International Seminar on Energy Cooperation in Northeast Asia : Directions and Implementation Korea Energy Economics Institute Financing of Energy Infrastructure Development and Institutional Prerequisites October, 2002 Dr. Woonki Sung President, CEO Korea Infrastructure Fund Management Co.

Korea Energy Economics Institute  Low interest and low inflation environment  Severe downturn of public equity markets  Flee to safety and preference for bonds and utility type stocks  Widespread hesitation on emerging markets let alone new frontiers of the markets  Most of multi-national energy companies are financially weak and withdrawing to their home country operations.  Traditional means of infrastructure development financing are limited.  Lack of suitable investment opportunities. Financial investors have resources to invest. Recent Market Developments

Korea Energy Economics Institute Private Sector Participation in Infrastructure (PPI)  It provides benefits to consumers and governments. It makes possible, or lowers the cost of, public services and frees governments from heavy fiscal burdens.  It shifts risks to private investors and operators, who are better equipped to handle the risks  Models for PPI include management contracts, leasing, build-operate-transfer or build-own-operate, and divestitures.  World-wide growth of PPI transactions since the 1980s in power, telecom, transportation, and water sectors.

Korea Energy Economics Institute Risk characteristics of infrastructure assets transform over their life cycle. Risk tends to drop rapidly and be mis-priced during transition phase at end of construction. Risk Time 3-4 years1-2 years20+years Development Construction OperationTransition C B A Infrastructure Assets - Life Cycle - 4 -

Korea Energy Economics Institute Target StagesTypes of Investors and Lenders A. DevelopmentProject developers, Sponsors, Operators B. Construction Co-investors, Private equity funds, Commercial banks ECA s, Suppliers, Multilateral Development Institutions C. Operation Institutional investors (life insurance, pension funds) Individual investors on stock exchanges, Bondholders Infrastructure Assets - Investors/Lenders

Korea Energy Economics Institute  Joint Ventures vs. Foreign-controlled Operations  Build-Operate-Transfer schemes and Project Finance  Development Fund Approach  Capital Market Transactions  A Regional Development Bank Infrastructure Financing Alternatives

Korea Energy Economics Institute  Political, Social and Institutional Issues  Special Economic Zones  Public and Private Sectors Partnerships  Public Sector Support  Clear and Stable Regulatory Framework  Transparency, Access and Accurate Information Flows  Political Risk Cover  Securitization and Credit Enhancement Measures to Attract Private Investors and Financiers

Korea Energy Economics Institute  For infrastructure development in the Northern Parts of Northeast Asia, an IFC/MIGA-type would be an effective operational model for a regional development bank.  The proposed model should have special focus on:  Development and monitoring of infrastructure projects;  Making equity and long-term loan investments in connection with private sector participation in infrastructure;  Mobilization of funds (public and private; loans and equity);  Provision of credit enhancement facilities, partial guarantees;  Provision of political risk insurance;  Close relationships with private developers, technical partners, financiers and investors; and  Private sector development in host countries.  For infrastructure development in the Northern Parts of Northeast Asia, an IFC/MIGA-type would be an effective operational model for a regional development bank.  The proposed model should have special focus on:  Development and monitoring of infrastructure projects;  Making equity and long-term loan investments in connection with private sector participation in infrastructure;  Mobilization of funds (public and private; loans and equity);  Provision of credit enhancement facilities, partial guarantees;  Provision of political risk insurance;  Close relationships with private developers, technical partners, financiers and investors; and  Private sector development in host countries A Regional Development Bank