EBRD Investment Strategy for Energy Projects in SE Europe

EBRD investment strategy for energy projects in SE Europe

September 2016

Introduction to the EBRD

An international financial institution Where we invest established in 1991, owned by 65 countries and 2 inter-governmental organisations (EU and EIB)

Invests in 36 countries

Capital base of over €30 billion

Over €107 billion invested through 4470 projects

In 2015, € 9.4 billion in 381 projects

AAA Rating

Promotes transition to market economies by investing mainly in the private sector

Encourages environmentally sound and sustainable development The EBRD and its objectives

Objectives: • To promote transition to market economies by investing mainly in the private sector • To mobilise significant foreign direct investment and facilitate inward and cross border investments in the region • To support market focused reforms, privatizations • Promotes policy dialogue with regards to investment climate, business and policy matter • To encourage environmentally sound and financially sustainable development

3 Benefits of working with the EBRD

• Strong, internationally recognized partner with long term perspective • AAA rated, commercially focused • Mitigation of political and regulatory risks • Policy dialogue with government and regulators • Grant-funded technical assistance • Finance and operations monitoring

EBRD • Flexible deal structure ValueEBRD- valueadded-added • Support of strategic investors • Debt finance to both public • Perception of quality investment and private sector • Sector expertise through • Syndication under preferred ShareholderShareholder’s Board of Directors creditor status Value LT Debt Equity • Good corporate governance DebtFinancing Equity • Catalyst to access Financing • Catalyst to access additional additional debt equity • LT (up to 10y or more) or • Positioning as neutral party ST revolving • Common stock, preferred, • Floating/ Fixed rates mezzanine • Choice of currencies • Minority position only (up to 35%) (€, US$, RUB, PLN, RON etc.)

4 EBRD basic project criteria

• The operation is located in EBRD countries of operation

• Investments have a beneficial effect on the local economy and supports transition

• We are additional, i.e. not “crowding out” private money

• The project makes economic sense - no “soft loans” or grants • Small size (<€5m for EBRD) is difficult directly from EBRD but special facilities are available mainly for various regions e.g. Western Balkans, Cyprus

• Compliance over time with EU environmental standards

5 Power and Energy and Natural Resources financing guidelines

• Maturities between 5 to 15 years • Flexibility on commitment amounts (but up to 35% for Project Financing) • IFI public procurement rules for works goods and service and competitive procurement for private partners of PPP arrangements • Market pricing and security structures • Local currency, where possible • Syndication to commercial banks, where possible or other IFIs • Equity investments, where appropriate, e.g during privatizations along side a strategic investor.

A key investor in the extractive industries sector

Introduction to EBRD EBRD Natural Resources Track Record Working Together

Signed business volume Operating assets by instrument • Long track record: 167 projects for a total of 1,600 EUR 7.16 billion net 9% 1,400 cumulative investment. 1,200

1,000 • Natural Resources Team: 800 30 bankers distributed 600 Mining Equity across the EBRD region: EUR million EUR 400 O&G Debt o Permanent presence in 200 Russia, Kazakhstan, - Mongolia, Ukraine, 2011 2012 2013 2014 2015 Egypt, Turkey and 91% Bulgaria. o 2 in-house mining and Operating assets by sub-sector Portfolio by region petroleum engineers involved in technical 6% appraisal, due diligence 18% 7% S. E. Mediterranean and monitoring. 26% o Access to additional Russia expertise (consultants). O&G E. Eur. Caucasus

• Key sectors: 30% S. E. Europe Mining o Oil & Gas up-, mid-, and Central Asia downstream. 30% o Mining and services. 74% Central Europe 9%

Financing across the Natural Resources value chain

Introduction to EBRD EBRD Natural Resources Track Record Working Together

Mining • Flexible financing solutions: Reserve based Equity / Mezzanine lending, trade finance, convertible debt, early equity are some examples of Exploration Development/early production Mature/expansion the Bank`s wide product range.

• Support across Debt stages of development. The EBRD supports Oil and gas strong sponsors in pre-development stage financing, Equity / mine/field Mezzanine development, project expansion and Exploration / Start-up Development/early production Mature/expansion services providers .

Debt

8 EBRD – Power and Energy Utilities

Team of ca. 35 bankers, based in London, Almaty, Amman, Belgrade, Budapest, Bucharest, Cairo, Istanbul, Kiev, Moscow, Tbilisi and Warsaw EBRD’s Power team works closely as a trusted partner to clients and governments in: • Promoting renewable and sustainable energy through direct financing an policy dialogue • Supporting sector reforms and allowing market principles to develop (e.g. increased competition, market liberalisation, increased private ownership) • Strengthening frameworks and infrastructure that lead to regionalisation (eg. trans-border transmission lines, regional trading hubs) but also integration of renewable energy • Supporting the deployment of new technology e.g. smart metering

9 EBRD – Power and Energy Utilities

• Cumulative EBRD financing in the power Commitments in € billion 1.4 12 Net

and energy sector since 1992 has exceeded EUR 11bn, spread across 228 1.2 10 cumulative Commitments 1 projects. Total value of these projects is 8 c.EUR 39bn. 0.8 6 0.6 4 • In 2015 EBRD invested over EUR 1.2 0.4

billion in 20 projects in the power & energy CommitmentAnnual 0.2 2

sector. 0 0

• In each of the last four years, annual Annual commitment Net Cumulative Commitments power & energy investments exceeded Financing by Sector (1991 – 2015) EUR 1bn and at least 20% of those funds 2% went towards renewable energy generation 9% projects. Electric Generation Electric Transmission 19% • EBRD power investments cover electricity Electric Distribution 44% generation, transmission, distribution, Renewable Power renewable power, large hydro and natural Large Hydro 14% gas distribution. Natural Gas Distribution 12%

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Power and Energy Utilities – Financings by Region

• Privatisations: Made key investments in Financing by Region power and gas privatisations in Bulgaria, (1991 – 2015)

Moldova, Poland, Romania and Turkey. Southeastern Europe 6% 7% 25% Russia • IPPs are a key focus 8% Central Europe & Baltics Eastern Europe & Caucasus

Central Asia • In 2015 the EBRD signed €590mn of 19% 18% Turkey financing for 13 renewables deals with a Southern & Eastern total gross project value of €2.2bn. 17% Mediterranean

• Renewable energy technologies financed Renewables Financing by Region (2011–2015) since 2011 include primarily onshore wind Poland (57%), with geothermal (11%), small hydro 17% 24% Romania 2% (8%), solar (8%) and biomass (7%). Turkey 3% Regional • Award winning transactions include 6% Ukraine 5% 14% Kazakhstan Kirikkale CCGT (Turkey), Dariali hydro 6% Serbia Mongolia power plant (Georgia), and Ma’an Solar 23% Others (Jordan). Unaudited as at YE2015 Note: Renewable power excluding new build large hydro Source: EBRD data

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Approval process and due diligence

Introduction to EBRD EBRD Natural Resources Track Record Working Together

• Feasibility study • Completion risk Signing • Production capacity Technical • Reserves report Final • Air / water pollution • Management Documentation • Discharge • Health & Safety • Communities Board Approval Environ. & • Management systems

Social • ESAP / Gap Analysis

EBRD • Historical financials Final Review Due Diligence Financial • Projections Process • Financial Model • Credit Ratios Due Diligence Structure Review Energy Audit • Supply-demand

Our approval process approval Our Term Sheet Market • Competitors KYC • Price projections • FX exposure • Security Concept Review Legal & • Charter / Incorporation Contracts • Ownership and title • Licenses, permits • Legal agreements • Insurance

12 Selected Cases

EBRD transactions: Case Studies 07900522207 Upstream Oil & Gas and Oil Field Services

Energean Oil & Gas, Greece – Upstream oil and gas field development

EBRD Finance Project SummarySigned in USD 75 million senior loan and a USD 20 million subordinated loan to Energean Oil & Gas, the only private upstream oil and 2016 gas producer in Greece. Project USD 186 million for development of two projects, the Prinos and Epsilon oil fields off northern Greece, and funding of energy efficiency investment programme. Environmental Impact Both projects will help the company set higher standards for environmental, health and safety management and support the Greek government to improve the regulatory framework for offshore operations. Transition Impact (1) Largest investment in the Greek upstream sector, strengthening local business during the recovery period (2) Introduction of new technologies for operational efficiencies. (3) Technical support to the Greek government to achieve international best practice in the oil and gas sector. Link to Project Summary Document 1 / Link to PSD 2

Merlon, Egypt – Upstream offshore oil and gas field development

EBRD Finance Project SummarySigned in USD 40 million loan to Merlon Petroleum El Fayum, an independent upstream oil & Gas company operating in Egypt. 2015 Project USD 80 million investment programme, including investments to reduce associated petroleum gas (APG) flaring, and capital expenditures for field development. Environmental Impact Comprehensive Environmental & Social Action Plan (ESAP) agreed with the client. Reduction in the flaring of APG and carbon emissions through the implementation of an APG utilisation programme. Improvement of the company’s chemical and waste storage facilities. Transition Impact (1) Support of private sector development and increased competition in the oil and gas sector. (2) Demonstration of new technologies to capture APG. (3) High standards of transparency and disclosure of payments to the Egyptian authorities. (4) Continued Policy Dialogue efforts in relation to APG utilisation and abatement in Egypt. Link to Project Summary Document

Serinus Energy, Tunisia – Post-merger integration and expansion

EBRD finance Project SummarySigned in USD 40 million long term loan and USD 20 million convertible note to Serinus Energy Inc, a Canadian mid-sized oil and gas company resulting from the merger between Kulczyk Oil 2013 Ventures (KOV) and Winstar Resources. Project USD 166 million investment plan for the development of the Company’s Tunisian oil and gas operations. Environmental Impact Introduction of Environmental & Social Action Plan envisaging: improvements in staff trainings, cycling of drilling mud, water efficiency, emergency planning, stakeholder engagement, air and water pollution monitoring, treatment waste. KOV’s HR policies have been aligned with Winstar’s own policies. Transition Impact (1) Support to a private independent hydrocarbons producer in Tunisia, where state-owned enterprise is still dominant. (2) Demonstration of operational efficiency and productivity gains. (3) Transfer of geological and operational know-how from the new owner. (4) Increased revenue transparency. Link to Project Summary Document

Romgaz S.A., Romania – Privatization of a state-owned operator

EBRD Finance Project SummarySigned in RON equivalent investment of EUR 50 million-worth of ordinary shares in the IPO of Societatea Națională de Gaze Naturale Romgaz S.A. (Romgaz) in exchange of a 1.9% stake. 2013 Romgaz shares are dual listed on the Bucharest Stock Exchange (BSE) and the London Stock Exchange (via GDRs) Project Romgaz, a state controlled joint stock company, is Romania’s largest gas producer. The purpose of the project is to assist Romgaz to improve its corporate governance, internal control systems and environmental management practices. Transition Impact (1) Through the IPO the Ministry of Economy reduced its holding from 85% to 70%, which increased the private sector participation in Romania’s energy sector and contributed to the development of Romania’s capital markets. (2) Improved corporate governance standards through the implementation of a Corporate Governance Action Plan, prepared jointly by the Bank and the Company, and included in the IPO prospectus Link to Project Summary Document Link to Press Release

Bankers Petroleum, Albania – Environmental remediation

EBRD Finance Project SummarySigned in USD 55 million borrowing-base loan (BBL) co-financed with IFC, USD 5 million remediation loan plus CAD 12 million equity to Bankers Petroleum, a Canadian oil and gas company. In 2013, 2009 the BBL was increased to USD 100 million. Project USD 130 million initial costs (extension: USD 439 million) to expand and modernise the Patos Marinza oil field in southern Albania, one of the largest onshore oil deposits in Europe. Environmental Impact Remediation of environmental damage and long-standing issues (leakages and spills) around the heavily contaminated Patos Marinza field. Improved life conditions of nearby residents resulting from reduced pollution. Transition Impact (1) Support private investment in the Albanian oil sector. (2) Demonstration of higher standards for environmental management. (3) Increased tax revenue transparency. (4) Technical Cooperation project (EUR 50,000) to improve social/retrenchment practices by the Albanian authorities. Link to Project Summary Document

EBRD transactions: Case Studies

Midstream Oil & Gas: Gas Trade, Transmission, Storage and LNG Transportation

Sonker, Egypt – Development of a bulk liquids terminal

EBRD Finance Project SummarySigned in USD 94 million EBRD financing, consisting of a USD 71.9 million senior loan and a USD 21.8 million mezzanine facility to Sonker Bunkering Company SAE (Sonker), a private 2016 hydrocarbon storage and trans-shipment company owned by the Amiral Holding and the Egyptian Government. The EBRD financing is part of a larger package with IFC and CIB. Project USD 504 million for the construction and operation of a bulk liquids terminal at the port of Sokhna, on the Red Sea. This infrastructure project is critical to Egypt’s energy security to meet its requirement for gasoil, LPG and LNG imports. Environmental Impact Comprehensive Environmental & Social Action Plan (ESAP) has been agreed with the client. Transition Impact (1) Promote private ownership in Egypt as Sonker is one of the few independent private players in the sector. (2) Demonstrate the benefits of efficient operation of the hydrocarbons import handling sector. (3) Standards of corporate governance. Link to Project Summary Document

BH-Gas, Bosnia-Herzegovina –Gas pipeline development

EBRD Finance Project SummarySigned in EUR 19 million senior loan to BH-Gas d.o.o. Sarajevo, a state- owned company active in transport and wholesale of natural 2010 gas in the Federation of Bosnia and Herzegovina. Project USD 23.5 million project for the construction of new 40km high-pressured natural gas transport pipeline to enable natural gas supply to four municipalities in Central Bosnia Canton providing clean and efficient alternative fuel supply Environmental Impact A comprehensive Environmental & Social Action Plan has been agreed with the Bank. The pipeline will provide an alternative clean energy source and impact CO2 emissions. Transition Impact (1) Support reform of the natural gas sector in Bosnia and Herzegovina. (2) Support through Technical Cooperation the competitive environment in the gas infrastructure sector by enabling private companies to participate in public tenders on an equal basis. (3) Setting standards for environmental, health and safety management and procurement. Link to Project Summary Document / Press Release

Srbijagas, Serbia – Gas network rehabilitation / Storage development

EBRD Finance Project SummarySigned in EUR 150 million senior sovereign-guaranteed loan to Srbijagas, which is engaged in natural gas transmission, distribution, storage and trade and is 100% owned by the 2010 Republic of Serbia. Project EUR 150 million project to rehabilitate 40% of Serbia’s gas transmission network and develop a new gas storage facility. Through the financing, EBRD also supports the reorganization and financial restructuring of Srbijagas and support the gas sector reform in the country. Transition Impact (1) Support to the ongoing unbundling process by gradually separating and auditing accounts, creating separate management teams and legally separating transport and trade activities. (2) Demonstration of successful financial and operational restructuring. (3) Government's commitment to pass amendments to the energy law and increase the independence of the regulator and secure third party access to the country’s transmission and storage infrastructure. Project Summary Document / Press Rel. 1 / Press Rel. 2

Plinacro, Croatia – Acquisition of strategic gas storage assets

EBRD Finance Project SummarySigned in EUR 70 million senior corporate loan secured with a sovereign guarantee to Plinacro d.o.o., a state-owned company and the 2009 Croatian natural gas transmission system operator. Project Financing of the acquisition of Podzemno Skladiste Plina d.o.o., a company that owns a strategic underground gas storage facility at Okoli. The acquisition of Okoli will enable Plinacro to implement non-discriminative third party access to storage gas supply. Environmental Impact A comprehensive Environmental & Social Action Plan (ESAP) was agreed with the client. In addition, a Stakeholders Engagement Plan (SEP) was prepared. Transition Impact (1) Promote improvements in the efficiency of the gas storage and supply services, including commitment to rehabilitation and expansion of the storage facility. (2) Improvements in the regulatory framework for gas storage and gas market activities in Croatia. Link to Project Summary Document / Press Release

EBRD transactions: Case Studies

Downstream: Petroleum Refining

Tüpraş, Turkey – Resource efficiency investment programme

EBRD Finance Project SummarySigned in USD 150 million loan to Tüpraş, Turkey’s largest industrial company and the owner of the country’s four active refineries. 2016 Project USD 232 million resources efficiency programme, including a new on-site thermal power plant, waste heat recovery system, stack gas treatment, water treatment plant, new fluid catalytic cracker and hydrocracker unit at Kirikkale and Izmir plants. Environmental Impact Reduction in NOx and CO2 emissions (270,000 tonnes/year) and water consumption (2.6 mcm/year) as a direct result of the project. Comprehensive Environmental & Social Action Plan (ESAP) to bring the plants in line with EU standards. Transition Impact (1) Largest resource-efficiency programme in the Turkish industrial sector to date, fully in line with the Bank’s Green Economy Transition approach. (2) Demonstration of increased competitiveness stemming from efficiency upgrades. (3) Demonstration of OHS standards in line with EU Seveso III directive and beyond national requirements. Link to Project Summary Document

INA, Croatia –Energy efficiency and modernization programme

EBRD Finance Project SummarySigned in EUR 210 million loans from EBRD (EUR 150 million), Cordiant Emerging Fund of Canada (EUR 10 million) and ICF Debt Pool 2010 (EUR 50 million) to INA, a Croatian integrated oil company. Project First stage of INA’s refinery modernization programme, including: (i) introduction of modern technologies and improved business practices, (ii) implementation of energy efficiency sub-projects identified through the EBRD-led energy audit, and (iii) implementation of an environmental remediation programme and prevention at INA’s refineries. Environmental Impact Upgrade of environmental practices to comply with EBRD requirements, including: air monitoring, wastewater treatment systems, storage and handling of waste and completion of soil and groundwater quality assessments. Transition Impact (1) Increased competition in the sector and introduction of modern technology and improved practices leading to higher efficiencies. (2) Technical and marketing know-how transfers. Link to Project Summary Document

Hellenic Petroleum, Regional – Feedstock supply pipeline

EBRD Finance Project SummarySigned in USD 50 million A/B loan (of which USD 25 million syndicated) to Okata Refinery, an Hellenic Petroleum’s subsidiary 2000 operating in FYR Macedonia. Project Construction of a 2.5 Mtpa crude oil pipeline from Hellenic Petroleum’s facilities at Thessaloniki to the Okta refinery at Skopje. Environmental Impact Development of the project in line with the Bank’s Environmental standards. Mitigation of the risk of a major hazard accident by replacing rail transportation. The pipeline has been re-routed to pass through avoid land of ecological importance. Transition Impact (1) Reduction in transport costs by 40% and enhanced security of supply to the region. (2) Strengthened links between the oil sector and the rest of the economy through market expansion and regional integration of Hellenic Petroleum’s operations. Link to Project Summary Document

EBRD transactions: Case Studies

Downstream: Distribution of Traditional and Alternative Fuels

Bulmarket DM, Bulgaria – Expansion of LPG and LNG network

EBRD Finance Project SummarySigned in Parallel EUR 10 million loans from EBRD and IFC to Bulmarket DM, a Bulgarian fuels and natural gas distributor. 2015 Project Expansion of Bulmarket DM’s network of liquefied petroleum gas (LPG) terminals and development of a new terminal to store and distribute liquefied natural gas (LNG). Thanks to the project, Bulmarket DM is expected to become the first importer and distributor of LNG in Bulgaria. Environmental Impact Introduction of cleaner and more efficient fuels. Introduction of EBRD and IFC environmental and social requirements. Transition Impact (1) Diversification of the energy sources available to Bulgaria’s smaller businesses by introducing alternative and more competitive fuels. (2) Support the growth of an innovative local company committed to transparency and best environmental and safety standards. (3) The project is consistent with the LNG Masterplan of the European Commission’s Innovation and Networks Executive Agency. Link to Press Release

Prista Oil, Bulgaria / Turkey – Financial restructuring

EBRD Finance Project SummarySigned in EUR 36 million financing including a long term secured loan, an equity investment and a convertible loan to Prista Oil Holding EAD and Prista Oil Yag San. ve Tic., a producer and 2012 distributor of engine lubricants in Bulgaria and Turkey Project USD 60 million financial restructuring of the Prista group, thereby improving its corporate and shareholders structure and capital investment financing to turn around the lubricants business performance in Bulgaria and Turkey. Environmental Impact Comprehensive Environmental & Social Action Plan (ESAP) including improvement in waste and materials storage; individual employee exposure monitoring; monitoring of wastewater discharges; and redefinition of Stakeholder Engagement Plan (SEP). Transition Impact (1) Elimination of unprofitable business lines and reduction of costs. (2) Implementation of an innovative branded services programme. (3) Corporate governance improvements. Link to Project Summary Document / Press Release

EBRD transactions: Case Studies

PEU Case Studies

28 September, 2016 32 Efeler Geothermal Plant – Turkey

Borrower Gurmat Elektrik

Mogan Enerji Yatırım Sponsor Holding, Guris Holding, Guris Construction

EBRD: US$ 200 million, signed 2015 Lenders Other banks: USD$ 520 million

Construction of the largest greenfield geothermal power Project plant in Turkey (123MW), located in the Aydin province.

Limited recourse project finance structure with project Structure completion support from the Sponsors

28 September, 2016 33 Ma’an Solar Programme – Jordan

Four separate Borrower private companies

Sponsor SunEdison, Scatec

Four loans totalling Lenders US$ 75 million, signed Sep 2014 Construction and operation of four solar power plants totalling 60 MW, as part of Jordan’s first round of solar Project IPPs, diversifying energy sources and reducing dependence on oil imports.

Structure Senior loan to private operator on a secured limited recourse basis.

28 September, 2016 34 Lastva - Pljevlja Transmission Line – Montenegro

Crnogorski Borrower Elektroprenosni Sistem AD (CGES)

Date May 2013

EBRD: € 60 million Lenders KfW: € 25 million

Construction of a 400kV high voltage transmission line and associated infrastructure connecting a new Project undersea cable from Italy to Montenegro with Pljevlja in Northern Montenegro

Structure Sovereign loan

28 September, 2016 35 Khalladi Wind Farm – Morocco

Borrower UPC Renewables

ACWA Power, UPC Sponsor Renewable and ARIF

EBRD: € 57 million Lenders EBRD Special Fund: € 10 million Local bank: € 67 million

Construction of a wind farm of up to 120 MW near Project Tangiers in northern Morocco. First private project to sell electricity directly to high voltage private offtakers.

Senior secured limited-recourse project finance Structure structure. Loan in local currency (MAD).

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