Information on Key Projects

1
Information on Key Projects

• Edward Farquharson
• 12 December 2006

2
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

3
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

4
Rehabilitation and Expansion Projects
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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

6
Rehabilitation/Expansion Projects Key Issues
contd

• Bankability
• Ownership
• Lenders will not permit splitting electricity
  sales from old capacity and new
• gt ownership of the whole plant must transfer
  to the newly financed entity
• gt 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 OM costs.
• Deliverability
• Owner capacity to manage process.
• PPA

7
Kariba North Bank Extension

• Location Zambia
• Project Type 360MW Hydropower expansion
• Estimated 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.

8
Hwange

• Location Zimbabwe
• Project Type Thermal project rehabilitation and
  expansion from 320MW to 780MW
• Estimated 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.

9
Hydropower Projects
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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.

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Hydropower Projects - Key Issues contd

• Viability contd
• 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.

12
Hydropower Projects Key Issues contd

• 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.

13
Hydropower Projects Key Issues contd

• 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.

14
Inga 1 and 2

• Location Democratic Republic of Congo
• Project Type Hydropower rehabilitation 1775MW
• Estimated 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.

15
OMVG

• Location Guinea
• Project Type Hydropower new builds 368MW
• Estimated 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.

16
Kafue Gorge (Lower)

• Location Zambia
• Project Type 750MW Hydropower new build
• Estimated 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.

17
Thermal Power Projects
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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).

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Key Issues Thermal Power Projects contd

• 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.

20
Kudu

• Location Namibia
• Project Type 800MW Gas fired new build
• Estimated 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.

21
Transmission Line Projects
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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.

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Transmission Projects Key Issues contd

• Affordability
• Interdependency with supply and distribution.
• Line capacity.
• Deliverability
• Capacity of transnational groups.
• Way leaves/land acquisition existing routes?
• Differing legislation, permits.
• Tariff policy.

24
Malawi-Mozambique Transmission Line

• Location Malawi-Mozambique
• Project Type Regional transmission
• Estimated 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.

25
Zambia-Tanzania-Kenya Transmission

• Location Zambia-Tanzania-Kenya
• Project Type Regional Transmission
• Estimated 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.