Energy Regulatory Office

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1 Energy Regulatory Office The New Lignite Mine & New Generation Project in Kosovo Dr. Nick F Frydas Chairman of ERO 11o Εθνικό Συνέδριο γιά την Ενέργεια

2 In compliance with the: - Kosovo Energy Strategy Project Components - carried out studies and regional electricity market opportunities Kosovo is soliciting 15/8/2006 expressions of interest from qualified private investors in an energy development projects that encompasses the following components: The development of a new coal mine for existing generation units (Sibovc SW) and/or the development of a new mine (the Sibovc mine) for coal supply to the new power plant Construction of a new power plant Kosovo C with an estimated installed Capacity of up to 2100 MW and associated transmission capacity Rehabilitation of certain units (3 x 200 MW) of the existing power plant Kosovo A 2

Kosova s Lignite Basins Reserves [Million Tonnes] Lignite Basin Area [km 2 ] Geological Exploitable t t ce t t ce Kosova 264 11500 2957 9804 2521 Dukagjini 95 2737 782 1625 464 Other 87 22 74 19

3 Kosova s Lignite Basins Reserves [Million Tonnes] Lignite Basin Area [km 2 ] Geological Exploitable t t ce t t ce Kosova Dukagjini Other Total Area Ash Lower heating value Moisture Sulphur % kj/kg % % total % comb Bardh Mirash West Sibovc

4 S = hA Northern part of Kosova lignite basin Sibovc North Sibovc Lajthisht Lignite Pinch-out TPP B 2 Sibovc Lignite Field Area: 19.7 km² Geological Structur Reserves: Map 990 mt Exploitable Reserves: 830 mt Obiliq Janjina Voda Mesozoic Outcrop 2 Outside Dump Sibovc Bardh Decoaled South Hade TPP A 1 Palaj Ash Dump Ash Mirage Krushec Dump D-Field Decoaled Mirage SE Outside Dump Dump "South-Field" 3 Lismir Nakarade

9592 98 65 1004 5 9035 9052 9010 8 466 7315 7285 7273 96 93 95 30 9722 932 0 9509 8232 882 6 9665 97 30 93 75 8275 8260 7825 9625 10183 9877 9463 943 7 9006 6883 8759 6850 9920 96 65 9360 8535 9360

5 Sibovc Lignite Mining Area Cross Section 800 NW Section 3-3' SE Sibovc Bardh-Mirash D-Field 750 MeterAboveMeanSea Level SbV0XXXV2 / SbV2XXXV0/ SbV2XXXIV6/ SbV4XXXIV4/ Sb V6XXXIIV0/ SbV6XXXIV0/ GXXXIII5/ 142 G1XXXIII4/ 153 G1XXXIII3/ 176 SbG2XXXIII2/ G3XXXIII1/ SbG4XXXIII0/ Erosion SbG6XXXII4/ SbD0XXXII2/ SbD4XXXI6/ SbD4XXXI4/ BmD6XXXI2/ BmDJ0XXX6/ BmDJXXX4/ BmDJ2XXX2/ BmDJ3XXX1/ BmDJ4XXX0/ BmDJ4XXIX6/ BmDJ6XXI X4/ BmE0XXIX2/ BmE2XXIX0/ Meter Above Mean Sea Level Section Meter SW 3 3` SbV7XXX4/ SbG0XXX4/ Erosion? Section 2/ 2` SbG2XXX6/ G3XXX7/ SbG4XXXI0/ SbG6XXXI2/ SbD0XXXI4/ SbD2XXXI4/ SbD2XXXI6/ SbD4XXXI6/ Section 2-2' Sibovc SbD6XXXII0/ DJXXXII2/ SbDJ2XXXII4/ DJ3XXXII5/ SbDJ4XXXII6/ DJ5XXXII7/ SbDJ6XXXIII0/ DJ7XXXIII1/ SbE0XXXIII2/ NE Key parameters Area: 19.7 km 2 Geological reserves: 990 m t Exploitable reserves: 830 m t Overburden to Coal Ratio: 0.9 m 3 : 1 t Average Coal Seam Thickness: 75 m Section Meter 2` 300 5

6 Comparison of Sibovc with European Coal Mines 10 9 Visonta Sikule (BiH) 8 Dubrava (BiH) Gracanica (BiH) Tamnava (Ser&Mo) 7 Drmno (Ser&Mo) Cirikovac (Ser&Mo) Oslomej (MK) Bogutovo selo (BiH) [ m 3 : t ] Megalopolis Oltenija Konin Lausitzer Shikule Ptolomajs Rheinland Trojanovo N Trojanovo 2 Cirikovac Oslomej Suvodol Dubrava Bukkarbany Drmno Belhatov Kysloki Trojanovo 1 Gracanica Bardh, Mirash Bogutovo selo Zapadni ceski Mitteldeutschland Kysloki (TR) Bardh, Mirash (Kosova) Ptolomajs (GR) Megalopolis (GR) Visonta (H) Bukkarbany (H) Trojanovo 1 (BG) Trojanovo N (BG) Trojanovo 2 (BG) Oltenija (RU) Lausitzer (D) Zapadni ceski (CZ) Belhatov (PL) Konin (PL) Garzw eiler II (D) Mitteldeutschland (D) Suvodol (MK) Sibovc 1 Tamnava Sibovc kj/kg 6

8200 kj/kg 2000 MW For illustration: 2000 MW 7500 h/a = 15 TWh 1.1 t/mwh = 16.5 mt/a 690 mt >> 41.

7 Potential Mines new mine - which start from the existing mines Mirash/Bardh and advances in Northern direction of the Sibovc field 990 mt (19.7 km 2 ) 690 m.t mine kj/kg 2000 MW For illustration: 2000 MW 7500 h/a = 15 TWh 1.1 t/mwh = 16.5 mt/a 690 mt >> 41.8 years 140 m.t mine. 537 mt 8150 kj/kg 1000 MW 395 mt 7300 kj/kg 600 MW Existing PP (KEK) and other consumer 140 mt New IPP 690 mt 7

Capital Expenditures - Sibovc Approx. 370 m - equipment 60 m - resettlement Coal Production 16 mt/year from 2019-22 mt/year Cost of Coal 7.51/ton at 12% IRR 8.

8 Capital Expenditures - Sibovc Approx. 370 m - equipment 60 m - resettlement Coal Production 16 mt/year from mt/year Cost of Coal 7.51/ton at 12% IRR 8.69/ton at 15% IRR Assumed cost of equity 20 % Assumed WACC 15 % Main Mining Plan - Sibovc Country - IRR Comparisons IRR (nominal) Egypt 15%-18% Kenya 15% Malaysia (1st wave IPPs) 18%-25% Malaysia (2nd wave IPPs) 12% (target) Philippines 17,50% 8

9 New Power Plant Site Comparative Advantage Close vicinity to the new lignite mine Sibovc Water Supply / Iber Lepenci Irrigation System Interconnection / 400 kv Switch Yard Road and Rail infrastructure 9

10 New IPP Construction Phases Commissioning of the new TPP (first unit 300 MW or 500 MW) in two phases: - 1 st phase, billion development cost of mine million nd phase (10% less expensive), if two 300 MW units in one 600 MW saves additional 15 %. 10

LPTAP Project Management Chair: Minister of Energy and Mining Project Steering Committee SRSG s office Head of UNMIK Pillar IV Pillar) Minister of Environment and Spatial Planning Chair.

11 LPTAP Project Management Chair: Minister of Energy and Mining Project Steering Committee SRSG s office Head of UNMIK Pillar IV Pillar) Minister of Environment and Spatial Planning Chair. Energy Regulatory Office (EU Prime Minister s Office Minister of Economy and Minister of Labor and Social Chair. Ind. Commission for and Minerals Finance Welfare Mines Project Manager Project Office Mines Task Manager and assistant Power Task Manager and assistant Environmental and Social Task Manager and assistant Administration and Accounting Task Manager and assistant 11

12 LPTAP Procedures and Timing EOI Call for EOI has been published on August 15, 2006 Deadline for submission of EOI is November 30, 2006 Procurement of: 1.Transaction Advisory Services 2.Legal Advisory Services 3.Social and Environmental Safeguards Advisory services is ongoing RFP Short listed Companies / Consortia will receive Request for Proposal during Q2 of 2007 Evaluation of Proposals and selection of successful bidder shall be concluded by Q4 of 2007 Contract Negotiation and Closing Negotiations with a successful bidder on mutually-acceptable, appropriate terms and conditions that will assure the successful development of the Transaction 12

13 Criteria for expression of interest A Prospective Bidder must meet the following minimum criteria: 1. Has developed green field, coal or lignite fired electric generation projects, which are now either in construction or operation, totaling more than 2,500 MW 2. Has raised more than 2 billion of limited recourse project debt or through long term corporate financing as of November 30, 2006 in the energy and/or mining sector; or has a minimum of 2 billion in free cash reserves, as stated in the year-end 2005 audited financial statements 3. Has developed and is operating, as of November 30, 2006, mines producing more that 20 million tons per year of coal or lignite 4. Has control of or operates one or more generation companies and/or concessions with an aggregate capacity of at least 10,000MW as of November 30,

14 Asset Packages Asset Packages Lignite - Sibovc SW Lignite Field - Whole Sibovc Field Asset Packages Power Generation -TPP Kosovo A Over haul (life extension until 2010/14, approx. EUR 50 mln) Capital rehabilitation (life extension until 2020, approx. EUR 145 mln) -TPP Kosovo C MW MW 14

15 One Vertically Integrated Mining-Power Project - One Investor - In this case we have one single investor and operator who: - develops and operates whole Sibovc Field - invests in and operates Kosovo A (two asset options, overhaul and rehabilitation) - invests and operates Kosovo C (two asset options, MW and MW) - supplies lignite to Kosovo A, B and C Investor 1 Kosovo A Kosovo A Kosovo C Kosovo B Whole Sibovc Mine Kosovo C develops and operates supplies with lignite 15

16 One Vertically Integrated Mining-Power Project - One Investor, only Kosovo A - In this case we have one single investor and operator who: - develops and operates Sibovc SW - invests in and operates Kosovo A (full rehabilitation) - supplies lignite to Kosovo A, B Investor 1 Kosovo A Kosovo A Sibovc SW Mine Kosovo B develops and operates supplies with lignite 16

17 Two Vertically Integrated Mining-Power Projects - Two Investors - Investor 1 Kosovo A Kosovo B Sibovc SW Mine Investor 2 Kosovo A Kosovo C Rest of Sibovc Mine develops and operates supplies with lignite Kosovo C 17

18 Arms Length Mining and Power Projects - One Mining Investor / Two Power Investors - Investor 1 (lignite investor) Kosovo A Kosovo B Investor 2 Kosovo C Sibovc Mine Investor 3 Kosovo A develops and operates Kosovo C supplies with lignite 18

19 Arms Length Mining and Power Projects - One Investor in each - Investor 1 (lignite investor) Investor 2 (power investor) Kosovo A Kosovo A Kosovo B Kosovo C Sibovc Mine Kosovo C develops and operates supplies with lignite 19

20 Findings of Market Test Ranking of Options (i) Integrated vs. diversified options Almost all major companies showing their interest expressed a high preference to have a captive mine which is under their control. Main reasons for this: security of supply operational synergies technological synergies The first argument is also very important for companies which would consider a diversified option. The mining operator in this case would have to demonstrate an adequate and very solid track record in lignite mining in order to keep the performance risk of the lignite supplier within acceptable levels. 20

21 Findings of Market Test Ranking of Options (ii) Non competitive vs. competitive options The companies accept competition although the opinion prevails that the local market is not ready for competition at the moment because of: low willingness to pay by the end customers legal conditions are not given by now (all customers will be eligible only after 2013) persisting monopoly in the distribution sector Furthermore the functioning of the South Eastern European Energy Market has yet to be tested. They acknowledge that competition will happen anyhow in the export market. 21

22 Findings of Market Test Ranking of Options (iii) Overhaul vs. capital rehabilitation of Kosovo A Full rehabilitation of Kosovo A on a stand alone basis was not considered an attractive option to most of the companies A few medium sized companies would consider that option as possibility to achieve market entrance and presence in order to expand the operations at a later stage Clear preferences emerged towards the option to keep Kosovo A operative only until Kosovo C is commissioned. It is argued that: Real status & costs of capital rehabilitation of Kosovo A is not known (All companies will conduct their own technical and economic feasibility studies) Kosovo A is basically outdated technologically Carbon credits would only be available if efficiency gains would be achieved (It is assumed that with the investments proposed this would not be the case) 22

23 Findings of Market Test Ranking of Options (iv) Small (1.000 MW) vs. Large (2.000 MW) configuration of Kosovo C Kosovo C in first stage - smaller option (up to MW) Second stage - to build another up to MW capacity This is recommended by the respective pre-feasibility study for Kosovo C for several reasons: grid might not be in the condition to guarantee stability for MW market risk and performance has to be assessed by a smaller configuration investment would be distributed over a longer period of time 23

24 Findings of Market Test Major Concerns Pre-qualification criteria Creditworthy off taker in the internal market Possibility of Public Service Obligation also for new generation capacities Status of related infrastructure Property of assets 24

25 Conclusions Sibovc SW on stand alone basis is not attractive to market players Market players interest in Sibovc SW is only in combination with Kosovo C (and whole Sibovc) Market players interest in Kosovo A is limited to short term until commissioning of Kosovo C 25

26 Illustrative example of participation and linkages Export Market SPV - Mining Lignite supply agreements Kosovo C owns 100% sells power holds up to 100% operates mine through MC pays for costs incurred so far up to its share buy out option holds up to 49% transfers license Kosovo A Investor* affermage PPA with guarantees Investor* Kosovo Kosovo B Kosovo IFIs can hold minority share provide guarantees *Investor is the same in mining and power 26

27 Energy Regulatory Office Thank You Energy Regulatory Office Hamdi Mramori Street No 1 Prishtina Kosovo (UNMIK) Tel: +381 (0) ext. 101 Fax: +381 (0) info@ero-ks.org 27

28 Transaction Adviser Purpose To provide transaction advisory services and assisting the PSC of LPTAP in attracting private sector participation Scope of work (in three phases): Phase 1: Preparatory work review the market structure & take measures (structural, legal environmental etc.) to facilitate the transaction prepare final investment package (based on Options Analysis) & recommend short list of qualified bidder Phase 2: Prepare RFP and Bidding prepare necessary documents to undertake a competitive & transparent bidding process issuance of a RFP to approved short list bidders Phase 3: Negotiations and Closing Assistance in concluding negotiations with a successful bidder on mutually-acceptable, appropriate terms and conditions (in close cooperation with Legal Advisors) 28

Republika e Kosovës Republika Kosova-Republic of Kosovo Qeveria - Vlada - Government New Kosovo Project

Republika e Kosovës Republika Kosova-Republic of Kosovo Qeveria - Vlada - Government New Kosovo Project March 20, 2018 Bringing Kosovo s energy sector closer to Europe Content of Presentation 1. Project