EBRD investment inEBRD investment innew gas infrastructurenew gas infrastructure

CEER Brussels, 9 November 2006CEER Brussels, 9 November 2006

AgendaAgenda

EBRD

Environmental issues

General Considerations

Case studies

2

EBRD EBRD

3

A network of 32 offices in 27 countriesA network of 32 offices in 27 countriesHalf of our bankers based in the fieldHalf of our bankers based in the field

3 new offices by end 2006: Samara, Rostov, Dnipropetrovsk

Committed and growingCommitted and growing

0

4

8

12

16

20

24

28

32

'98 '99 '00 '01 '02 '03 '04 '05Cumulative commitments

€30.3 billion

Regional focusRegional focus: supporting : supporting investors and local companies investors and local companies in 27 countries of CEE and CISin 27 countries of CEE and CIS

Asset baseAsset base: over 1500 : over 1500 transactions worth €30 billion transactions worth €30 billion signed since 1991 signed since 1991

Capital baseCapital base: €20 billion : €20 billion dedicated exclusively to this dedicated exclusively to this region region

Investment challenges

Reduce transport bottlenecks and ensure competitive market access

Improve regulatory and institutional frameworks in the region

Increase private sector participation and promote direct foreign investment

Ensure high standards of business conduct, transparency, corporate governance and environmental protection

A unique profileA unique profile

Versatile financial instruments:Versatile financial instruments: providing debt, equity providing debt, equity and guaranteesand guarantees

Risk appetite:Risk appetite: extending the financial capabilities of extending the financial capabilities of the private sector by mitigating political risksthe private sector by mitigating political risks

Legal know-how: Legal know-how: in-depth knowledge of the region’s in-depth knowledge of the region’s legal systems and experience in resolving problems.legal systems and experience in resolving problems.

Natural resources expertise:Natural resources expertise: approx. 10% of the approx. 10% of the Bank’s portfolio is in oil, gas and mining projects.Bank’s portfolio is in oil, gas and mining projects.

GENERAL CONSIDERATIONS GENERAL CONSIDERATIONS

What are the classic challenges in financing gas What are the classic challenges in financing gas projects? (1 of 2)projects? (1 of 2)

Construction / Completion Risk

– contractual structure (delays, cost over-runs, etc.)

Operational Risk

– technological integration and experience / viability

Utilisation / Supply Risk

– type of throughput arrangement

– fundamentals (Market/Competition)

What are the classic challenges in financing gas What are the classic challenges in financing gas projects? (2 of 2)projects? (2 of 2)

Competition / Market

– effect of oil price (linked to gas and oil products)

– regional supply / demand

– impact on tariff

Political & Regulatory Risks

– regulatory intervention (tariffs & export volumes)

– political turmoil / disputes / violence / nationalisation

– discriminatory taxation

EBRD facilitiesEBRD facilities

LoansGuarantees Equity

All risk guarantees

Specific risk guarantees(e.g. political)

Commodity-backed instruments

Trade facilitation programme

Non/partial recourse to sponsors

Project specific

Hard/local currency

Medium and long term

Floating/fixed rates

New equity

Privatisation

Quasi-equity

Funding Guidelines (1 of 2)Funding Guidelines (1 of 2)

Project Finance Criteria– 1/3 debt, 1/3 equity, 1/3 project-generated cashflow

– Cashflow Ratios (DSCR, etc.)

EBRD funds up to: – 35% of total project costs for a greenfield project

– 35% of long-term capitalisation of an established corporate

Maximum amounts:– Maximum is currently around € 350 million for A loans. In addition B loans

can be up to twice as much. => € 1 billion

Tenor and maturity: – Project-specific (typically 10-20 year for new gas infrastructure)

Funding Guidelines (2 of 2)Funding Guidelines (2 of 2)

Pre-completion credit-enhancement:– Sponsors’ financial guarantees and other shareholder support;

– Experienced Constructor;

Other risk mitigation requirements:– Experienced Operator;

– Long-term gas contracts (transportation, storage and off-take)

– Tariffs: Stability, Affordability and Fairness (Exemptions usually required for major new infrastructures)

– Extensive EHS and social impact assessment.

ENVIRONMENT ENVIRONMENT

EBRD environmental policy and proceduresEBRD environmental policy and procedures

Ensure environmental soundness of all EBRD operations

Invest in projects with specific environmental and energy efficiency benefits

Disclosure of environmental information

Environmental standards for EBRD projectsEnvironmental standards for EBRD projects

Local, national, EU and World Bank standards and regulations. Similar but not equal to the equator principles, mostly due to EU standards

Where standards cannot be met initially, project will include programme for achieving compliance

Environmental Action Plan

CASE STUDIESCASE STUDIES

Case StudiesCase Studies

BTC

Shah Deniz / South Caucasus Pipeline

Gastransit

BTC Pipeline projectBTC Pipeline project

BTC PBTC Projectroject - Overview - Overview

BTC Pipeline

– the primary export route for crude oil/other liquid hydrocarbons production from Azerbaijan and the Southern Caspian

– 1,743 km long, with ultimate design capacity of 1,000,000 bpd

– provides the additional export capacity required for ACG Field production and serves as an export route for other production from the Caspian Region

BTC Pipeline route has been selected as the optimal route for both commercial and environmental reasons

– Terminal at Ceyhan on the Mediterranean coast will enable volumes to be delivered while bypassing the environmentally sensitive Turkish Straits

BTC Project CostBTC Project Cost

Total BTC Project Cost is in excess of US$3.6 billion:– Capex US$2.90bn

– Oil linefill US$0.17bn

– Finance costs US$0.46bn

– DSRA US$0.10bn

BTC pipeline cost and Azeri Chirag Guneshli oilfield development cost combined are in excess of US$15 billion

EBRD is financing $250 million ($125 million A loan and $125 million B loan)

South Caucasus Pipeline – Route (1 of 4)South Caucasus Pipeline – Route (1 of 4)

Shah Deniz Project – Overview (2 of 4)Shah Deniz Project – Overview (2 of 4)

Reserves: proven and probable gas-in-place of approximately 31 trillion cubic feet (tcf) – world class reserves; likelihood of an additional 22 tcf

Project: 4-stage development of the Shah Deniz gas and condensate field with Stage 1 cost of USD 2.3 billion

Local participation: State Oil Company of Azerbaijan Republic (SOCAR) also holds a 10% interest in this project (through AzSD: EBRD will part-finance their cash calls)

South Caucasus Pipeline – Overview (3 of 4)South Caucasus Pipeline – Overview (3 of 4)

Pipeline route: a 690 km gas pipeline starting at the Sangachal Terminal, traversing Azerbaijan and Georgia and connecting with the BOTAS domestic gas distribution system at the Georgian-Turkish border

Construction & timing: SCP’s Right of Way runs parallel to BTC and construction of SCP will occur concurrently with that of BTC

Capacity & cost: a peak capacity of over 20 billion cubic feet (bcf) per annum and will cost over USD 1 billion

Gastransit Phase I and IIGastransit Phase I and II

Ukraine: Balkan GastransitUkraine: Balkan Gastransit

Project Details: Long term 2 Phase facility to support gas pipeline

upgrade in Ukraine Use of proceeds: construction of compressor station and

parallel pipeline for total project cost of $190 million Strong demonstration effect- only current international

investment in Balkan gas pipeline project.

EBRD Investment: Phase I: $40 million EBRD 9 year senior loan and $ 12

million BSTDB parallel loan Phase II: $51 million 12-year EBRD senior loan, $ 6

million BSTDB facility and $ 40 million commercial Bank co-financing

Financing Structure: Security based on gas export contracts Revenues based on transportation and compression

payments Strong sponsor support (Gazprom, Naftogas Ukraine,

Transbalkan)

ConclusionsConclusions

EBRD is keenly interested in working on new gas infrastructure

Commitment of Governments, Regulators, Suppliers and Off-takers crucial

Benefits of EBRD– EBRD involvement will help other parties on board and set

international corporate and environmental standards

– EBRD experience in similar projects

– EBRD environmental expertise and track record

– Dedication level is high due to our mandate

Contact DetailsContact Details

Enrico G. GrassiPrincipal Banker, Natural Resources Team

Tel.   44 (0)20 7338 6179, Fax   44 (0)20 7338 6101Email: GrassiE@ebrd.com