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 15-11-2006 1
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 Total 14324 3761 11503 3004 Area Ash Lower heating value Moisture Sulphur % kj/kg % % total % comb Bardh 14.1 7860 47.7 0.98 0.34 Mirash West 14.4 7750 47.5 1.01 0.35 Sibovc 13.85 8149 47.8 0.91 0.32 3
S = 234.3565hA Northern part of Kosova lignite basin Sibovc 4729000 4728000 4727000 3 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 0 500 1000 1500 2000 Janjina Voda 4726000 4725000 4724000 4723000 4722000 Mesozoic Outcrop 2 Outside Dump Sibovc Bardh Decoaled South Hade TPP A 1 Palaj 542.61 542.72 548.16 542.20542.92542.58 567.40567.27567.25 567.2056.97 58.15 58.4560.14560.86 568.73 568.42568.26568.40567.94567.76567.7567.73567.76 Ash 549.6050.8951.85 573.49573.67573.72573.59573.94 Dump 50.2453.05 563.89564.21563.50 572.98 549.92549.39549.52549.79 542.25541.20541.02540.35540.7541.28540.93540.74540.46540.6540.74541.08 56.5456.1756.2956.1856.40565.97565.76565.9565.7565.78565.6956.04565.48564.56564.67564.37564.52564.63562.9563.12565.07564.56564.59564.4564.23560.85 545.34548.26548.2 50.6950.7150.8950.3250.09549.06548.05547.89 548.49548.94549.39549.4650.48549.9549.87549.91549.98549.96549.52549.14548.48547.61546.30547.14546.58546.29546.8547.30547.1548.1550.9352.8352.58 548.81 564.83 574.92569.58569.30569.29571.057.3457.51578.38 572.81572.0 5.815.71 574.80575.3572.01 58.2 Ash 570.29 542.97542.37542.57541.96541.79541.30541.16541.20540.96541.64 59.3859.9562.81564.565.856.10 545.3054.17 565.31563.78562.49562.36561.69560.78562.28562.90562.8562.54562.83563.34564.82564.96564.9564.21564.3759.68 571.62 568.93569.27569.14569.17 568.32 Mirage 569.04 Krushec Dump D-Field 570.97 608.71609.64610.65 574.04 578.8 Decoaled 542.98 543.8354.84546.39548.81549.9650.47548.45546.63545.86 56.9057.46561.60561.91562.38565.43561.70 598.14601.52602.47605.74608.4861.49610.01612.0261.78609.64613.8610.48615.85 613.27581.69 62.19 623.59 618.70618.39 583.97 585.67 540.14542.21540.60542.0654.78 546.03 51.07548.87546.46 57.5456.7453.60 585.56585.7586.30585.8585.76 537.38537.13537.81537.83537.70538.26538.34538.83539.51539.31539.71 540.48549.0 540.23547.8548.68549.81547.01545.4546.50 576.93576.6578.3579.62568.54572.0575.12576.98579.09 571.50571.21572.1571.90574.02572.27 562.08563.70562.19 561.63 563.74 564.80565.82565.6856.3257.1757.6358.1359.4059.89560.31560.98562.20562.12562.70562.96563.51565.39 579.91 586.38 581.16583.15 542.79 580.67 536.8536.86537.10537.76537.42537.60537.81537.97538.74539.38539.38539.73539.3 540.07 56.64 57.63 57.26 545.954.4254.28543.52542.81540.7541.90547.2546.58543.19540.4543.16547.69549.3950.67546.10545.7154.53547.94548.32547.51547.92548.4650.23541.79 546.52545.42546.89 Mirage SE 540.89540.47540.48540.62541.08541.59541.38540.61539.96 50.2150.7950.3251.1851.4252.74 54.26542.84 545.95 53.75 547.86547.30 52.953.0954.1654.575.65 549.96 50.51 51.79 562.2 52.87 56.2956.36 51.71 52.3 52.051.7151.9353.2154.325.27 1 Outside Dump Dump "South-Field" 3 Lismir Nakarade 7499000 7500000 7501000 7502000 7503000 7504000 7505000 7506000 7507000 7508000 7509000 7510000 7511000 4
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 7745 8510 953 0 8435 60 60 6120 93 55 8265 8642 9106 8863 8160 8742 77 71 916 9 915 7 8235 7494 9110 859 6 7051 7051 741 1 61 26 Sibovc Lignite Mining Area Cross Section 800 NW Section 3-3' SE 800 750 Sibovc Bardh-Mirash D-Field 750 MeterAboveMeanSea Level 700 650 600 550 500 450 400 SbV0XXXV2 / 22 628 623 3919 8616 7356 6183 6067 6833 7005 6415 7771 578 572 578 SbV2XXXV0/ 44 609 603 8382 8101 8462 9098 8419 552 544 552 SbV2XXXIV6/56 646 593 8546 7243 8378 8311 6498 526 526 511 SbV4XXXIV4/75 609 7375 5578269 7214 8989 9056 8387 8470 8399 8840 9437 8156 8194 8160 8504 7691 3500 6088 3768 500 6603 488 Sb V6XXXIIV0/ 90 571 560 6695 4937319 8797 9680 8604 8793 8948 SbV6XXXIV0/112 599 562 492 493 491 462 9337 9471 9965 8818 8667 9818 9178 8709 9613 7361 9521 9211 9232 8734 9077 490 491 GXXXIII5/ 142 G1XXXIII4/ 153 G1XXXIII3/ 176 SbG2XXXIII2/ 187 578 G3XXXIII1/ 205 599 SbG4XXXIII0/ 221 623 561 562 564 556 8683 556 549 9002 8047 547 8927 8570 542 537 541 8801 9203 9123 Erosion 8801 6950 9077 8679 8801 9064 5286858 9228 531 5133 9822 10124 9370 7235 8361 8843 9475 9144 7884 8692 9253 9530 8449 6963 7930 9437 8156 9391 10045 8505 8459 6783 8847 7955 8859 9534 6925 7444 9492 9262 9275 486 4817507 485 8537 7955 9798 8400 9994 8600 9471 9287 8990 8558 9140 6213 9362 475 473 476 469 4726762 8701 9144 9250 473 8466 475 8328 8455 469 468 7742 461 466 469 8435 7750 9015 461 7587 461 7345 477 481 8070 475 476 472 467 450 464 466 463 SbG6XXXII4/ 277 631 SbD0XXXII2/308 631 SbD4XXXI6/ 385 626 SbD4XXXI4/ 403 602 538 9608 9051 9030 7460 472 8350 8775 4518800 5655 458 BmD6XXXI2/ 448 620 538 8213 460 464 462 BmDJ0XXX6/ 526 632 495 9610 8250 444 9125 431 6390 439 BmDJXXX4/ 564 633 BmDJ2XXX2/ 592 613 BmDJ3XXX1/ 607 613 BmDJ4XXX0/ 620 615 515 512 515 507 9601 8990 9922 9077 9386 9123 8643 9839 8935 9771 9646 7549 10120 8520 9458 9139 8550 8515 6892 9643 444 4498860 7248 448 6924 449 7042 7677 8374 6653 441 7770 440 441 443 7578 5636 7285 8378 7607 4802 449 448 445 6913 7746 443 0 BmDJ4XXIX6/631 613 490 9726 8893 9458 7047 8320 425 426 8395 426 BmDJ6XXI X4/ 648 589 470 8981 8868 417 8426 407 8110 417 6465 8223 BmE0XXIX2/ 659 605 460 10250 10210 9567 9337 8466 395 8156 8654 395 BmE2XXIX0/6 69 584 439 9969 9676 8809 8893 374 373 8290 700 650 600 550 500 450 400 350 374 6477 350 Meter Above Mean Sea Level 300 0 250 500 750 1000 1250 1500 1750 2000 2250 2500 2750 3000 3250 3500 3750 4000 4250 4500 4750 5000 5250 5500 5750 6000 6250 6500 6750 7000 7250 7500 7750 8000 Section Meter 800 750 700 650 600 550 500 450 SW 3 3` SbV7XXX4/ 550 596 581 573 SbG0XXX4/ 558 597 562Erosion? 541 530 524 Section 2/ 2` SbG2XXX6/ 521 598 557 480 483 G3XXX7/ 511 598 540 456 447 SbG4XXXI0/ 487 599 537 468 464 SbG6XXXI2/ 460 58 6 53 8 46 6 46 2 SbD0XXXI4/ 413 583 544 477 464 SbD2XXXI4/ 415 585 535 470 471 SbD2XXXI6/ 366 595 539 463 464 SbD4XXXI6/ 385 626 531 469 461 1004 5 8505 9275 84 00 8990 9140 9250 8455 7345 80 70 Section 2-2' Sibovc SbD6XXXII0/ 335 649 520 482 465 DJXXXII2/ 316 632 537 494 480 SbDJ2XXXII4/ 286 607 556 512 DJ3XXXII5/ 261 592 551 503 493 SbDJ4XXXII6/ 250 581 559 519 501 DJ5XXXII7/ 233 577 544 508 502 SbDJ6XXXIII0/ 217 583 541 514 516 DJ7XXXIII1/ 204 584 542 532 525 SbE0XXXIII2/ 194 574 549 535 524 NE 800 750 700 650 600 550 500 450 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 300 400 400 350 350 300 2 0 250 500 750 1000 1250 1500 1750 2000 2250 2500 2750 3000 3250 3500 3750 4000 4250 4500 4750 5000 5250 5500 Section Meter 2` 300 5
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 ] 6 5 4 3 2 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 0 3000 4000 5000 6000 7000 8000 9000 10000 11000 12000 13000 kj/kg 6
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. 8200 kj/kg 2000 MW For illustration: 2000 MW 7500 h/a = 15 TWh 1.1 t/mwh = 16.5 mt/a 690 mt >> 41.8 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 8.69/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
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
New IPP Construction Phases Commissioning of the new TPP (first unit 300 MW or 500 MW) in two phases: - 1 st phase, billion 1.1 1.3 + development cost of mine million 300-2 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. 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
LPTAP Procedures and Timing 2006 2007 2008 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
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, 2006 13
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 1.000 MW 2.000 MW 14
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, 1.000 MW and 2.000 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
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
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
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
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
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
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
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
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 1.000 MW) Second stage - to build another up to 1.000 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 2.000 MW market risk and performance has to be assessed by a smaller configuration investment would be distributed over a longer period of time 23
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
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
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
Energy Regulatory Office Thank You Energy Regulatory Office Hamdi Mramori Street No 1 Prishtina Kosovo (UNMIK) Tel: +381 (0) 38 247 615 ext. 101 Fax: +381 (0) 38 247 620 e-mail: info@ero-ks.org 27
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