March 2012

© European Bank for Reconstruction and Development 2010 | www.ebrd.com

Financing Financing and investment in Russian and investment in Russian power industrypower industry

European Bank for Reconstruction and Development

EBRD: financing power sector

• Cumulative EBRD financing to power & energy projects since 1991 is €6.9 bn across 158 projects with €24 bn total value

• In 2011 invested over €1.2 bn in 25 projects with a total value of €3.9 bn

• Privatisations: Made key investments in power and energy sector privatisations in Bulgaria, Moldova, Poland, Romania and Turkey

• Renewables represent c. 15% of total financing today, comprised primarily of wind and hydro, but also including biomass

Financing by Region (1991 – 2011)

Unaudited as at 31 December 2011Note: SEE includes Romania and Bulgaria. Turkey became a country of operation in 2008.

Source: EBRD data

100% = €6.9

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Turkey3%

Central Europe &

Baltics21%

Central Asia8%

South-Eastern Europe

28%

Other1%

Russia20%

Eastern Europe & Caucasus

19%

ЕBRD in the Russian Power Sector

• Support for sector reform

• Total volume of direct financing for the Russian energy sector – €1.4 bn

• Total volume of mobilised funds (including syndication) – €2.4 bn

• 17 large transactions with the leading power and energy companies

• The first long-term loans in roubles in the sector (Mosenergo, FGC, RusHydro)

• The first ever IFI shareholder in reorganised generating companies (OGK-5, TGK-9)

• Participation in long-term rouble bond issues (RusHydro – 5 year, Federal Grid – 7 and 10 years)

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Support for power reform in Russia

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Beginning of reforms Final stages of reforms

Equity

Debt

Policy Dialogue

/ TCs

2001: Loan to RAO UES/ MOU

2004: Distribution tariff methodology TC

First IFI to support privatization process and high-calibre strategic investors in generating companies through equity participations.

2002 - 2006: Loans for energy efficiency investments (Lenenergo, Mosenergo, HydroOGK); and infrastructure – FGC, System Operator

2005: Dispatch tariff methodology review

2006: Transmissiontariff methodology review

2008: • Heat Law review• Clean coal study• Assessment of

power sector reform (Frontier’s Report)

2009/10: • BAT assessment review (OGK-5)• Technical audits/project reviews

(TGK-8, TGK-13) • Integrated Approach to projects in

Russian thermal generation sector• Draft Capacity Market Law review

(internal)2003: RAO UES business plan TC

2007: Wind farm regulatory framework TC

2001: Establishment of RAO UES Restructuring Committee

2010/11: Renewables support TC

2006: OGK-5 public offering 2007: TGK-9 privatization 2008: OGK-5 strategic sale

2010: Investment into Rushydro bond issue to finance efficiency-improving investment programme

2010/11: Investments into FGC bond issues to finance grid system reliability improvement

2011: loan to RusHydro to fund balance sheet optimization of its newly acquired subsidiary in Russia’s Far East

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2009: Loans for energy efficiency with private gencos: OGC-5 and TGK-13

Key EBRD projects in the Russian power sector

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Year ClientTotal Value of

the ProjectEBRD

FinancingLoans

2001 RAO UES of Russia €100m €50m2002 MosEnergo $70m €37m2003 LenEnergo €40m €40m2004 System operator €80m €60m2005 FGC UES RUR 5bn €39m2005 MosEnergo RUR 7.2bn €67m2006 HydroOGC (RusHydro) RUR 6.3bn €53m2009 OGK-5 €120m €120m2009 TGK-13 $75m €50m2009 LUKoil (TGK-8) $300m €143m2010 RusHydro (Rouble Eurobond) RUR 20bn €105m2010 FGC UES (Rouble Eurobond) RUR 15bn €85m2011 FGC UES (Rouble Eurobond) RUR 10bn €20m2011 RusHydro Far East RUR 8bn €186m

Equity investment2006 OGK-5 €26m2007 TGK-9 €139m2008 OGK-5 €175m

• Debt and equity financing of private generating companies, created on the basis of OGKs and TGKs, for investment programmes aimed at energy efficiency improvements

• Debt financing of grid companies to fund investment programmes aimed at modernisation and reduction of losses

• Dialogue with regulating authorities regarding further energy market liberalisation, improvement of RAB regulation, development of the legislative base for renewable sources of energy

• Financing for independent power producers (IPPs) on the basis of project financing

• Financing of viable projects in renewable energy sector

EBRD strategy in the Russian power sector

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Current issues in the sector

• Changes in electricity and capacity market rules

• Capacity market is still de facto regulated

• Long-term electricity and capacity contracts are not attractive both for suppliers and customers

• De facto de-privatisation in the generating sector: exit of the private investors, consolidation of generating assets by the state companies

• RAB: significant growth of tariffs due to absence of mechanism to control investment costs included in the tariffs

• Renewable energy: absence of a price support mechanism

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EBRD: Foundations of Operations

• Apply sound banking principles to all projects– We do not subsidise

• Advance the transition to a full market economy– Priority to promote private sector involvement and market

expansion

• Support, but not replace, private investment: additionality– Act as a catalyst for higher and riskier involvement of financiers

• Achieve environmentally sound and sustainable development

• Client’s integrity, reputation and corporate governance quality are important

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Debt FinancingDebt Financing

• Long-term debt financing Long-term debt financing (10-15 (10-15 yearsyears)) in RUB, EUR or USD in RUB, EUR or USD

• Corporate loans and non-recourse financingCorporate loans and non-recourse financing

• Floating or fixed rateFloating or fixed rate

• Specified use of proceeds: investment projects and partial refinancingSpecified use of proceeds: investment projects and partial refinancing

• Standard covenantsStandard covenants ( (Debt/EBITDA, EBITDA/Interest)Debt/EBITDA, EBITDA/Interest)

• Additional funds mobilised through loan syndicationAdditional funds mobilised through loan syndication

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Equity InvestmentsEquity Investments

Key parametersKey parameters EBRD FinancingEBRD Financing

EBRD equity stakeEBRD equity stake Minority stake (usually below 20-25% of share capital)Minority stake (usually below 20-25% of share capital)

Entry PriceEntry Price Market price or price paid by strategic investorMarket price or price paid by strategic investor

EBRD contribution to EBRD contribution to Corporate Governance Corporate Governance ImprovementsImprovements

Board’s seat for an EBRD representative or an Board’s seat for an EBRD representative or an Independent Director Independent Director

Agreement on corporate governance requirements, Agreement on corporate governance requirements, environmental and financial policyenvironmental and financial policy

Protection of minority rightsProtection of minority rights

AgreementsAgreements Shares’ Purchase AgreementShares’ Purchase AgreementShareholder’s AgreementShareholder’s Agreement

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