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Financing of Energy Investments in Russia: a Financier’s Perspective: 

Financing of Energy Investments in Russia: a Financier’s Perspective Timo Tynnilä Principal Banker, Power and Energy Utilities St. Petersburg, 17th March 2004

What am I going to say?: 

What am I going to say? How we see our role in the power sector What we have accomplished What challenges does the sector reform pose for bankers Where we see our added value

Russian Power Sector – Key Issues: 

Russian Power Sector – Key Issues Ageing assets, low efficiency, high losses Critical under-investment Subsidised tariffs: high energy consumption Evolving regulatory environment and market Environmental standards Creating conditions for attracting investment into the sector is one of the key objectives of the reform initiated by the Russian Government

Slide4: 

Power Sector Objectives Support sector reforms Foster competition and market liberalisation Accelerate privatisation and private investment Utilise sovereign lending for reinforcement of grid and inter-connection to Europe with conditions to restructure, liberalise, and create competition Prioritise environmental and energy efficiency investments

Slide5: 

€1.82 billion committed to €4.81 billion in investment €1.57 billion of EBRD financing under preparation Trend towards non-sovereign and private financing - pipeline: 62% private sector 38% state 74% non-sovereign 26% sovereign Transmission 25% Distribution 9% Generation 65% Power & Energy Portfolio PORTFOLIO

Slide6: 

Strong environmental mandate Principles of Operations

EBRD Power Projects in Russia: 

EBRD Power Projects in Russia 1998-to date Mosenergo - USD30 mn 11-year loan to finance completion of the Zagorsk hydro pump storage station Mutnovskaya IPP – USD100 mn 14-year loan to finance a geothermal power plant in Kamchatka RAO UES of Russia – Euro100 mn 3-year corporate loan Mosenergo – USD70 mn 5-year corporate loan Project work in progress with a number of energos

Mosenergo Loan Case Study: 

Mosenergo Loan Case Study Mosenergo Restructuring Loan USD70 mn 5-year corporate loan signed in August 2002 Part of the loan syndicated to 4 banks Use of proceeds – working capital needs and priority investments in one of Mosenergo’s CHP plants Loan accomplished within 6 months from mandate letter to disbursement of funds

Power Sector Reform – Challenges (i): 

Power Sector Reform – Challenges (i) Transformation /Reorganisation of the Clients: RAO UES of Russia in its present form is to cease to exist in the next few years Regional energos are waiting to be unbundled, energo management reluctant to make long-term investment commitments Federal Grid Company is in set up phase Wholesale generation companies still to be formed

Power Sector Reform – Challenges (ii): 

Power Sector Reform – Challenges (ii) Uncertainty of the transition period: lack of sponsors as international strategic investors hesitant to move in Lack of clarity on the timing of the Russian gas sector reform and respective difficulty in forecasting long-term gas prices Affordability of projected residential tariffs increases resulting from elimination of cross-subsidisation and increase in domestic gas prices

Where We See Our Added Value: 

Where We See Our Added Value Policy dialogue with the Russian Government Selective projects with regional energos Focus on renewable energy and energy efficiency projects Participation in the work of the Restructuring Committee Ongoing dialogue with potential strategic investors Regulatory strengthening through project work

Contact at the EBRD : 

www.ebrd.com Contact at the EBRD Nandita Parshad Senior Banker, Power & Energy Utilities Telephone: + 44 207 338 6537 Fax: + 44 207 338 7280 e-mail: parshadn@ebrd.com Sergey Bubnov Principal Banker, Power & Energy Utilities Telephone: + 44 207 338 6816 Fax: + 44 207 338 7280 email: bubnovs@ebrd.com Timo Tynnila Principal Banker, Power & Energy Utilities Telephone: + 44 207 338 7918 Fax: + 44 207 338 7280 email: tynnilat@ebrd.com