Hydro Power Hub

www.investi ngeorgia.org 1

HYDRO POWER HUBHYDRO POWER HUBGeorgian National Investment Agency 2013

VESTORGIA


OVERVIEW OF GEORGIA’S (HYDRO-) POWER SECTOR

• Domesti c: Demand growth and increasing share of renewables requires an extension of hydropower generati on by around 65% unti l 2020

• Export: Georgia is surrounded by countries with a projected structural power defi cit (e.g. Turkey, Russia South) or expensive power generati on, opening up att racti ve export opportuniti es

• Power generati on accounts for 3% of GDP and ~ 1% of employment but is of high strategic importance to Georgia

• ~ 10% of power producti on are exported, but Georgia sti ll needs to import power during winter

• Georgia boosts signifi cant and economically viable HPP potenti al – already today 75% of power generated via HPP (2,700 MW) – 25% via thermal (mainly gas)

• All new HPPs operate in a liberalized market

• Cost of hydropower generati on is very competi ti ve in the region

• FDI infl ows amounted to USD 200 million in 2011 and are growing

• 65% of economically viable potenti al not yet exploited

• Projects of up to USD 750 million have been concessioned to investors from e.g. India, Turkey, Czech Republic and other counti es.

• Pipeline well fi lled with several large scale projects (100-702 MW) as well as 70+ smaller projects

Strong demand growth prospects

Importance of the sector low in terms of GDP and employment

Power sector with strong focus on cost competi ti ve HPP

Large projects have been placed and pipeline is fi lled


IN IN GEO

• Electricity demand growing in line with high GDP growth

• Share of hydropower to grow in total generati on capacity

• Domesti c off take guarantees

Mostly covered by commissioned HPP developments

Investment opportunity for new HPP developments

• Turkey and Russia projected to have excess demand

• Armenia/Azerbaijan sti ll with generati on overhang

• Incremental generati on cost among the lowest in the region, ~50% lower than target market Turkey

• 160 MW currently available (to TK)

• Upgrade of infrastructure by 2014 to increase capacity by 5-10

• Transmission guarantee granted

• Agreement with Turkey under negoti ati on

• Export buyer SPV being discussed

OpportunitiesOpportunities Conditions for investmentConditions for investment Situation in GeorgiaSituation in Georgia EvaluationEvaluation

ALL CONDITIONS FOR CAPTURING OPPORTUNITIES FROM GROWING DOMESTIC DEMAND AND EXPORTS ARE IN PLACE

HPPs for HPPs for domesti cdomesti csupplysupply

Domesti c demand Domesti c demand growth and growth and off take guaranteeoff take guarantee

Excess demand Excess demand in neighboring in neighboring countriescountries

Competi ti ve Competi ti ve generati on costgenerati on cost

Transmission Transmission capacitycapacity

Off take guaranteeOff take guarantee

HPPs for HPPs for exportexport

VESTORGIA


TWh, 2020TWh, 2020

Current installed capacity

1 High scenario assumes 6% CAGR of demand (in line with GDP), low scenario assumes 6% ti ll 2015, thereaft er 3%

Decreasing share of thermal

Projected demand

2020

Demand overhang to be covered

DOMESTIC DEMAND GROWTH REQUIRES AN EXTENSION OF HYDROPOWER GENERATION BY AROUND 65%

VESTRGIA

i ll d i j d d

2.1

DOMESTIC DEMAND AND SUPPLY PROJECTIONSDOMESTIC DEMAND AND SUPPLY PROJECTIONS

• • Georgia’s demand for electricity is increasing in line with expected GDP growth, requiring more HPP Georgia’s demand for electricity is increasing in line with expected GDP growth, requiring more HPP generati on capacitygenerati on capacity

• • Commissioned HPP developments likely to saturate the demand growthCommissioned HPP developments likely to saturate the demand growth

+65%+65%

15.7 6.2High scenario1

Lowscenario1

2.1

4.1

13.6

10.9

1.4


IN IN GEO

TURKISH GENERATION DEFICIT IS EVOLVING TURKISH GENERATION DEFICIT IS EVOLVING OVER THE COMING YEARSOVER THE COMING YEARS

GEORGIA’S GENERATION COSTS ARE HIGHLY COMPETITIVE GEORGIA’S GENERATION COSTS ARE HIGHLY COMPETITIVE GENERATION COST, USD CTGENERATION COST, USD CT

TURKISH CONSUMPTION PROFILE PERFECTLY TURKISH CONSUMPTION PROFILE PERFECTLY MATCHES GEORGIA’S GENERATIONMATCHES GEORGIA’S GENERATION

TRANSMISSION CAPACITY IS CURRENTLY BEING UPGRADEDTRANSMISSION CAPACITY IS CURRENTLY BEING UPGRADED

Energy defi cit forecastTWh

Generati on cost USD Ct

Transmission capacity MW

High scenario

Low scenario

Generati on Georgia

Consumpti on Turkey

ATTRACTIVE EXPORT POTENTIAL IN THE REGION, PARTICULARLY IN TURKEY

Increased consumpti on due to air conditi oning

Surplus due to increased river fl ows

Current generati on tariff 2011

New generati on cost 2016

160

1,560 250850

160850

8801,480

VESTORGIA


GEORGIA SURROUNDED BY COUNTRIES WITH A STRUCTURAL POWER DEFICIT OR EXPENSIVE POWER GENERATION

VESTRGIA

2020

Ukraine

Structural defi cit by 2020

Ad hoc defi cits projected No defi cit, but subsidized tariff s

No defi cit, but current tariff s > Georgia’s generati on cost

Romania

Bulgaria

Greece

Lebanon

Israel

Iraq

Iran

Turkmenistan

Azerbaijan

Armenia

Uzbekistan

TurkeyTurkey

GeorgiaGeorgia

South RussiaSouth Russia

1 Assuming current consumpti on and supply patt ern 2 This does not even include countries with heavily subsidized electricity generati on (e.g. Azerbaijan, Kazakhstan)

• • Turkey expected Turkey expected to have defi cit to have defi cit of up to 80-120 of up to 80-120 TWh by 2020, TWh by 2020, with seasonality with seasonality of its demand of its demand matching matching Georgia’s supplyGeorgia’s supply

• • Russia’s Russia’s Southern Southern districts will also districts will also experience a experience a structural defi cit structural defi cit of up to 40 TWh of up to 40 TWh by 2020by 20201

• • In other markets, In other markets, Georgia’s Georgia’s hydropower hydropower is very cost-is very cost-competi ti ve competi ti ve compared to compared to local tariff slocal tariff s2


IN IN GEO

SETTING UP A REGIONAL EXPORT CONSOLIDATION SPV HELPS TO CONSOLIDATE EXPORT SUPPLY AND FACILITATE PPAs

ILLUSTRATIVE SETUP FOR EXPORT CONSOLIDATIONILLUSTRATIVE SETUP FOR EXPORT CONSOLIDATION EVALUATIONEVALUATION

Electricity delivery

Transmission agreement

ProceedsFunding and guarantee

COULD BECOULD BE

• Government of Georgia (contract specifi c guarantee/ stake)

• Private investor

Electricity delivery

PPA

PPA

Trans-mission fees

Several counter-parti es, depending

on off take countries

PowerPowerproducersproducers

Uti liti esUti liti es

Transmission Transmission providerprovider

Export Export consolidati on consolidati on

SPVSPV

SPV represents SPV represents single interface for single interface for power producers power producers

Increased Increased effi ciency in effi ciency in negoti ati ons negoti ati ons with uti liti es and with uti liti es and transmission transmission providersproviders

PPAs to power PPAs to power providers with providers with competi ti ve bid competi ti ve bid could generate could generate earnings potenti al earnings potenti al for SPVfor SPV

Market risk lies Market risk lies with SPV if foreign with SPV if foreign uti liti es do not uti liti es do not sign PPAssign PPAs

Ulti mate Ulti mate shareholdershareholder

VESTORGIA


PROJECTS DESCRIPTION

NUMEROUS INVESTMENT OPPORTUNITIES IN HPP IN GEORGIA

• 7 large-scale HPP (100-450 MW) developments 7 large-scale HPP (100-450 MW) developments

– Clearly identi fi ed list of projects open for investment

– Packaged with att racti ve off take and export opportuniti es

• Domesti c off take agreement (subject to negoti ati ons)

• Export with transmission guarantee

• Buildup of a regional trading companyregional trading company with dual mission

– Consolidate export PPAs and transmission agreements with key off take countries (e.g. Turkey)

– Eventually develop modern trading/power pool infrastructure and regulati on

• Bundling of several of the ~ 70 existi ng small-/medium- Bundling of several of the ~ 70 existi ng small-/medium-scale projects (< 100 MW) into an investment fund scale projects (< 100 MW) into an investment fund

– Facilitates fi nancial investments into smaller HPPs

– Overcomes criti cal hurdles of small-scale HPP fi nancing to internati onal investors

Largescale Largescale HPP HPP developmentsdevelopments

Regional Regional consolidati on consolidati on and trading SPVand trading SPV

Renewable Renewable energy project energy project fi nance fundfi nance fund


IN IN GEO

OUR COMMITMENTS ALONG 4 CRITICAL THRUSTS

Subject to negoti ati onSubject to negoti ati on

Pipeline of 7 large HPP projects

Increasing domesti c demand (+65% in 10 years)

Regional shortf alls and competi ti ve generati on costs

Full package of agreements provided by central government counterparty

Domesti c off take PPAs off ered (part of the year or year-round)

Cross-border trading agreement negoti ated with Turkey

Transmission infrastructure to in place/being upgraded, incl. take or pay transmission guarantees

Business friendly environment with favorable and simple tax system

Pre-packaged Pre-packaged HPP investment HPP investment projectsprojects

Guaranteed Guaranteed off take in local off take in local marketsmarkets

Att racti ve export Att racti ve export potenti al (incl. potenti al (incl. guaranteed guaranteed transmission)transmission)

Att racti ve Att racti ve investmentinvestmentenvironmentenvironment

1

2

3

4

5

6

7

8

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PA

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VESTORGIA


THE GOVERNMENT OF GEORGIA FACILITATES YOUR INVESTMENT AND NAVIGATES THE NETWORK OF LOCAL PARTNERS

DO

ME

STIC

PA

RT

NE

RS

DO

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STIC

PA

RT

NE

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Project entry/Project entry/negoti ati onsnegoti ati ons

Technical and Technical and licensinglicensing

TransmissionTransmission Distributi onDistributi onand off takeand off take

• Georgian Nati onal Investment Agency

• Georgian Nati onal Energy and Water Supply Regulatory Commission

• Georgian State Electrosystem

• Electricity System Commercial Operator

• Commercial distributors (e.g., Telasi, EnergoPro)

• Eligible direct consumers (Using more than 7 GW of energy)

• Export off takers

• Ministry of Energy and Natural Resources

• Electricity System Commercial Operator

• Industry-specifi c experti se through dedicated investment advisors• Experience in dealing with foreign investors• Links to all administrati ve and business partners

CON

TACT

NAV

IGAT

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TACT

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IN IN GEO

HYDROPOWER PIPELINE BOOSTS SEVERAL NEW MEGAPROJECTS ABOVE 100 MW CAPACITY THAT ARE CURRENTLY OPEN FOR INVESTMENT

ProjectProject CapacityCapacity Ready to invest?Ready to invest?Forecast Invest. Forecast Invest. volumevolumeUSD millionsUSD millions

• Namakhvani Cascade

• Oni Cascade

• Fari HPP

• Khaishi HPP

• Tobari HPP

• Nenskra HPP

• Lentekhi HPP

• Hydropower pipeline also boosts ~70 small/medium projects (<100 MW capacity) that are currently open for investment

450 MW

270 MW

180 MW

400 MW

200 MW

210 MW

120 MW

926

599

297

620

310

491

189

NNEOEOEO

VESTORGIA


NAMAKHVANI CASCADE

Installed Capacity

Av. Annual Generati on

Tvishi HPP

100 MW

386 GWh

Namakhvani HPP

250 MW

941GWh

Joneti HPP

100 MW

354 GWh

TotalTotal

450 MW 450 MW

1681 GWh1681 GWh

BASIC PARAMETERSBASIC PARAMETERS


IN IN GEO

Cost itemCost item Cost (USD)Cost (USD)

Pre-design works 1,829,676

Design works 6,526,916

Pre-constructi on & environmental monitoring works 24,167,097

Unexpected costs (conti ngencies) – 15% 120,780,484

Preparati on of constructi on site and faciliti es 197,852,902

TOTAL INVESTMENT COST 925,983,711 TOTAL INVESTMENT COST 925,983,711

Constructi on of HPPs 572,175,289

Indirect investment costs 2,651,347

SUMMARY OF COSTSSUMMARY OF COSTS

NAMAKHVANI CASCADE

Note: Note: All the calculati ons are based on preliminary assumpti ons. Therefore any clarifi cati ons will cause appropriate changes in the fi nal results.

NAMAKHVANI HPP

TVISHI HPP

NAMAKHVANI

ZHONETI HPP

VESTORGIA


NAMAKHVANI CASCADE

PROJECT DATAPROJECT DATA

Tvishi HPP Namakhvani HPP Joneti HPP

Dam Height 56.5 (m) 111 (m) 31 (m)

Dam Volume 13.1(mln.m3) 156(mln.m3) 12.5(mln.m3)

Res. area at max. level 0.97 km2 4.35 km2 1.25 km2

Reservoir volume 13.5% 156.0 mln m3 12.5 mio m3

Reservoir useful volume 121.2 Million USD 52.0 mio m3 6.0 mio m3

Maximal water head 12% 83.0 m 32.0 m

NAMAKHVANINAMAKHVANI HPP’s Cascade HPP’s Cascade


IN IN GEO


Total Installed Capacity 400 MW

Average Annual Generati on 1470 GW/h

KHAISHI HPP

ASSUMPTIONS AND FINANCIAL INDICATORSASSUMPTIONS AND FINANCIAL INDICATORS

Constructi on Cost 620 Million USD

Constructi on Period 5 Years

Domesti c Tariff 4.8 USc/KWh

Equity NPV 160.1 Million USD

Export Tariff 8 USc/KWh

Payback Period 15 years

Project IRR 11%

Number of Observati ons 30 years

Project NPV 126.4 Million USD

Equity IRR 15%


VESTORGIA


KHAISHI HPP


Dam Height 204(m)

Dam Volume 445(mln.m3)

Normal Headwater Level 910 (m)

Tailwater Downstream Pool 700(m)

Project Discharge 270 (m3/sec)

TOPOGRAPHIC MAPTOPOGRAPHIC MAP


IN IN GEOE

ONI CASCADEBASIC PARAMETERSBASIC PARAMETERS



Total Project Cost 598.9 Million USD


Net Present Value (Million USD) 270.0 201.8 135.5

Full Project Project Equity Full Project Project Equity Corp. Tax Corp. Tax

Internal Rate of Return 13.31% 12.57% 13.17%

Benefi t / Cost rati o 1.39 1.29 1.79

Balance year 13 15 18


VESTORGIA


ONI CASCADE


IN IN GEO

NENSKRA HPP



Average Annual Generati on 1,205 GW/h

VESTORGIA


NENSKRA HPP

INVESTMENT COSTS AND ASSUMPTIONSINVESTMENT COSTS AND ASSUMPTIONS GEORGIAN GOVERNMENT OFFERGEORGIAN GOVERNMENT OFFER

Total Investment Cost 491 Million USD • 20 years Stability Period

Plant Factor 66% • Constructi on permit

Proporti on of Firm Energy 85% • Energy Generati on license

Constructi on Period 5 Years • Transfer of land right for 1 USD

Durati on life of project 50 Years • Full year PPA





IN IN GEOIN GEO


Dam Height 173(m)





TOBARI HPP




VESTORGIA






Equity IRR 17%



Project IRR 12%


Project NPV 94 Million USD


TOBARI HPP




IN IN GEO

NIN GEO

FARI HPP





Dam Height 173(m)





VESTORGIA


FARI HPP





Equity IRR 17%



Project IRR 12%


Project NPV 91.7 Million USD





IN IN GEO

LENTEKHI HPP



IN IN GEO


VESTORGIA






Pre-tax Internal Rate of Return-Assets 10.9%


Pre-tax Internal Rate of Return-Equity 29.6%

Esti mated Cost per kW capacity $1,575 /kWh

Anti cipated Life-span 50 years

Simple Pay Back Period 7.6 years

LENTEKHI HPP


Lentekhi Project, 120 MWLentekhi Project, 120 MW

GEOLOGY MAPGEOLOGY MAP

INVESTAIN GEORGIA

GEORGIAN NATIONALGEORGIAN NATIONALINVESTMENT AGENCYINVESTMENT AGENCY

www.investingeorgia.orgwww.investingeorgia.org

E-mail: enquiry@investi ngeorgia.orgPortf olio Manager: Alexander SajaiaE-mail: asajaia@investi ngeorgia.org

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Hydro Power Hub