PUBLIC DOCUMENT OF THE EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT Approved by the Board of Directors on 16 September 20201 LITHUANIA PROJECT OCTAVIA [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. As permitted by paragraph 2.6 of Section III of the Access to Information Policy, disclosure of this Board Report was deferred. 1 PUBLIC PUBLIC TABLE OF CONTENTS Page TABLE OF CONTENTS ........................................................................................... 2 ABBREVIATIONS / CURRENCY CONVERSIONS ............................................. 3 PRESIDENT'S RECOMMENDATION ................................................................... 5 BOARD DECISION SHEET ..................................................................................... 6 ADDITIONAL SUMMARY TERMS FACTSHEET .............................................. 7 1. STRATEGIC FIT AND KEY ISSUES ............................................................ 8 1.1 STRATEGIC CONTEXT ............................................................................... 8 1.2 TRANSITION IMPACT ............................................................................... 10 1.3 ADDITIONALITY ....................................................................................... 11 1.4 SOUND BANKING - KEY RISKS ................................................................ 12 1.5 SOUND BANKING - EQUITY CASE ............................................................ 13 2. MEASURING / MONITORING SUCCESS................................................. 16 3. KEY PARTIES ................................................................................................ 17 3.1 INVESTEE COMPANY ............................................................................... 17 4. MARKET CONTEXT .................................................................................... 18 5. FINANCIAL / ECONOMIC ANALYSIS ..................................................... 19 5.1 HISTORICAL FINANCIAL ANALYSIS ........................................................ 19 5.2 FINANCIAL PROJECTIONS ....................................................................... 19 5.3 EXIT STRATEGY ....................................................................................... 19 5.4 PROJECTED PROFITABILITY FOR THE BANK .......................................... 19 6. OTHER KEY CONSIDERATIONS.............................................................. 19 6.1 ENVIRONMENT ......................................................................................... 19 6.2 INTEGRITY ............................................................................................... 20 6.3 PROCUREMENT ........................................................................................ 20 ANNEXES TO OPERATION REPORT ................................................................ 21 ANNEX 1 - SHAREHOLDING STRUCTURE ..................................................... 22 ANNEX 2 - GROUP INFORMATION ................................................................... 23 ANNEX 3 - HISTORICAL FINANCIAL INFORMATION ................................ 25 ANNEX 4 - MARKET OVERVIEW ...................................................................... 25 ANNEX 5 - LITHUANIAN EQUITY MARKET AND INVESTOR BASE ....... 32 ANNEX 6 – CORPORATE GOVERNANCE ........................................................ 34 ANNEX 7 – PROJECT IMPLEMENTATION ..................................................... 35 ANNEX 8 – BIOGRAPHY OF MANAGEMENT BOARD ................................. 36 ANNEX 9 - TRANSITION IMPACT SCORING CHART .................................. 39 ANNEX 10 – FINANCIAL PROJECTIONS ......................................................... 39 2 PUBLIC PUBLIC ABBREVIATIONS / CURRENCY CONVERSIONS Beta Beta is a coefficient of volatility in the Capital Asset Pricing Model BV Book Value BVPS Book Value per Share CAPEX Capital Expenditure CAPM Capital Asset Pricing Model CEE Central Eastern Europe CF Cash Flow CfD Contract for Difference CGAP Corporate Governance Action Plan CHP Combined Heat and Power COD Commercial Operation Date COVID Coronavirus disease CO2 Carbon dioxide DCF Discount Cash Flow DSCR Debt Service Coverage Ratio DSRA Debt Serve Reserve Account E&S Environmental and Social EBIT Earnings Before Interest and Tax EBITDA Earnings Before Interest, Tax, Depreciation and Amortisation EBRD European Bank for Reconstruction and Development ENTSO-E European Network of Transmission System Operators EPC Engineering, Procurement and Construction ERP Equity Risk Premium ESAP Environmental and Social Action Plan ESDD Environmental and Social Due Diligence ESO Energijos Skirstymo Operatorius EUR Euro EURIBOR European Interbank Offered Rate EV Enterprise Value FCFE Free Cash Flow to Equity FCFF Free Cash Flow to the Firm FiT Feed-in Tariff FiP Feed-in Premium GDP Gross Domestic Product GDR Global Depositary Receipt GW Gigawatt HPP Hydro Power Plant IFI International Financial Institution IFRS International Financial Reporting Standards IG AB Ignitis Grupe [formerly Ignitis Grupe UAB] IPO Initial Public Offering IRR Internal Rate of Return 3 PUBLIC PUBLIC KPI Key Performance Indicator LCP Local Content Premium LNG Liquefied Natural Gas LSE London Stock Exchange LIBOR London Interbank Offered Rate MW Megawatt MWe Megawatt Energy MWth Megawatt Thermal NCC National Commission for Energy Control and Prices ND Net Debt O&M Operations and Maintenance P/E Price to Earnings PSHP Pumped Storage Hydro Power Plant PPA Power Purchase Agreement RAB Regulated Asset Base RE Renewable Energy RES Renewable Energy Sources SAIDI System Average Interruption Duration Index SAIFI System Average Interruption Frequency Index SPA Share Purchase Agreement SPV Special Purpose Vehicle SRSS Structural Reform Support Service TC Technical Cooperation TCFD Task Force on Climate-related Financial Disclosures USD United States Dollar WACC Weighted Average Cost of Capital WtE Waste to Energy 4 PUBLIC PUBLIC PRESIDENT'S RECOMMENDATION This recommendation and the attached Report concerning an operation in favour of [AB] Ignitis Grupe 2 (the “Company” or the “Group”), a [public] limited liability company incorporated in Lithuania, are submitted for consideration by the Board of Directors. The operation consists of an equity investment of up to EUR 90 million in the upcoming Initial Public Offering (“IPO”) of the Company. The offering will be dual listed on the Vilnius Stock Exchange and London Stock Exchange. The IPO will involve the listing of up to 33 per cent shareholding in the Company. The Transaction will support [capital raise ] through an IPO of a major energy utility in the Baltics. The Bank’s participation and associated corporate governance improvements will give additional confidence to institutional and retail investors, thus supporting a landmark listing despite the current challenging conditions in capital markets. The Company will utilise the IPO proceeds to invest in modernising its distribution network and expanding its renewable energy capacity as part of its ongoing transition to a modern, smart, green utility. The expected transition impact of the Project stems from the Green and Resilient qualities. The operation will deliver climate mitigation benefits through energy efficiency, network modernization, and new green investments (Green).The operation will also make an important contribution to the local equity capital market development, a key objective for the Bank in the Baltics given the current lack of investable securities and poor secondary market liquidity (Resilient). I am satisfied that the operation is consistent with the Bank’s Strategy for Lithuania, the Bank’s Energy Sector Strategy, the Bank’s Green Economy Transition Approach, the Local Currency and Capital Markets Development Initiative and with the Agreement Establishing the Bank. I recommend that the Board approve the proposed equity investment substantially on the terms of the attached Report. Jurgen Rigterink Acting President 2 Since the preparation of this document, the Company has changed its name, and is now AB Ignitis Grupe. This change appears throughout the document. 5 PUBLIC PUBLIC BOARD DECISION SHEET LITHUANIA – Project Octavia - DTM 52352 Transaction / Board approval3 is sought for an initial public offering equity investment of up to EUR 90 Board Decision million in AB Ignitis Grupe (the “Company”, or the “Group”), a public limited liability company incorporated in Lithuania. The Bank’s investment will not exceed 15% of the share issue. The shares will be listed on Nasdaq Vilnius Stock Exchange and London Stock Exchange. Client AB Ignitis Grupe, a Lithuanian state-owned energy company, who mainly operates in: (1) distribution of electricity and gas, (2) generation of electricity and heat; and (3) trading and supply of electricity and gas. In May 2020, S&P assigned the Company BBB+ credit rating. In FY2019, the Company achieved EUR 1.1 billion of revenue and EUR