Restructuring, Consolidation, Privatisation the Future of the ElectroEnergy 2nd Energy Forum

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Restructuring, Consolidation, Privatisation - the
Future of the Electro-Energy 2nd Energy Forum
NORDIC INVESTMENT BANK
Prague, November 5, 2007 Yngve Söderlund, Senior
Regional Manager Europe Eurasia at Nordic
Investment Bank E-mail yngve.soderlund_at_nib.int
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NORDIC INVESTMENT BANK (NIB)

• multilateral financial institution
• founded in 1975
• highest possible rating AAA/Aaa
• headquarter in Helsinki

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NIB TODAY (8/2007)

• Total assets EUR 18.9 bio.
• Portfolio of loans outstanding EUR 12.1 bio.
• Loans disbursed 9/2006-8/2007 EUR 2.4 bio.
• 31.07.2007 Energy portfolio EUR 3,4 bio.
  (28.1) of total lending
• Loans outstanding in 38 countries

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NIB'S FINANCIAL FRAMEWORK AGREEMENTS

• Argentina
• Botswana
• Brazil
• Bulgaria
• China
• Colombia
• Croatia
• Czech Rep.
• Egypt
• Hungary
• India
• Indonesia
• Jordan

• Laos
• Malaysia
• Mauritius
• Mexico
• Morocco
• Namibia
• Pakistan
• Peru
• Philippines
• Poland
• Romania
• Russia
• Serbia

• Slovak Rep.
• Slovenia
• South Africa
• Sri Lanka
• Thailand
• Tunisia
• Turkey
• Ukraine
• Venezuela
• Vietnam
• Zimbabwe
• Albania
• Azerbaijan
• Kazakhstan
• Macedonia
• under preparation

• Regional activity
• gt Black Sea Trade and Development Bank
• gt CAF (Andean Development Corporation)
• gt CABEI (Central American Bank for Economic
  Integration)

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Why is Energy of Special Interest to NIB?

• NIBs has competitive advantages in energy finance
• Long term financing
• Mobilisation of commercial and other IFI
  financing
• Energy financing expertise
• Experience in structuring cross border
  investments
• Value added in emerging markets
• A long term perspective

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State of Play and Market Size of Energy Sector
Trends and Business Drivers.

• Demand for Electricity is Growing
• Backlog of Investments
• Deficit in supply
• Regional Integration
• Larger Baltic Sea Region becomes a single larger
  market
• Long term Europe to be a single market
• Environmental Regulations gt Fuel switching
• EC Large Combustion Directive in force 2008 (2016
  for Estonia and Poland)
• CO2 Emissions
• Reduced emission level 2008-2013 within EU
• Uncertainty post Kyoto 2013 and onwards
• European Trading System of CO2 rights (ETS)

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State of Play and Market Size of Energy Sector
EU 27 Cumulative Energy Investment Needs up to
2030 Baseline Scenario Source EC DG Tren

• Investment (billion EUR) Share
• Oil (dev., explor., refining) 90 5.1
• Gas (dev., explor., distr.) 221 12.3
• Coal (miningshipping) 24 1.3
• Renewables (heatingbiofuels) 78 4.4
• Electricity 1,377 76.9
• Generation 897
• Transmission 116
• Distribution 364
• Total 1,790 100.0

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State of Play and Market Size of Energy Sector
Proposed EU Energy Policy - Targets and
Objectives

• Reduction of Greenhouse gas emissions
• 20 by 2020
• 30 by 2020 subject to agreement by developed
  countries
• Energy efficiency improvement
• 9 by 2016
• 20 by 2020
• Renewable energy target
• 20 by 2020
• Biofuels target in transport
• 10 by 2020

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State of Play and Market Size of Energy Sector
Larger Baltic Sea Region face several common
challenges

• Competitiveness is dependent on access to energy
  at competitive cost level
• Uncertainty of future carbon prices and national
  allocations
• Hydrological variations
• Timing of generation closures (e.g. Swedish
  nuclear)
• Access to long term gas supplies
• Unclear Framework for Integration of Grid Systems
• Steady energy price increases over the past six
  years
• Further increases expected up to European level
  as price level in Baltic Sea countries (except
  for Germany) below European average
• Domestic utilities are relatively small to
  European major utilities

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European consolidation of Energy Sector

• Consolidations and take-overs characterize the
  European electricity market
• The largest market players are increasing in size
• The future electricity market will be dominated
  by a few large players
• Nordic, Baltic, Polish players relatively small.
  Take over protected via public ownership

Vattenfall
UES
RWE
E.ON
EdF
Enel
Endesa
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Concentration in the Baltic Sea market
Concentration in selected European wholesale
markets market share of 3 largest power producer
The Nordic region and Poland is among the less
concentrated in Europe The Baltic countries are
highly concentrated through state monopolies due
to historical reason and need for integration to
secure financial strength and investment capacity
Before consolidation of Polish energy sector
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Energy supply security in Baltic Sea Area -
Three Different Systems
R
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Baltic Sea Region to be an integrated Electricity
Market Cross-border transmission - New lines
under planning
Fenno-Scan 2 500 MW by 2010
Conclusion Baltic Sea Region (NIB Member
countries, Poland, Germany, Ukraine, North- West
Russia, Belarus) to become a single regional
electricity market supported by EU policy and
security of supply targets.
Finland-Russia 1,400 MW into dual direction
ESTLINK II 600 MW
Latvia-Sweden Sea Cable
Norway-Holland 700 MW by 2010
Latvia-Ukraine (via Belarus) - upgrading from
110kV to 330kV
Finalised
Decided/under implementation
Poland-Germany Increased capacity
Poland-Ukraine upgrading 750kV
Feasibility study phase
Increased transmission capacity Slovakia-Poland
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Possible long term development of the larger
Baltic sea area

• Prerequisites for efficient linking of the
  markets in the larger Baltic Sea area
• Efficient functioning regional markets liquid
  spot exchange
• Sufficient cross market transport capacity with
  TPA
• Strong coordination between national TSO
• Full market transparency
• Possibility for Baltics to utilize strategic
  localization as transit zone between Russia and
  Western Europe for gas and electricity
• The European major energy players will enter the
  Baltic Sea market

Gas imports? Electricity imports?
Nord Pool
Baltic electricity market
Market couplings/ market integration
EEX
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State of play and market size of the Energy
Sector Energy Market Assessment/ Priority
Investments - Baltic Sea Region

• 585.6 TWh electricity generated in 2006 (NIBs
  member countries Poland)
• New Generation Capacity
• Incremental energy needed 150 TWh/a by 2020
  (Member countries Poland) i.e. 25 of existing
  capacity. Expected costs EUR 25-50 billion. In
  Poland more than 1/3 of present capacity to be
  build.
• Renewables (Wind, Bio, Geothermal), Gas, Nuclear,
  Coal (PL)
• CO2 investments?
• Energy Efficiency for industrial and residential
  consumers
• Cross-border Inter-connections
• National Transmission and Distribution Network
• Fuel Switching (Power Generation, Transportation)
• Gas Pipelines / LNG terminals
• Oil Refineries

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Credit enhancements in el. financing vs. EU
directives

• Critical mass
• supports big European utilities and consolidation
  gt reduces competition
• Ownership
• state majority ownership of national "champions"
  may be an advantage
• privatisation as such no guarantee for effective
  operations
• Integrated utilities vs. unbundling
• Integrated utilities may finance generating
  capacity with implicit support from lower risk
  activity, i.e. grid distribution
• Regulative environment
• from case to case
• Turn key supplies
• relatively difficult at this stage as suppliers
  market
• Cross-border trading opportunities
• Reduces/increases market risk?

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Some NIB-financed energy projects

• PGE/BOT Górnictwo i Energetyka S.A. (Poland)
• Belchatow Power Plant (4,400 MW lignite)
• Turów Power Plant (2,200 MW lignite)
• AS Latvenergo (Latvia), integrated
• AS Eesti Energia (Estonia), integrated
• TGC 1 (Russia)
• AS Estlink (Cross-border 350 MW Cable), j-v
• Olkiluoto 1,600 Nuclear Power Plant (Finland)
• joint resource company

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Restructuring, Consolidation, Privatisation - the
Future of the Electro-Energy 2nd Energy Forum
NORDIC INVESTMENT BANK
Prague, November 5, 2007 Yngve Söderlund, Senior
Regional Manager Europe Eurasia at Nordic
Investment Bank E-mail yngve.soderlund_at_nib.int