPNGFAseektoremove)

• ForestOperationstobemanagedtoForestStewardshipCouncil- ForestManagementcertificationstandards

• LaeandlocalcommunitynurseriesdevelopedjointlywithPNGFRIandlocallandowners

ConstructionofCentralNursery

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ConstructionofCentralNursery:

• Capacityof8,000,000plantsperannum

• ClonalPropagationusingimportedtechnology

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EarlyFuelfromRaintree

Plantationafter18monthsPlantingoperations

Speciestrials

Plantationsafter2years(left)and3years(right)

Source: Aligned Energy; Poyrygrowthaudits

Pre-investmentinnurseriesandplantations

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LandownerOpportunities

• FormationofBusinessGroup,currentlybeingdevelopedwithLandownersandIPA

• EnablingActiveParticipationintheproject

• Rentalpaymentsbasedonarea

• Royaltypaymentstobebasedonharvesting

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RentalandRoyalty

• Projectwillprovideaminimumof500directFTEjobs,themajorityforlocalstaff

• Projecttoprovidetrainingforestandpowerplantmanagement

• Businessopportunities- CommunityNurseries- Planting- Herbicide- LandPreparation- Maintenance- Harvesting- Transport

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LocalEmployment

• PlantingCropsbetweentreesatestablishment

• Cropsinclude:- Melons- Cucumbers- Pumpkin- Maize

• IncreasedfoodsecurityfortheMarkham

• LocalBusinessOpportunities

• Example:- FromJanuarytoApril2016theGanef ClanmadePGK15,315(net)fromgrowingcucumber,watermelonandcassavafrom6haoftreeplantations

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Intercropping/FoodSecurity

• PNGBiomassprovidesaplatformforlandownerstodevelopotherbusinessopportunities

• PNGBiomassworkingwith:- SPBreweries- Trukai

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AgribusinessOpportunities

• Whentreesgettoacertainsize,typically18to24months,itispossibletograzecattleundertheplantations.

• KeepingthecattlefarminghistoryoftheValleyalive.

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Grazing

• PNGBiomassisworkingwitharangeofproviderstoprovideoff-gridpowersolutionstoMarkhamValleyCommunities,theseinclude:- Biolite (stoves)- AfricanCleanEnergy(stove)- Dlight (solarlightandpower)- SunKing(solarlightandpower)

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LocalOffGridPowerSolutions

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PowerPlantTechnology

Powerplant:Lowrisktechnology

• 15MW(net,18MWgross)thermalpowerplantby2019,scalableto30MW(2x15MWnet,2x18MWMWgross)

• ProvenTechnology>93GWglobally*

• Plantationtruckstologyard,logschipped,mechanisedfuelhandlingandchipping,boilerandsteamturbine

• MeetWorldBankEmissionStandardsandcomplytolocalregulations

• Highreliability

• FinalstagenegotiationswithpreferredEPC(engineering,procurementandconstruction)contractorfromglobaltender

• EPCcontractbackedby7+yearoperationsandmaintenance(O&M)agreement

* UNEP,REN21Report,MarketandIndustryTrends,2014;93GWofbio-powercapacityfromsolid,liquidandgaseousbiomassfuels;ledbyUSA,Germany,China,BrazilandJapan

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Technology

FlowDiagramClean,endorsedbyCEPA(Level2)

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SteelErection

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SteamTurbineGenerator

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BoilerandTurbineBuildingErection

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InstallingBoilerGeneratingBankTubes

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TubularAirheater &EconomiserModules

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ElectrostaticPrecipitatorErection

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FinishedPlant

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FuelHandlingandStorageChipperBuilding,InfeedDeck,KnuckleBoom

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FuelStorageandReclaim

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Environmental,SocialandEconomics

Sustainablepower:CO2 Cycle

• CO2 mitigation:190,000tonnesperannum;4,750,000tonnesoverProjectlife

• Targetingpremiumcarbonmarkets

• WorkingwiththeSouthPoleGrouponafour-phaseprojectdevelopment:- AnalysisofOptions (complete)- Twodrivers: fuelswitchandforestry increaseincarbonstock

- Auditofcurrentdatacollection- Projectregistration- Auditing process

• Environmentally,sociallyandeconomicallysustainable

• Highreputationprojectattractivetointernationalfinanciers(debtandequity)

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• Properaccountingfortheimpactofotheremissions(NOx andSOx)showsthatemissionintensitiesforcoalandHFOaremuchhigherthannormallyquoted

• BiomassisaloweremissionintensityfuelregardlessofwhetherNOX impactsareincluded

• Coalcontains(evenifclean)muchmoresulphurthanotherfuels,andhasSOx emissionsordersofmagnitudeabovenaturalgasorbiomass

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Impact:Biomassisveryclean,andrenewableLowemissionsofSOxandNOx

Impact:Governmentpolicy

• PartofasustainableandlowcostpowerportfoliosolutionfortheRamuGrid

• TheprojectwillmeetadditionalkeyStatePolicyobjectives- NationalClimateChangeCompatibleDevelopmentManagementPolicy- Materialeconomic,socialandsustainabilitybenefitsforlocalcommunitiesintheMarkhamValley,creating~500ongoingjobsintheproject(~5,000nationally)

• StrongsupportandcompliancewithPNGGovernmentPolicyforcreatingruralemployment- Increasesinruralprosperity- Improvementsinagriculturalsector

• TheproposedIPPprojectstronglysupportsthreeofthesevenpillarssetoutinthePNGVision2050:- EnvironmentalSustainabilityandClimateChange- HumanCapitalDevelopment,Gender,YouthandPeopleEmpowerment- WealthCreation

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Parameter Benefit (first30-40MW)

Destinationoffuelpayments Biomass- mostfuelcostsgointothePNGeconomyHFO/Diesel- mostfuelcostsgooffshore

ConstructionphasebenefitstoPNGeconomy K100+Million

OperatingphasebenefitstoPNGeconomy K67millionperyear

Landownerandcommunitybenefits:DirectpaymentsIncludingmultiplierimpactsLocalemploymentboost

Including health,education,roads,power:K6millionperyearK24millionperyear850FTEjobs

PowerpricecostsavingsforCustomers(Over10years)comparedtodiesel/PPLgeneralsupplytariff K900million

Operationsphaseemploymentimpacts:DirectNational(includingmultiplierimpact)

480DirectFTEpositions created intheMarkham4,750FTEpositionscreated(mostlyinMorobeandLae)

CO2 mitigation - peryearoverprojectlife(25years)

190,000 tonnes4,750,000tonnes

Diesel/HFOconsumption avoidedoverprojectlife 10+ millionBarrels

InternationalSustainabilitycertification GovernmentandStakeholderReputationBenefits

Engagement ofmarginalisedgroups JVhashiredwomen,youthsandlandownersforemploymentandparticipation;positivemediaprofile

Source: EconomicsConsultingServices;40MW.30MWIPPreduceslightly,butemploymentremainsatthelevelsforecast

Impact:Social,economicandenvironmental500jobs,Kinapricing,rental,royalties,localbusinessdevelopment

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Timing

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Timing

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Front End Engineering and Design AUGUST 2016

Design and Final Cost JANUARY 2017

Final Investment Decision MARCH 2017

Construction Commences JULY 2017

Construction 24 to 26 MONTHS

Plant on Grid JULY 2019

BenefitsforMorobe

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• Cheapersustainablebaseloadpower- Pricesnotimpactedbyfuturecarbontaxes- Pricesnotimpactedbyfuelimportcostincreases- PricelargelyKinabased

• LongTermLocaljobs>500direct>4000indirect

• LandownerOpportunities

• Foodsecurity(intercropping,cattle)

• Associatedvalueaddedindustries(eg woodproducts)

• BusinessAdvantagebyhavinggreenpower

• ConstructionandSupplyChainOpportunities

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BenefitsforMorobe

• Major Construction Equipment- 1 x 235-ton crawler (5 to 6 months)- 1 x 75-ton crane (6 to 7 months)- 2 x All terrain forklifts (6 to 7 months)- 2 x Man Lifts (6 to 7 months)- 1 x Air Compressor- 1 x Lot Scaffolding- 2 x Gas/Diesel Welders & (2) 8-pack Welders

• 1 x Jobsite Trailer

• 2 x 40 ft. Tool Trailers• Ablutions• 120 peak accommodation plus transport and meals• Consumables

• Boiler start up chemicals• Seismic and water drilling• Foundation drilling and civils• Labour

• Transport and Logistics

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ConstructionOpportunities

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