proiect rbi-gci-1(1)

Project Bioenergy Suceavafor Raiffeisen International Bank AG

April 24th 2015

11

GCI Management GmbHStadiongasse 6-8/101010 Vienna, Austria

Telephone +43 (1) 512 37 55 - 0Telefax +43 (1) 512 37 55 - 42e-mail [email protected]

Raiffeisen International Bank AGAttn: Gnther SssenbacherAm Stadtpark1030 Vienna, Austria

Project Bioenergy SuceavaDear Mr. Sssenbacher,

This report summarizes our work which you have asked us to undertake in connection with Bioenergy Suceava SRL (thereafter BS) as agreed inour engagement letter dated 24th February 2015. It has been prepared on the basis of data and information received until April 2nd and furtheranalysis carried out up to 20th of April. The content of the report has been prepared in accordance with the scope of work defined in theengagement letter, specifically the focus areas, which also form the structure of this report.

We trust that the results contained herein cover all of the aspects as defined in our scope of works, unless it has been specifically modifiedthereafter (i.e. ORC). We nevertheless have titled this report as draft to allow for a review after the material has been studied by the relevantparties. Unless we receive further queries or comments that need to be reflected in the report, we would send out a final version within 10calendar days.

We have carried out our work subject to the General Terms and Conditions of GCI Management GmbH as agreed in our engagement letter whichhas been attached as Enclosure to this report. The General Terms and Conditions are valid both between our company and the client and inrelation to third parties.

The procedures carried out by us might not necessarily meet all issues which may be relevant for your needs or for the needs of other partiesinvolved in Project Suceava. The decision whether and on what terms to proceed with the transaction is therefore entirely your responsibility. Theimportant notice on the adjacent page should be read in conjunction with this letter.Our draft report is for the benefit and information of the addressee only and should not be quoted or referred to, in whole or in part, without priorwritten consent, except as specifically provided in our engagement letter. We will not accept responsibility or liability to any party to whom thereport may be shown or who may acquire a copy of the report.

Yours faithfully

Roman Pongracz

Managing Partner

22nd April 2015

Erste BankBLZ: 20 111Konto-Nr.: 280 649 516/00

Handelsgericht: Wien Firmenbuchnr.: 233250sUID: ATU 63580912

22 DISCLAIMER

Important notice

Our work started March 2nd 2015, fieldwork was completed April 7th and further analysis / research done until April 20th 2015. Our report has not been updated for events arising after that date.

The management of Bioenergy Suceava is responsible for the accuracy and completeness of the information supplied and presented to us. This includes the maintenance of adequate accounting records and internal controls and the selection and application of appropriate accounting policies.

In preparing our draft report, our primary source has been internal management information and representations made to us by management of Bioenergy Suceava and key employees. We do not accept responsibility for the correctness of such information which remains the responsibility of Bioenergy Suceavas management.

In addition we have researched other information form public sources and to some extent other market experts; we have used these data to do plausibility checks and to verify other assumptions. While we informally related with IC-P, we did not have at our disposal the report prepared by them on technical matters.

We have satisfied ourselves, so far as possible, that the information presented in our draft report is consistent with other information which was made available to us in the course of our work in accordance with the terms of our engagement letter. We have not, however, sought to establish the reliability of the sources by reference to other evidence.

We must emphasize that the realization of the prospective financial information presented in the draft report is dependent on the continuing validity of the assumptions on which it is based.

The assumptions will need to be reviewed and revised to reflect such changes as trading patterns, cost structures or direction of the business. We accept no responsibility for the realization of the prospective financial information. Actual results are likely to be different from those shown in the prospective financial information because events and circumstances frequently do not occur as expected and the differences may be material.

The scope of our work was different from that for an audit and, consequently, we do not issue any opinion or any other certificate or confirmation relating to the financial statements, tax position or the internal control systems of the company.

We do not warrant or express that the information presented in the report is sufficient or appropriate for the purposes of financial institutions in making their decision on the underlying project. Our report makes reference to GCI analysis; this indicates only that we have (where specified) undertaken certain analytical activities on the underlying data to arrive at the information presented; we do not accept responsibility for the underlying data.

33 ABBREVIATIONS

ANRE National Authority for Regulation in Energy

B4P Biomass 4 Power

BS Bionergy Suceava SRL

CFADS Cash flow available for debt service

CF Cash flow

CHP Combined heat power plant

DAP Delivered at place

EBIT Earnings before interest and taxes

EBITDA Earnings before interest taxes and depreciation

EON E.ON Energie Romnia

EUR / mEUR / kEUR Euro, Euro million, Euro thousand

FY Financial year

GC Green Certificate

Gcal Giga calories

GCI GCI Management GmbH

HS Holzwerke Schweighofer

IBR Independent Business Review

IC-P iC projecte Project Development GmbHLHV Lower heating values

MWh Megawatt hour

OPCOM Romanian gas and electricity market operator

p.a. per anno

P&L Profit & Loss statement

SB Steam boiler

sqm square meter

to tons

TWh Terrawatt hour

WC Working capital

YTD Year to date

44

GCI used BS internal documents as well as own research results for this report

Basis of preparation

BASIS OF PREPARATION

Our primary sources of information in course of our analysis (received from RBI and BS) included:

o Management accounts (FY 2014 and YTD 2015) BS on: Biomass consumption, supplier and market statistics,

stock development, etc. Heat and power production Plant production efficiency including information on

technical specifications (ash content, humidity, etc.) Development of GCs and underlying calculations

o P&L and balance sheet for 2014o Controlling report 2014 and revised controlling report 2014o Trial balances from controlling reports until YTD 2/2015o Budget for 2015 and 2016 (several times revised)o EON contracts and selected other contracts (e.g. supplier)

We have researched information on following topics:o Biomass market (particularly on potential alternative

suppliers)o Power and GC marketo Heat transport and delivery companieso Termica and positions of stakeholders

Documents and information

Our primary contact persons in course of our analysis:o Mr. Vasile Ilie, managing director of BS in Suceavao Mrs. Monica Rusu, financing manager of BS in Bucharesto Mrs. Diona Oica, commercial manager of BSo Mr. Cristian Panaite, external purchasing manager of BSo Mr. Lungu, mayor of the city of Suceavao Mr. Matei, insolvency administrator Termica of MGA

Insolvency SPRL We attended the following meetings with representatives of BS:

o Meeting with Mrs. Rusu on 4th March 2015 in Bucharesto Meeting with Mr. Ilie on 9th 12th March 2015 in Suceavao Interview with Mr. Panaite and Mrs. Oica on 11th March

2015 in Suceavao Meeting with Mr. Ilie and Mrs. Rusu on 25th March 2015 in

Bucharest We attended the following meetings with representatives of other

relevant parties involved:o Meeting with Mr. Lungu on 10th March 2015 in Suceavao Meeting with Mr. Matei on 10th March 2015 in Suceava

Contacts and meetings held

55 AGENDA

Executive summary

Procurement

Green certificates

Termica & Thermical supply

Current trading and forecast

Business plan and sensitivity analysis Assumptions Business Plan Scenarios

Controlling & Reporting standards

66

In our project we have been asked to concentrate on the operational basis of BS (1/2)

1) Excluded due to confidentiality reasons

EXECUTIVE SUMMARY

Raw material / biomass

Short overview of market (volume, prices, supply security) for biomass in the region of Suceava Alternative sources outside the direct catchment area - influence of transportation costs on the competitive environment Procurement within BS; critical review of internal organization and process quality (in the past/currently/improvement option) Contracts with suppliers; specifically longer term if any (commercial review1); not legal) Plausibility check of procurement consumption of biomass (i.e. contracts, supply, stock consumption, energy balance, etc.) Critical evaluation, plus recommendation (if any)

Key areas Elements

Scope of work (1/2)

Green-Certificates

(GC)

Verification of GC quota realized and in process of realization in 2015 The IBR is based upon the assumption that the maximum of 3 GC per MWh electricity sold is obtained by BS. It is however not

fully clear if the conditions have been (and will be) met and accepted by the relevant authorities Revenue generation from GC timeline of secured vs. open quotas Review of opportunities to take-off excess electricity production/GC in addition to the EON contract Internal management and administration of GC at BS Critical evaluation of status and recommendation for improvement (if any) (ORC was excluded as basic data was not available for rechecking)

Reporting / Controlling

(BS to banks)

Status of reporting structure and process Recheck of data plausibility of past reports with BS internally generated data Recommendation for optimization of template and reporting process (if any)

77

In our project we have been asked to concentrate on the operational basis of BS (2/2)

EXECUTIVE SUMMARY

Thermic supply / Termica S.A

Parameters of the business relation of BS/Termica S.A. (from beginning 2015); status insolvency process, position of main creditors, position of the insolvency administrator

Special item 110 KV Grid-Connection (Other aspects that might be relevant in connection with the insolvency process) External benchmarking of Termica S.A. to assess efficiency and potential (i.e. high level analysis as outside-in-view of Termica,

via a comparison of cost/pricing mechanisms, organizational structures, etc. with similar Romanian institutions ) Interpretations of results, alternative options and recommendations Remark: while we have researched and summarized the findings accordingly, we want to clearly state that we will not accept

any responsibility or liability in relation to our interpretation of the status and prospect of the legal processes or any matter related thereto. We understand that various experienced legal advisors have been retained; any action or decision should only be taken after having obtained their opinion

Key areas Elements

Scope of work (2/2)

Business Plan

The results of our work on the before mentioned items, may lead to changes in some of the fundamentals of the business plan as presented in the IBR

In this case, we will point out the most critical deviations and re-assess the base scenario using the logic and key data as shown in the PWC IBR

Remark: after having done the in-depth analysis of the operational model, we have designed a bottom-up financial model, based upon

technical parameters rather than budgeted numbers (therefore fundamentally different from the model used in the IBR) GCI has evaluated three scenarios that differ in the way the plant is run; for each of these scenarios GCI has analyzed the

most probable relation of input, performance and regulatory effects (GCs) All of these scenarios are based on the continuity of the main elements of the BS business model and setup

88

Overall satisfactory progress and good, open cooperation in the project

EXECUTIVE SUMMARY

Overall cooperation with BS was constructive and efficient GCI has received data in time and had the opportunity to check for

plausibility Together with its local Romanian team information from BS and other

sources in Romanian language has been evaluated and translated by GCI

Some relevant information such as controlling report 2014 and budget 2015 and 2016 had to be corrected by BS as we identified inconsistencies and some minor errors in calculation

In the context of a very tight time frame, GCI had to focus on the key parameters that determine the earning power and ability for BS to redeem the credit facilities

In addition to company information, GCI did perform an independent research on some aspects, such as technical parameters of biomass, pricing schemes of municipal heating, etc.

During the visits on site in Suceava, GCI was granted access and received an acceptable insight into the operational processes

However GCI has not performed any longer-term verification; therefore recommendations are based upon the assumption of business continuity

Summary

General observations & limitations

With reference to the insolvency process GCI has taken information from various resources; this process is moving continuously and influenced by judicial and political decisions

GCI assumed that the information, specifically the technical data received was complete, not misleading and accurate

Wherever needed we have been given the opportunity to ask additional questions and received adequate answers

IC-P was engaged in parallel to GCI to assess some technical aspects of the plant; to a limited degree GCI incorporated findings and / or remarks from the experts of IC-P

GCI did not have access to the findings of IC-P (to be released after this report)

We did not consult with the shareholders; however ADREM, particularly Mrs. Rusu acting as controller of BS, is involved deeper in the management of BS

99

History

Originally via one of its Romanian units, Holzwerke Schweighofer(HS) was contracted by BS for 3 years to deliver biomass

The original conditions, a fixed price of 91 EUR per atro ton biomass and 14 days payment period were considered unfavorable; this contract was cancelled end of 2014

However we were informed that the shareholder agreement states that HS is obliged to be the first key supplier

25

Recheck obligation (legal opinion) as per shareholder agreement

Provide opportunity to HS to place bids on regular basis

Protect confidentiality of alternative suppliers via a neutral platform

Further professionalization of purchasing activities to realize potential and reduce risks

EXECUTIVE SUMMARY

Prices / costs

The contract with HS was based upon a fee of 91 EUR / atro ton with a fixed price increase of EUR 1 per year

Through widening of sourcing contacts the current price reduced to 77 EUR / atro ton (February 2015)

The gain of approximately 14 EUR / atro ton (on basis of 130 k atro ton as per management plan) would result in savings of 1.8 mEUR in 2015

28

24ff

Key issue Summary Page

Need to integrate procurement as decisive core function within BS organization (management rank)

Continue relationship and use Mr. Panaite to establish know -how at BS

Conceptualize and step-by-step build up internal capacity

Increase efforts to further reduce costs of biomass via regular sourcing and via procurement schedule

Establish costs per atro ton as regular KPI

Recommendations

Procurement (1/2)

Organisation

Purchasing activities today are handled by an external party, SC ForstPan SRL, owned and managed by Mr. Panaite, who acts as BS representative on basis of a fixed fee contract (4 kEUR pm.)

Mr. Panaite displays know-how and has credible access to alternative suppliers. We are not aware of a direct connection between SC ForstPlan SRL and Adrem / Mr. Bodea

Dependency and risk via single-person sourcing

1010

Sourcing strategy /

alternatives

Biomass costs and quality are THE operational factors with a decisive influence on results

Todays limited liquidity leads to a minimum stock policy (along with heat driven plant management) at BS

The low stock of biomass increases the risks of stock-out Optimization of mixing in order to run the production efficient is

rather difficult / impossible The suppliers today are mostly smaller / medium firms in vicinity There is a need to re-establish BS as reliable partner for

suppliers (payments to suppliers are currently done by cheque) Opportunity to develop network also outside of the catchment area

of BS; GCI identified additionally numerous alternative suppliers Interesting opportunities for increased value addition for BS if

sourcing can get closer to forest owners Need to develop procurement as key value driver of BS

24ff

Define procurement as key value driver at BS

Implement procurement policy as part of short- and medium-term management plan

Determine minimum stock-policy (on assumption that WC requirement can be managed)

Develop key suppliers and define supplier categories (include other categories than price)

Mr. Panaite to recheck GCI research results of alternative suppliers

Start piloting alternative sourcing models (once operations run stable)

Medium term additional opportunities by implementing adequate sourcing strategies

EXECUTIVE SUMMARY

Key issue Summary PageRecommendations

Procurement (2/2)

Sourcing process

Sourcing is currently based upon framework contracts (> 3 months duration) with suppliers

Deliveries arrive at BS at irregular intervals; there is no accurate delivery schedule in place

Sometimes interventions are required to receive deliveries Process at BS clearly structured, some data noted manually

26ff

Define contracts in more detail Schedule deliveries / advance notice Quality check manual notes at

regular intervals

1111

EON ensures the purchase of most power and green certificates produced by BS

EXECUTIVE SUMMARY

Organization

Responsible for energy and GC trading is the commercial director of BS, currently Mrs. Oica, assisted by one employee

They handle the daily sales process, the official reporting and communication with authorities (Transelectrica, ANRE, etc.)

Processes done adequately, in line with regulatory requirements

38f


Recheck dependency and back-up in order to meet the reporting requirements

Maintain process quality

Recommendations

Energy sales & Green certificates (1/3)

EON energy sales contract

BS has concluded an energy selling contract with EON (dated 4. June 2014) for the sale of total 68,165 MWh to 368,091 MWh for the period June 2014 Dec 2015 at a price of 31.5 EUR per MWh(incl. Transelectrica costs of 1.7 EUR per MWh)

The contract will expire in December 2015. We are not aware of renewed initiatives by BS to extend the contract

However based on the good relationship to EON, management is confident to be able to extend or renew on same terms

36ff

Start re-negotiation process with EON in a timely manner to secure energy and GC sales in the future

In parallel check alternative opportunities

Day ahead power market

BS sells part of its electrical power on the day ahead market, at fluctuating prices

We understand that most of the electrical power produced is sold through the existing EON contract. However there might be some additional potential by selling on the day-ahead market (e.g. in the second half of 2014 the average monthly price on the DAM was approx. 160 LEI per MWh; the EON contract pays 140 LEI per MWh)

38f Continue to optimize ratio between

power sold to EON and on the day ahead market

1212

Sound basis to achieve and sell close to 3 GCs also medium term

EXECUTIVE SUMMARY



base GCs

As per the subvention scheme for green energy, BS is eligible to 2 GCs (so called base GC) per MWh delivered to the network

In FY 2014 this ratio has been transferred from 69,570 MWh to a total number of 139,140 GCs for BS

GCs have to be claimed from authorities (Transelectrica) in a strict process (comply with the official reporting standards)

38ff Continue accurate reporting to Transelectrica, the issuing authority

high efficiency 3rd GC

One additional GC (high eff. GC) can be granted for cogeneration plants that are high efficient as defined by the Regulatory Authority

BS has received 0.98 high efficiency GC per MWh in 2014 In order to fully benefit from high efficiency certificates, also with

higher power output, excess heat has to be used For this purpose BS can use the existing dryer (internal use)1); this

will also result in a more efficient plant performance Higher power output plus the additional use of the dryer will lead

to the need of an increase of storage space In GCI business plan scenarios 2015 to 2028, BS nearly reaches

the maximum quota in most of the relevant years (in the Balanced scenario it can achieve an average high efficiency quota of 0.96 GC per MWh, in the Power driven scenario of 0.90 GC per MWh)

36ff

Continue activities to reach 3rd GC Check assumptions and technical

parameters of dryer (some caution by BS management in initial talks)

Depending on technical assessment, evaluate an upgrade of the dryer

Prepare conceptually to increase storage capacity to 35,000 atro tons (Balanced Scenario) or 45,000 atrotons (Power Scenario)

1) Alternatively also external uses such as drying of fruits, corn, etc. for third parties could result in a high efficiency

1313

Sound basis to achieve and sell close to 3 GCs also medium term

EXECUTIVE SUMMARY



ORC

IBR suggested the opportunity to invest in a rankine turbine / ORC This technology allows the recovery of excess heat to generate

additional power; it is doubtful from an energy usage perfective but might be economically valuable if it qualifies for a 3rd GC

No further details on the suggested technical specifications and / or investment details have been provided

As per our research there is no ORC working in Romania today Any such initiative would require the prior consent from regulatory

authorities that an ORC would qualify for a 3rd, high efficiency GC

RBI decided to exclude the ORC option from the scope of works, as results would be too speculative

EON GC sales contract

BS has concluded a long-term contract with EON (2014 - 2023) for the sale of 115,000 GC in 2014 and 300,000 GC p.a. thereafter at the minimal legal price set by the

regulator The price realized per GC is approximately 29 EUR; therefore the

value per MWh is determined by the ability to sell the GCs BS expects to exceed the threshold of 300,000 GC in 2015 and

2016 (according to mgmt. budgets 316,748 and 390,000 respectively)

According to management a sale of excess GCs to EON could be realized, however we are not aware of preliminary negotiations

There are currently no initiatives by management to evaluate alternative bilateral GC selling alternatives

36ff

We strongly recommend to evaluate the extension of the EON contract to cover excess GCs (to be seen in conjunction with energy contract)

As per management plans the offtake of 300,000 GCs will be surpassed in 2015 need for timely preparation with EON

In parallel check alternatives

1414

Termicas debts increased in the last two years; debts to BS amounting currently 4.3 mEUR

EXECUTIVE SUMMARY


Termica (1/3)

Current Status Termica

Termica is owned by the municipality of Suceava and responsible for the distribution and transport of heat to the City of Suceava

Termica is under receivership since 2013. Reorganization initiatives from the city of Suceava and also from one major creditor (Unicom) have failed. In March 2015 based on a decision of the court in Iasi a liquidation process can now be initiated by the creditors

The heat distribution and transport concession between the city of Suceava and Termica was initially cancelled, however to secure the supply of the city, Termica maintained its activities until a new contract partner is found

It is expected that the tender process will start in April 2015 (2-3 month of negotiations)

44ff

(information on status and most probable development)

Prepare for various scenarios of the concession award

Liquidation process Termica

The liquidation process is based on a decision of the court in Iasi in relation to legal proceeding submitted by Acet (one major creditor)1)

In the liquidation scenario all assets of Termica will be sold through a tender procedure or direct negotiation

BS has priority status in that procedure and will be satisfied from liquidation proceeds right after Termicas employees and before fiscal authorities

45

Obtain legal advise on how to proceed in the ongoing bankruptcy process and how to safeguard BS interests and rights (particularly secure access to power network 110kV transformer station and pumping station and pipes)

1) ACET SA Suceava is a regional water facility operator providing drinking water, sanitation and sewage treatment. The majority is owned by the city of Suceava (63.8%), while the rest is owned by other regional municipalities

1515

Termicas debts increased in the last two years. Debts to BS amounting currently 4.3 mEUR

EXECUTIVE SUMMARY


Termica (2/3)

Debts to BS

At beginning of March 2015 the open invoices to Termicaamounted to approximately 4.3 mEUR

Through an initiative of the municipality of Suceava, BS received payments of approximately 2.6 mEUR in the period Oct 2014 to Feb 2015 from Termica (the municipality passed a resolution allowing the city to advance subsidy payments determined to buy biomass for heating to Termica)

Due to the fact that Termica will most probably be liquidated, it is unclear if all open amounts will be covered by the liquidation proceeds (BS obtains a preferred status in the bankruptcy process)

49 Obtain legal advise on how to

proceed in the ongoing bankruptcy process and how to safeguard BS interests and rights

Other relevant trials

&bankruptcy

Beside the Acet case (decision made by court in Iasi) there are two additional legal proceedings against Termica ongoing. Both cases are sued by BS for filing the bankruptcy of Termica

Decisions are expected in April. According to Mr. Ciurtin it is assumed that the court in Suceava will follow the decision in Iasi

45 Obtain legal advise on how to proceed in the ongoing trials

Unicom

Unicom is the largest creditor of Termica with over 5 mEUR of open receivables

The reorganization plan proposed by Unicom has been valid until March 2015, when it was cancelled by court decision in Iasi (Acetcase)

44ff Evaluate if there are unfavourable

decisions of Termica made under the cancelled reorganization plan that can be now revoked / attacked

1616

Bankruptcy of Termica is very likely, liquidation process could start end of Q2/2015

EXECUTIVE SUMMARY


Termica (3/3)

Pricing Termica

Termica receives 57 EUR (256 Lei) net per Gcal delivered to the end-consumer, thereof 41% as subvention from the municipality of Suceava. These revenues were below costs for heat, losses and own internal costs, as the debts of Termica increased in the last 2 years

We understand that a new tender of the heat distribution and transportation concession will be issued by the city of Suceava in April 2015. From our understanding a new Termica could operate on a more efficient and cost optimized way, thus leading to a improved profitability

48

If applicable, re-negotiation of the pricing mechanism between BS and Termica new to reflect adequately the thermic service and risks taken over by BS

Initiate joint sales efforts (BS, Termica new and city of Suceava) to acquire and connect additional (large) customers to the heating network

Pricing BS to Termica

The heat price invoiced by BS per Gcal to Termica with 116 LEI is currently one of the lowest prices in Romania. The price is fixed until Q4 2019 and should also remain if a new Termica will be set up as the former contract was erected with the city

48 Re-negotiate a more flexible price

model (e.g. inflation adjusted, etc.) with the City of Suceava and / or Termica new

Benchmarking

Currently over 250 people are employed at Termica which is far more than deemed necessary. Market insiders state that a about 120 people should be able to operate the transport and distribution network

A benchmarking analysis showed that the share of total expenses to employees of Termica Suceava are the highest in the peer. Almost all Termica companies are performing negatively

50 Not considered relevant due to insolvency and re-tendering process

1717

The business plan analysis indicates the necessity offinancial restructuring measures to redeem bank debts (1/2)

EXECUTIVE SUMMARY

Business planning results

Business plan scenarios have been developed based on an operational and technical bottom-up approach

Input parameters and other underlying assumptions were gathered from BS management and own research (e.g. biomass supplier, GC and energy market, heat demand)

3 main business concepts have been modelled to reflect different strategies to operate the plant:o Heat driven scenario: current operational mode, securing heat

demand, business model with the lowest CF generation (minimum scenario)

o Power driven scenario1): focused on energy production, rather than heat, highest amount of available cash, but significantly increased operational risk

o Balanced scenario: operational optimal and design oriented production mode, with lower operational risk but longer repayment period

The scenarios face a lack of financial funds (in minimum bridge financing for working capital is required) to fully recover bank debts until provided due dates (cash flow shortage varies in time and value depending on the scenario)

Nevertheless, from our perspective and from a technical / theoretical point of view the Balanced scenario would be the preferred and most realistically business model (in line with the original plant specifics)

55ff


Discuss the results of the business plan scenarios within the financing institutions

Evaluate potential options with shareholders

Recheck technical parameters in more detail (specifically potential limitations of dryer and/or cutter); input IC-P required

Run various scenarios2), potentially with help of probability patters (i.e. Monte-Carlo-Simulations) to get even better feeling for most reliable scenario

Integrate concurrent develop of insolvency process and concession-tender in evaluations

Recommendations

Business plan (1/2)

1) In the Power driven scenario the accumulated CFADS surpasses bank debt, however this scenario requires also significant wc financing and is not recommended due to high operational risks

2) Factors such as costs for biomass, price increase, etc.

1818

The business plan analysis indicates the necessity offinancial restructuring measures to redeem bank debts (2/2)

EXECUTIVE SUMMARY

Business plan sensitivities

In all scenarios the most critical single factor determined by BS management is the cost (and quality) of biomass (assumed to be 77 EUR per atro ton, increased annually at a rate of 1.5% which is lower than the inflation rate of 2.7% pa. in Romania)

We understand from management that the target price defined for biomass is 72 EUR per atro ton (to be realized in 2015)

A further purchase price decrease by -5% (approx. 73 EUR) would have an effect of about +10.1 mEUR on EBITDA and +8.6 mEUR on CFADS (2015 to 2028) in the Balanced scenario. Based on the latest information received for March 2015 the average biomass price amount to 75.7 EUR per atro ton

The most relevant revenue factor is GC sales. Based on our sensitivity analysis a price increase for GCs of +5% would have a similar effect as the decrease in the cost of biomass

However, a price increase for GCs is doubtful (there is a risk of negative impacts due to over supply of GCs)

55ff


Continue improving sourcing / procurement capabilities at BS to further raise the significant cash flow potentials

Integrate probability of biomass cost range into further simulations (Monte-Carlo simulation)

Evaluate incentive scheme at BS

Recommendations

Business plan (2/2)

Business plan limitations

The business plan is among others based on several technical assumptions including ash content, humidity of biomass, lower heating value, usage of the dryer, etc.

55ff Continue improving sourcing /

procurement capabilities at BS to further raise the significant potentials and increase cash flows

1919

Improvement potential in the controlling and reporting process currently handled very pragmatically

EXECUTIVE SUMMARY

Financial controlling

Controlling function is currently with Mrs. Rusu who is situated in Bucharest at Adrem headquarters. She is employed by BS but also by Adrem (related company owned by Mr. Bodea)

Her responsibilities are:o preparation of the monthly and annual accounts o liquidity planning and cash managemento other financial aspectso reporting to banks

No controlling function is installed directly at the plant in Suceava. There is only one accountant responsible for incoming and outgoing invoices. Controlling is only done in Bucharest

From our discussions with management and Mrs. Rusu we feel that due to the double role of Mrs. Rusu controlling and reporting is done in a very pragmatic way

85ff


Consider the establishment of a specific (separated from Adrem) controlling & reporting function and manager at the plant in Suceava

Recommendations

Controlling, Budgeting and Reporting (1/2)

2020

Current reporting formats can be significantly improved in terms of transparency and consistency

EXECUTIVE SUMMARY


Controlling, Budgeting and Reporting (2/2)

Reporting and budgeting

Reporting (controlling reports for actual figures, budget and forecast) was established at BS upon assistance of the financing partners. The templates used for reporting purposes were originally provided by HS and made available to BS

Controlling reports are prepared on a monthly basis based on trial balances. Reports do not include any Actual vs. Plan variances

Forecasts and budgets are primarily prepared in Bucharest by Mrs. Rusu. We did not got a full picture how much the local Suceava management is involved in that process, but feel that this is at a minimum level (IBR figures prepared by PWC have not been discussed with BS management)

Templates used for controlling, forecasting and budgeting are all in the same format in excel

In our opinion and based on our analysis performed in the last weeks the reports are not fully consistent in the way calculations are treated. Partly there are fixed values inserted in the excel sheets followed by linked calculations. We identified an error of 0.4 mEUR in the controlling report for FY 2014 (actual figures)

There is no integrated forecast or budget model in place showing profit and loss statement, balance sheet and cash flow statement

We specifically lacked a transparent (short-term) liquidity plan In total the actual controlling and reporting process and the reports

prepared show significant improvement potential

85ff

Consider the implementation of an integrated planning tool including profit and loss statement, balance sheet and cash flow calculation to get consistent and transparent figures

Re-design the reporting format to increase readability

Include Actual vs. Plan variances analysis (monthly and aggregated) in a new reporting format

Establishment of a short-term liquidity planning tool to improve liquidity management

Extend the report to include operational KPIs

Extend the report to include management comments

2121

There are some uncertainties about the open paymentsto plant construction suppliers (covered by IC-P)

EXECUTIVE SUMMARY


Other observations

Lease contract BS with HS

We understand that there is a lease contract (dated 30. May 2014) between BS (lessor) and HSR (lessee) in place. The lease agreement refers to the usage of 17,000 sqm of industrial land on the land of BS and gives the lessee the right to use the land for storage of biomass deliveries to the lessor

Lease price is agreed to be zero. The lessor can terminate the contract before 31. December 2015 with one month notice to the end of the month under the condition that the stock stored has been taken-over and paid by lessor

According to management the space for HS was reduced to 5,700 sqm. but is still under lease. To date there is no biomass stored by HS on BS land

For your information

Plant construction

supplier and cost overrun

We understand from management that there are currently discussions regarding several payments for the finalization of the plant and cost overuns (2.0 mEUR) with construction suppliers ongoing

As per the agreement on scope of works with RBI that this issue is covered by IC-P and GCI did not perform a in-depth analysis

Based on the information by management we included open payments to suppliers of 1.6 mEUR in the business plan

Potential cost overruns are not included in our calculations as this is an open issue

64

Perform in-depth analysis of the questioned amounts / contractual specifications on guarantees and warranties to gain confidence on potential further supplier payments1)

1) We understand that this is within the scope of IC-P

2222 AGENDA

Executive summary

Procurement

Green certificates





2323

Overview available wood resources and annually wood cutting volumeWood cutting - annually (in Tm) Total

Forest in ha Softwood Beech Oak

various hardwood

various softwood in Tm

Romania 7.521 6.175 1.747 1.946 1.315 18.705Bacau 220.000 302 393 43 88 58 883Botosani 56.000 5 15 25 44 29 119Iasi 97.000 8 40 36 99 84 267Neamt 259.000 700 385 20 61 34 1.201Suceava 435.000 2.114 334 8 57 18 2.531Vaslui 65.000 1 22 21 72 52 168Nord-East Romania 1.132.000 3.129 1.189 153 421 275 5.167

28%

Wood cutting capacity in the North-East regionshould secure adequate supply

Source: Management information

Wood market Romania and North-East region (SUPPLY)

PROCUREMENT

The annual wood cutting volume of 5,167,000m (3.3 million atro tons at 650 kg/m) in the

North-East region leads to an annual capacity of approximately 1.2 million atro tons

biomass

Comments The total wood cutting volume in Romania

amounts to total 18,705,000 m annually and 5,167,000 m in the North-East region

Wood cutting volume in the North-East (Carpathian mountains) equals 28% from the total cutting volume in Romania

The sourcing capacity in comparison to other regions and access from Suceava (from a geographical point of view) is quite good

Based on the average density of dry wood (650 kg/m) the annual cutting volume in the region equals 3,358 million atro tons

Wood usage in industry is: o Timber: 46-54%o Wood waste: 46-54%

About 70% of the wood waste is used for energy production (biomass)

Thus out of 3,358 million atro tons of wood approximately 1.2 million atro tons of biomass (36% from 3,358 million atro tons) can be derived

2424

Comments Relevant sourcing competitors are mainly chipboard plants

and cogeneration plants The majority of cogeneration plants are backward integrated;

there are only a few non-integrated players like BS Backward integrated plants (mainly wood processing industry

with integrated cogeneration plants like Egger and/or with own forests like Schweighofer) are in a favorable position to source biomass

The majority of biomass raw material is therefore not available to the trading market

Chipboard plants are more flexible in their raw material sourcing

Non-integrated power producers which need to / want to use the Romanian GC subsidy regulation are limited in their sourcing to certified Romanian biomass origin

Alternative sourcing from the Ukraine is not possible for non-integrated biomass power plants

Sourcing by railway would be an option (higher volumes 50 atro tons by wagon); no direct railway connection available but load station in reasonable distance to the plant

As per Mr. Panaite BS is in contact with one supplier from Constanta for a transfer of 40 wagons at a price of 45-50 EUR per atro ton (transport not included)

Highly competitive sourcing environment, with Schweighofer and Egger as important players

Source: Management information; GCI analysis

Relevant competitors and market volume (DEMAND)

PROCUREMENT

Overview competitors

Company County FacilitiesConsump.

pa. (atro to)North-East regionBionergy Suceava SV Cogeneration plant 30 MW 160.000Egger Romania SV Chipboard plant 360.000Kastamonu Romania MS Chipboard plant 240.000Egger Romania SV Cogeneration plant 15 MW 130.000HSR Radauti SV Cogeneration plant 15 MW 130.000General Energetic NT Cogeneration plant 6,7 MW 50.000Forestar NT Cogeneration plant 1,2 MW 10.000

1.080.000Central regionKronospan Sebes AB Chipboard plant 600.000HSR Sebes AB Cogeneration plant 15 MW 130.000HSR Reci CV Cogeneration plant 15 MW 130.000SCR Dej CJ Cogeneration plant 10 MW 65.000Sortilemn Gherla CJ Cogeneration plant 1,2 MW 10.000

935.000

Total North-East and South-East region 2.015.000Comparable non integrated plants to BS: S.C. General Energetic S.A. situated in Pangarati, Neamt, about 120 km south west of

Suceava; production 43 MWh SCR Dej (company A6 Impex S.A.) located in Dej, Cluj county, about 250 km west of Suceava;

production 67 MWh; company controlled by Stefan Vuza, well known business man from Cluj, owner of a group of companies named SCR, Romanian Commercial Services

2525

8,682

13,29615,604

6,032 4,3798,132 8,437 7,047 7,517 5,534

11,595 12,568 12,177 11,527 10,194

91 91 92

8579

8480 79 80

90 92

84 85

77 76

02,0004,0006,0008,000

10,00012,00014,00016,00018,000

Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-1540

50

60

70

80

90

100

Sourcing shifted frequently in 2014; since end 2015 managed externally with significant price decrease

Source: Management information; GCI research and analysis

Biomass consumption and prices paid (1/2014 2/2015)

PROCUREMENT

Price(EUR per atro to)

Volume (atro to)

HolzwerkeSchweighofer raised

prices again

Holzwerke Schweighoferstopped delivering biomass

due to open amounts of over 1.0 mEUR from BS

After negotiations Schweighofer restarted to sell biomass ; price of 80 EUR per atro ton but on

advanced payment basis;In the meanwhile Adrem / Mr. Bodea started to

source biomass for BS via Biomass 4 Power but we understand that B4P was not able to cover the

relevant sourcing needs

BS procurement via SC ForstPan/ Mr. Panaite; change of biomass sourcing from

HS to other (smaller) market players resulted in a decrease in prices to EUR

75-77 in March 2015

Biomass was sourced via HolzwerkeSchweighofer, as the preferred supplier (also stated in shareholder agreement)

Consumption FY 2014 110,000 atro to(75% purchased from Schweighofer)

Consumption YTD 1-2/2015 23,720 atro to(17% purchased from Schweighofer)

2626

Based on our research we identified several small tomid-sized biomass suppliers within a reach of 300 km from Suceava

* excl. VATSource: Management information; GCI research and analysis

Potential alternative suppliers

PROCUREMENT

300 km radius City ofSuceava

Research results on alternative biomass suppliers (GCI)Name of Business Atro to Qualities EUR*supplier activity per month / atro to

1 Supplier wood processing1.000 wood waste 90

2 Supplier furniture manufact.

1.000 n/a

3 Supplier logging 700 wood waste 554 Supplier logging 500 wood waste, logs, firewood

66

5 Supplier logging 500 chips, dry wood, waste, firewood

53

6 Supplierwood

processing500 whitewood and

beech waste, bark

55 (m)

7 Supplier logging 400 firewood 408 Supplier furniture

manufact.300 wood waste 37

Price list by biomass quality and key region (BS)

EUR / atro to (DAP) SV1 SV2 NT BC BT IS OtherWood waste 56 70 54 68 50 65 43Chips with bark 70 74 58 72 58 70 50Sawdust 72 74 61 77 60 70 54Firewood 76 80 70 83 64 76 56Residues rocessing 56 70 54 72 52 65 43Chips exploitation residues 68 74 58 77 54 70 54Bark 78 85 62 87 62 80 58

Comments Research shows alternative biomass suppliers and allowed plausibility

check of data received by BS (volumes and prices bandwidth) List was forwarded to BS for further evaluation and follow-up In addition sourcing from outside region (i.e. Constanta) and shipment

via rail might be a further option Alternative sourcing opportunities are available with variations in

quality, pricing and availability; professional purchasing management necessary to realize potential

2727

Definition of alternative supply strategy essential to source on a secure and competitive basis


Supply strategy

PROCUREMENT

A

B

C

Forest owners

Supplier Ownership Approach

Harvestingcompanies

Wood processingindustry

PRIVATE

PRIVATE

PRIVATE

STATE Participate in major auctions to identify timber buyers or secure standing wood for own cutting

Identify potential future partners (auctions) and form partnerships for own wood cutting

Secure existing partnerships and find sourcing alternatives

Individuals Companies

Individuals Companies

D Wholesalers PRIVATESecure existing partnerships (e.g. Schweighofer) and find other sourcing alternatives

Future concept to secure raw material in the right quality as early as possible; needs a clear defined sourcing strategy

Comments

Same concept as before but anchor point are service providers

Current focus however on a very pragmatic way; implementation of a strategic purchasing mgmt. necessary

Considering restart of business relations with Schweighofer to limit biomass sourcing risks

Renegotiation of pricing and sourcing parameters

Existing suppliers focus

Create additional value via direct sourcing

2828

External procurement handled professionally - single person risk and need for organizational integration


Overview purchasing management

PROCUREMENT

As per Mr. Fischer from IC-Project, Mr. Panaite is well connected in the wood industry and is also well known by relevant people in the industry

Mr. Panaite acts as a external advisor managing the total biomass purchasing procedure at BS:

identifying suppliers negotiation of contracts, prices defining volumes.

There are no other employees of BS assisting in the biomass purchasing process to date

Mr. Panaite is working in the name of BS; all contracts and agreements with suppliers are agreed between BS and the suppliers directly

From Mr. Ilie we understand that the establishment of a BS internal purchasing department is considered necessary to medium-term to

handle the biomass procurement fully professionally reduce dependency and risk build in-house relationships with the suppliers

Mr. Panaite presented a potential future purchasing department model (1 manager, 4 biomass buyers, 2 back office assistants, etc.)

GCI supports the plan to develop an in-house purchasing department

The implementation should be done on a step-by-step basis

Bioenergy Suceava

Wood / biomass suppliers

direct contractual biomass delivery relation

SC ForstPan(Mr. Panaite)

External intermediary representing the BS purchasing department

Comments Purchasing is currently done by Mr. Panaite / SC ForstPan SRL

(fully owned by Mr. Panaite) Consulting contract with fixed fee of 4,000,- EUR per month Mr. Panaite declined to receive fees from suppliers Mr. Panaite has several years of experience (>12 years) in the

forest, wood processing and biomass industry in Romania (among others Kronospan Romania)

2929

Pragmatic procurement process focused on securing biomass volumes significant optimization potential


Procurement sourcing and biomass invoicing process

PROCUREMENT

Procurement

Stock management

Production

Accounting(Suceava)

Controlling(Bucharest)

Supplier

Management delivery process Information stock levels Quality checks Daily reporting to procurement

Technical operation of plan Planning of future production level Weekly / monthly reporting to

procurement

Management of purchasing process based on info from production and stock mgmt.

Development of price lists, negotiation of supplier contracts, definition supply strategy

Start of invoicing process: preparation of a delivery list by supplier for the last week and sending it to the supplier every MO

Daily reporting of deliveries and stock levels

Sends invoices to BS based on the weekly delivery list send by BS the purchasing department

Check incoming invoices Proposal of payments to Mr. Ilie Re-check with controlling in Bucharest

Final check of invoices Approval of payments based on the

availability of funds

Truck deliveries based on agreed framework agreements

Current focus is to secure production and qualify BS as a

reliable buyer of biomass!

Comments Procurement currently

handled very pragmatic No transparent,

integrated and regular process in place

Purchasing currently heat driven to secure production

Timing of deliveries (FC delivery schedule), definition of qualities, etc. not scheduled

Supplier contracts are only framework agreements considering prices and volumes for a certain period (3-12 month)

No obligation for suppliers fulfill their contracts (only with intense pressure from BS side enforceable at the moment)

3030

The reception process is handled quite professionally;some data processed manually (source of errors?)

Biomass reception procedure

PROCUREMENT

Comments: The overall responsibility for the stock management is with Mr. Straton All truck deliveries has to pass the weighting platform when entering and

leaving the storage area. At the weight all relevant delivery data is checked, entered in to the computer system and also documented in a handwritten register (internal registration manual also for internal checks)

A truck can only enter the area, if compliance (official clearance for log wood necessary) and the quality of the load (inspected physically; 4 pictures to be taken from each load) is approved

Truck arrival in the warehouse

Compliance checking of

delivery documents

Visual inspection of

biomass quality

Approval for unload and reception

Delivery note

Not conform (rejection of

delivery)1 2 3 4 6

Weighing of the loaded truck

Calculation biomass volume

Unloading

a

c

b

BS triggers an order

Biomass sampling

Weighing of the unloaded truck

e

d

After weighting and unloading the truck a sample of the delivered biomass is taken, registered and analyzed over night (quality, water content, etc.)

Before leaving the stock area the truck gets weighted again; the driver receives an delivery note and the information is also processed in the inventory system

5

3131

Monthly biomass consumption by qualitiesIn atro tons Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15

Total biomass consumption 8,234 7,047 7,549 5,514 11,702 12,569 12,182 11,527 humidity in % 38.2% 33.7% 31.0% 36.8% 39.5% 42.3% 42.7% 45.4%Power produced (MWh) 8,538 7,034 8,024 4,895 10,836 12,211 12,008 10,803Specific power production 1.037 0.998 1.063 0.888 0.926 0.972 0.986 0.937Ideal specific power production 1.039 1.039 1.039 1.039 1.039 1.039 1.039 1.039

Total energy output MWh (sold) 7,508 6,119 7,148 4,384 9,971 11,398 11,178 10,064Price per MWh / EUR 33.0 34.6 32.4 33.2 36.7 36.7 35.3 34.4Total energy sales TEUR 248 212 232 145 366 419 394 347

Total heat MWh (sold) 7,144 4,201 5,372 8,946 27,776 32,248 33,183 30,890Price per MWh / EUR 22.2 22.2 22.2 22.2 22.2 22.2 22.2 22.2Total heating sales TEUR 158 93 119 198 616 715 735 685

GC granted 13,808 14,956 18,384 14,226 8,691 19,857 22,695 22,356GC sold 14,000 15,000 15,000 15,000 17,000 31,000 28,000 28,000Price per GC / EUR 29.8 29.6 29.6 29.6 29.6 29.6 29.6 29.6Total GC sales TEUR 417 444 444 444 503 917 828 828

Total sales in TEUR 823 748 794 787 1,484 2,050 1,958 1,859

Actual biomass consumption checked efficient but not optimal


PROCUREMENT

Comments The specific power production is an

efficiency indicator Specific power production is defined as

the power produced using one atro ton of biomass, measured in MWh / atro ton

The indicator is influenced by the quality of the biomass, operation of the boilers and load factor of the boilers

According to existing data we had a biomass with:o LHV of 4.85 MWh / atro ton, o 30% water content, o 5% ash content ando boiler load of 29 MW biomass

Calculating the specific power production using this parameters we have an optimal specific power production of 1.039 MWh / atro tons (4 fully loaded boilers)

If the specific consumption in November 2014 would have been equal to the optimal level, this would have led to savings of 1,275 atro tons of biomass, representing about 117 kEUR

* Optimal considering given biomass

3232

2,0095,085 4,021 3,372

6194,271

5,991 5,2712,741

Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15

a

t

r

o

t

o

Comments Stocks over the last 9 month are low due to liquidity

constraints and difficulties with a major supplier The reduced amount of biomass stock in October,

caused by Schweighofers biomass delivery stop forced a plant stop

This event led to an increase of the biomass consumption per MWh electrical energy (from 0.962)to 1.12 atro to per MWh) and subsequently to a decrease of the profit per produced MWh power

In February biomass stock decreased and we understand that the deliveries were of poor quality (increased level of water content)

The lack of stock hindered the mixing of biomass in order to reduce the water content which led to an increase of the specific consumption (from 0.96 to 1.07 atro to per MWh)

Stock shall be increased to at least 5,000 atro tons in order to have the possibility to optimize the mix of biomass feed to the boilers and thereby to keep biomass consumption as low as possible

Liquidity constraints resulted in low stock levels with a trough in October 2014

1) Specific consumption = amount of atro tons in order to produce 1 MWh power2) 0,96 atro to/MWh optimal level of biomass consumption considering 30% water content, 4,85 MWh/atro to and 5% ash contentSource: Management information; GCI analysis

Historical development of biomass stocks (6/2014 2/2015)

PROCUREMENT

01,0002,0003,0004,0005,0006,000

Daily stocks January February 2015

Monthly stock levels June 2014 - February 2015

stock level 4,100 atro to stock days 5-10

Stock capacity 23,000 atro tons

3333

Biomass stock policy has significant impact on operation of the plant, both technically and financially


Stock management & policy

PROCUREMENT

Lack of working capital financing forces management to operate on a minimal stock level (currently 5-6 stock days)

The stock levels between July 2014 and February 2015 were between 5 30 days

Increase minimal stock level to 10-15 days which would mean:

7,000 to 10,500 atro tons biomass equivalent of about 0.5

0.8 mEUR

Increase minimal stock level to 60 days which would mean:

42,000 atro tons biomass equivalent 3.2 mEUR

Actual Improved Optimal

Negative Risk of stock out Limited mixing possibility leading to

suboptimal plant operation No opportunity to use price fluctuations

and seasonality

Positive Low working capital

Positive Reduction of stock-out risk Optimal mixing of biomass possible

Negative Limited possibility to use price

fluctuations and seasonality Optimal plant operation from the point

of view of the biomass available

Negative Limited storage space by the premises

of BS Higher working capital need during the

summer months

Positive Optimal sourcing price Excess energy usage for drying the

biomass for future use

3434

Readjusting the buying strategy could lead to savings of 4% (and up to 15%) annually


Purchasing and stock optimization

PROCUREMENT

Current purchasing

16,400

11,600

11,600

7,100

6,800

6,800

7,100

7,100

11,600

12,080

15,120

17,000

Dec.

Nov.

Oct.Sep.Aug.Jul.

Jun.MayApr.Mar.

Feb.Jan.

8,000

5,000

5,000

7,000

7,000

7,000

8,000

13,300

25,800

12,080

15,120

17,000

Optimized purchasing

Biomass in atro toPurchasing costs kEUR

130,30010,734

130,30011,163

130,3009,531

-4% -15%

120%

122%

100%

95%

95%

100%

100%

102%

107%

122%

122%

120%

120%

122%

100%

95%

95%

100%

100%

102%

107%

122%

122%

120%

95%

95%

95%

95%

95%

95%

95%

95%

95%

95%

95%

95%

1 2 3

Biomass purchases in atro toPrice index

Potential savings in %

Comments Basic data from BS 130 k atro tons scenario The analysis assumes:

price per atro ton of 77 EUR and storage limit of 23,000 atro tons at BS

1. Scenario 1: current status of purchasing (monthly purchases equals consumption)

2. Scenario 2: assuming strategic purchasing and stock build-up when prices are comparable low (stock level

3535 AGENDA

Executive summary

Procurement

Green certificates





3636

High efficiency cogeneration plants receive up to one additional GC per MWh electric power


GREEN CERTIFICATES

Green certificates subvention scheme According to the renewable energy subvention scheme, the

Government is offering subsidies to renewable energy producers under the form of Green Certificates

GCs are granted for a period of 15 years after the start of electrical energy production. For BS the period will end in 2029

For each MWh electric energy delivered to the National Power Grid the renewable energy producer receives 2 GCs (base GC)

One additional GC (high eff. GC) can be granted for cogeneration plants that are high efficient as defined by the Regulatory Authority

Base GCs are granted in the month after the electrical energy is produced (refer to the subsequent pages of this report), High eff. GCs are granted per semester, in three months after the end of the semester

In the case of power produced from biomass, only energy produced from wood coming from Romania is eligible for the subvention scheme with green certificates

High efficiency relevant parameters In order to receive in full one high efficiency GC per eligible MWh,

large cogeneration plants with electrical power of >25 MW (BS: 29.65 MW) have to meet the following parameters:o Quality Factor (FC) > 111.112o Combined efficiency of the cogeneration plant (gl) > 70%

In case the value of the combined efficiency is not met, only a fraction of the high efficiency green certificate will be awarded

The energy producer have to file to National Authority for Regle-mentation in Energy (ANRE) each half-year specific information related to energy production, own energy consumption, energy delivered to third parties and fuel consumption in order to get the qualification to receive the high efficiency green certificate. With this certification Energy producers request the high efficiency GCs from Transelectrica

For the period May to December 2014 BS delivered 57,028 MWhof power, 105,136 MWh of heat, internal heat usage was 18,975 MWh and the fuel consumption was 291,947 MWh. So the power efficiency in total was 21.7% and the heat efficiency 42.5% which was a combined efficiency of 64.2%. The quality factor was 115.7 and the awarded high efficiency GC amounted to 0.98 GC/MWh(BS was qualified for 55,429 MWh)

Based on our analysis/calculations the condition of the combined efficiency is almost fully met. In the Balanced scenario model (refer to the business plan section of the report) BS can achieve an average high efficiency quota of 0.96 GC / MWh, in the Power Driven scenario 0.90 GC / MWh

For the future years we consider an increase of power production compared to 2014 and the need for using heat in order to maximize awarded high efficiency green certificates

We consider that the usage of the dryer in the coming years is of critical importance for the profitability of BS

3737

High efficiency - the calculation of Quality Factor and the Combined Efficiency

Source: Romanian legislation, GCI analysis

Quality Factor The Quality Factor of the cogeneration plant is calculate using total fuel input (CTCC), power produced (EETC), heat delivered to third parties (ETC) and heat used internally (CSITIC) with the following algorithm: The power generation efficiency (e) and heat usage efficiency

(t) are calculated as follows:

The Quality Factor coefficients (X and Y) using the reference power and heat generation efficiencies that are 33% and 86%, respectively, for the BS case are calculated using following formulas:

GREEN CERTIFICATES

( ) and e t

ETC CSITICEETCCTCC CTCC

+= =

( ) ( ), .,

100 100 304,910,33 0,005 0,9790,005

100 100 116, 280,86

e ref pierd evit

t ref

e t

Xp

Y

FC X Y

= = =

+ +

= = =

= +

The combined efficiencyThe combined efficiency of the cogeneration plant is calculated using the following algorithm: The combined efficiency of the cogeneration plant is calculated as a

sum of the power generation efficiency and heat supply efficiency

In case the combined efficiency of the cogeneration plant is less than 70% than not all the energy is qualified as high efficiency cogeneration (EEEC). The minimal quality factor initially equal to 111.1 is increased in 0.5% steps until the combined efficiency exceeds 70%. When this happens the resulting heat usage efficiency (t,cogE) is used to calculate the Cech for calculating the qualified power production:

( ) 70%gl e t ETC CSITICEETCCTCC CTCC +

= + = + >

( )min, ,

,

until 70%

and ( )

e

t cogE e t cogE

eech ech

t cogE

FC XY

C EEEC ETC CSITIC C

= + >

= = +

3838

For obtaining the basic GCs, BS has to report to Transelectrica on a monthly basis

GREEN CERTIFICATES

Monthly reporting for basic GC awarding process

Previuos month Ongoing month

14 days

1 5 19

Comments Procedure for the basic GC (2 GC per

MWh eligible delivered to grid):o Transelectrica SA is the issuing

authority for Green Certificateso Until the 5th of each month BS has to

file the delivered power figures to Transelectrica (the power transport company) for the previous month.

o Transelectrica proofs the documentation and has 14 days to issue the GCs

o Within BS responsible for the reporting to the authorities and the trades of BS is the Commercial Manager (currently Mrs. Doina Oica)

Documents check performed at the site in Suceava: according to the letter 10396 dated 16.03.2015 Transelectrica granted BS 20,129 basic GCs based on the production of February 2015 and 49,223 high efficiency GCs for the period July to December 2014. This confirms a well functioning reporting at BS

Source: Management information; GCI analysis ANRE: National Authority for Regulation in Energy

BS invoices EON for the sale of GC according to monthly quota agreed

Filing of information to Transelectrica regarding previous months. This includes documents about the power sold according to forecast,

power excess, power deficite and the proof for biomass provenience (Romania, mandatory).

Transelectrica issues the GC for the prevoius

month

BS has the possibility to transfer the GCs

3939

The high efficiency Green Certificates are issued twice a year in April and in October

Annually reporting for high efficiency awarded 3rd GC

GREEN CERTIFICATES

Jan Feb Mar Apr Jun Jul Aug Sep Oct Nov Dec Jan

Comments GCs are sold through OPCOM (the

operator of the energy market) to EON according to the bilateral agreement between BS and EON

Currently BS sells only very less GCs on the open market of OPCOM. The open market OPCOM matches demand and offer 1-2 times per calendar month and GC are sold pro rata. E.g. offer for January 2015 has been 1 million GC and demand has been 10,300 GC, so the sellers sold 1% of the GCs at the offered price of 131 LEI

Within BS responsible for the reporting to ANRE and the trades of GCs is the Commercial Manager (currently Mrs. Oica)

The process of GC reporting is performed well. The qualification for high efficiency was received in March 16th, 2015 being a proof that the reporting was completed accurately and in time


ANRE issues a notification of power

qualified as high efficiency for past year

Transelectricaaissues high eff.

GCs

Filing to ANRE: First semester qualification

documents to High efficiency cogeneration

Filing to ANRE: Annually qualification to High

efficiency cogeneration

ANRE issues a notification of power

qualified as high efficiency for Jan Jun

Transelectricaissues high eff.

GCs for Jan-Jun

2

3

4

5

6

1

4040

In 2014 BS received 0.98 high eff. GC / MWh and has bought 12k GC to meet contractual obligations

Comments BS is entitled to receive 2 GCs per eligible MWh sold and up to one more per eligible MWh sold if it qualifies for high efficiency

as defined by the regulatory authority During test runs (February to April 2014) the plant was eligible only for 1 GC per MWh sold. The qualification for high efficiency

can be made only after the commissioning of the plant For the year of operation (FY 2014) BS received 0.98 GCs per eligible MWh sold; high efficiency production started end of April BS has concluded a long-term contract with EON (2014 - 2023) for the sale of 115,000 GC in 2014 and thereafter 300,000 GC

per anno at the minimal legal price set by the regulator. In FY 2014 a total number of 115,000 GCs were sold to EON at a price of 130.7 Lei (about 29 EUR)

To meet the contractual quota in 2014 BS had to buy additional 12,000 GCs on the open market in December. This was due to the low stock of GCs as an effect of the production stop in October resulting from a lack of biomass

Expenses for GC purchases are accounted for in other operating expenses in the P&L; the GCs bought on the open market were sold to EON at the same price

Selling on the open market is not an option due to the over-supply of GCs; we expect that trading of GCs on the open market within the next 12 to 18 month will be limited

GREEN CERTIFICATES

Comment: Power eligible for GC - not all sold energy is eligible for GCs, due to network balancing costs. In case of BS approximately 99% of the sold electrical energy is considered eligible for GC


Development of GCs FY 2014Jan.15 Feb.15 Mar.15 Apr.15 May15 Jun.15 Jul.15 Aug.15 Sep.15 Oct.15 Nov.15 Dec.15 Total

Power sale (MWh) - 9,801 11,502 4,471 3,500 7,000 7,508 6,119 7,148 4,384 9,971 11,398 82,802 Power eligible for GC (MWh) - 9,801 11,502 4,598 3,413 6,904 7,478 6,089 7,113 4,346 9,929 11,348 82,520 GC granted - - 9,801 11,502 4,598 6,825 13,808 14,956 18,384 14,226 8,691 19,857 122,649

Basic GC granted (GC) - - 9,801 11,502 4,598 6,825 13,808 14,956 12,178 14,226 8,691 19,857 116,443 3rd GC granted (GC) - - - - - - - - 6,206 - - - 6,206

GC bought (GC) - - - - - - - - - - - 12,000 12,000 GC sold (GC) - - 9,801 - 7,526 8,435 14,000 15,000 15,000 15,000 17,000 31,000 132,762

GC sold to E-ON - - - - - 8,000 14,000 15,000 15,000 15,000 17,000 31,000 115,000 GC sold to 3rd Parties - - 9,801 - 7,526 435 - - - - - - 17,762

GC stock - - 0 11,502 8,574 6,964 6,772 6,728 10,113 9,338 1,030 1,887

In FY 2014 BS had to buy 12,000 GCs on the open market to

fulfill the EON contract

4141

Development of GCs FC 2015Jan.15 Feb.15 Mar.15 Apr.15 May15 Jun.15 Jul.15 Aug.15 Sep.15 Oct.15 Nov.15 Dec.15 Total

Power sale (MWh) 11,224 10,097 9,797 8,835 8,596 8,319 8,596 4,298 8,319 10,124 12,799 17,193 118,199 Power eligible for GC (MWh) 11,178 10,064 9,700 8,748 8,511 8,237 8,511 4,256 8,237 10,024 12,672 17,023 117,160 GC granted 22,695 22,356 69,351 19,400 17,496 17,023 16,474 17,023 64,949 16,474 20,048 25,344 328,632

Basic GC granted (GC) 22,695 22,356 20,128 19,400 17,496 17,023 16,474 17,023 8,511 16,474 20,048 25,344 222,971 3rd GC granted (GC) - - 49,223 - - - - - 56,438 - - - 105,661

GC bought (GC) 4,991 5,000 - - - - - - - - - - 9,991 GC to be sold (GC) 28,000 28,000 35,000 35,000 20,000 20,000 20,000 19,000 20,000 20,000 20,000 35,000 300,000

GC E-ON quota 28,000 28,000 35,000 35,000 20,000 20,000 20,000 19,000 20,000 20,000 20,000 35,000 300,000 GC to be sold to 3rd Parties - - - - - - - - - - - - -

GC stock 1,573 929 35,280 19,680 17,176 14,199 10,672 8,695 53,644 50,118 50,166 40,510

In the management forecast for 2015 BS will get full allowance of high efficiency GC

Comments In order to meet the contractual demand of EON, at the beginning of 2015 BS had to buy about 10,000 GCs on the open market This is mainly due to the fact that high efficiency GCs are not granted until March for the last year We understand from BS that no further GC purchases are expected in the future, based upon the latest forecast At the end of 2015 BS is expected to have in stock 40,000 GCs which will expire in Nov 2016 For the sale of excess GCs BS need to increase the quota with EON or alternatively conclude bilateral contracts with other buyersEnergy sales: BS has a power supply contract with EON, valid until 31.12.2015 (20 days notice period) The power has to be between 5 MW and 27 MW, 24h a day, for all days of the year The price is set at 140 Lei/MWh, including transport costs (7.8 Lei/MWh) for introducing the power in the grid, according to ANRE ordinance

nr.51/2014 We understood from the BS management that EON would want to buy for each 3 GC bought 1 MWh electrical energy This contract gives on the one hand predictability of revenues but also might limit the volumes of energy that can be sold on the next day

market to higher prices. So its a trade off between securing sales of power and GC versus obtaining higher prices

GREEN CERTIFICATES


4242

In order to sell GCs exceeding the current EON quota, BS shall consider agreements with other buyers

GREEN CERTIFICATES

Potential alternative GC buyerNr. Company Headquarters Turnover 2013

(mLEI)No.

employees1 Electrica Furnizare SA Bucharest 4,441 1,165

2 Enel Energie Muntenia SA Bucharest 2,069 230

3 Enel Energie SA Bucharest 2,007 336

4 CEZ Vanzare SA Craiova 1,560 45

5 Tinmar Ind SA Bucharest 1,387 59

6 Alpiq Romenergie SRL Bucharest 821 12

7 Transenergo Com SA Bucharest 722 19

8 Axpo Energy Romania SA Bucharest 550 53

9 Repower Furnizare Romania Bucharest 510 1310 KDF Energy SRL Bucharest 181 22

11 ICCO Energ SRL Brasov 139 108

12 EURO P.E.C. SA Galati 44 56

Comments Power suppliers are potential further business

partners for energy and GC trading For each MWh sold, the energy suppliers have

to show 0.218 GCs. This value is set annually by ANRE and shall increase next years. It is the main influence factor for the demand of green certificates

We estimate that this demand covers 70%-80% of 2015 GC market

Currently the market is only for business clients deregulated, the market for private clients is still regulated (captive customers)

Power suppliers can supply to any non-captive customer in Romania

EON is the power supplier of captive customers (house-holds) for the North-East region of Romania, region where BS is located

Enel is in the South-East and West part, CEZ in the South West. Electrica delivers to the captive customers of the rest of the regions

Source: GCI analysis

4343 AGENDA

Executive summary

Procurement

Green certificates





4444

Termica case is still a Moving target

Source: Interview with Insolvency administrator, the mayor of Suceava, Cuirtin Associates, Management information, GCI research

Termica historical overview and major issues

TERMICA & THERMICAL SUPPLY

2013 2014 2015

Insolvency proceedings started 28th June 2013

Bioenergy Suceava was

finalized

Termica contract with Suceava originally to expire on 31st March

2014, was extended as no other party

participated on the new tender

In June 2014 the reorganization plan of the shareholders was

rejected by the creditors. Unicom

(major creditor) filed a new reorganization

plan; existing administrators

exchanged

Unicom reorganization plan rejected by court;

definite executable decision for liquidation

of Termica (Acetagainst Termica case)

Historical timeline Termica case Operational and commercial issues to be considered

Open invoices from Termica in the amount of approximately 4.3 mEUR

(collectability?)

Ownership of pipes and equipment(Heating distribution)

Ownership of 110kV transformer station(Grid connectivity and electricity sales)

Starting of new tender process for

heating distribution 15th of April

4545

Rejection of restructuring plan by court will most likely trigger the liquidation process for Termica


Legal actions against Termica


SC ACET SAagainst Termica

Bioenergy Suceavaagainst Termica

Bioenergy Suceavaagainst Termica

Acet filed a case against Termica to cancel restructuring plan proposed by UnicomThe definitive and executable decision was declared on 20th March 2015 in favor of ACET. From our discussion with Mr. Ciurtin (legal advisor of Adrem) we understand that due to the fact that all relevant deadlines to introduce a new restructuring plan are expired long time ago the consequence for Termica is the bankruptcy and liquidation. Termica has the possibility to raise objection at the High Court of Bucharest but it is assumed that the appeal will not be successful

BS opened an enforcement proceedings against Termica at the court of SuceavaThe decision was postponed several times - decision expected in April 2015

BS launched legal proceedings against Termica to enforce bankruptcyThe court hearing is expected on 28th April 2015

open

open

closed

4646

The liquidation process was initiated by decision of the court in Iasi (Acet case) Reorganization process vs. Liquidation process


Reorganization process (cancelled)Status Until recently Termica was operating under the umbrella of an

insolvency / reorganization process Reorganization plan proposed by Unicom (admitted on 17th June

2014) included the following tasks:o 100% coverage of the claims of creditors o possibility for the initial creditors of trade-in of Termica

assets (e.g. heat supply equipment and installations, 110 kV station)

The reorganization plan proposed by Unicom has been cancelled by the Court of Iasi on 20th March 2015. The motivation of the court is expected to be published in 2-4 weeks after the sentence have been announced

Liquidation process

Next steps Court has to appoint the liquidator. Usually it is the former

judiciary administrator. Creditors assembly has the right to change the liquidator. Assets can, but must not be re-assessed

The liquidator shall present to the committee of creditors a report which shall include the assessment of assets and the modality of sale

Creditors will then vote for auction or direct negotiation, lump or by item

According to Mr. Ciurtin a liquidation process can last about 3 to 6 months

In the liquidation process, the claims of BS have priority status compared to the claims of the initial creditors (BS became creditor during the insolvency process)

Potential consequences BS will use the latest court decision in its own trial Operational and commercial consequences remain open,

however we understand that the creditor status will improved in a liquidation process

Potential consequences BS can participate in the liquidation process and buy relevant

assets (e.g. 110 kV transformer) BS may claim satisfaction of its claim from assets involved in the

insolvency proceedingSource: Interview with Insolvency administrator, the mayor of Suceava, Cuirtin Associates, Management information, GCI research

4747

Specific Termica assets are of high importance to operate the BS plant

Ownership Termica assets


Comments In our understanding the following Termica

assets are relevant for BS:o 110 kV transformer station: currently

rented by BS for 41 kEUR per month; rent is currently not paid out but charged against the open amounts from Termica; we understand that a new investment in a transformer station would amount to about 1.5 to 2.5 mEUR; a disconnection from the network is according to Mr. Ciurtin not possible (EU regulation and local laws)

o Pipelines and pumping equipment: we learned that the pumping station including equipment and the pipelines from Termicato the City connection (about 3-4 km) is pledged to ACET (ACET partly owned by the municipality of Suceava)

o Land under these pipelines: pledged to fiscal authority

In the bankruptcy process BS disposes a priority status. Mr. Ciurtin stated that BS improved significantly its status in comparison to the reorganization proceedings before


Chipperand dryer

Boilerhouse 1 Boiler

house 2

Boilerhouse 3

Termica area

110 kV

Pump station

Relevant assets to operate the plant on Termica land

4848

The payment scheme of Termica might change due to the retendering process

Heating payment scheme (per Gcal without VAT)


Bioenergy Suceava

Termica(total price256 LEI)

Consumer

City of Suceava

Real estate administration

116 LEI

4949

Termica payments in the period Oct 14 Feb 15 covered 72% of the invoiced amounts

1) From an accounting perspective the amounts received were booked against the oldest invoices (also before March 2014)Source: Management information


Payment collection from Termica 2014-2015

No. Delivery Invoice Heat sold Invoiced amount Open amountperiod issued (Gcal) kLEI kEUR kLEI kEUR

1 Mar-14 1-Apr-14 23,285 3,349 744 - -2 Apr-14 30-Apr-14 15,659 2,252 501 - -3 May-14 30-May-14 6,534 940 209 - -4 Jun-14 30-Jun-14 6,544 941 209 731 163 5 Jul-14 31-Jul-14 6,143 884 196 880 195 6 Aug-14 1-Sep-14 3,613 520 115 520 115 7 Sep-14 30-Sep-14 4,619 664 148 664 148 8 Oct-14 31-Oct-14 7,692 1,106 246 1,106 246 9 Nov-14 30-Nov-14 23,883 3,435 763 3,435 763

10 Dec-14 31-Dec-14 27,728 3,988 886 3,988 886 11 Jan-15 31-Jan-15 28,532 4,104 912 4,104 912 12 Feb-15 28-Feb-15 26,561 3,821 849 3,821 849

TOTAL 180,793 26,005 5,779 19,250 4,278

Termica invoices and collection

Comments Termica had a bad payment history and

overdue payments to BS amount to 4.3 mEURat the beginning of March 2015

Payments in the period October 2014 to February 2015 were received from Termica in the amount of 2.6 mEUR, which represents about 72% of the heat invoiced from BS in that period.1) We understand that the payments were triggered originally by the City of Suceavain order to secure heat supply

Considering the likely scenario of bankruptcy starting with May or June 2015 the currently open amounts from Termica are at risk. No specific allowance was considered by management in the books so far

In the period October 2014 until beginning of March 2015 a total amount of 2.6 mEUR (approximately 11.8 mLEI) was paid by Termica. However there is still an

open amount of 4.3 mEUR open due

5050

Minor relevance of Benchmarking as the heating distribution service will be retendered (Termica new)

*Finacial figures for 2013, last fiscal year availableSource: Source: The National Regulatory Authority for Local Public Services; GCI research

Benchmarking Termica


Benchmarking Termica*

Company CountyExisting

operating connections

Connected apartments

Selling price (incl. VAT) Turnover

Total expenses

Netprofit

Emp-loyees

Expenses / employeesTurnover /

employeeTurnover / connec.

Turnover / apartm.

# # LEI/Gcal kLEI kLEI kLEI # kLEI/# kLEI/# kLEI/# kLEI/#Termica SA Suceava 1,654 19,564 185 biomass 58,297 147,393 -58,745 393 148 35 3 375CET SA Bacau Bacau 2,133 16,594 155 gas, biomass 69,117 146,811 -65,292 466 148 32 4 315R.A.M. Buzau Buzau 1,491 15,326 185 gas 44,145 47,595 -1,689 220 201 30 3 216SC TERMO Arges 3,181 24,428 200 gas 60,402 73,756 -9,878 421 143 19 2 175SC TETKRON SRL Brasov 1,232 11,462 200 gas 20,620 43,617 -14,432 184 112 17 2 237SC MODERN CALOR Botosani 1,332 12,063 170 gas, coal 43,983 45,396 1,597 219 201 33 4 207SC ENET SA Focsani Vrancea 3,084 14,017 240 gas, coal 36,750 59,547 -21,035 300 123 12 3 198

Comments The benchmarking is based on our rough research on public

available information. We tried to select cities comparable in size of operating connections, connected apartments and revenues

A direct comparison is limited due to different supply sources in place however it could give at least some hints about the cost structure of the companies presented

Based on the information gathered from our research TermicaSuceava shows the highest share of expenses in relation to the number of employees. From our understanding this could be due to the fact that Termica still employs people from the former coal plant to close the operation

Except for SC Modern Calor, all selected companies show negative results

The main factors for the negative performance of Termicas are network losses, the disconnection of apartments and oversized personnel base. The network losses and the disconnection of apartments are interrelated

In case of Termica Suceava we understand that the high number of employees is due to the fact that Termica belongs to the city and Termica took over people from the former coal-fired heating plant (some closure activities are still in progress)

5151 AGENDA

Executive summary

Procurement

Green certificates





5252

Profit & loss statement 2014-2016 (BS calculation) PWC IBR calculation Deviation IBR / BSYear ended 31.12. 2014 2015 2016 2015 2016 2015 2016in kEUR Actual FC Plan Plan Plan Plan Pl

proiect rbi-gci-1(1)

Documents

draft report

bioenergy suceava srl

project suceava

theengagement letter

engagement letter whichhas

agreed inour engagement

general terms

work subject