1. Industrial Project Finance in GCC Countries Forum Federation of GCC Chambers of Commerce October 12, 2010 Dammam, Saudi Arabia Financing Energy Investments in the aftermath of the financial crisis APICORP’s perspective Nicolas Thévenot Arab Petroleum Investments Corporation nthevenot@apicorp-arabia.com October 12, 2010

2.  Arab Petroleum Investments Corporation (APICORP), has been since inception in 1975 a financial institution dedicated to the financing of the development and transformation of the Arab energy industry;  APICORP is noticing certain signs of recovery of the energy capital investments in the MENA region;  However, APICORP considers that the financing of these investments will be challenging and will require a dramatic shift in the financing strategy of project sponsors. Outline of the Presentation APICORP All Rights Reserved © 2

3. ARAB PETROLEUM INVESTMENTS CORPORATION (APICORP), A PIONEER IN FINANCING ENERGY INVESTMENTS IN THE ARAB REGION APICORP All Rights Reserved © 3

4. Arab Petroleum Investments Corporation (APICORP) is an inter Arab joint stock company established in 23 November 1975 in accordance with an international agreement between governments of the ten member states of the Organization of Arab Petroleum Exporting Countries (OAPEC). Mission and Objectives APICORP’s Mission is to contribute to the development and the transformation of the Arab hydrocarbon and energy industries through equity and debt financing, advisory and research. APICORP’s Objectives  Priority given to Arab Joint Ventures which benefit OAPEC member states  Active throughout the energy value chain  Equity participation in new ventures  Financial Advisory  Arrangement of debt  Business conducted on a commercial basis  Teams made up of financiers, engineers and economists 4 APICORP All Rights Reserved ©

5. APICORP is wholly owned by the member states of OAPEC as listed below: ALGERIA LIBYA QATAR UNITED ARAB EMIRATES SAUDI ARABIA KUWAIT IRAQ EGYPT SYRIA BAHRAIN ShareholdersShareholders 5 APICORP All Rights Reserved © US$ “000”200620072008 2009 Total assets2,600,0003,573,3573,563,8024,119,100 Shareholder’s equity897,0001,020,000894,7501001,635 Issued and paid-up capital550,000

6. APICORP Rating Foreign currency issuer ratings A1 (long term) Prime 1 (short term) Stable Outlook 6 APICORP All Rights Reserved ©

7. Industry Segments  Industry Segments  Upstream development and production (including rigs)  Refining  Petrochemicals  Fertilizers  Natural Gas Liquefaction (NGL)  Gas-To-Liquids (GTL)  Power Generation  Combined Power and Water Production  Oil Shipping  Oil and Gas Terminals  Geotechnical and Seismic Survey  Manufacturing  Operations and Maintenance Services 7 APICORP All Rights Reserved ©

8. APICORP Added Value As Partner in Developing the Hydrocarbon Industry  Strong ties throughout the Arab world due to our pan-Arab ownership;  Strong technical and advisory capabilities in the hydrocarbon sector with experienced teams of engineers, economists, and financiers;  Extensive experience and knowledge in all aspects of project development:  Selection of technology suppliers and contractors  Product markets  Feedstock supply and off-take arrangements  Legal issues and documentation related to companies formation  Leadership position in investing in hydrocarbon-based projects and in syndicating regional oil and gas financings. 8 APICORP All Rights Reserved ©

9. Core Business Structure APICORP Projects Direct Equity Investments Energy Equity Fund Technical Support Research Project & Trade Finance Project Finance Trade Finance Advisory Treasury & Capital Markets Money Markets Foreign Exchange & Derivatives Capital Markets 9 APICORP All Rights Reserved ©

10. Direct Equity Investments 10 APICORP All Rights Reserved ©

11. Investment Criteria  Due consideration shall be given to the geographical diversification of the investments within the Arab world particularly in the member state countries.  The size of the Corporation’s equity stake should ensure at least one Board seat in the investee company.  The paid up equity capital of the project shall be sufficient to ensure the success of the project. (Opportunity offers a US$ 5 million equity capital injection by APICORP).  The targeted internal rate of return (IRR) on investment shall not be less than 15%.  The equity part of the project’s financial structure shall not be less than 30% of the total project cost.  The financial indicators of the investment opportunity and the associated risks shall be within the industry norms. 11 APICORP All Rights Reserved ©

12. Targeted Investment Opportunities  New technologies that are economically sound with high growth potential.  Opportunities utilizing regional feedstock.  Opportunities that enjoy a comparative advantage with high added value.  Opportunities that contribute to the support and integration of Arab petroleum industries.  Opportunities that offer a substantial financial return in accordance with the Corporation’s investment criteria. 12 APICORP All Rights Reserved ©

13. Our Strength  Experienced Management Team with a successful record  Extensive experience and expertise in both energy and hydrocarbon related investments  Strong footprint in the GCC and other Arab countries  Excellent working relationships with multilateral institutions and governmental agencies  Wide-range network of strong relationships with business groups in the Arab regions, and with international industry partners  Proven ability to create deals  Strong pipeline of projects  Effective combination of academia and industry  Professionals with engineering and economics background  Enhanced accessibility through offices in Saudi Arabia and Bahrain 13 APICORP All Rights Reserved ©

14. Roles and Responsibilities  Development  Identifying potential investment opportunities  Carrying initial assessment  Evaluating full feasibility studies  Actively participating in establishment of potential investee companies  Monitoring  Pursuing implementation progress of projects  Active participation in the Board of Directors of investee companies  Periodic evaluation/assessment  Exiting  Tracking exit opportunities  Evaluating, negotiating, and concluding exit agreements  Technical Support  Providing technical support to project finance and financial advisory activities  Participating in technical meetings and preparing technical reports and studies 14 APICORP All Rights Reserved ©

15. Investment Cycle StepsType of StudyObjective Identification General opportunity studies Identify opportunity Determine critical areas for support studies Determine areas for pre-feasibility & feasibility studies Pre-selection and preliminary analysis Support studies Determine which of the possible choices is the most viable Identify the choice of project criteria Pre-feasibility studies Determine provisional viability of project Appraise whether the feasibility study should be launched Final analysis Support studies Investigate in detail the selected criteria requiring in- depth study Feasibility study Make the final choices of project characteristics Determine the feasibility of the project and selected criteria Project evaluation Evaluation study Make final investment decision Project appraisalAppraisal report For Investment Committee’s decision 15 APICORP All Rights Reserved ©

16. Project and Trade Finance 16 APICORP All Rights Reserved ©

17. Key Objective To be a partner of choice for arranging debt and providing financial advisory services on energy related projects promoted by governments and private sector from the Arab region. 17 APICORP All Rights Reserved ©

18. Financing Types  Project Financing  Islamic Financing (lease, murabaha, tawarruq, istisnaa, etc…)  Asset based Financing (Ships, rigs, FPSO, equipment, etc…)  Reserve based financing (proven oil and gas reserves)  Trade Financing (pre-export, LCs, risk participation, etc…)  Acquisition Financing (companies, plants, etc…)  Equity Financing 18 APICORP All Rights Reserved ©

19. APICORP Contribution to Financings In addition to being in most cases a mandated arranger and underwriter, APICORP aims to play an instrumental role in financings. RoleCredentials Bookrunner AMPTC, Saudi Polyolefins Company, Qatargas 3, ELNG Train1, Petro- Rabigh, Oryx-GTL, Egyptian Fertilizers Company, Vitol, and Exmar Lux. Technical Bank Equate Petrochemical Company, Qatar Vinyl Company, Egyptian Fertilizers Company, Saudi Polyolefins Company, Oman Polypropylene Company, BAPCO and Oman Aromatics. Documentation Bank ADWOC, JANA, Egyptian Fertilizers Company, Ibn Zahr, Oman Polypropylene Company, Vitol, EGAS and GASCO. AgentADWOC, EGAS and GASCO. Account BankEGAS. Modelling Bank ADWOC, JANA, Saudi Polyolefins Company, EAgrium, Ibn Zahr, GASCO and EFC. Onshore Security AgentSaudi Kayan and Yansab. Offshore Security AgentEGAS. 19 APICORP All Rights Reserved ©

20. Lending Guidelines  Quality of sponsors and their degree of commitment and interest.  Economic rationale and competitiveness of the project (for example: feedstock cost advantage).  Degree of “off-shorisation” of the project (for example: revenues in US$ for US$ loan).  Degree of protection of the project from local factors (for example: exchange rate).  Resilience of the project against negative changes in certain parameters.  Maximisation of export-credits and multilateral loans in financings in difficult countries.  Transaction to benefit Arab energy industry.  Preference towards supporting existing and future equity investments of APICORP.  Role and visibility of APICORP in the financing.  Preference for transactions where APICORP can provide support as financial advisor / structuring bank.  Remuneration. 20 APICORP All Rights Reserved ©

21. APICORP as Financial Advisor of Choice  Competitive proposal  Comprehensive and clear mandate document  Fast track basis  Dedicated team of professionals  Qualified team leader  In-house technical and legal support  Significant local insight in the Arab region  Comprehensive project financing database  Extensive network of third party consultants  Total confidentiality 21 APICORP All Rights Reserved ©

22. Financial Advisory Activities Phase: 1 Understand project, Key issues and requirements Understand project, Key issues and requirements Identify key risk issues Assessment of project economics Evaluate project contractual structure Develop financial model Evaluate potential sources of finance Initial market sounding Information gathering Appointment of consultants and legal counsels Develop term sheet Prepare information Package Due diligence reports from consultant, legal, insurance, technical, marketing and financial modeling Develop optional financing structure Develop optional financing structure Arranging/Syndication strategy Sources of finance Phase: 2Phase: 3 Invite debt providers Selection of arrangers Negotiation of term sheet / commitment letter Final Acceptance of due diligence reports Final Acceptance of due diligence reports Negotiate documentation jointly with the legal counsel on behalf of the Sponsors and assist in completion of CPs Phase: 4 22 APICORP All Rights Reserved ©

23. SIGNS OF RECOVERY OF THE ENERGY CAPITAL INVESTMENTS IN THE MENA REGION APICORP All Rights Reserved © 23

24. Figure 1: Rolling 5-year reviews of energy investment Rebound of the energy capital investments in the Arab region  Gradual recovery of global demand for energy and stabilization of crude oil prices within an anchor price range of US$ 70-90/bbl.;  Higher capital investments prospects and lower amount of projects postponed or shelved. APICORP All Rights Reserved © 24

25. Geographical pattern of these energy investments  A reflection of the distribution pattern of crude oil and natural gas reserves in the region;  Three countries largely below potential: Iraq, Iran and Kuwait; APICORP All Rights Reserved © 25

26. Sectoral pattern of these energy investments  Oil supply chain accounts for 41%;  Gas supply chain accounts for 35%;  Power generation accounts for 24% and is expanding. APICORP All Rights Reserved © 26

27. A critical challenge: funding accessibility APICORP All Rights Reserved © 27

28. The challenges of Funds availability  Reduced lending capacity  Balance sheet constraints;  Increased funding and liquidity costs.  Flight to quality  More stringent due diligence;  More conservative structures;  Emphasis on core sponsors in core countries.  Cautiousness in respect to syndication  Underwritings versus club deals.  Addressing liquidity mismatch 28 APICORP All Rights Reserved ©

29. International Bank Market Decision to lend to be determined by relationship considerations International Capital Markets Credit rating needed Conditions in international credit markets remain challenging Islamic Financial Institutions To date, only a few IFIs active in project finance market Prefer to focus on local market Local Funds Can lend up to 15 years tenor PIF recently has increased its lending limit up to US$ 1.6 Bn per project SIDF can lend up to US$ 160 Mn per project ECAs Likely to emerge as most sought after source of finance in the current environment All ECAs from major OECD countries open to GCC Familiarity with regional project finance market requirements Saudi Bank Market 7 banks truly active in project finance market Currently almost no lending in US$ Regional Bank Market 4 regional banks historically active in GCC project finance market Appetite severely constrained Need to access all potential sources of finance …. Sukuk Sukuk markets still in development phase Pre-completion risks complex to understand The challenges of Funds availability. Cont’d APICORP All Rights Reserved © 29

30. Key features of a successful project finance transaction  Transaction structure :  Compliance with all standard Project Finance contractual requirements;  Completion guarantees;  Tighter financial covenants;  Shorter tenors;  Solid economics.  Credit profile:  Government-owned sponsors as well as private sponsors with high credit rating and solid experience /track record;  Strategic industry;  Strategic project 30 APICORP All Rights Reserved ©

31. Key features of a successful project finance transaction (cont’d )  Financing structure :  Multi-currency tranches;  Islamic and Conventional;  ECAs and other government related funding;  Capital market instruments.  Syndication strategy:  Club deals  Relationship banks;  Key role of the financial advisor. 31 APICORP All Rights Reserved ©

32. Why Financial Advisory is Critical  Prepare a suitable financing structure and information package.  Attract financing from various debt providers at competitive terms.  Identify key project risks and develop ways to mitigate them.  Provide input on commercial issues in key project agreements.  Assess various sources of debt (capital markets, commercial banks, Islamic banks, multilateral agencies and export credit agencies).  Bridge the gap between the Sponsors and the debt providers.  Ensure that the interests of the Sponsors are being served at all times.  Facilitate achieving financial close in a timely manner. 32 APICORP All Rights Reserved ©

33. APICORP P.O. Box 9599 Dammam 31423 Kingdom of Saudi Arabia Telephone(+966) 3 847 0444 Fax(+966) 3 847 0011 / 0022 Telex870068 APIC SJ E-mailapicorp@apicorp-arabia.com Websitewww.apicorp-arabia.com APICORP Bahrain Banking Office 26 th Floor, Al Moayyed Tower Al Seef District P.O. Box 18616 Manama Kingdom of Bahrain Telephone(+973) 1 756 3777 Fax(+973) 1 758 1337 THANK YOU 33 APICORP All Rights Reserved ©