Information on Key Projects

Edward Farquharson12 December 2006

Deliverability Framework

• Policy/Rationale– Economic/policy justification

• Viability– Technically, contractually, environmentally, socially viable– Supporting infrastructure available/interfaces work/dependencies

• Bankability– Contractor interest– Market Capacity– Financing terms and conditions can be met– Credit issues

Deliverability Framework

• Affordability– Power affordable for end user taking into account capex, opex, cost of finance,

term of contract/tenor

• Deliverability– Owner has capacity to manage process– Legislation/vires in place/acceptable– Statutory approvals/permits in place– Timescales– Stakeholders

Rehabilitation and Expansion Projects

Rehabilitation/Expansion Projects Key Issues

• Policy objectives/Rationale– Solution to existing underperforming/poorly maintained facilities, but more

complex if financing is required.

• Viability – Operation

• Can be complex due to historical working practises.• Transfer of existing staff.

– Capex costs• Environmental investment costs• Unforeseen capex costs

– Latent defects

– Legacy liabilities

– Warranties

Rehabilitation/Expansion Projects Key Issues cont’d

• Bankability– Ownership

• Lenders will not permit splitting electricity sales from old capacity and new= > ownership of the whole plant must transfer to the newly financed entity= > may provide for a capital receipt which can be used to enhance credit quality

– Liability• Transfer of existing assets requires satisfactory indemnities in respect of historical

liabilities, maintenance shortfalls etc.

• Affordability– Affordability to end consumer allowing for capex and O&M costs.

• Deliverability– Owner capacity to manage process.– PPA

Kariba North Bank Extension

Location: ZambiaProject Type: 360MW Hydropower expansionEstimated Capital Cost: $300m

• Feasibility Study Completed in 2005 by Sinohydro.

• PPA with ZESCO yet to be developed.

• ZESCO: structure of credit support for ZESCO obligations yet to be developed.

• Ownership of extended facility to be determined.

• Good potential structuring possibilities around ZESCO onward power sales, natural resource companies and stable environment.

Hwange

Location: ZimbabweProject Type: Thermal project rehabilitation and

expansion from 320MW to 780MWEstimated Capital Cost: $500m

• PPA to be structured with ZESA. Terms to be agreed.

• ZESA credit support for long term obligations to be agreed.

• Fuel supply to come from Hwange Colliery operated by ZESA Joint Venture. Terms not yet agreed.

• Feasibility study required for colliery expansion in order to supply project est. capital cost $30m. Financing availability not yet determined.

• Transmission lines to Namibia for onward sales require refurbishment, estimated capital cost $20m.

Hydropower Projects

Hydropower Projects - Key Issues

• Policy objectives/rationale• Significant underutilised natural resources by way of river flows.• Attractive fundamentals in era of high/volatile oil and gas prices.• Low technical risk (once built).• ‘Clean energy’/Renewable.

• Viability– Location

• Logistics: construction projects requiring mass mobilisation of equipment and manpower in remote locations.

• Significant accompanying infrastructure requirements – roads, transmission etc.• Interface risk – availability, timing, costing.

– Specific Risks• Geotechnical history of construction time and cost overruns – EPC rare.• Climate: rain volume and regularity, water flow, historic data availability.

Hydropower Projects - Key Issues cont’d

• Viability cont’d– Social/environmental

• NGOs• Permitting• EIA scope certainty.• Resettlement

– Regulation• clarity, structure, completeness, long term stability.• water use rules.

– Timing • Significant development, mobilisation and construction lead times.

Hydropower Projects – Key Issues cont’d

• Bankability– Long development and construction lead time so significant interest roll up

challenge.

– Economics require long tenor debt unavailable in commercial markets.

– Availability of multilateral funding enhancement mechanisms.

– Sensitivity of lenders and investors to environmental issues.

– Foreign exchange and interest rate exposure.

– Bankability of owner group (if applicable).

– Bankability of contractor group.

– PPA terms.

– Long term bankability of PPA and off-taker.

– PRI cover availability.

– Arbitration/dispute resolution mechanisms.

Hydropower Projects – Key Issues cont’d

• Affordability– Affordability to end consumer dependent on potentially uncertain capex

and yet to be defined finance terms and costs, especially debt maturity.

• Deliverability– Government project team – authority, budget, experience.

– Availability and suitability of advisers.

– Bidding and evaluation rules and capacity in place, transparency.

– Scope boundaries.

Inga 1 and 2

Location: Democratic Republic of CongoProject Type: Hydropower rehabilitation 1775MWEstimated Capital Cost: $600m

• PPA with SNEL to be developed. Terms yet to be agreed.

• Existing scope of MOU between SNEL and Magenergy unclear.

• Tender process for remaining units to be clarified.

• Ownership post rehabilitation currently believed to remain with SNEL.

• SNEL onward sales to neighbouring utilities to be developed.

• Transmission line capital costs estimate unclear.

OMVG

Location: GuineaProject Type: Hydropower new builds 368MWEstimated Capital Cost: Kaleta $190m; Sambangolou $300m

• PPA with Senegal, Gambia and Guinea-Bissau DistCos to be developed. Terms yet to be agreed.

• Tender process due to be launched in Jan 2007.

• Priority project of West African Energy Exchange (EEEOA) and CEDEA.

• Related transmission line of 1,677 km through four countries (West African Loop) at estimated cost of $385m to be developed.

Kafue Gorge (Lower)

Location: ZambiaProject Type: 750MW Hydropower new buildEstimated Capital Cost: $600m

• PPA with ZESCO to be developed. Terms to be agreed. Onward sales to Nampower being finalised.

• ZESCO credit support in respect of long term obligations yet to be agreed.

• Appetite of natural resource companies for power to be explored.

• Feasibility study required for conjunctive operation of plants on Zambezi to be completed.

• Tender status unclear. Status of a Chinese or Indian MOU unclear.

Thermal Power Projects

Key Issues: Thermal Power Projects

• Policy objectives/Rationale– Proven technologies, good investor appetite, flexibility of placement near demand,

speed of implementation.

• Viability– Standardized/modular design and build approaches – reduced capex and time.

– Power Purchase Agreement.• Well understood, but term of contract and credit worthiness of offtaker critical.

– Security of fuel supply.

– Current oil and gas prices challenge competitiveness of new build in developing world.

– De-risking any currency mismatch between fuel payments, power sales and debt repayments critical.

– Proximity to mines, if coal fired (availability/quality).

Key Issues: Thermal Power Projects cont’d

• Bankability– Well established financing structures.– Relatively short construction times.– EPC contracts.– Deep and liquid market for debt placement (country risk dependent).– Proven investor appetite and established benchmarks for risk.

• Affordability– Exposure to volatility in delivered fuel supply costs.– Shorter construction periods and lower capex component reduce impact of finance

terms.

• Deliverability– Planning, emissions, noise levels, environmental permits.– Emissions.

Kudu

Location: NamibiaProject Type: 800MW Gas fired new buildEstimated Capital Cost: $530m

• Plant size developed due to economics of fuel supply, Namibia demand some 80MW.

• PPA with Nampower to be developed dependent on ESKOM sales.

• Fuel supply from Kudu gas field, timing and price to be agreed. Field operator still to finalise commercial terms.

• Transmission line status to ESKOM to be clarified.

• Prioritisation by Nampower to be confirmed.

Transmission Line Projects

Key Issues: Transmission Projects

• Policy objectives/Rationale– Need to move power across regions due to hydropower focus, or need to oversize

capacity to underpin fuel field development e.g. Kudu.– Requirement for strong government support to ensure viability.

• Viability– Physical security of assets over large distances is problematic: affordable

insurance package will be key.

• Bankability– Is there a role for private sector capital? Is it an interesting asset class?– What sort of return is appropriate for a low risk business in a higher risk

environment?– Cross border sovereign issues?– PPAs require structuring similar to tolling agreements.– Financial viability of customer.

Transmission Projects – Key Issues cont’d

• Affordability– Interdependency with supply and distribution.– Line capacity.

• Deliverability– Capacity of transnational groups.– Way leaves/land acquisition – existing routes?– Differing legislation, permits.– Tariff policy.

Malawi-Mozambique Transmission Line

Location: Malawi-MozambiqueProject Type: Regional transmissionEstimated Capital Cost: $84m

• Complex PPA structure to be finalised, sale from HCB to Malawi ESCOM wheeled through EDM.

• Feasibility study status to be confirmed.

• Prioritisation of host governments to be confirmed.

• World Bank commitment in principle for $62m, terms to be clarified.

Zambia-Tanzania-Kenya Transmission

Location Zambia-Tanzania-KenyaProject Type: Regional TransmissionEstimated Capital Cost: $342m

• Nairobi (Kenya) - Arusha (Tanzania): to be public sector funded.

• Arusha (Tanzania)-Dar es Salaam: public sector.

• Dar es Salaam - Zambia link: funding not yet identified.

• Feasibility study underway by Norplan A.S., due to complete in 2007.

• PPA structure for sales to TANESCO/KPLC to be finalised.