Dr. Michael Smith Head of Industrial Finance London Branch

1. Dr. Michael Smith Head of Industrial Finance London Branch

2. Overview of IBJ IBJis one of the world’s leading financial institutions. As at 31st March 1999 banking assets amounted to over $383 Billion. IBJranks globally amongthe largest banks in the world (by assets). IBJ is a commercial bank dedicated to the support of business and industry. It has no retail operations. IBJ is a bank with a long history of supporting industry in Japan. It was established by the Japanese government in 1902 specifically to promote industrialisation. After the war it was involved in the reconstruction of Japanese industry. IBJ was privatised in the 1952 and is now held publicly. Its focus remains unchanged. As a former governmental entity it is independent of any Japanese Keiretsu. Close links with JBIC (formerly J-Exim) and other agencies. IBJ has since the 1960’s been developing a global capability to support multinational groups and industries throughout the world. Operations now span 27 countries. Major relationships exist with more than 95% of Japan’s top 200 companies and most of the world’s blue-chip companies.

3. Overview of IBJ IBJ’s Global Network IBJ has operation in over 27 countries

4. Mizuho Bank Group • Announced on August 20, 1999 consolidation of IBJ,DKB and Fuji Bank on an equal basis • The New Group, to be named as Mizuho Bank Group, • It will have more than Yen140 trillion (US$1.3 trillion) in total assets and will be ranked number one in the global financial market. • It will offer top-quality financial services and products in such areas as banking, securities, asset management, trust services and other businesses.

5. IBJ in the Middle East • IBJ’s Beirut Office was established in 1974 • From 1975 to 1982 all Middle East business was transferred to our Head Office in Tokyo • The Bahrain Representative Office was established in 1982 • Some 14 countries are within the business area of the Bahrain Representative Office namely: • Bahrain, Saudi Arabia, Kuwait, the U.A.E, Oman and Qatar • Iran, Iraq, Lebanon, Syria, Jordan, Yemen, Egypt and Libya • The IBJ London Branch handles the actual banking business of the countries within the business area of the Bahrain Representative Office

6. IBJ in the Middle East • IBJ’s business activities in the Middle East cover the following key areas: • Investment Management and Treasury Business • Lending and Project Finance • Saudi Investment Bank • Industrial Finance Seminars • International Co-operation

7. IBJ’s Organisation IBJ has organised itself into teams dedicated to be expert in these specific products. In addition the Project Finance Team is further focused onto specific industries, for example:  Natural Resources (Mining / Oil and Gas),  Electricity,  Telecommunications, and  Infrastructure Personnel within these teams have come from industry or hold relevant degrees: their industry expertise is made available to other product. In addition specialised areas such as Loan Syndications, Treasury and Loan Agency enable the Bank to optimise the services provided to its clients

8. Limited Recourse Project Finance Experience

9. Middle East Project Finance Experience

10. Middle East Project Finance Experience

11. Developments in the Region • Creation of new industries to respond to the increasing population of younger workers. • Industrial development to be based on a sound economic footing • Privatisation, privately financed projects and foreign investment to aid the delivering the government’s goals. • IBJ has seen similar developments elsewhere. • IBJ expertise useful in this region.

12. Economic Reforms in Saudi Arabia Many appropriate plans already in place including: A Establishment of the General Investment Authority under HH Governor Abdullah bin Faisal bin Turki Al-Saud B The proposed Foreign Investment Act C Permitting foreigners to buy land D Tax reform E Changing the sponsorship system. Co-ordinated by the Supreme Economic Council.

13. Reasons for Privatisation • Increased efficiency of operation in the private sector. • Amount of money that can be raised by selling off these state industries. • Note: inevitable conflict of interests between price and future competition • Provision of new investment.

14. Privatisation Programme in Saudi Arabia • Provision of services by the private sector in Saudi Arabia is not new. • Existing high levels of foreign investment, notably in the petroleum and petrochemicals sector. • Saudi Government’s strategic privatisation programme is likely to reap considerable benefits for the Kingdom. • Saudi Telecommunications Company has already achieved improved performance. • Formation of the Saudi Electricity Company will enable the reform of the whole electricity sector, and pave the way for potentially enormous foreign investment. • Saudi Arabian Airlines is already subject to competition.

15. Saudi Electricity Company • SEC to have sole responsibility for power generation, transmission and distribution in the Kingdom. • SEC is expected to facilitate the involvement of the private sector in power projects. • Many provisions have been put in place to facilitate SEC’s ongoing role. • SEC will become a suitable counter-party for the purchase of power from IPP projects • Other aspects of the regulatory, licensing and taxation regimes are being considered. • No precedent for a BOO private power project in the Kingdom, but every reason to believe that BOO or BOOT power projects can be successfully developed here.

16. Electricity Industry • Formation of the Saudi Electricity Company will have a dramatic effect in opening up the Saudi electricity market. • In other countries, further developments of the market have gone far beyond the situation envisaged at first privatisation. • In Europe power for industry is now freely traded across national borders by dealers. • Power prices are continuing to decline • Similar developments could eventually take place in the Middle East region.

17. Possibilities for privatisation in different fields “ In what other fields could privatisation be beneficial to Saudi Arabia?” Many countries have adopted the Private Finance Initiative, or PFI, in the infrastructure sector. • The private sector has to provide more than just the asset if the arrangement is not to be treated as a lease. • Concept of risk transfer. Important to demonstrate that the project represents value for money for the government.

18. How PFI works – example structures • The private sector has to provide a service • Example of a hospital service • Similar structures have been used for other government facilities.

19. How PFI works – example structures • In the case of a road concession provision would be included for long-term maintenance and for the collection of tolls, if required. • Shadow tolling avoids unpopular tolls and traffic diversion problem. • Vehicles are counted and the government pays the toll chargeson the basis of the agreed tariff. In this way the private sector is also taking the risk of inadequate usage of the road.

20. Possible future developments in the telecoms sector • Saudi Arabia will participate in exciting developments in telecommunications sector. • Development of broad-band access provides an opportunity to introduce alternative operators and so create competition. • Mobile telephony is an area which is growing so fast that competition can easily be introduced. • Extremely competitive bidding for third generation mobile phone licences. Another opportunity to introduce more competition in the future.

21. Conclusion - IBJ’s commitment to the region • Beneficial effect of privatisation policies • Saudi Arabia’s privatisation process • Commitment of IBJ, and the Mizuho Group, to continue to assist by arranging of finance, in the Middle East and in Saudi Arabia.