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INDEPENDENT POWER PLANTS (IPP)PROGRAM

INVESTMENT OPPORTUNITIES IN IPP PROJECTS

BYDR AMER M. AL-SWAHA

HEAD OF IPP PROGRAMJUNE 2007

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CONTENTS

1. INTRODUCTION2. HISTORICAL SUMMARY OF SEC POWER DEMAND 3. WHY IPP (INDEPENDENT POWER PLANT)?4. INVESTMENT ENVIRONMENT 5. IPP IMPLEMENTATION6. INITIAL PROJECTS OF THE IPP PROGRAM 7. DETAILS OF SEC IPPs8. IPP PROGRAM SCHEDULE9. PROJECT CONTRACTUAL RELATIONSHIPS10. DEVELOPMENT STAGES11. OPPORTUNITIES12. CONCLUSION

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INTRODUCTION

SAUDI ELECTRICITY COMPANY WAS ESTABLISHED IN 2000, BY MERGING ALL SAUDI REGIONAL ELECTRICITY COMPANIES TOGETHER WITH PROJECTS OF THE ELECTRICITY CORPORATION INTO A SINGLE ENTITY THE SAUDI GOVERNMENT OWNS 81% OF SEC SHARESIN 2006 , SEC POWER GENERATION WAS 31 GW COMPARED TO 1.4 GW IN 1976.NUMBER OF PRESENT POWER PLANTS IS 70 , IN 2006 SEC HAS PURCHASED 4 GW FROM SWCC AND LARGE CUSTOMERS, IN 2006 , THIS WILL RAISE TO 21 GW DUE TO FUTURE IPP/IWPP PROJECTS CURRENT SEC POWER TRANSMISSION INCLUDES 132/230/380 KV VOLTAGES WITH 380 KV INTERCONNECTIONS BETWEEN CENTRAL & EASTERN REGIONS AND FUTURE LINK TO GCC NETWORKS (UNDER CONSTRUCTION)ESTIMATED CAPITAL EXPENDITURE OF SEC FOR THE NEXT 10 YEARS IS SR 190 BILLION

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HISTORICAL SUMMARY OF SEC POWER DEMAND

THE HIGH GROWTH IN POPULATION AND ELECTRICITY POWER DEMANDS IS SHOWN BELOW FOR:

YEAR 1976POPULATION – 7.7 MILLIONPOWER DEMAND – 0.9 GW YEAR 2006 POPULATION – 23.7 MILLIONPOWER DEMAND – 29.9 GW YEAR 2024POPULATION – 50 MILLIONPOWER DEMAND – 70 GW

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WHY IPP?

MASSIVE INVESTMENTS TO MEET HIGH GROWTH RATE IN BOTH RESIDENTIAL AND INDUSTRIAL DEMANDS ATTRACT PRIVATE SECTOR INVESTMENTS (FOREIGN & LOCAL) IN POWER INDUSTRY EXPAND CITIZENS OWNERSHIP THROUGH FUTURE INITIAL PUBLIC OFFERINGSINCREASE SAUDI EMPLOYMENT OPPORTUNITIESPROVIDE A FINANCIAL OPTION TO RE-DIRECT AVAILABLE SEC FUNDS TO TRANSMISSION AND DISTRIBUTIONAVOID MISMATCH BETWEEN LONG POWER PLANTS LIFE AND SHORT TO MEDIUM FINANCING TERMSMATCH BETWEEN THE PAY BACK OF CAPITAL INVESTMENT AND ITS RETURN THROUGH THE TARIFF CHARGED TO CUSTOMERS WITH THE PRICE PAID TO INDEPENDENT POWER PRODUCERS THROUGH THE LONG TERM POWER PURCHASE AGREEMENTS

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INVESTMENT ENVIRONMENT

ENABLING RULES AND REGULATIONS HAVE BEEN FORMULATED TO ENCOURAGE PRIVATE SECTOR PARTICIPATION IN POWER SECTOR INVESTMENTSESTABLISHMENT OF ELECTRICITY & CO-GENERATION REGULATORY AUTHORITY (ECRA) THROUGH:

- COUNCIL OF MINISTERS RESOLUTION # 169 (MERGER & RESTRUCTURING)- THE ESTABLISHMENT OF SAGIA (INVESTMENT ENVIRONMENT)- PRIVATIZATION STRATEGY (POLICY SETTING)- INVESTMENT LAWS (REGULATIONS)- ELECTRICITY LAW (ROLE OF ECRA AND MOWE AND PROTECTION OF RETURN ON INVESTMENT IN POWER INDUSTRY).

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IPP IMPLEMENTATION

THERE IS TREMENDOUS OPPORTUNITY FOR PRIVATE SECTOR TO PARTICIPATE IN IPP PROJECTS WITH A GOOD RETURN ON INVESTMENTSEC ASSURED PRIVATE INVESTMENT OF TOTAL COMMITMENTSEC WILL BE THE SINGLE OFFTAKER OF POWER CAPACITY AND OUTPUT FROM THE IPPsSUPPLY THE PROJECTS WITH FUEL REQUIREMENTSSEC WILL MONITOR POWER AND EFFIECIENCY OF FUEL CONVERSIONSEC WILL BE RESPONSIBLE FOR THE BUILDING OF TRANSMISSION LINE TO THE IPPs

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INITIAL PROJECTS OF THE IPP PROGRAM

THREE PROJECTS WERE INITIALLY SELECTED AND THE PROGRAM CONTEMPLATES ADDITIONAL PROJECTSOWNERSHIP IN THE PROJECT COMPANIES:1. SAUDI ELECTRICITY COMPANY (SEC) 10%2. DEVELOPERS 60%3. THIRD PARTY (IF ANY, OR ADDITIONAL

SEC OR DEVELOPERS STAKE) 30%THE PROJECTS TO BE IMPLEMENTED ON A BUILD, OWN AND OPERATE (BOO) BASISUTILIZE THE ENERGY CONVERSION AGREEMENT (ECA) MODEL TO PROVIDE FUEL TO THE PROJECTS COMPANIESSEC SHALL ALLOCATE THE LAND SITES FOR THESE PROJECTS THROUGH A LAND LEASE AGREEMENT (LLA) FOR EACH OF THE PROJECT COMPANY LIFE TIME (CONTRACTUAL PERIOD)

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INITIAL PROJECTS OF THE IPP PROGRAM - CONTD

THE FIRST GROUP OF PROJECTS THAT WERE SELECTED ARE:1. RABIGH (A NEW POWER PLANT AS AN EXPANSION IN RABIGH

TO THE PRESENT SEC POWER PLANT CAPACITY)2. RIYADH PP11 (A NEW POWER PLANT SITE)3. QURAYAH (A NEW POWER PLANT AS AN EXPANSION IN

QURAYAH TO THE PRESENT SEC POWER PLANT CAPACITY)

WITH INVESTEMENT POTENTIAL OF ABOUT SAUDI RIYAL 21,000 MILLIONSLOCATIONS:1. RABIGH – 140 KM NORTH OF JEDDAH CITY, WESTERN

PROVINCE, SAUDI ARABIA2. RIYADH PP11 - RIYADH CITY, SAUDI ARABIA3. QURAYAH – EASTERN PROVINCE, SAUDI ARABIA

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DETAILS OF SEC IPPs

1. RABIGH POWER PLANTPOWER : 1200 MWFUEL : HFO (HEAVY FUEL OIL)Estimated Capital Cost : SR 5,000 MILLIONRFP ISSUE : DECEMBER 2007ICOD : APRIL 2012(INITIAL COMMERCIAL OPERATION DATE FOR THE 1ST UNIT)

PCOD : APRIL 2013(ENTIRE PROJECT COMMERCIAL OPERATION DATE)

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DETAILS OF SEC IPPs

2. RIYADH POWER PLANT 11POWER : 2000 MWFUEL : GASEstimated Capital Cost : SR 8,000 MILLLIONRFP ISSUE : AUGUST 2008ICOD : APRIL 2013PCOD : APRIL 2014

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DETAILS OF SEC IPPs

3. QURAYAH POWER PLANTPOWER : 2000 MWFUEL : HAC (Heavy Arab Crude oil)Estimated Capital Cost : SR 8,000 MillionRFP ISSUE : AUG 2009ICOD : APRIL 2014PCOD : APRIL 2015

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IPP PROGRAM

IMPLEMENTATION STAGGERED OVER 2007- 2010TO MEET SUMMER DEMAND AS FOLLOWS:

2012 600 MW 2013 1600 MW2014 2000 MW2015 1000 MW

TOTAL 5200 MW

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PROJECT CONTRACTUAL RELATIONSHIPS

O&M contract

Construction Contractor

EPC contract

Project Company

Financing Institutions

Land Owner(or Provided by

SEC)

Fuel Supplier

Government

Operator

Financing Agreement

Fuel Supply Agreement

Implementation Agreement (if any)

Land Lease Agreement

Off-taker

Power Purchase Agreement

Shareholders Agreement

SECIPP Developers Other Investors

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DEVELOPMENT STAGES

PUBLIC REQUEST FOR EOI – EXPRESSION OF INTEREST FROM DEVELOPERS THROUGH ISSUE OF EOI FORMISSUE RFQ – REQUEST FOR QUALIFICATIONS FORMS TO INTERESTED DEVELOPERS TO STATE THEIR SOQ-STATEMENT OF QUALIFICATIONS FOR THOSE WHO EXPRESSED THEIR INTEREST BY FILLING EOI FORMSSUBMITTAL OF SOQ FROM DEVELOPERSEVALUATION OF SOQISSUE LIST OF QUALIFIED DEVELOPERS (BOTH FULL ACCEPTANCE AND CONDITIONAL ACCEPTANCE)ISSUE RFP – REQUEST FOR PORPOSAL PACKAGE TO QUALIFIED DEVELOPERS

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DEVELOPMENT STAGES - CONTD

PREPARATION OF BID PROPOSALS BY DEVELOPERSSUBMITAL OF BIDSEVALUATION OF BIDS SHORT LISTING OF BIDSNEGOTIATION WITH LOWEST BIDSIGN PPAFINANCIAL CLOSE AND PROCEED WITH PROJECTICODPCOD

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OPPORTUNITIES

OPPORTUNITIES IN POWER GENERATION FIELD FOR: DEVELOPERSFINANCIAL/INVESTMENT/BANKSCONSULTANTSDESIGN & ENGINEERING SERVICE PROVIDERSCONSTRUCTION, INCLUDING CIVIL WORKS, CONTRACTORSOPERATION AND MAINTENANCE CONTRACTORSMATERIAL & EQUIPMENT SUPPLIERSMAN POWERTRAINING SERVICE PROVIDERS

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OPPORTUNITIES - CONTD

THERE IS FURTHER UNIQUE AND VERY SIGNIFICANT INCENTIVE FOR THE DEVELOPERS IN THESE IPPs. THE DEVELOPERS ARE NOT BOUND BY THE DETAILED TENDER SPECIFICATION OF EPC CONTRACTS, BUT GENERAL REQUIREMENTS.THESE IPPs HAVE PERFORMANCE BASED FUNCTIONAL SPECIFICATION AND THE DEVELOPER IS FREE TO ADOPT TECHNOLOGICAL INNOVATION/IMPROVEMENT (I.E. IMPROVEMENT IN PERFORMANCE RATIO, AMALGAMATION OF DIFFERENT TECHNOLOGIES ETC.)

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OPPORTUNITIES - CONTD

THIS APPROACH OFFERED TO DEVELOPERS WILL YIELD SUSBTANTIAL IMPROVEMENT IN PLANT CAPITAL COST, PERFORMANCE AND EFFICIENCY TO YIELD VERY COMPETITIVE PRICES.SEC SHALL BUILD THE REQUIRED OVERHEAD TRANSMISSION LINES (OHTL) TO INTERCONNECT IPP PLANTS WITH THE SEC GRID.SEC WILL BEAR ALL THE COSTS OF INTERCONNECTION WORKS TO THE GRID.SEC HAS ALREADY STARTED CONSTRUCTION OF INTERCONNECTION TO THE TRANSMISSION GRID FOR IWPP WEC PROJECTS FOR THOSE UNDER CONSTRUCTION.

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CONCLUSION

THESE THREE IPPs WILL BRING NEW PPORTUNITIES IN THE ELECTRIC POWER INDUSTRY IN THE KINGDOM OF SAUDI ARABIA THAT WILL GENERATE SUSTAINED YIELDS FOR INVESTORS AND PUBLIC.

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CONTACT DETAILS

FOR FURTHER INFORMATION PLEASE CONTACT:DR AMER M. AL-SWAHAHEAD OF IPP PROGRAMTEL: +9661 4619006FAX: +9661 4619016EMAIL: Swaha.am@se.com.sa or IPP@se.com.saWEBSITE: WWW.SE.COM.SA

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THANK YOU