Regional Transmission Network Development: Implications for Trade and Investment

1. Regional Transmission Network Development: Implications for Trade and Investment Turkey – Romania Undersea Cable (Feasibility Study Support) RazvanPurdila, Director Corporate Strategy, Capital Market, Communicationand International Relationships, Transelectrica November 11-12, 2009

2. USAID USEA WORKSHOP REGIONAL TRANSMISSION NETWORK DEVELOPMENT: IMPLICATIONS FOR TRADE AND INVESTMENT Istanbul, November 2009 Romania – Turkey 400 kV HVDC link, undersea cable project Razvan Purdila, Transelectrica

3. Why HVDC systems ?

4. Advantages for HVDC transmission The HVDC transmission has the major advantage of flexibility in power exchange in comparison with HVAC. Moreover, in case of transmission of bulk electrical energy over long distances (more than 50 km) by submarine cable, the only applicable technology is the HVDC transmission. HVDC is an “intelligent link”. The power flow can be controlled and changed very quickly practically independently from frequency at the terminal busses, voltage or power angle at the terminal busses like in HVAC transmission. Due to the inherent properties of the electronic equipment which forms the converter bridges, the direction of the transmitted power may be also changed very quickly.

5. HVDC transmission – principles and characteristics In a HVDC system, the electricity is: - Taken from a 3-phase AC network - Converted to DC in a converter station - Transmitted by DC OHL or cable (underground or sub sea) - Converted back to AC in another converter station - Injected into AC network Controllable – power injected where needed, supplemental control, frequency control - Bypass congested circuits – no inadvertent flow - Higher power, fewer lines, no intermediate S/S needed - Lower losses - Facilitates integration of remote diverse resources with less impact on existing grid - Low expensive transmission line - Reactive power demand limited to terminals independent of distances - Narrower ROW, no EMF constraints - No limit to underground or submarine cable length

7. Cable laying

9. Project scope The scope of this project is to install a submarine cable between the Romanian and Turkish TSO’s, Transelectrica and TEIAS respectively. Business concept : commercial interconnector, separately regulated The Project is in line with the policies of both Romanian and Turkish Governments and fits well into the EU Green Paper on Energy and EU strategy of Priority Network Projects. The project also brings a significant contribution and stability to the regional electricity market in South-East Europe. The Project is “on going”, in the Feasibility Study phase

10. Short history of the project • 2004 – April – energy cooperation protocol between Romania and Turkey at ministries level • The first mentioning of the cable project • 2005 - June – MOU between Transelectrica and TEIAS for the HVDC link project • Main scope : to prepare the oportunity study by a joint project team • 2006 – November - JPP ( joint position paper ) between Transelectrica and TEIAS • Approval of the opportunity study; • Decision to continue the study at feasibility study level • 2007 – first attempt to launch the feasibility study with minority financing of private investors ( 50 % Swedish grant available ) • No success; replacement of the private investor with Nuclearelectrica • 2008 – first tender for the FS in new financing conditions; • Incompatibility of the grant with open tender requirements • 2009 – secont tender; contract signature in June

11. Romania – Turkey HVDC interconector overview TURKEY ROMANIA BLACK SEA ELEMENT 01 TEL Constanţa Nord Substation ELEMENT 02 TEL Converter station and link to Constanţa Nord substation ELEMENT 03 TEL Underground cable between converter station and HVDC cable connection ELEMENT 04 HVDC cable ELEMENT 05 TEIAS Underground cable between converter station and HVDC cable connection ELEMENT 06 TEIAS Converter station and link to Alibeyköy substation ELEMENT 07 TEIAS Alibeyköy Substation

12. Part 3 The feasibility study

13. Connection point with RomanianPower System: 400kV S/SConstanţa Nord; • Connection point with Turkish Power System: 400kV S/SAlybeiköy, in Asia; • The cables voltage level: 400 kV; • The capacity: 600MW; • The length: about 400 km; • Losses on the cable:- • in 600MW transfer: ~ 12MW; • in 500MW transfer: ~ 9MW

14. Deliverables • The nominated Designerwill submit the following documents: • Inception Report • Terms of Reference – Objectives for procuring the services and works required for the seabed survey and Geological Study • EIA – Environmental Impact Assessment Study, including environmental approval • Feasibility Study (draft), including the necessary documentation for approvals and advices • Feasibility Study (final), including the approvals and advices • Documentation for urbanism certificates in Romania and Turkey • Technical Specifications • Progress Reports • Final Report

15. Project team members and their responsibilities Client Designer VATTENFALL Sweden Client TRANSELECTRICA & NUCLEARELECTRICA Romania Technical Consultant TEIAŞ Turkey Client Consultant FICHTNER ENGINEERING Romania

16. EXPERT TEAMS Economical, institutional and legal, commercial and financial team Electricity market team Procurement team Technical team Environmental team • Contract legislation expert • Price electricity forecasting expert • Electricity market expert • Commercialexpert • Overhead transmission line expert • Electrical substation expert • Converter expert • HVDC submarine cable expert • Environment expert • Environment expert • See bead expert • Overhead transmission line expert • Electrical substation expert • Converter expert • HVDC submarine cable expert • Permitsandapprovals expert • Environment expert • Romanian & international legislation expert • Permitsandapprovals expert - Macroeconomic modeling expert - Financial analyze expert - Investment analyze expert - Contract legislation expert - Romanian & international legislation expert

17. The Feasibility Study will: Establish the design parameters, capacity and cost estimation for the HVDC link including the most suitable routing, based on previous studies and existing data which include geological, morphological and seabed structure analyze and initial sea depth survey as well as on its own investigations; Assess the legal and environmental impediments and propose the most appropriate and viable way forward for the Project from an operational and legal framework point of view, including also the EIA Study with the afferent approvals, in accordance with legal stipulations from both countries and from EU; (Transelectrica, Nuclearelectrica and TEIAŞ will in this respect support the Designer in this process);

18. Contain the necessary documentation for obtaining permits and approvals in accordance with existing legislation in Romania and in Turkey, as applicable at the date of project elaboration and corresponding to this phase of the engineering; • Contain the necessary documentation to obtain the urbanism certificate; • Analyse the financial and economical feasibility of the interconnection project considering private benefits and costs and external effects such as public benefits and costs; • Assess suitable possibilities to finance the Project; • Propose a time schedule for project implementation and operation; • Highlight the commercial, environmental and technical conditions of direct interconnection of the national grids of Turkey and Romania through a submarine cable across the Black Sea, through system studies performed in both countries.

19. Technical Specifications for procurement and execution will include, at least, a minimal content as follows: - Scope; - Definitions; - Standard and recommendations; - Functional and technical requirements - Testing and inspections - Execution - Provision of information 􀂃 Terms of Reference for procuring the services and work required for the seabed survey and geological study will be established based on our experience in similar projects. For the feasibility study we will perform a study based on existing materials/documentation related to Black Sea seabed survey and geological studies. 􀂃

20. DELIVERABLES 1. Inception report (within 6 weeks of commencement of the project). 2. Terms of Reference for the Seabed survey and Geological Study. (The draft issue to be submitted within 6 weeks of commencement of the assignment). 3. Plans and Terms of Reference for the Environmental Impact assessment. (To be submitted as an annex to the first Progress report). 4. Environmental Impact Assessment (EIA), incl. environmental approvals. (The draft issue within 8 months and the final issue within 10 months after the commencement of the assignment.) 5. Feasibility Study – draft, incl. the necessary documents for approvals and advices. (8 months after commencement of the assignment). 6. Feasibility Study – final, incl. approvals and advices. (10 months after commencement of the assignment). 7. Documentation for urbanism certificates, in Romania and Turkey (10 months after commencement of the assignment.) 8. Technical Specifications. (Within 14 months after the commencement of the project.) 9. Progress Reports. (To be reported quarterly, no later than the 10th working day after the reporting period.) 10. Final Report. (The final report shall be submitted upon finalisation of the assignement

21. Investment needs - Investments in the HVDC Link - Costs for Submarine cables - material and installation; - Costs for HVDC land cables and/or HVDC OHTLs and/or HVAC – type overhead electric lines, as applicable in Romania – material and installations; - Costs for HVDC land cables and/or HVDC OHTLs and/or HVAC – type overhead electric lines, as applicable in Turkey – material and installations; - Costs for converter station, including the A.C. connection in Romania; - Costs for converter station, including the A.C. connection in Turkey; - Telecommunication equipment based on optical fibers - Site costs in Romania; - Site costs in Turkey; - Engineering, project management, project control and commissioning; - Other investments, if any; - Interest rates during construction calculated separately for each of the above mentioned parts of the HVDC link; - Total investment costs for the HVDC link. - Payment for provisional and final expropriations.

22. Investment needs - Investments in the Romanian and Turkish AC grids Investments in the Romanian AC Grid - AC grid investments exclusive the breaker bay for the HVDC link; - Telecommunication and remote control equipment; - Interest rates calculated separately for each part; - Total investments due to the HVDC link in the Romanian A.C. grid Investments in the Turkish AC Grid - AC grid investments exclusive the breaker bay for the HVDC link; - Telecommunication and remote control equipment; - Interest rates during construction calculated separately for each part; - Total investments due to the HVDC link in the Turkish A.C. grid

23. COMMERCIAL and FINANCIAL ANALYSIS “The price forecast has to be calculated from different perspectives • Long term off-take contract 60 % and 80 %; • Market price for the remaining 40 % and 20 %; • Sufficient Average Price Level (SAPL). “Based on the recommended investment and operational plan the Designer shall establish a financial model and analyse the investment over a time horizon of both 20 years operation and 30 years operation. The output of the model shall be presented in nominal terms

24. Tranzit scenarios 1000 MW from Romania to Turkey

25. 1000 MW from UCTE (Poland&Slovakia) to Turkey Tranzit scenarios

26. 1000 MW from Russia (IPS/UPS) to Turkey Tranzit scenarios

27. Tranzit scenarios 1000 MW from Turkey to Romania budget

28. 1000 MW from Turkey to UCTE (Serbia and Austria) Tranzit scenarios

29. Activities to be done in parallel with the feasibilty study • Preliminary business model • List of main commercial, regulatory and financial hypothesys • Documentation on the business experience of existing commercial interconnectors in EU • Discussions and clarifications with the regulatory authorities • Legal due diligence for the preliminary business model • TOR for the complete business study • Exploration and identification of potential private partners • Letters of intent • Develop procedure for the selection of the private investors • Full clarifications on TEIAS participation in the project, including Turkish applicable legislation • Preliminary legal preparations for the project company ( SPV )

30. First tentative road map Opportunity Study Joint Position Paper MOU -1 2005 MOU -2 Feasibility Study ( 75 % TEL- 25% NE ) Business Study 2008 - 2009 02.2009 Joint Position Paper - Final 2009 International Agreement between Romania and Turkey Selection of private investors SPV – the project company 2010 Project implementation Financing, contracting, supply and instalation 2010 - 2013

31. THANK YOU FOR YOUR ATTENTION ! e-mail:relatii.investitori@transelectrica.ro razvan.purdila@transelectrica.ro phone: +40213035923 fax: +40213035880 web-site: www.transelectrica.ro