JSC Caucasus Energy and Infrastructure (CEI) JSC Caucasus Energy and - - PowerPoint PPT Presentation

The Company Presentation The Company Presentation

October 2008

JSC Caucasus Energy and Infrastructure (CEI) JSC Caucasus Energy and Infrastructure (CEI)

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CEI CEI – – Company Profile, Corporate ID Company Profile, Corporate ID

Key Facts

Sakaropel 6.0% Artradis Fund 6.0% Other 20.5% Consibilink 8.0% Kairos Fund 39.7% Kairos Eurasian Fund 19.8%

Ownership Structure Highlights Strategy

A joint stock company organized under the Georgian legislation in 2007 Obtained a Georgian Stock Exchange listing in January, 2008 Launched a GDR program with BONY in March, 2008 Obtained licenses for the construction of two HPPs in Georgia Complete a database of technical and economic parameters

• f potential greenfield HPP projects in Georgia

Since the first closing, the CEI share price grew from GEL 1.60 to GEL 1.70, up 6.3% CEI holds a mandate to invest in Georgian and regional companies engaged in: Production, transmission and distribution of electricity Production, transmission and distribution of gas Extraction, distribution and marketing of crude and oil products Management of water utilities Development of cargo warehousing and logistics Management of toll roads Waste management and recycling Development

• f

carbon emission trade-related

• pportunities

CEI intends to concentrate on greenfield investments in small and medium-size HPPs and electricity transmission lines in Georgia

Domicile: Georgia IPO: February 2008 Private Placement: US$50 million GSE Ticker Code: NRGY GDR Issue: March 2008 GDR/Share Ratio: 1 GDR equals 10 company shares Bloomberg Ticker Code: 2728484Z LI Equity Investment Advisor: Galt & Taggart Asset Management, LLC Registrar: JSC Kavkasreestri Legal Counsel: BGI Legal Auditor: Ernst & Young Georgia LLC Base Currency: Georgian Lari (GEL) Outstanding shares, mln 50.0 Free Float (%) 100% Mcap, US$ mln 57.9

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CEI CEI – – Key Projects Key Projects

Location: Akhaltsikhe District, Southern Georgia River: Mtkvari Head: 72.0 m Water discharge: 55.0 m

3/sec

Number and type of units: 2; Francis Construction time: 4.5 years Potential installed capacity: 28.0 MW Annual power output: 160.0 GW/h Estimated construction costs: US$ 48.0 mln Estimated tariff range (kWh): US¢ 4.5 - 6.0 Estimated payback period: 8-10 years Expected life-span of the plant: 50 years

Mtkvari HPP Dzegvi HPP

Location: Mtskheta District, Eastern Georgia River: Mtkvari Head: 9.5 m Water discharge: 160.0 m

3/sec

Number and type of units: 2; Kaplan Construction time: 3.5 years Potential installed capacity: 10.0 MW Annual power output: 60.0 GW/h Estimated construction costs: US$ 17.0 mln Estimated tariff range (kWh): US¢ 5.0 - 6.0 Estimated payback period: 8-10 years Expected life-span of the plant: 45 years

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CEI CEI – – Consolidated Financial Statements (IFRS) Consolidated Financial Statements (IFRS)

Income Statement (GEL) Q3-2008 Q2-2008 Change, % (Unaudited) (Unaudited) Operating revenue

• n/a

Non-operating revenue 2,234,544 1,523,988 47% Total revenue 2,234,544 1,523,988 47% Professional services (105,131) (117,829)

• 11%

Payroll (114,297) (104,159) 10% FX loss (133,044) (100,166) 33% Bank commissions (21,616) (876) 2

Rent (16,885) (19,149)

• 12%

Depreciation (4,737) (3,567) 33% Business trips (6,391) (190) 3

Other operating expenses (20,916) (1,855) 1

Total operating expenses (423,017) (347,792) 22% Profit/(loss) before income tax 1,811,527 1,176,195 54% Income tax (275,221) (166,502) 65% Net profit 1,536,306 1,009,693 52% Balance Sheet (GEL) 30-Sep-08 31-Dec-07 Change, % (Unaudited) (Audited) Total non-current assets 12,156,597 24,022 50.,506% Assets held for sale 1,086,539

• n/a

Trade and other receivables 6,650,667

• n/a

Bank deposits 53,703,049

• n/a

Cash and cash equivalents 9,194,023 1,590,229 478% Total current assets 70,634,278 1,590,229 4.,342% Total assets 82,790,875 1,614,251 5.,029% Share capital 12,500,000 308,000 3.,958% Share premium 67,374,112 1,495,000 4.,407% Treasury Shares (53,500) (58,000)

• 8%

Retained earnings/ 2,529,165 (136,126) 1.,958% (accumulated deficit) Total equity 82,349,777 1,608,874 5.,018% Trade and other payables 441,098 5,377 8.,104% Total current liabilities 441,098 5,377 8.,104% Total liabilities 82,790,875 1,614,251 5.,029%

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Primary World Energy Consumption Indicators, 2007 Primary World Energy Consumption Indicators, 2007

• Georgia’s energy consumption per unit of GDP is one of the lowest in the CEE region at 0.73 TOE/US$ in 2007,

which limits the downside potential in case of further energy efficiency improvements

• In 2007, Georgia’s annual electricity consumption per capita reached 1,800 kWhs, compared to 8,000 kWhs in

Germany, 8,500 kWhs in Japan, 13,500 kWhs in the US and 24,300 kWhs in Norway, which illustrates a huge upside potential for the electricity usage in the country as economy develops

5,000 10,000 15,000 20,000 25,000 30,000 35,000 I c e l a n d N

• r

w a y C a n a d a U S A O E C D J a p a n F r a n c e G e r m a n y C z e c h R e p u b l i c U K R u s s i a E s t

• n

i a G r e e c e S l

• v

a k i a F

• r

m e r U S S R B u l g a r i a U k r a i n e W

• r

l d A z e r b a i j a n T a j i k i s t a n T u r k e y C h i n a A r m e n i a G e

• r

g i a TPES/pop (toe/ 000,capita)

• Elct. Cons./pop (kWh/capita)

Source: International Energy Agency, Key Energy Indicators 2008

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Georgian Electricity Sector Georgian Electricity Sector

ESCO

Note: P - Privately Held; S - State Owned; GSE – JSC Georgian State Electrosystem

(22%) GNEWRC Enguri (+Vardnili) (40%) (40%) (12%) Other HPPs Thermal Thermal Technical Operator GSE Ministry of Energy of Georgia Policy Maker S P P S % in Generation Telasi EnergoPro Other Distributors Direct Customers Export P % in Consumption (27%) (16%) (27%) (8%) Import (3%) (5%) P P P

Georgian Electricity Market Highlights Electricity Balance, Georgia Highlights

The Georgian Electricity sector is mostly privately owned and partially liberalized Only Transmission, Dispatch, the largest hydro power plant (HPP), located in the conflict zone and a thermal power plant (TPP) are owned by the state Wholesale generation tariffs are fully liberalized and any generation company is permitted to sell electricity to any wholesale customer at a directly negotiated tariff Retail tariffs are regulated by Georgian National Electricity and Water Regulatory Commission However, small HPPs (less than 13 MW capacity) can sell electricity at unregulated tariffs to any wholesale or retail customer HPPs account for roughly 78% of the country’s electricity supply, whilst TPPs generate 17% and imports contribute another 5% The electricity generation at the HPPs has increased, mainly due to better operating conditions and upgrades across the sector The share of TPPs and imports in Georgia’s energy sector is set for a steady decline

Source: The Ministry of Energy of Georgia, CEI Estimates Supply, TWH 2005 2006 2007 2008E 2009F 2010F 2011F HPP 5.9 5.4 6.7 6.8 7.5 7.6 7.6 Thermal 1.0 2.2 1.5 1.4 1.5 1.6 1.7 Total Production 6.9 7.6 8.2 8.2 9.0 9.3 9.5 Imports 1.4 0.8 0.4 0.7 0.8 0.7 0.8 Total Supply 8.3 8.4 8.6 8.9 9.8 10.0 10.3 Demand, TWH 2005 2006 2007 2008E 2009F 2010F 2011F Domestic consumption 7.9 8.2 8.0 8.3 9.1 9.3 9.5 Export 0.4 0.2 0.6 0.6 0.8 0.7 0.7 Total Demand 8.3 8.4 8.6 8.9 9.8 10.0 10.3

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Georgian Electricity Market Georgian Electricity Market

Electricity Market Highlights

Source: The Ministry of Energy of Georgia

Installed hydro power generation capacity is approximately 26% of the total potential hydro capacity available in the country Georgia uses hydro power to fully meet local demand and export electricity in summer Thermal power is needed to balance consumption in winter Aggregate peak capacity is circa 1,650 MW

Source: The Ministry of Energy of Georgia

Domestic Consumption

Two main electricity consumption groups in Georgia Three regional distribution companies, cumulatively accounting for roughly 69% of the country’s total electricity consumption About 30 large industrial enterprises, accounting for 23% of the country’s total electricity demand, allowed to directly purchase electricity from suppliers The share of exports in the energy consumption grew from 1% in 2004 to 7% in 2007

TWh % TWh % TWh % Telasi RAO UES (Russia) 1.9 33% 2 34% 2.1 35% Energo Pro Energo Pro (Czech Republic) 2.5 42% 2.5 43% 2.6 43% Kakheti Under Privatisation 0.2 3% 0.2 4% 0.2 3% Abkhazia Energy Company State owned 1.3 22% 1.2 20% 1.2 19% Total, Distribution Companies 5.8 100% 5.9 100% 5.9 100% 2005 Distributors Owner 2007 2006 GWh % GWh % GWh % Ltd Georgian Manganese (incl. Chiaturmanganum) 802 40% 741 37% 721 38% JSC Georgian Railway 320 16% 324 16% 292 15% Ltd Tbilisi Water 294 15% 319 16% 302 16% JSC Energy Invest (incl. Nitrogen Plant) 259 13% 261 13% 244 13% JSC Rustavtsementi (incl. Cespicement) 165 8% 117 6% 110 6% Ltd Tbilisi Metro 63 3% 64 3% 64 3% Ltd Madneuli 60 3% 58 3% 52 3% Other Direct Consumers 109 5% 105 5% 120 6% Total, Direct Customers 2,012 100% 1,989 100% 1,905 100% 2006 2005 Company 2007

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Final Consumer and Transmission Electricity Tariffs Final Consumer and Transmission Electricity Tariffs

Transmission tariffs are set by the regulator GNEWRC on an annual basis; No charge for the generation capacity - transmission tariff reflects only the volume of electricity transfer All newly built HPPs are fully deregulated as far as generation tariffs are concerned, whilst tariffs for the existing HPPs are capped The total transmission charge is based on the pre-paying principle, whereby the cost of transmission is the same regardless the distance within the country The electricity transmission tariffs are set as follows:

1.80

GEL/MWh – Kavkasioni 500 kV line

• perator’s

(Sakrusenergo) tariff

5.35 GEL/MWh – tariff for transmitting electricity on 220-35 kV

lines

11.09 GEL/MWh – tariff for transmitting electricity on 10-6 kV lines 1.50 GEL/MWh – dispatch tariff collected by JSC Georgian State

Electrosystem

The aggregate transmission tariffs are 8.65 GEL/MWh for the

usage of 220-35 kV lines, 14.39 GEL/MWh, for the usage of 10-6 kv lines

The costs related to transmission losses are reflected in the final

consumer tariffs Weighted Average Final Consumer Tariffs (less of VAT), GEL/MWh

Electricity Transmission Tariffs

2003 2004 2005 2006 2007 2008E 2009F Tbilisi 114.2 114.2 114.2 135.6 135.6 135.6 135.6 The rest of Georgia 70.8 70.8 70.8 116.9 116.9 116.9 116.9

Electricity Tariffs

GNEWRC has established different tariff levels for customers who use less than 100 kWh, those who use more than 100 kWh but less than 300 kWh, and those who use over 300 kWh per month

Source: The Ministry of Energy of Georgia

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Electricity Prices in Georgia

Months Weighted Average Wholesale Electricity Prices at ESCO, US¢/kWh Sept, 2007 5.10 Oct, 2007 6.44 Nov, 2007 6.51 Dec, 2007 6.98 Jan, 2008 6.45 Feb, 2008 6.51 Mar, 2008 4.73 Apr, 2008 1.88 May, 2008 2.40 Jun, 2008 2.37 Jul, 2008 1.75 Aug, 2008 1.78

Source: ESCO, GNEWRC

Round the Year Fixed Electricity Prices at TPPs US¢/kWh Ltd "Mtkvari Energetika" 7.0 a) Guaranteed capacity 1.1 b) Supplied electricity 5.9 JSC "Tbilsresi" 8.5 a) Guaranteed capacity 1.5 b) Supplied electricity 7.0 JSC "Energy Invest" 13.9 a) Guaranteed capacity 4.3 b) Supplied electricity 9.6

Source: ESCO, GNEWRC

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Power Transmission Network Power Transmission Network

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Transmission line capacity expansion from Georgia to Turkey

In 2007, the Georgian and Turkish Energy Ministers signed a Memorandum of Understanding on expanding the electricity transmission line capacity between Georgia and Turkey The project envisages

• Construction of a 400-500

kV line from Zestafoni to Akhaltsikhe in Georgia with the capacity of 1,200 MW

• Construction of a 400 kV

line from Akhaltsikhe to Borchka in Turkey (98 kms in total)

• Completion of a 500/400

HVDC substation in Akhaltsikhe The estimated transmission tariff on the projected line will equal 1.0-1.5 US¢/kWh The project is due to be completed by 2012

Expansion of the Transmission Line Capacity between Expansion of the Transmission Line Capacity between Georgia and Turkey Georgia and Turkey

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Turkey Electricity Market Turkey Electricity Market

The Turkish power industry is a vibrant part of the Turkish economy, which contributes US$15.0 bln to the Turkish GDP During the last three decades the Turkish demand for electricity grew at a staggering rate of 8% per annum, on average The largest electricity consumers are industrial companies, which account for roughly 50% of the country’s demand, whilst residential customers and commercial enterprises account for 25% and 13%, respectively Turkey’s total installed power capacity is 38,820 MW, of which TPPs account for 67% (25,894 MW), HPPs – for 33% (12,906 MW), and wind power plants – for 0.1% (20MW) According to the Turkish Ministry of Energy and Natural Resources (MENR), estimated electricity demand growth in Turkey is 135-190 TWh up to 2016. If the projected growth in the electricity consumption materialises, Turkey will face energy shortages already in 2011 Turkey’s Electricity Consumption Growth Rate

Source: Energy Market Regulatory Agency, Turkey

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Potential Electricity Demand Scenarios for Turkey Potential Electricity Demand Scenarios for Turkey

Source: The Ministry of Energy and Natural Resources, Turkey Note: Forecast includes all new projects

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Wholesale Electricity Prices in Turkey Wholesale Electricity Prices in Turkey

Source: Economic calculations based on PMUM numbers

+34%

• Average price in July 2008 was 14 US

¢/ kWh

Private wholesale electricity prices in Turkey are among the highest in Europe

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Conclusion Conclusion

The Turkish electricity demand grows with a CAGR of 8% in the last 3 years Starting 2011, Turkey is likely to become a net importer of electricity The huge tariff differential between Turkey and Georgia creates excellent opportunities for exporting electricity out of Georgia to Turkey, once the transmission line capacity is expanded The Turkish and Georgian governments agreed to build a new 400-500 kV HV transmission grid between the countries The Georgian electricity exports will account for only 2-4% of the total electricity volume generated in Turkey, thus it’s unlikely to have a major negative impact on the local electricity tariffs

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CEI CEI -

• Management

Management

• Mr. Irakli Bezhuashvili (CFO)

Irakli Bezhuashvili joined CEI in the capacity of Chief Financial Officer in April 2008. Prior to joining CEI, Mr. Bezhuashvili served as a Senior Consultant at PricewaterhouseCoopers as well as an Audit Manager at UBC International Ltd. He has also occupied the post

• f Director at Georgian Branch of Eilamed Raj BV. Irakli

Bezhuashvili

• btained

his Bachelor’s degree in Municipal Engineering and Economy from Technical University of Georgia. Mr. Bezhuashvili is an accredited member of the Association of Certified Chartered Accountants (ACCA).

• Mr. Archil Mamatelashvili (CEO)

Archil Mamatelashvili joined the Company in the capacity of Chief Executive Officer in October 2007. Prior to joining CEI, Mr. Mamatelashvili served as the Country Manager for Energo Pro S.A. in Istanbul, Turkey (April 2007 – October 2007) and as the Deputy Minister of Energy of Georgia (March 2005 – April 2007). Mr. Mamatelashvili holds an Undergraduate degree in Economics from Tbilisi State university, and a joint international MBA degree from Weatherhead School of Management of Case Western Reserve University/IMC.

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Contacts & Important Notice Contacts & Important Notice

Bidzina Bejuashvili, CEO of Galt & Taggart Asset Management Bidzina Bejuashvili, CEO of Galt & Taggart Asset Management bbejuashvili@gtam.ge, +995 95 22 79 97 Archil Mamatelashvili, CEO of Caucasus Energy & Infrastructure Archil Mamatelashvili, CEO of Caucasus Energy & Infrastructure amamatelashvili@cei.ge, +995 99 15 95 73

Confidential & Proprietary

This document is intended solely for the use on a confidential basis by those persons to whom it has been transmitted by Caucasus Energy & Infrastructure or its affiliates. Intended recipients, by their acceptance and retention of this document, agree to preserve the confidentiality of its contents. This document is proprietary to Caucasus Energy & Infrastructure and may not be disclosed to any third party, reproduced, in whole or in part, or used for any purpose other than that for which it has been submitted without prior consent of Caucasus Energy & Infrastructure. This document is not and should not be construed as, an offer to sell or solicitation for an offer to buy any securities. The information and opinions contained in this document have been compiled or arrived by Caucasus Energy & Infrastructure from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. All opinions and estimates contained in this document constitute Caucasus Energy & Infrastructure’s judgment as of the date hereof based on the prevailing conditions and are subject to change without notice. The information contained in this document is published for the assistance of the intended recipient, but is not to be relied upon as authoritative or taken in substitution for the exercise of judgment by any recipient. Caucasus Energy & Infrastructure accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or its contents.

For further information please visit the company website at www.cei.ge

• r contact: