EBRD investment in new gas infrastructure CEER Brussels, 9 November 2006

Agenda EBRD Environmental issues General Considerations Case studies 2

EBRD 3

A network of 32 offices in 27 countries Half of our bankers based in the field 3 new offices by end 2006: Samara, Rostov, Dnipropetrovsk

Committed and growing Cumulative commitments €30.3 billion Regional focus: supporting investors and local companies in 27 countries of CEE and CIS Regional focus: supporting investors and local companies in 27 countries of CEE and CIS Asset base: over 1500 transactions worth €30 billion signed since 1991 Asset base: over 1500 transactions worth €30 billion signed since 1991 Capital base: €20 billion dedicated exclusively to this region Capital base: €20 billion dedicated exclusively to this region

Investment challenges Reduce transport bottlenecks and ensure competitive market access Improve regulatory and institutional frameworks in the region Increase private sector participation and promote direct foreign investment Ensure high standards of business conduct, transparency, corporate governance and environmental protection

A unique profile Versatile financial instruments: providing debt, equity and guarantees Versatile financial instruments: providing debt, equity and guarantees Risk appetite: extending the financial capabilities of the private sector by mitigating political risks Risk appetite: extending the financial capabilities of the private sector by mitigating political risks Legal know-how: in-depth knowledge of the region’s legal systems and experience in resolving problems. Legal know-how: in-depth knowledge of the region’s legal systems and experience in resolving problems. Natural resources expertise: approx. 10% of the Bank’s portfolio is in oil, gas and mining projects. Natural resources expertise: approx. 10% of the Bank’s portfolio is in oil, gas and mining projects.

GENERAL CONSIDERATIONS

What are the classic challenges in financing gas projects? (1 of 2) Construction / Completion Risk –contractual structure (delays, cost over-runs, etc.) Operational Risk –technological integration and experience / viability Utilisation / Supply Risk –type of throughput arrangement –fundamentals (Market/Competition)

What are the classic challenges in financing gas projects? (2 of 2) Competition / Market –effect of oil price (linked to gas and oil products) –regional supply / demand –impact on tariff Political & Regulatory Risks –regulatory intervention (tariffs & export volumes) –political turmoil / disputes / violence / nationalisation –discriminatory taxation

EBRD facilities Loans Guarantees Equity All risk guarantees Specific risk guarantees (e.g. political) Commodity-backed instruments Trade facilitation programme Non/partial recourse to sponsors Project specific Hard/local currency Medium and long term Floating/fixed rates New equity Privatisation Quasi-equity

Funding Guidelines (1 of 2) Project Finance Criteria –1/3 debt, 1/3 equity, 1/3 project-generated cashflow –Cashflow Ratios (DSCR, etc.) EBRD funds up to: –35% of total project costs for a greenfield project –35% of long-term capitalisation of an established corporate Maximum amounts: –Maximum is currently around € 350 million for A loans. In addition B loans can be up to twice as much. => € 1 billion Tenor and maturity: –Project-specific (typically year for new gas infrastructure)

Funding Guidelines (2 of 2) Pre-completion credit-enhancement: –Sponsors’ financial guarantees and other shareholder support; –Experienced Constructor; Other risk mitigation requirements: –Experienced Operator; –Long-term gas contracts (transportation, storage and off-take) –Tariffs: Stability, Affordability and Fairness (Exemptions usually required for major new infrastructures) –Extensive EHS and social impact assessment.

ENVIRONMENT

EBRD environmental policy and procedures Ensure environmental soundness of all EBRD operations Invest in projects with specific environmental and energy efficiency benefits Disclosure of environmental information

Environmental standards for EBRD projects Local, national, EU and World Bank standards and regulations. Similar but not equal to the equator principles, mostly due to EU standards Where standards cannot be met initially, project will include programme for achieving compliance Environmental Action Plan

CASE STUDIES

Case Studies BTC Shah Deniz / South Caucasus Pipeline Gastransit

BTC Pipeline project

BTC Project - Overview BTC Pipeline –the primary export route for crude oil/other liquid hydrocarbons production from Azerbaijan and the Southern Caspian –1,743 km long, with ultimate design capacity of 1,000,000 bpd –provides the additional export capacity required for ACG Field production and serves as an export route for other production from the Caspian Region BTC Pipeline route has been selected as the optimal route for both commercial and environmental reasons –Terminal at Ceyhan on the Mediterranean coast will enable volumes to be delivered while bypassing the environmentally sensitive Turkish Straits

BTC Project Cost Total BTC Project Cost is in excess of US$3.6 billion: –Capex US$2.90bn –Oil linefill US$0.17bn –Finance costs US$0.46bn –DSRA US$0.10bn BTC pipeline cost and Azeri Chirag Guneshli oilfield development cost combined are in excess of US$15 billion EBRD is financing $250 million ($125 million A loan and $125 million B loan)

South Caucasus Pipeline – Route (1 of 4)

Shah Deniz Project – Overview (2 of 4) Reserves: proven and probable gas-in-place of approximately 31 trillion cubic feet (tcf) – world class reserves; likelihood of an additional 22 tcf Project: 4-stage development of the Shah Deniz gas and condensate field with Stage 1 cost of USD 2.3 billion Local participation: State Oil Company of Azerbaijan Republic (SOCAR) also holds a 10% interest in this project (through AzSD: EBRD will part-finance their cash calls)

South Caucasus Pipeline – Overview (3 of 4) Pipeline route: a 690 km gas pipeline starting at the Sangachal Terminal, traversing Azerbaijan and Georgia and connecting with the BOTAS domestic gas distribution system at the Georgian-Turkish border Construction & timing: SCP’s Right of Way runs parallel to BTC and construction of SCP will occur concurrently with that of BTC Capacity & cost: a peak capacity of over 20 billion cubic feet (bcf) per annum and will cost over USD 1 billion

Gastransit Phase I and II

Ukraine: Balkan Gastransit Project Details:  Long term 2 Phase facility to support gas pipeline upgrade in Ukraine  Use of proceeds: construction of compressor station and parallel pipeline for total project cost of $190 million  Strong demonstration effect- only current international investment in Balkan gas pipeline project. EBRD Investment:  Phase I: $40 million EBRD 9 year senior loan and $ 12 million BSTDB parallel loan  Phase II: $51 million 12-year EBRD senior loan, $ 6 million BSTDB facility and $ 40 million commercial Bank co-financing Financing Structure:  Security based on gas export contracts  Revenues based on transportation and compression payments  Strong sponsor support (Gazprom, Naftogas Ukraine, Transbalkan)

Conclusions EBRD is keenly interested in working on new gas infrastructure Commitment of Governments, Regulators, Suppliers and Off-takers crucial Benefits of EBRD –EBRD involvement will help other parties on board and set international corporate and environmental standards –EBRD experience in similar projects –EBRD environmental expertise and track record –Dedication level is high due to our mandate

Contact Details Enrico G. Grassi Principal Banker, Natural Resources Team Tel. 44 (0) , Fax 44 (0)