FINANCING WIND POWER PROJECTS Project Financing is

FINANCING WIND POWER PROJECTS

Project Financing is the financing of long term projects based upon a complex financial structure where project debt and equity are used to finance the project rather than the balance sheet of the project sponsors. Corporate Financing is the financing where past financial statements of borrower, especially balance sheet, is evaluated for the repayment of the loan.

Lenders’ Perspectives on a Project Performance Environmental Aspects Compliance with: • Current local regulations • Equator Principles • Changes in regulations and public perception • Likely ramp up of production • Performance during steady state of operation for the production of electricity • Life span of assets Sale of Production Design/Construction/Commissioning • Equipment/Technology • Technology Supplier • Pot. Contractual Frustration • Quality of planning by developer Inputs • Depending on the nature (wind, solar, hydro) • Resulting from human activity (by product of other production or specific production) Financing Production Unit O&M and Staffing • Health & Safety • Support from Suppliers • Contractual Agreements • Availability of Equipments • Quality of organisational chart • CVs of key management personnel • Training programmes • Demand • Duration of PPA contract • Fixed price vs Revisable Price • Payment conditions • Credit worthiness of purchaser Political & Regulatory Environment

Lenders’ Perspectives on a Project Financing: q Structure of debt financing required o o q Credit enhancement mechanisms o o q Currencies, amounts maturities Hedging (interest rates, biofuel contracts) Covenants on debt, including minimum debt service coverage ratios Contingency funding for delay in start up Possibility to use free cash flows above debt service to repay debt in advance, rather than to distribute dividends Guarantee of part of all of debt by project developer or other entity, backed by assets of cash flows Sources of financing available based on appetite, regulations, timing of transaction. *** o o Local banks International banks with project finance desks and knowledge of the renewable energy sector Export agencies which guarantee up to 85% of the debt used to buy equipment and/or services from their home country Dedicated funds *** Especially important for large projects, since the bank initially providing the funding will then syndicate most of the debt to retain only partial exposure

Lenders’ Perspectives on a Project Political & Regulatory Environment: q. Political Stability q. Minimization of Contingencies q. Transparency q. Reliable of Regulatory Environment Long Term Tariff q. Governmental Obligations and Local Laws

Project Finance Steps for Wind Power Projects üWind Consultancy(Reliability of Wind Data) üEquipment/Technology Consultancy üEnvironmental Consultancy üInsurance Consultancy üLocal Legal Consultancy üInternational Legal Consultancy üFinancial Consultancy

Project Finance Scheme Technology Supplier Guarantor Project Company O&M Contractor Main Contractor EPC Contractor Project Facilitator Regulator Purchaser Government

ZORLU ENERGY PAKISTAN 49. 5 MW WIND FARM PROJECT

Pakistan Power Sector – Total Installed Capacity 9

Peak Demand Projection 2007– 2030 10

Zorlu Energy Pakistan Wind Power Project • First Wind Power Project in Pakistan. • Located at District Thatta, Jhimphir (app. 100 km east of Karachi) • 49, 5 MW capacity consisting of 34 WTGs. • Indigenous Electricity Generation • 125 Mio USD expected costs.

Project Status ü LOI received üLand allocated to ZORLU üPre- and Final Feasibility study completed üSoil study completed üSeismic study completed üEIA study completed üTransportation study completed üGrid study completed üGeneration License received ü Tariff agreed üConstruction on going 60, 000 HOUSHOLS IN PAKISTAN WILL BE USING ENERGY OF THE WIND BLOWING IN PAKISTAN TOTALY : INDIGENEOUS RENEWABLE GREEN

Why Invest in Pakistan in Wind Farm ? Ø Because Pakistan ! Ø No Hostile Environment for Foreign Investors Ø Friendly and Efficient Government Bureaucracy Ø Independent Regulator Ø Attractive Demand Supply Scenarios Ø Level of Commitment for Higher Use of Renewable Energy Ø Government Strategy to Utilize Indigineous Resources Ø Available Infrastructure

Regulated Market With State Control The system AEDB, NEPRA and WAPDA designed is very suitable for project financing. . . AEDB Lender Loan Investor Tariff Structure NEPRA Power Purchase Agreement WAPDA Government of Pakistan Regulatory Policy-maker

Tariff Structure -Non-escalable Energy Component -Debt Service: the principal and interest payments expressed in PKR of the part of total project debt libelled in foreign currency. -Return on Equity: the dividend expected to be distributed each year of the project before payment of the withholding tax, in order to achieve a 15% IRR over the life of the project post withholding tax -Escalable Energy Component -O&M Costs – Local: the amount of cash outflows linked to operations and maintenance taking place directly in PKR and expected to take place -O&M Costs – Foreign: the amount of cash outflows linked to operations and maintenance expressed in PKR but effectively taking place in foreign currency and expected to take place -Insurance

Possible Concerns for Investors q In General: Ø Ø Political Unstability Ø State of Unrest/Violence in The Country Ø q Regional Risks Economic Problems In Particular: Ø Land Ownership Claims Ø Possible Delays in Due Payments by NTDC Ø Security Ø Timely Grid Connection Ø Reliable Wind Data Ø Unrealistic Loan Conditions Accepted in The Tariff

Complications in Financing the Project üBeing the first wind power project in Pakistan üPolitical risks in Pakistan üIncrease in perceived riskiness of Pakistani debt on financial markets üObligatory interest rate(LIBOR+3%) for financing the Project

Thank you very much for your kind attention. . .