FINANCING WIND POWER PROJECTS

Project Financing is the financing of long term projects based upon a complex financial structure where project debt and equity are used to finance the project rather than the balance sheet of the project sponsors.

Corporate Financing is the financing where past financial statements of borrower, especially balance sheet, is evaluated for the repayment of the loan.

Environmental Aspects

Design/Construction/Commissioning

Inputs

Performance

O&M and Staffing

Financing

Political & Regulatory Environment

•Equipment/Technology•Technology Supplier•Pot. Contractual Frustration•Quality of planning by developer

Compliance with: •Current local regulations•Equator Principles•Changes in regulations and public perception

•Likely ramp up of production•Performance during steady state of operation for the production of electricity•Life span of assets

Production Unit

Sale of Production

•Demand•Duration of PPA contract•Fixed price vs Revisable Price•Payment conditions•Credit worthiness of purchaser

•Depending on the nature (wind, solar, hydro)•Resulting from human activity (by product of other production or specific production)

•Health & Safety•Support from Suppliers•Contractual Agreements•Availability of Equipments•Quality of organisational chart•CVs of key management personnel•Training programmes

Lenders’ Perspectives on a ProjectLenders’ Perspectives on a Project

Lenders’ Perspectives on a ProjectLenders’ Perspectives on a Project

Financing:

Structure of debt financing requiredo Currencies, amounts maturitieso Hedging (interest rates, biofuel contracts)

Credit enhancement mechanismso Covenants on debt, including minimum debt service coverage ratioso Contingency funding for delay in start upo Possibility to use free cash flows above debt service to repay debt in advance, rather than to

distribute dividendso Guarantee of part of all of debt by project developer or other entity, backed by assets of cash

flows

Sources of financing available based on appetite, regulations, timing of transaction.*** o Local bankso International banks with project finance desks and knowledge of the renewable energy sectoro Export agencies which guarantee up to 85% of the debt used to buy equipment and/or services

from their home countryo Dedicated funds

*** Especially important for large projects, since the bank initially providing the funding will then syndicate most of the debt to retain only partial exposure

Lenders’ Perspectives on a ProjectLenders’ Perspectives on a Project

Political & Regulatory Environment:

Political Stability

Minimization of Contingencies

Transparency of Regulatory Environment

Reliable Long Term Tariff

Governmental Obligations and Local Laws

Project Finance Steps for Wind Power ProjectsProject Finance Steps for Wind Power Projects

Wind Consultancy(Reliability of Wind Data)

Equipment/Technology Consultancy

Environmental Consultancy

Insurance Consultancy

Local Legal Consultancy

International Legal Consultancy

Financial Consultancy

Wind Consultancy(Reliability of Wind Data)

Equipment/Technology Consultancy

Environmental Consultancy

Insurance Consultancy

Local Legal Consultancy

International Legal Consultancy

Financial Consultancy

Main ContractorMain Contractor

PurchaserPurchaser

RegulatorRegulator Project FacilitatorProject Facilitator

GovernmentGovernment

O&M ContractorO&M Contractor EPC ContractorEPC Contractor

GuarantorGuarantor

Technology Supplier

Technology Supplier

Project CompanyProject Company

Project Finance Scheme Project Finance Scheme

ZORLU ENERGY

PAKISTAN

49.5 MW

WIND FARM PROJECT

9

Pakistan Power Sector – Total Installed CapacityPakistan Power Sector – Total Installed Capacity

10

Peak Demand ProjectionPeak Demand Projection 2007–2032007–20300

•First Wind Power Project in Pakistan.

•Located at District Thatta, Jhimphir (app.

100 km east of Karachi)

•49,5 MW capacity consisting of 34 WTGs.

•Indigenous Electricity Generation

•125 Mio USD expected costs.

Zorlu Energy Pakistan Wind Power ProjectZorlu Energy Pakistan Wind Power Project

LOI receivedLand allocated to ZORLUPre- and Final Feasibility study completedSoil study completedSeismic study completedEIA study completedTransportation study completedGrid study completedGeneration License received Tariff agreedConstruction on going

60,000 HOUSHOLS IN PAKISTAN WILL BE USING ENERGY OF THE WIND BLOWING IN PAKISTAN TOTALY :

INDIGENEOUS RENEWABLE

GREEN

ProjectProject StatusStatus

Why Invest in Pakistan in Wind Farm ?

Because Pakistan !

No Hostile Environment for Foreign Investors

Friendly and Efficient Government Bureaucracy

Independent Regulator

Attractive Demand and Supply Scenarios

Level of Commitment for Higher Use of Renewable Energy

Government Strategy to Utilize Indigineous Resources

Available Infrastructure

The system AEDB, NEPRA and WAPDA designed is very suitable for project financing...

Regulatory Policy-maker

Tariff Structure

Loan Power Purchase Agreement

Governm

ent of Pakistan

Governm

ent of Pakistan

Regulated Market With State Control

-Non-escalable Energy Component-Debt Service: the principal and interest payments expressed in PKR of the part of total project debt libelled in foreign currency.-Return on Equity: the dividend expected to be distributed each year of the project before payment of the withholding tax, in order to achieve a 15% IRR over the life of the project post withholding tax

-Escalable Energy Component

-O&M Costs – Local: the amount of cash outflows linked to operations and maintenance taking place directly in PKR and expected to take place-O&M Costs – Foreign: the amount of cash outflows linked to operations and maintenance expressed in PKR but effectively taking place in foreign currency and expected to take place-Insurance

Tariff StructureTariff Structure

Possible Concerns for Investors In General:

Regional Risks Political Unstability State of Unrest/Violence in The Country Economic Problems

In Particular: Land Ownership Claims Possible Delays in Due Payments by NTDC Security Timely Grid Connection Reliable Wind Data Unrealistic Loan Conditions Accepted in The Tariff

Complications in Financing the Project Complications in Financing the Project

Being the first wind power project in Pakistan

Political risks in Pakistan

Increase in perceived riskiness of Pakistani debt on

financial markets

Obligatory interest rate(LIBOR+3%) for financing

the Project

Thank you very much for your kind attention...