DOCUMENT OF THE EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT Approved by the Board of Directors on 24 June 20201 CYPRUS Cyprus FSRU [Redacted in line with the EBRD’s Access to Information Policy] [Information considered confidential has been removed from this document in accordance with the EBRD’s Access to Information Policy (AIP). Such removed information is considered confidential because it falls under one of the provisions of Section III, paragraph 2 of the AIP] 1 As per section 1.4.8 of EBRD’s Directive on Access to Information (2019), the Bank shall disclose Board reports for State Sector Projects within 30 calendar days of approval of the relevant Project by the Board of Directors. Confidential information has been removed from the Board report. TABLE OF CONTENTS Page TABLE OF CONTENTS ........................................................................................... 2 ABBREVIATIONS / CURRENCY CONVERSIONS ............................................. 3 BOARD DECISION SHEET ..................................................................................... 5 ADDITIONAL SUMMARY TERMS FACTSHEET .............................................. 6 1. STRATEGIC FIT AND KEY ISSUES ............................................................ 8 1.1 STRATEGIC CONTEXT ............................................................................... 8 1.2 TRANSITION IMPACT ................................................................................. 9 1.3 ADDITIONALITY ....................................................................................... 11 1.4 SOUND BANKING - KEY RISKS ................................................................ 11 2. MEASURING / MONITORING SUCCESS................................................. 13 3. KEY PARTIES ................................................................................................ 13 3.1 BORROWER .............................................................................................. 13 3.2 SPONSORS ................................................................................................ 14 3.3 EPC CONTRACTOR ................................................................................. 14 4. MARKET CONTEXT .................................................................................... 15 5. FINANCIAL / ECONOMIC ANALYSIS ..................................................... 15 5.1 FINANCIAL PROJECTIONS ....................................................................... 15 5.2 SENSITIVITY ANALYSIS ........................................................................... 15 5.3 PROJECTED PROFITABILITY FOR THE BANK .......................................... 16 6. OTHER KEY CONSIDERATIONS.............................................................. 16 6.1 ENVIRONMENT ......................................................................................... 16 6.2 INTEGRITY................................................................................................ 18 6.3 ECONOMIC ASSESSMENT ......................................................................... 18 ANNEX 1- Shareholding and Commercial Structure ........................................... 21 ANNEX 2 – Project Description .............................................................................. 23 ANNEX 3 – Market Overview ................................................................................. 24 ANNEX 4 – Regulatory Annex ................................................................................ 30 ANNEX 5 - EAC and DEFA Financial Highlights ................................................ 30 ANNEX 6 – Transition Impact scoring chart......................................................... 31 ANNEX 7 – Greenhouse gas emissions analysis..................................................... 32 ANNEX 8 – Economic Assessment .......................................................................... 33 ANNEX 9 – Project Implementation....................................................................... 39 2 ABBREVIATIONS / CURRENCY CONVERSIONS bcm(a) billion cubic meter (per annum) GSA Gas Sales Agreement CAGR Compound Annual Growth Rate HFO Heavy Fuel Oil EU Innovation and Networks Executive CCGT Combined Cycle Gas Turbine INEA Agency CEER Council of European Energy Regulators IPP Independent Power Producer CEF Connecting Europe Facility LLCR Loan Life Coverage Ratio CERA Cyprus Energy Regulatory Authority LNG Liquefied Natural Gas CfDs Contracts-for-Differences MDB Multilateral development bank CNG Compressed Natural Gas MECI Ministry of Energy, Commerce and Industry CNPC China National Petroleum Corporation MMbtu Metric Million British Thermal Unit CO2 Carbone dioxide Mt(pa) million tons (per year) China Petroleum Pipeline Engineering Co CPP MW Megawatt Ltd DEFA Natural Gas Public Company of Cyprus NECP National Energy and Climate Plan DSCR Debt Service Coverage Ratio NOx Nitrogen oxides DSO Distribution System Operator NPL Non-Performing Loan EAC Electricity Authority of Cyprus NTS Non-Technical Summary Earnings Before Interest Tax (Depreciation EBIT(DA) OCCO Officer of the Chief Compliance Officer and Amortisation) EC European Commission OTC Over-The-Counter EIA Environmental Impact Assessment PCI Projects of Common Interest EIB European Investment Bank PM Particulate Matters Engineering, Procurement, Construction, EPC(OM) PP&R Procurement Policies and Rules (Operation and Maintenance) Procurement Policy and Advisory ESAP Environmental and social action plan PPAD Department ESD Environmental and social department PRs Performance Requirements ESDD Environmental and social due diligence PRMS Pressure Reduction and Metering Station Environmental and Social Management ESMS RAB Regulated Asset Base System ESMP Environmental and Social Monitoring Plan RAVB Regulated Asset Value Base ESP Environmental and Social Policy SO2 Sulphur dioxide Natural Gas Infrastructure Company of ETYFA SOE State-owned enterprise Cyprus EU European Union SEP Stakeholder Engagement Plan EUR Euro SPV Special Purpose Vehicle EURIBOR Euro Interbank Offered Rate TC Technical Cooperation EU-ETS EU Emissions Trading System tcf trillion cubic feet Financial and Operational Policies FOPC TCSA Terminal Cost Sharing Cost Agreements Committee FSRU Floating Storage and Regasification Unit TI Transition Impact GDP Gross Domestic Product TSO Transmission System Operator GET Green Economy Transition TUA Terminal Use Agreement GHG Green House Gas Measures 1 billion cubic meters (bcm) of natural gas = 35,800 Million British Thermal Unit (MMbtu) 3 PRESIDENT'S RECOMMENDATION This recommendation and the attached Report concerning an operation in favour of Natural Gas Infrastructure Company of Cyprus (“ETYFA” or the “Borrower”) a special purpose vehicle incorporated in Cyprus and ultimately 100% owned by the Republic of Cyprus, are submitted for consideration by the Board of Directors. The facility will consist of a loan to the Borrower in the amount of up to EUR 80 million to finance the acquisition of a floating storage and regasification unit (“FSRU”) and the development of related infrastructure in Vasilikos Bay, Cyprus (the “Project”). The Project will be co-financed by a parallel loan from EIB of up to EUR 150 million and by an EU grant under the Connecting Europe Facility (“CEF”) (EUR 101 million). The remaining project costs will be funded by an equity contribution from Electricity Authority of Cyprus (“EAC”). The loan will be guaranteed by the Republic of Cyprus. The Project is a critical component in Cyprus' energy strategy with significant energy security, environmental and economic impacts. By giving Cyprus access to the global LNG market it will improve security of supply. By using gas to replace expensive and polluting heavy fuel oil in electricity generation it will reduce CO2 emissions [REDACTED] and substantially improve local air quality. Similarly it will reduce Cyprus's electricity costs, currently among the highest in Europe. In the longer-term the availability of natural gas will facilitate both the development of a liberalised wholesale energy market and much higher penetration of intermittent renewable energy. The significance of the Project is reflected in its designation as an EU Project of Common Interest, and the large scale EU grant support. The Project accordingly targets the Resilient and Green Transition Qualities through its contribution to increasing Cyprus' energy security and decreasing the energy sectors emissions of both CO2 and local pollutants. The Project is 100% GET. I am satisfied that the operation is consistent with the Bank’s Strategy for Cyprus, the Energy Sector Strategy, the Green Economy Transition Approach and with the Agreement Establishing the Bank. The Project requires an exception from the use of EBRD’s Procurement Policies and Rules (“PP&R”). The Project will be co-financed by grant funding from the CEF. As per the regulation establishing the CEF, procurement must be carried out by the European Commission or one of the relevant bodies in accordance with the EU and national public procurement principles. An exception from the use of the Bank’s PP&R as envisaged under Clause 2.4 of the PP&R has been reviewed by FOPC on the 18th July 2019 and recommended for approval by the Board to allow the use of national procurement rules. I recommend that the Board approve the proposed loan substantially on the terms of the attached Report. Suma Chakrabarti 4 BOARD DECISION SHEET CYPRUS – Cyprus FSRU – DTM 50634 Transaction / Board Board