PRIVATISATION OF PUBLIC UTILITIES

1. PRIVATISATION OF PUBLIC UTILITIES Bucharest, 09 APRIL 2002

2. CONTENTS 1. EXECUTIVE SUMMARY 2. CSFB UTILITIES EXPERTISE 3. PRIVATISATION OBJECTIVES 4. KEY ISSUES 5. APPROACH AND METHODOLOGY 6. CASE STUDIES

3. EXECUTIVE SUMMARY

4. EXECUTIVE SUMMARY • I am pleased to have this opportunity to present on the privatisation alternatives for the Romanian utilities • CSFB has substantial experience in advising Governments on the privatisation of their utilities • Former and present clients include the Governments of Argentina, Australia, Brazil, Colombia, Philippines, Poland, Slovakia, Ukraine and United Kingdom • CSFB has been ranked #1 utilities privatisation advisor since 1992 • Numerous alternatives are available to the Government in respect of the privatisation of its utilities • The chosen approach needs to meet the Government overall objectives • Each alternative should be evaluated within its timing and value implications • Depending on the readiness of the sector, a two phase approach may be most appropriate • Phase 1 – review, restructure and determine overall privatisation plan within the context of the Government objectives • Phase 2 – implement chosen privatisation strategy

5. CSFB UTILITIES EXPERTISE

6. US$ 159,797,333 Advised Government of Ukraine on the privatisation of 6 distribution companies Government of Slovakia 2001 US$ 2,200,000,000 US$ 1,463,000,000 US$ 313,000,000 Advised the Government of Slovakia on the sale of2.7 billion stake in SPP,Slovak gas monopoly Advised Government ofAbu Dhabi on the privatisation of Taweelah A1 Advised Government of Portugal and EDP on selling minority stake 2002 2000 1998 CSFB UTILITY PRIVATISATION EXPERIENCE • CSFB is ranked #1 in utility privatisations worldwide US$ 1,900,000,000 US$ 11,000,000,000 Advised the city of Berlin on privatisation of 50.8% of Bewag Advised Government of Spain on sale of 68% stake in Endesa Source: Thomson Financial Securities Data Co., 18 June 2001. Since 1992 1997 1997 £ 1,500,000,000 US$ 17,000,000,000 US$ 6,000,000,000 Advised the UKGovernment on privatisation of British Energy Advised Governmentof Argentina of 16 energy and utility assets privatisation Advised Governmentof Australia on privatisation ofVictoria electricity andgas industries 1996 1995 – 1997 1991 – 1997

7. CSFB UTILITIES EXPERTISE • UNITED KINGDOM • Advised Innogy on its pending asset swap transaction with Northern Electric plc ($2.1 bn) • Advised Innogy on the acquisition of Yorkshire Power for a cash consideration of £508.6m • Advised Innogy on the acquisition of Yorkshire Power for a total consideration of £1.9bn • Advised Innogy on demerger from National Power ($2.8bn) • Privatisation of British Energy ($2.3bn) • Advised Cal Energy on acquisition of Northern Electric ($1.6bn) • Global Co-ordinator in IPOs of PowerGen, National Power and 12 RECs • Advised Southern Electric on $7.6bn merger with Scottish Hydro • Advising UK Gov’t on privatisation of BNFL • FRANCE • Advised Electricité de France on the acquisition of Dalkia (Vivendi SA) ($1.4bn) • Advised Electricité de France on acquisition of a stake in ESTAG ($0.5bn) • Lead managed Electricité de France notes due 2001 ($200m) • SPAIN • Advisor to Endesa on acquisition of Iberdrola • Advised Spanish Government on sale of 68% stake in Endesa ($4bn) • Advised on $2.7bn acquisition of 8 Spanish regional utilities by Endesa • PORTUGAL • Advised Government of Portugal and EdP on the strategic partnership between EdP and Iberdrola • Lead manager of loan facility for Electricidade de Portugal SA ($227m) • SCANDINAVIA • Advised Incentive AB on disposal of AB Skandinaviska Elverk ($1.1bn) • Participated in loan facility for Vattenfall Treasury AB ($600m) • CENTRAL EUROPE • Advised the Slovak Government on the privitatisation of SPP, its gas monopoly • Advising the Government of Ukraine on privatisation of further 12 distribution companies • Advised Ukrainian government on privatisation of 6 distribution companies • Arranged loan facility for Slovenske Elektra ($111m) • Lead managed €200m debt offering for CEZ • GERMANY • Advised E.ON on concurrent sale of VEBA Öl and acquisition of Ruhrgas stake from BP ($7.7bn) • Advised VEW on merger with RWE ($4bn) • Advised Fortum on acquisition of EW Wesertal ($380m) • Only non-German bank on IPO of MVV • Advised City of Berlin on privatisation of Bewag ($1.9bn) to E. ON and Mirant • Advising Mirant on acquisition of further Bewag shares from E. ON and a stake in VEAG/Lambag • Advised on merger of Badenwerk and EVS to form EnBW ($6.5bn) • Advised VEW/MEAG on acquisition of Stadrwerke Leipzig ($650m) • GREECE • Arranged loan facility for Public Power Corp ($220m) • Acted as bookrunner in PPC’s issuance of ITL340bn due 2004 and €500m 41/2% notes due 2009 • Over the past 5 years, CSFB has advised utilities or governments on all major transactions in the European utilities sector • AUSTRIA • Advised EdF on acquisition of strategic minority stake in ESTAG • SWITZERLAND • Advised Swiss Railways on divestiture of various electricity generation and grid assets • Advised CS Holding on divestiture of 44.9% of Watt AG ($1.7bn) • ITALY • Advising ENEL on the divesture of 15,000MW of generation assets • Advised City of Milan on IPO of 49% stake in AEM Milano ($0.8bn) • Advised Comune di Torino on privatisation of a 48% stake in AEM Trino (Not disclosed)

8. PRIVATISATION OBJECTIVES

9. PRIVATISATION OBJECTIVES • The motivation for the restructuring and privatisation of the energy industry can be driven by numerous objectives • Reduce the cost of energy supplies to consumers, whilst improving service • Increase efficiency, improving managerial performance and accountability • Initiate market forces to the energy markets • Compliance with European Directives • Encourage and facilitate technology transfer • Raise revenue for the Treasury • Raise investment capital for the industry or company undergoing transformation • Re-position government’s role in the industry to essential regulatory oversight • Encourage foreign investment • Develop domestic equity capital markets

10. PRIVATISATION OBJECTIVES (cont’d) OBJECTIVE MODEL ADVANTAGES Maximise proceeds Sellcontrollingstaketo strategic investor Australia improved their fiscal deficit and obtained lower electricity and gas rates Sellto a strategic investor Acquire new technology and increase efficiency Argentina significantly reduced the cost of electricity and gas Fast trackprocess Sell controlling stake to strategic investor Ukraine attracted top-quality companies to operate their distribution companies in less than 10 months, during the period of relative political uncertainty in the country

11. PRIVATISATION OBJECTIVES (cont’d) OBJECTIVE MODEL ADVANTAGES Domestic publicoffering Develop capital markets In Latin America, privatisation offerings have been unsuccessful in developing capital markets because of culture of low saving large flow-backs The UK privatised its companies through IPOs. Strategic investors later acquired most of the privatised companies at higher premiums Gain political support/improve image Sell controlling stake through public offering

12. KEY ISSUES

13. KEY ISSUES • Several key issues would need to be addressed to ensure that the Government privatisation objectives are met • Industry structure model • Clear separation between generation /purchasing, transmission, distribution and supply / Creation of vertically integrated utilities • Level of regulation vs. competition • Regulatory Framework • Status of Industry Regulator • Rate of Return / Performance based regulation • Readiness of the industry for privatisation • Accounting / Technical / Environmental / Legal • European Energy Directives • Compliance required prior to accession to EU

14. G G G G G G G G G SB A A D&R D&R D&R R D C C C C INDUSTRY STRUCTURE MODELS (ELECTRICITY) • There are four general industry structure models differentiated by degree of competition. The choice of the initial structure will greatly depend on timing and value considerations, overall industry readiness as well as resources available 1. MONOPOLY 2. SINGLE BUYER 3. WHOLESALECOMPETITION 4. RETAILCOMPETITION Generator(s) Purchaser/Wholesaler Distribution/Retail Consumer • Single buyer chooses from • Distribution companies buy direct from producers (or through aggregators) • Customers choose their retailers under full competition • Vertically-integrated INCREASING COMPETITION AND COMPLEXITY – BUT EXPECTED LOWER PRICES The choice of initial model should not prevent the Government from achieving its ultimate goals, and to the extent desired, complying with EU Electricity Directives

15. REGULATORY FRAMEWORK Rate of Return Approach Advantages Disadvantages • Inability to effectively promote productive efficiency, which can lead to dynamic inefficiencies over time • Prices do not necessarily reflect marginal costs, which leads to allocative inefficiencies • Delays in resetting prices • Risk of over-investment • Simplicity: allows to set tariffs and recover the costs plus a reasonable rate of return • Adjusts prices instantaneously to ensure that a regulated company always earns a fair return on capital Performance Based Regulation (also known as RPI - X) Disadvantages Advantages • Possibility of price distortion in an allocatively inefficient manner • It involves a simple comparison of average prices between years, which could lead to difficulties if the mix of units changes • Complexity: need to use quantity forecasts and potentially correction factors • The company has the flexibility to set individual tariffs • Companies have an incentive to achieve productive efficiency • Dynamic efficiency: companies have flexibility to respond to new developments

16. PRIVATISATION STRATEGY • In deriving its privatisation strategy the Government would need to take into consideration numerous factors, some of which may be conflicting in nature • Government objectives • Protection of end-customers • Timing • Valuation • Employment considerations • Results of Strategic Review • Existence of Legal, Technical, Environmental and Accounting Issues • Availability of credible Regulatory framework • Determination of Industry Structure • Market Conditions • Strategic Sale vs. Initial Public Offering

17. APPROACH AND METHODOLOGY

18. APPROACH AND METHODOLOGY TO ENSURE A SUCCESSFUL PROCESS We believe that a two phase approach should be particularly suitable for Romania Phase 1: Strategic Review and Preparation of Preferred Privatisation Strategy Phase 2: Implementation of the Chosen Strategy During Phase 1, CSFB could assist the Government with the following tasks: • Assess overall readiness of the industry • Assist with hiring other advisors, as necessary • Address identified issues • Assist with industry restructuring • Perform valuation analysis • Consider sales strategy and tactics • Propose final privatisation plan Following the completion of Phase 1, CSFB would anticipate immediately proceeding to Phase 2. Our approach to Phase 2 will enable us to accomplish the following tasks • Preparation of Documents, including the Information Memorandum • Marketing and Road Show • Prequalification of Bidders • Data Room Preparation / Due Diligence • Proposal Evaluation • Assistance in negotiation with the Selected Bidders CSFB recommends that the Government adopts a global approach to the privatisation of its utilities by addressing as many issues as practicable prior to privatisation, to maximise the value of assets sold

19. PRIVATISATION ALTERNATIVES MODEL ADVANTAGES DISADVANTAGES EXPERIENCES • The Netherlands • Australia • Columbia • El Salvador • Panama • Czech Republic • Ukraine Sell majority stake equity to strategic investor • Maximise proceeds • Relatively fast • Gain new technology and operational best practices • Doesn’t stimulate domestic capital markets • No opportunity for general population to participate Sell minority control to strategic investor and float the rest, Government might retain stake • Relatively easy to implement • Develop capital markets • Gain new technology and operational best practices • Government doesn’t receive control premium • Less interest without control • Peru No two countries followed identical privatisation models, and Romania would need to develop a model that best suits its needs

20. PRIVATISATION ALTERNATIVES (cont’d) MODEL ADVANTAGES DISADVANTAGES EXPERIENCES • Argentina • Panama • Chile • Poland Sell control to strategic investor and float the remainder, Government might retain stake • Gain control premium • Gain new technology • Develop capital markets • Government doesn’t receive full control premium Float 30%-100% of the equity(in tranches or in full) • Opportunity to broaden share ownership • Easier political sell • Develop domestic capital markets • Does not maximise proceeds • May be difficult in current markets • Requires high degree of asset readiness • UK • Spain • Italy • Chile • YPF No two countries followed identical privatisation models, and Romania would need to develop a model that best suits its needs

21. CASE STUDIES

22. CASE STUDY – UKRAINIAN DISCO PRIVATISATION • CSFB Role • CSFB assisted the Government in all aspects of the privatisation process • Selection and appointment of other advisors • Limited restructuring • Future structure of the industry • Regulatory framework • Design and implementation of marketing strategy Project Environment • Government objectives • Raise revenue for the treasury • Introduce market forces into the industry • Quick implementation • Keep electricity prices as as low as possible • Fair and transparent process

23. CASE STUDY – UKRAINIAN DISCO PRIVATISATION (cont’d) • State of the companies • No audited accounts • No reliable technical / environmental information • Substantial debt to state owned Energy market • Inability to cut-off non payers • Industry Structure • Viable short term industry structure in place / long term objectives identified • No regulatory framework • Political Situation • Government of PM Yushenco dismissed few days before auction • Tender process attracted six audible bidders from U.S., Spain, France, Japan and Slovakia • Sales proceeds in excess of $150 million • First successful privatisation with participation of foreign buyers • CSFB was re-mandated to privatise another 12 discos

24. CASE STUDY: PRIVATISATION OF SPP CSFB Role • CSFB assisted the Government in all aspects of the privatisation process • Selection and appointment of other advisors • Limited restructuring • Future structure of the industry • Regulatory framework • Design and implementation of marketing strategy Project Environment • Government objectives • Maximise revenue within the context of protecting Slovak consumers • Compliance with EU Gas Directive • Quick implementation • Fair and transparent process

25. CASE STUDY: PRIVATISATION OF SPP (cont’d) • Industry Structure • Long term structure dictated by EU Gas Directive • No infrastructure to implement EU Gas Directive (lack of regulatory framework) • Long-term off take contracts restricting medium term liberalisation • SPP readiness • Audited accounts (but not unbundled along areas of activity) • Technical / Environmental audits available • Substantial cross subsidies between international and domestic businesses • Other factors • Difficult privatisation environment (Post Enron and Sep 11) • Upcoming elections • Competition from Czech Republic (Transgas privatisation) • Successful privatisation – $2.7 billion for 49% • Company sold to a consortium of Ruhrgas / GdF / Gazprom • 13% of Slovak GDP