Energy Infrastructure andNew Sources of Capital

Hugo Verdegaal, Managing Director

Citi Oil & Gas Banking Banking

June 25th, 2008

Strictly Private and Confidential

Table of Contents

1. Emerging Market Context

2. Privatization Trends

3. Private Equity in U.S. Energy Infrastructure

4. Major Infrastructure Funds

5. Case Study: BORCO

1. Emerging Market Context

Type of infrastructure 2000 - 2010Approximate % of World GDP

2010 - 2020Approximate % of World GDP

2020 - 2030Approximate % of World GDP

Road $220 0.38% $245 0.32% $292 0.29%

Rail 49 0.09% 54 0.07% 58 0.06%

Telecoms 654 1.14% 646 0.85% 171 0.17%

Transmission & Distribution 127 0.22% 180 0.24% 241 0.24%

Water 2 576 1.01% 772 1.01% 1,037 1.03%

Total $1,626 2.84% $1,897 2.49% $1,799 1.79%

Global Infrastructure Market

Massive need for global infrastructure investment

– The OECD estimates a $53 trillion need for infrastructure investment through 20301

Constitutes approximately 2.5% of world GDP

Rising social costs are increasing the need for private investment

Growth of public sector debt and deficits are spurring privatizations

Increasingly greater awareness and appreciation of private sector contributions

Source: OECD1: Excludes ports and airports2: OECD countries, Russia, China, India and Brazil only

Estimated Average Annual World Infrastructure Expenditure($ in billions)

“Infrastructure” broadly defined comprises assets in Transportation, Energy, Power, Water, Waste, Telecom and some other sectors that offer stable, comparably low-risk, long-term cash flows, that are often inflation-protected, contractually secured and regulated by state and/or federal authorities.

1

GDP Growth in Major Emerging Markets

Source: Economist Intelligence Unit.

0%

2%

4%

6%

8%

10%

12%

14%

2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029

GD

P(%

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ang

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a)

Brazil China India Russia

2

Per Capita Energy Consumption

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

En

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n (

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Russia China Brazil India U.S. W. Europe

Source: Economist Intelligence Unit

3

Energy Infrastructure Requirements in Emerging Markets

International Energy Agency World Economic Outlook 2006:Energy InvestmentCumulative Investment in Energy Supply Infrastructure(using the IEA's Reference Scenario for 2005-30)US$ bn in year 2005-dollars

Coal Oil Gas Power TotalOECD 156 1,149 1,744 4,240 7,289North America 80 856 1,189 1,979 4,104Europe 34 246 417 1,680 2,376Pacific 42 47 139 582 809

Transition Economies 33 639 589 590 1,850Russia 15 478 440 263 1,195

Developing Countries 330 2,223 1,516 6,446 10,515Developing Asia 298 662 457 4,847 6,264 China 238 351 124 3,007 3,720 India 38 48 55 967 1,108 Indonesia 13 49 86 187 335Middle East 1 698 381 396 1,476Africa 20 485 413 484 1,402Latin America 12 378 265 719 1,374 Brazil 1 138 48 252 439

Inter-regional Transport 45 256 76 N/A 376

World* 563 4,266 3,925 11,276 20,192*World Total Includes US$161 billlion of investment in biofuelsSource:International Energy Agency World Economic Outlook 2006

4

2. Privatization Trends

Infrastructure Demand – Why Private Investors Are Piling Up

High gearing

capacity

Risk mitigated by

regulation/contract

Stable equity

return

Inflation

hedged

Long

maturity

Inelastic

demand

Often

monopolies

High Entry

Barriers

Higher return compared to similar risk profile

assets

Low Correlation with other asset classes

5

Infrastructure Supply – From Public to Private

Typical Sector Dynamics

A larger proportion of infrastructure moves to the private sector, the secondary market becomes more efficient, and the sector develops until it demands the full range of banking services.

Private projectsAsset salesPPP Deals

Project/assetAdviceEquity and debt

Full private Sectoractivity

Public and private equity and debt. Full scale M&A

Fiscal disciplineSearch for efficiencyPrevious underinvestmentStimulate growth

Privatization- trade sale- IPOPFI / PPP style projectsContracting out

Infrastructure activity in the private sector

BondsExportCreditGTS

Public sector or traditional private sector

Stage of market

development

Banking Products

Demanded

Expanding portfolios

Portfoliogearing

Secondary marketDevelopment plusCorporate privatization

Asset and corporateEquity / debt. Small and sporadic M&A

Typical Government Dynamics

6

$1 $1

$8 $8

$36$42

$44 $44 $45 $45

$54 $55 $56

$104$106 $108 $108 $110 $110 $111

$113

$124$128

$-

$20

$40

$60

$80

$100

$120

$140

Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07

Private Capital Invested in Infrastructure2006/2007 Estimated Cumulative Investments in Infrastructure(Transaction Value in $ billions)

PD Ports

Associated British Ports

Kinder Morgan Midstream Energy Companies

Peel Holdings

TXU Corp

Puget Energy

ICAFarac package I

United Utilities

7

Private Sector - Infrastructure Options for Government

Procurement of assets by the public sector using government funding

PPP Umbrella term covering a variety of

procurement initiatives Often Government shareholders Corporate or strategic reasons May not involve investment. May be

source of funds for Government; monetisation of assets

PFI One form of PPP is PFI Essentially a concession / project

finance where investment is required

Sale of Public Sector infrastructure assets

Statutory regulation Assets privately

owned for fixed period or in perpetuity

PPP/PFIs is a method of procurement of services that is more efficient than traditional procurement (i.e. that delivers “value for money”), while retaining government

ownership of infrastructure assets

Public Private Partnerships (PPP)

PrivatisationAsset Sales

Conventional Procurement

Governments have several ways to involve the private sector. Each method would meet specific government needs and objectives.

8

3. Private Equity in U.S. Energy Infrastructure

Where Private Capital Invested in the U.S. in 2007 / 08

Ports

Carrix, Inc (US, International)

MTC

AmPorts (US, Latin America)

Maher Terminals (US, Canada)

Gas T&D

Source Gas

Arkansas Western Gas

CNG Holdings

Colonial Pipeline (USA)

NGPL

Power

Cogentrix

Northern Star Generation

TXU*

Puget Energy

ConEd

Black Hills

Infrastructure

Water / Waste

Synagro

Waste Industries

The surge of private capital raised for infrastructure investments led to a number of successful transactions in the U.S. last year. Investments were made in Power/Energy, Ports, Rail, Roads, Telecom & Water/Waste.

*Significant merchant generation

Roads

Northwestern Parkway

Capital Beltway HOT Lanes

Miami Tunnel

Railroads

Florida East Coast

Telecom

Global Towers – Communication Towers

Other

UE Waterheater9

4. Major Infrastructure Funds

A number of new private infrastructure funds – primarily managed by investment banks and private equity groups – have been announced since the start of 2006. A shortlist below already accounts for over $150 billion in new capital

Recent Private Funds Raised Testimony to Market Strength

Source: Citi estimates, Probitas Partners.(*) Notes fund raising in progress.

By Banks GeographySize

(US$bn)ABN AMRO Renewable energy Fund NA 0.3ABN Australia NA 0.3-0.4ABN AMRO Infrastructure Capital Global 1.47Citi Infrastructure Investors Global 3.0Credit Suisse Asia, EM 1.0Dexia (20%) / GIMV (20%) Benelux 0.14ECP MENA Fund I MENA 0.52Franklin Templeton/ Hana Bank Korea 0.6Global Infrastructure Partners (GE /Credit Suisse) Global 5.6Goldman Sachs Infrastructure Partners Global 6.5Gulf One Infrastructure Fund I GCC 2.0HBG Infrastructure India/Pakistan 0.2HSBC/Dubai International Capital MENA 0.5ICICI Bank India 2.0IDFC/Citi/Blackstone/IIFCL/3i India 2.0ING Atlas Infrastructure Fund Europe 1.4Ithmar, Abraaj Capital, Deutsche Bank MENA, SE Asia 2.0Kookmin Bank/ ING Korea 1.2Korean Emerging Infrastructure Fund (Darby Overseas / Hana Bank)

South Korea 0.6

Macquarie Infrastructure Partners I and II US, Canada 4.0 and 6.0Macquarie Korea Opportunities Fund S.Korea 0.4Macquarie-Equity Partners Infrastructure Fund No.1 (EPIC)

Global 0.1

Macquarie Telecommunications Infrastructure Global 3.0Merrill Lynch Global 2.0Morgan Stanley Global 3.5NIBC European Infrastructure Fund I EU 0.5Prudential M&G Infrastructure Fund Europe 2.0RREEF (Deutsche Bank) European Infrastructure, NA Europe, N.America 8.9Santander Latin America 1.0Thomas Weisel India Infrastructure Fund India 0.2UBS/ADIC Infrastructure Fund I MENA 0.5UBS Infrastructure Fund Global 1.5

By Operators GeographySize

(US$bn)

Brisa Europe, US 0.7

TransUrban Infrastructure Fund Global 2.0

By Private Equity Firms GeographySize

(US$bn)AIG Highstar III Global 3.5Alinda Infrastructure Fund I US, Canada,

EU3.0

Apollo Infrastructure Global 5.0Carlyle US/Global 1.0Carlyle Riverstone Renewable Energy Infrastructure US/Global ~1.0Clessidra Capital Partners Europe / Italy 1.5Conduit Capital Partners Latin Power III Latin America 0.3EMP Global Indonesia 1.0EOT Infrastructure Fund Scandinavia 1.4Hastings Private Equity Fund II Australia ~0.2IDFC Private Equity Fund II India 0.4IL&FS Urban Infrastructure Fund India 1.0IL&FS/Abu Dhabi Investment Company MENA 1.0Infracapital Partners W. Europe ~2.0Instrata Capital – Kuwait Investment / Sage Capital Gulf MENA 1.0Julius Baer Infrastructure Fund Global TBCNGP Energy Infrastructure and Resource Partners US 1.5Saratoga Capital Indonesia Fund Indonesia 0.53i Infrastructure Europe, NA,

Asia1.0

By Banks (continued) GeographySize

(US$bn)UTI India Fund India 0.5Vietnam Infrastructure Ltd Vietnam 0.4ZonesCorp Infra Fund (Macquarie Bank / Abu Dhabi Commercial Bank)

Middle East 0.3

10

Established Infrastructure Players

Greenfield Construction Growth

Construction

Growth Seasoned Operation

ConstructionRisk Premium: 8–10% Risk Premium: 6–8% Risk Premium: 3–6% Risk Premium: 2–3%

Construction companies are willing to assume higher risk levels

Investors looking for morestable cash flows and yield

Investors who desire lower risk/more mature assets

Ris

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ead

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ip C

apa

bility

Scope of Opportunity/Development

11

Volume of Capital Increasing, Enabling Larger Deal Sizes

Equity raised or allocations to funds for direct investment estimated at US$330bn This capital is mostly targeted at developed markets infrastructure Historically dominated by Australian and Canadian investors There are strong signs of interest from European and Middle Eastern investors and we expect US interest to follow

Single ticket capacity has increased substantially Larger names can invest over US$1bn in a single transaction Reduces the number of parties required in an auction

New and larger direct investorsIncreasing allocations to

infrastructureVolume of capital for infrastructure has

increased significantly

Increasing volume of capital

More experienced investors

Single deal size capacity has

increased

Fewer investors required to achieve a sale

Volume of capital for infrastructure equity is expanding and larger deals can be achieved.

12

Sovereign Wealth Funds – A New Source of Infrastructure Capital

• Sovereign Wealth Funds (SWFs) are big, and getting bigger

• As SWFs grow and multiply, more activity is moving to the aggressive end of the spectrum:

• More direct acquisitions and strategic transactions

• Growing involvement in the alternative investment industry

• In most cases, SWFs are largely passive investors looking to take non-control minority stakes and simply earn a stable return

• Examples include the equity placements by Citigroup and Merrill Lynch as well as GIC’s involvement in Ferrovial’s bid for BAA

• Governments are weighing perceived threats of SWFs against potential benefits. Managing political risk in SWF-related transactions is key

Country Fund NameAssets Managed

(US$mm) Source of Funds

United Arab Emirates Abu Dhabi Investment Authority 875,000 OilKuwait Kuwait Investment Authority 300,000 Oil

China China Investment Corp 200,000 FX ReservesSingapore GIC 128,000 Non-commoditySingapore Temasek Holdings 100,000 Non-commodityQatar Qatar Investment Authority 60,000 Oil and gas

Sovereign Wealth Funds

13

5. Case Study: BORCO

Case Study: BORCO Terminal Acquired by First ReserveOn February 2, 2008, Petroléos de Venezuela (“PDVSA”) signed an agreement to sell its wholly-owned subsidiary, Bahamas Oil Refining Company (“BORCO”), to First Reserve Corporation (“FRC”) for US$900 mm.

Transaction Highlights Acquisition Rationale BORCO is a crude and products storage terminal located in Freeport, Bahamas with an installed

storage capacity of 19.7 million barrels and 3 deep-water jetties

First Reserve has agreed to buy 100% of BORCO for US$900 million in cash, before any adjustments, to take over BORCO’s operations

– First Reserve has formed a strategic partnership with Shell

– Shell has already agreed to a contract to occupy a significant portion of the storage capacity

Vopak has reached agreement with First Reserve to form a strategic joint venture

– The terminal will be operated by Vopak

– Vopak will acquire a 20% interest in the terminal, which will be named Vopak Terminal Bahamas

Deal Multiples

– Firm Value / 2008E EBITDA multiple of 19.1x

– Firm Value / Storage Barrel of US$45.70

This transaction is part of PDVSA’s strategy to monetize its non-core international assets

The transaction is expected to close in 1H2008

Citi acted as exclusive strategic & financial advisor to PDVSA in this transaction

Strategic Geographic Location– Within 80 miles of the Florida coastline– One of the few deepwater marine terminals equipped to handle

VLCC’s and ULCC’s that can service the U.S. East Coast Flexible Service Options

– Capability to receive, store, heat, blend and transfer crude oil, fuel oil, diesel, gasoline, jet fuel, naphtha and ballast water

Significant Growth Opportunities– Maximization of local, Florida and East Coast markets via

transshipment, bunkering, and tug & towing– 208 acres of undeveloped land to build additional storage terminals– Existing permit for development of an onsite refinery

Favorable Tax and Regulatory Environment– No income or capital gains taxes– Freeport is a bonded area with favorable import regulations

Strategic Positioning Going Forward– First Reserve will be able to develop strong relationships with its

clients, primarily Shell, as operator of the terminal

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