The Investment Environment in Utility Services Provision A Developers Perspective

1. The Investment Environment in Utility Services Provision A Developers Perspective Presentation to the Algerian Investment Seminar 26 February 2004

2. Contents 1. Why are we qualified to speak here? • What have we seen? • What have we been working on? • Why is this special? • Kahrama venture - Project Location and Rationale • Kahrama venture - Contract Structure • Our Experience in developing this venture • Response of the international market • Opportunity offered by this Utility sector • Contact detail.

3. 1. Why are we qualified to speak here? • Black & Veatch is a large Engineer Constructor delivering infrastructure solutions for the Power, Water and Telcoms sectors in over 60 countries. • Since 1999 Black & Veatch has been working in Algeria to develop first the contractual frame work for delivering Utility Services on an outsourcing model of contract and then moving on to develop a specific venture using this model. Black & Veatch is developing the first Independently financed water and power project in Algeria in partnership with the Algerian Energy Company.

4. 2. What have we seen? • During this period, we have been a witness to the political, economic and social transformation of the country and it’s people. • Black & Veatch has experienced the change in approach, attitude and commitment at both senior and functionary levels in Government. • Black & Veatch can also evidence the interest of the international community of suppliers, service providers, financiers and investors. We want to share our experience of building a partnership in Algeria and excitement at what opportunities the country has to offer.

5. 3. What have been working on? • The first privately financed build -own-operate (BOO) venture to be developed in the country to produce power and desalinated water. • It will produce 321 MW net saleable power and 86,880 CuM perday net saleable water. • Water sold to Sonatrach and power to Sonelgaz both on 25 year contracts. • The venture needs total financing of US$430 million. (US$129 million of equity capital + US$321 million of debt financing)

6. 4. Why is this special? • The project is being developed by a special purpose Algerian Company Kahrama SpA, 20% owned by the Algerian Energy Company (AEC) and 80% by Black & Veatch Africa (BVAf). • BVAf is a 100% subsidiary of Black & Veatch Corporation . AEC is a 50/50 joint venture company created by Sonatrach and Sonelgaz in 2001 to develop and invest in gas beneficiation opportunities both inside and outside Algeria. This venture attracts significant Foreign Direct Investment into this sector.

7. 5. Project Location and Rationale The Kahrama plant is situated ‘inside the fence’ at the Zone Industrielle d‘Arzew, one of Sonatrach’s two high security LNG, refining, and petrochemical complexes. Oran, Algeria’s 2nd largest city, and its surrounding region suffer from continual water shortages. The Kahrama project will substitute ~ 20,000 M3/d water drawn from the public network by the Arzew Industrial Zone and will add a further 66,000 M3/d; thus, increasing available potable water by > 85,000 M3/d.

8. 6. Project Contract Structure Framework Agreement among Sonatrach, Sonelgaz, BVAf and AEC providing for treatment of equity under events of default. Shareholders Agreement (JVA) Black & Veatch Africa (BVAf) 80% Algerian Energy Company (AEC) 20% 25 year take or pay “Energy Conversion Agreement” under whichSonelgaz supplies gas and Kahrama returns electricity. “Operation & Maintenance Agreement” SOGEX OMAN EGZIA 25 year take or pay “Water Purchase Agreement” with Sonatrach. 99 year “Land Lease Agreement” with EGZIA (Entreprise de Gestion de la Zone Industrielle d’Arzew) 100% owned by Sonatrach. Direct Agreements Loans Agreements Project Lenders and Export Credit Agencies Insurers Insurance as required by Kahrama and the Lenders. Direct Agreement EPC Consortium – IHI/Itochu - Japan

9. 7. Our Experience in developing this venture • It has most certainly taken a lot of time. Slow to come to terms with the changes needed but considering the magnitude of changes not surprising. • Once understood, concept embraced with rapid progress to next stage. • Utterly committed to transformation and private sector involvement in investment and know how (both technology and practices) Cautious at first but over time a robust relationship forms. The word “partnership” is often heard. Algerians understand and naturally embrace the concept.

10. 8. The response of the international market • U.S. Exim and other ECAs have improved ratings and raised capacity for Algeria. • We have seen the appetite of the lenders increase over time. • We also see the increasing appetite of investors, contractors and service providers. • The International Monitory Fund’s recent report on Algeria confirms the favourable macro environment. • High economic growth • Low inflation • Strengthening of balance of payment position • Building up of foreign reserves • On the policy front it commended Algeria's fiscal policies which have encouraged growth and employment and welcomed the Government's commitment to financial; sector reform and trade liberalisation.

11. 9. Opportunities Offered by the Utility Sector • Over US$25 billion of investment is needed just in the next 5 years to catch up with the backlog of needed utility services in water, power and sanitation. • With the Government's commitment to creating the necessary environment for greater private sector participation in the utility services sector, even if 20% of this investment need is fulfilled by private capital, US$ 5 billion is a big opportunity indeed. Using the BOO framework developed on the Kahrama project, AEC has already invited bids for 5 other water desalination projects with an investment need > US$ 0.5 billion.

12. 10. Contact Information Paddy Padmanathan Vice President Black & Veatch 8-10 Grosvenor Gardens London SW1W 0DH United Kingdom Tel: + 44 20 7259 8605 Fax: + 44 20 7259 8601 E-mail: padmanathanp@bv.com