EDC: YOUR PARTNER IN THE ELECTRICITY POWER SECTOR Power Sector in Chile: Win New Business

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EDC YOUR PARTNER IN THE ELECTRICITY POWER
SECTORPower Sector in Chile Win New Business
January 2009
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INTERLOCUTORS

• EDC
• Infrastructure Environment Sector
• Françoise Faverjon-Fortin, Vice-President, Ottawa
• Karen Mallory, Sector Advisor, Ottawa
• Yves LHeureux, Strategic Account Exec, Ottawa
• International Business Development
• Christian Daroch, Regional Manager Chile,
  Santiago
• Canadian Trade Commissioner Service
• Sylvain Fabi, Senior Trade Commissioner, Santiago
• Geneviève Bourget , Trade CommissionerEnergy,
  Santiago

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AGENDA

• Introduction
• Overview of Chile
• Electricity Market Overview
• Electricity Market Analysis
• Entering the Chilean Market
• Conclusion

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OVERVIEW OF CHILE

• OTHER IMPORTANT INFORMATION
• Low Import Duties general (6), after
  Agreements (lt2)
• Duty-free access to 90 of the worlds GDP
• Expected to join the OECD in 2009/2010

• BUSINESS ENVIRONMENT
• Political environment Very Stable
• Monetary Fiscal Policies Very Stable
• Corruption Perception Low (ranks 22nd, USA 20th)
• One of the best investment business climate in
  Latin America
• Free Trade Agreement with Canada since 1997

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CHILE - CANADA
OVERVIEW OF CHILE

• Direct Investment
• Chile is Canadas 2nd largest investment market
  in Latin America
• Canada is the largest investor in Chile Mining
  Sector and its Chiles 3rd largest investor
  overall (after the USA and Spain)
• Main Canadian Investors In Chile
• Bank of Nova Scotia, Barrick Gold, Brookfield
  Asset Management, Kinross, Methanex, OTPP,
  Teck Cominco
• Other Canadian Presence Atco, Dessau, Hatch,
  Finning, Nortel, SNC-Lavalin

Canadian Direct Investment in Chile
Source Canadian Embassy in Chile, 2007
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CHILEAN INVESTMENT PLANNED IN 2008-2012
OVERVIEW OF CHILE
Chilean Investment in Infrastructure Projects (in
USD billion dollar)

• There will be a need for
• US51.4bln of investment in other various
  infrastructure projects during the 2008-2012
  period.
• The investment would consist of 425 projects that
  are privately funded with defined construction
  timelines
• 175 of these projects are investment greater than
  US5mln.
• Energy, mining and infrastructure are the
  targeted sectors (85 total)
• Energy (US21.9bln) thermal plants, renewable
  hydro projects.

Source Corporacion de Bienes Capital
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ELECTRICITY MARKET OVERVIEW

• REGULATORY FRAMEWORK
• The electric business split in 3 separately
  business
• Generation
• Transmission (Trunk Systemgt220KV, Sub
  transmission additional Systems)
• Distribution
• All business are fully privatized and
  decentralized
• Vertical integration is not allowed. Company
  cant own both generation and transmission.

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ELECTRICITY MARKET OVERVIEW

• REGULATORY FRAMEWORK
• Generation
• Competition at the generation level full control
  over investment
• Dispatch based on merit order marginal variable
  costs
• Transmission Distribution
• Soft Regulated Prices for Transmission and
  Distribution Grids
• Open Access to Transmission and Distribution Grids

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REGULATORY ENTITIES
ELECTRICITY MARKET OVERVIEW

• Ministry of Mining and Energy
• Defines energy policies, plans and norms relating
  to hydrocarbons, nuclear and geothermal energy
• Ministry of Economy
• Issues price decrees, awards concession permits
  and establishes energy rationing
• National Energy Commission (CNE)
• Implements and assures compliance of the polices
  and norms relating to energy
• Proposes laws and decrees
• Calculates regulated prices for transmission and
  distribution systems
• Superintendence Electricity Fuel (SEC)
• Controls service quality and resolves disputes
  between agents
• System operators CDEC-SIC and CDEC-SING
• Preserves the service security and quality along
  the grid
• Assures the most economical operation (based on
  merit order)
• Assures Open Access to Main Transmission/
  Subtransmission Systems
• Expert Panel
• Resolves conflicts between agents (generators,
  distributors, etc)
• Other Institutions Environmental agency
  (CONAMA), DGA, SVS, Tribunal for Defense of Free
  Competition, etc.

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ELECTRICITY SYSTEM OVERVIEW
ELECTRICITY MARKET OVERVIEW
SING Northern Interconnected Grid Installed
Capacity 3,597 MW Annual Generation 12,657
GWh Max Demand 1,790 MW Population 6.1
Total System (2007) Installed Capacity 12,820
MW Generated Energy 56,200 GWh Max Demand
8,172 MW Reserve Margin 1.57 SICSING 99.2
of total
SIC Central Interconnected Grid Installed
Capacity 9,120 MW Annual Generation 37,965
GWh Max Demand 6,324 MW Population 92.3
Aysén System Installed Capacity 33,3 MW Annual
Generation 107.9 GWh Max Demand 19.4
MW Population 0.6
Magallanes System Installed Capacity 67.4
MW Annual Generation 187 GWh Max Demand 36.4
MW Population 1.0
Source CNE, Chile
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GENERATION BUSINESS
ELECTRICITY MARKET OVERVIEW
SYSTEM
SIC
SING
Source CNE, Chile
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GENERATION BUSINESS MAIN PLAYERS
ELECTRICITY MARKET OVERVIEW

• ENDESA
• Endesa Chile is the largest electricity
  generation company in Chile,
• and one of the largest privately held
  electric generators in the region.
• Operations in Chile, Argentina, Colombia, Peru,
  and Brazil.
• Total installed capacity of 12,624 MW.
• Expansion plan almost 3,000 MW of capacity
  increases in Chile.
• AES GENER
• Presence in the two largest electricity grids in
  the country.
• 2,560 MW of installed capacity in Chile and a
  1,000 MW facility in Colombia.
• Mix of hydro, natural gas, coal, and oil
  facilities.
• Expansion plan considers incorporation of more
  than 2,500 MW by 2012.
• COLBUN
• Total installed capacity of 2,521 MW.
• All the generating facilities linked to the
  Chilean Central Grid (SIC).
• Has projects for more than 2,200 MW in the
  Chilean central grid.

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TRANSMISSION BUSINESS MAIN PLAYER
ELECTRICITY MARKET OVERVIEW

• TRANSELEC
• It is the biggest and most important electricity
  transmission company in Chile.
• It is owned by a consortium of Canadian
  companies. Initially developed by
• Endesa and acquired by Hydro-Québec in 2000.
• Owns 98 in SIC and 100 in SING Trunk systems.
• Its system extends over 8,204 km of simple and
  double circuit transmission lines
• and 48 transmission substations.
• Assets valued at USD 1,657 million.
• Projects Capex forecasts USD 1.1 B (2008-2012)
• Upgrade / expansion of trunk system (40),

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TRANSMISSION BUSINESS
ELECTRICITY MARKET OVERVIEW

• Transmission is treated as natural monopoly
  revenues are regulated.
• 3 categories of transmission infrastructure
• Trunk Systems
• 154 kV to 500 kV, bi-directional flow
• Sub-transmission Systems
• to serve Distribution companies demand
• Additional Systems
• injection from Power Plants to Trunk and not
  subject to price regulation
• SIC 8,330 km lines
• SING 5,218 km lines

Additional system
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DISTRIBUTION BUSINESS
ELECTRICITY MARKET OVERVIEW

• Natural monopoly with defined concession areas.
• Open access for generators to sell energy to big
  customers connected to the distribution grid a
  distribution toll must be paid.
• The distribution charge is calculated by the
  Comisión nacional de energía (CNE) every 4 years
  and is based on the internal rate on return (IRR)
  of 10.

Source Comision Nacional de Energia (CNE),
Chile, 2007
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DISTRIBUTION BUSINESS MAIN PLAYERS
ELECTRICITY MARKET OVERVIEW

• CHILECTRA S.A.
• Owned by Enersis (Enersis also owns Endesa).
• Largest distribution company in Chile with 45
  market share (by energy).
• Serves the Santiago area with more than 1.5mln
  customers
• Asset base of US2.9bln.
• Control Distribution cos in Argentina, Brazil,
  Peru, Colombia.
• SAESA
• Second largest distributor in Chile in terms of
  geographical coverage, and is the main provider
  of electricity in the rapidly growing southern
  regions of the country.
• Serves 16 of Chile's population, services to
  approximately 2.6mln people.
• Owns 135MWs of wind, hydro and thermal power
  generation, and owns 950 km of transmission lines
  (total asset value is US1.3bln).
• CGE
• Serves over 2.0mln of customers in Chile and
  Argentina. Its operates from the Region IV to
  Region IX (from City of La Serena to Temuco) and
  the Region XII (city of Punta Arenas). Its market
  share is 28.
• CHILQUINTA
• Serves 450,000 customers in region V (Vina del
  Mar, Valparaiso and other 10 communities), with a
  market share of 8.

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RENEWABLE ENERGY BUSINESS
ELECTRICITY MARKET OVERVIEW

• Chile is one of the longest countries in the
  world, stretching along the west coast of South
  America, resulting in important climatic
  differences.
• Chile has a 4,000 km coastline (potential for
  on-shore/off-shore wind and wave energy).
• Chile is located in a very active volcanic area
  (potential geothermic energy, over 2,000 MW in
  more than 100 sites).
• The north of Chile is one of the best places to
  produce solar energy in the world, driest desert
  in the world (potential for solar energy, solar
  radiation gt 4 Mcal/(m2/day)).
• Chile has 16 m Ha of forestland (plantation 2.5
  m Ha native 13.5 m Ha, with growth 11x faster
  than Canada) and active pulppaper industry
  (potential biomass energy).
• Chile has many rivers from Santiago to the
  south, based on ice melting and rainy regimes
  (mini hydro run of river energy).

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ELECTRICITY MARKET ANALYSIS
CONSTANT GROWTH OF ENERGY GENERATION

• Historically, the growth rate has been 1-2
  above GDP growth rate.
• The SING is highly dependent on mining projects.
• Chile electricity consumption is 5x lower than
  Canada (3 vs.15 MWh/hab).

Source Comision Nacional de Energia (CNE),
Chile, 2006
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ELECTRICITY MARKET ANALYSIS
RECENT HISTORY / STATE OF THE MARKET

• Traditionally Hydro and Gas
• Four key factors have greatly affected the
  Chilean power sector
• 1) Argentina Curtailment of Natural Gas
• 2) High international oil and coal prices
• 3) Lack of investment between 2004 and 2007
• 4) 2007 and 2008 were relatively dry seasons
• How did authorities deal with this ?
• Promoting new comers to enter in the market.
• LNG regas plants in Quintero and Mejillones.
• Diversification of energy sources and efficient
  use of energy.

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OPPORTUNITIES IN CHILE, 2008 - 2012
ENTERING THE MARKET
Source Canadian Embassy in Chile
Source Corporacion Bienes de Capital, Chile,
June 2008
Source Corporacion Bienes de Capital, Chile,
June 2008
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ENTERING THE MARKET
RIDING THE ELECTRICITY WAVE

• ENDESA The company has projects for 3,000 MW of
  installed capacity, and will practically double
  the size of its Chilean operations by 2013.
• Aysen (51) - Hydro
• Los Condores - Hydro
• Bocamina II - Coal
• AES GENER By 2012, the company should nearly
  double its installed capacity in Chile, primarily
  with coal fired facilities.
• Angamos - Coal
• Campiche - Coal
• COLBUN 1,800 MW of hydro projects (including the
  49 stake in the Aysen project), 350 MW of coal,
  and 100 MW of diesel backup generation.
• Aysen (49) - Hydro
• Central Coronel - Coal
• Central Angostura - Hydro
• To obtain more information on the up-coming
  projects, please consult the appendix (p.30-31)

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ENTERING THE MARKET
RIDING THE ELECTRICITY WAVE

• CODELCO (mining)
• Developing three  "clean" coal-fired plants of
  350 MW each, total cost is US1.7bln,
  commissioning in April 2012.
• Barrick (mining)
• Developing over US100mln in wind farm (20MW)
  and thermal plants, located in the Punta
  Colorada, Coquimbo Region.
• Xstrata (mining)
• Developing a 1,100 MW hydro project with cost of
  US1.0bln, in La Patagonia.
• BHP Billiton (mining)
• Developing wind farms in the 1st and 2nd
  regions of Chile, with a generation capacity of
  100 MW.
• CAP (iron steel producer)
• Developing 300 MW coal plant Cruz Grande, cost
  US460mln, located in Coquimbo Region.
• Gerdau Aza (steel producer)
• Developing a 69 MW diesel plant, investment of
  US82mln.
• Methanex (methanol producer)

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INTERNATIONAL PLAYERS IN THE MARKET
ENTERING THE MARKET

• Sponsors
• Power Endesa (Spain), ENEL (Italy), AES Corp
  (USA), Acciona (Spain), SNP (Norway), PHL
  (Australia) Suez (Belgium), Eólica Navarra
  (Spain), Iberdrola (Spain), British Gas (UK),
  Brookfield (Canada)
• Non-Power Barrick (Canada), Methanex (Canada),
  BHP Billiton (Australia), Codelco (Chile),
  Xstrata (Swiss), Antofasta Minerals (Chile), Cap
  (Chile)
• Contractors
• POSCO (Korea), Marubeni (Japan), Astaldi (Italy),
  Queiroz Galvao (Brazil), Hochtief (Germany),
  Techint (Italy/Argentina), Ferrovial (Spain),
  Salfa (Chile)
• Machinery / Equipment
• ABB, GE, Siemens, Rolls-Royce, Vestas,
  Mitsubishi, Alstom, Bosch, NRG
• There are medium technical barriers to entry
  into the sector, all international players have a
  local partner in Chile

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KEY SUCCESS FACTORS TO COMPETE
ENTERING THE MARKET

• Successful companies in the market
• Have a local representation
• Form alliances with local and international
  players
• Know their competitive strength
• Have the capacity to deliver products and
  services at
• competitive prices, short lead times and on
  time
• Develop relationship with main sponsor
  /operators companies key decisions
• makers
• Network with over 120 Canadian companies present
  in different industry
• sectors in Chile (Energy is crossing all
  sectors since its a basic need)
• Use the services provided by the Canadian
  Embassy and EDC in Chile

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EDC Facilitating Canadian Trade

• EDC is Canadas official export credit agency
  (ECA) offering financial solutions to help
  Canadian exporters and investors expand their
  international business
• We work in partnership with the public and
  private sectors to enhance the visibility of
  Canadian companies abroad
• EDCs financial services include financing,
  insurance and guarantees
• EDCs combined financing and insurance volumes
  reached 85.8 billion in 2008 (23 increased
  over 2007) while serving 8,312 Canadian companies
  (11 increase)

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EDC How We Add Value

• EDC PRODUCTS
• Accounts Receivable Insurance
• Protects Exporters accounts receivables against
  non-payment by their buyers
• Contract Insurance Bonding
• Guarantee of Exporters bid and performance bonds
  or any advances (ie. Down payments) received

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EDC How We Add Value, Contd

• MORE EDC PRODUCTS
• Financing
• Flexible, medium- or long-term financing for
  buyers of Canadian capital goods and services
  including Structured Finance (Project Finance)
• Canadian foreign investment financing can also be
  considered
• Political Risk Insurance
• Provided for Canadian companies investments or
  assets in a foreign country, as well as
  protecting project loans from political risks

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ENTERING THE MARKET

• Upcoming Power shows / Trade Missions
• 4th International Renewable Energy and CDM
  Investing Meeting.
• September 7-8, 2009.
• Seminar and matchmaking events among local and
  international
• players active in the Chilean market (developers,
  operators, engineering
• companies, constructors, government agencies).
• Useful Websites
• Endesa www.endesa.es/Portal/en/default.htm
• AES Gener www.aesgener.cl
• Colbun www.colbun.cl
• Transelec www.transelec.cl/english/home.asp

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CONCLUSION

• Chile-Canada like-minded countries
• Open economies dependent on trade
• Similar business cultures transparent, fair and
  stable
• Rely on stable, rules-based international system
• Canadian investment in Chile has doubled since
  2000, principally in the mining, financial, and
  chemicals. Next sector might be Energy.
• Power sector in Chile is overcoming its
  dependency in Argentinean natural gas, so the
  system will come to normal by 2012.
• Chilean Crisis has created big opportunities to
  diversify its energy matrix from thermal and
  hydro to renewable technologies.
• Chilean Government has several financial
  resources in place to facilitate entry of new
  players and development of new projects.
• Chilean and Canadian Governments have signed
  numerous MOUs to enhance the bilateral exchanges
  in areas such as environment, science and
  technology, natural resources (incl.
  energy), aquaculture, labour, youth mobility,
  culture, and investment promotion.

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USEFUL CONTACTS

• Ottawa
• Chilean Embassy in Canada
• www.chile.ca
• CORFO in Canada
• www.corfo.cl
• tel [phone]
• ProChile (offices in Toronto and Montreal)
• www.prochile.cl
• Chile
• Chilean Canadian Chamber of Commerce
• www.chile-canada-chamber.cl
• Comision Nacional de Energia
• www.cne.cl
• Canadian Embassy in Santiago, Chile
• Sylvain Fabi, Senior Trade Commissioner
• Genevieve Bourget, Energy Trade Commissioner
• santiago.commerce_at_international.gc.ca

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THANK YOU / MERCI
EDC CONTACTS

• Christian Daroch
• Regional Manager Chile
• Tel [phone]
• Email latinamerica_at_edc.ca
• Karen Mallory
• Sector Advisor, Infrastructure Environment
• Tel [phone]
• Email kmallory_at_edc.ca

www.edc.ca
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Current Main Developers and its Projects
APPENDIX
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Current Main Developers and its Projects
APPENDIX