Financing the Nabucco Gas Pipeline Project Brussels, November 9th, 2006

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Financing the Nabucco Gas Pipeline
ProjectBrussels, November 9th, 2006
Reinhard MitschekOMV Gas International
GmbHHead of International Pipeline
ProjectsNabucco Gas Pipeline International
Managing Director
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Nabucco Gas Pipeline ProjectNew gas transmission
possiblity

• Pipeline Diameter 56
• Distance 3,300 km
• Investment 4.6 bill.
• Transport capacitymax. cap. 31 bcmy

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Bankability issues

• Shareholder Profile
• Long Term Transportation Contracts
• Competitive Pipeline Tariff Level
• Harmonized legal framework in the region of SEE
  ? Intergovernmental Agreement
• Stable, long term foreseeable regulatory
  framework ? Energy Community Treaty
• Foreseeable economics and predictable project
  business plan ? Exemption
• High cash flow with a maximum repayment period of
  10 years with minimum risk

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Project financing structure
Debt Equity 70 30
Average Debt Service Cover Ratio of 1,5 Secured
by Pre-Completion Guarantee fee- 70
Investment- grade credits 30 Others
MLAs 1500 (EIB, EBRD, IFC) direct (A
Loan) 1000 indirect 500 (B loan from
commercial banks with MLA guarantee) ECAs 1000 (
JBIC, KfW etc.) OeKB 500 Commerical banks
500
Equity ca. 30 1,5 bn EUR
Investment 5 bn EUR
Shareholder Loans tbd. expected 0
Debt ca 70 3,5 bn EUR
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Nabucco Gas Pipeline ProjectFinancial
requirements

• Up-front investment is most feasible model
• DebtEquity 6040 to 7030
• Tenor maximum period 15 y
• Total bank financing necessity 3.5 bill.
• Total investment needs4.6 bill. (value 2004)
• Improved credit mix of sponsor group necessary

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Nabucco Gas Pipeline ProjectFinancial
Requirements

• Request for (very) long term depreciation of
  investment in tariff model from Regulatory
  Authorities
• versus
• Request for mid term pay back periods from
  Financial Institutions

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Nabucco Gas Pipeline ProjectFinancial
Requirements

• Request for tariff methodology based on low
  return from Regulatory Authorities
• versus
• Request for a average debt service cover ratio
• of 1.5 (minDSCR 1.3) needs high cash in

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Nabucco Gas Pipeline ProjectFinancial
Requirements

• Development and construction of such an
  infrastructure project needs 8 to 10 years
• Request for short term contracts for a
  considerable part of the transport capacity from
  Regulatory Authorities
• versus
• Alternative for risk mitigation by long term
  contracts

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Gas Infrastructure Projects Risk Allocation a
balancing exercise
Construction risk
Political risk
Operational risk
Environmental risk
Market risk
Counterparty credit risk
Force majeure risk
Cash flow risk
Technology risk
Default risk
Exchange rate risk
Source Norton Rose, Presentation at Fourth Asia
Gas Partnership Summit on February 20th, 2006
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Nabucco Gas Pipeline ProjectFinancial
Requirements

• Need for an exemption from certain regulations
• Request for interventions in relation to tariffs
  and tariff methodology from Regulatory
  Authorities
• versus
• Request for a stable predictable business plan
  from sponsors and financial institutions

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Nabucco Gas Pipeline ProjectFinancial
Requirements

• Legal / Contractual framework
• - Within the EU ? European Law
• - Within the Energy community ? EC-Treaty
• - Outside the EU ? Intergovernmental / Host
  Governmental Agreements
• No basis for the time being for a multi cross
  border infrastructur project Turkey Bulgaria
  Romania Hungary - Austria !!!

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Concluding remarks

• Large Scale projects are in feasibility and/or
  development phases. The development and
  construction period of such projects is 6 to 8
  years
• Involved risk/risk reduction is highly important
  for the shareholders and for the creditability
  of the project. Taken risks have to be rewarded.
• Risk mitigation and clear commitment is a joint
  responsibility of companies as well as
  governments and the European Union.
• A stable and predictable legal and regulatory
  framework is crucial in order to provide a sound
  investment climate

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Contact
Nabucco Gas Pipeline International
GmbH floridotower Floridsdorfer Haupstraße 1
1210 Vienna Austria Reinhard Mitschek Tel. 43 1
2700 371 28660 Fax [phone] e-mail
reinhard.mitschek_at_nabucco-pipeline.com
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