Financing and Investment Projects in the Energy Infrastructure

1. Financing and Investment Projectsin the Energy Infrastructure 4th April 2006 Deputy DG Dr. Alfred Steffek

2. Why Investments Investments in the Energy Infrastructure are necessary • A good Energy Infrastructure is a prerequisite for competitiveness of the economy • Security of Supply • Diversification of Supply • Approach to the Common Market • Reach the objectives of the BSEC

3. Objectives Overall Objectives of the participants • Creation of a stable and reliable „Regional Energy Market“ • Approach & Integration into the EU energy market • Development of an adequate and efficient electricity and gas infrastructure in a certain region

4. How to achieve these Objectives • To achieve these objectives, an attractive and sustainable investment climate for the investments in the electricity grids infrastructure and generation plants needs to be created and ensured • Investors like stability • More specific objectives are needed

5. Objectives Specific Objectives • Achieve an integrated wholesale market within a certain period • Increase efficiency of transmission network • Necessary prerequisite at the operational level

6. Who is the proper investor Types of Investments • Direct investments by incumbent companies • Foreign direct investments (FDI) • Cross-boarder acquisition:Entering a foreign market by buying an existing enterprise • Greenfield Investments:Direct investment in facilities

7. Why Investments by FDI Reasons on Host Country’s side • Lack of Capital for implementing necessary investments • Raising money by selling companies (cross-boarder acquisition) • Raising money by granting permissions • Determine the best bidder (company) by call for tender

8. Why Investments by FDI Reasons on Investor’s side • To make more profit • More Efficiency (Synergy effects) • To get a better market position

9. Invitation to tender Determination on Host Country’s side • Quality of the investor • Role of the investor • Which aims are to be reached • Rights of the investor • Duties of the investor • Prioritise infrastructure projects

10. Risk Allocation – a balancing exercise Construction risk Operational risk Market risk Political risk Upstream risk Counterparty credit risk Force majeure risk Technology risk Exchange rate risk Cash flow risk Default risk Environmental risk Source: Norton Rose, Presentation at Fourth Asia Gas Partnership Summit on February 20th, 2006

11. Balance of Risks Overall Prerequisite for foreign direct investments (FDI) • Harmonized legal framework to reach a sound investment climate in the region • Stable, long term forseeable regulatory framework • Investment friendly legal framework • Protection of investments given by governmental guarantees • Duties of investors must be determined clearly

12. Know how and investments Cross-Boarder Exchange: Speak the same Langue • Provide trusted market operations by an International Market Operators Cluster (IMO) • Coordinated Capacity allocation and ITC mechanisms  IMO • Ensure adequate level of cooperation and coordination  IMO

13. Know-How and Investments Organisation and Operationalization – Grid & Market • The „International Market Operators Cluster” (IMO) shall be a joint stock company, owned by stakeholders and investors to ensure independent and transparent operations • The IMO shall be in charge of • (i) ITC (cross border tarifs), = Inter TSO Compensation • (ii) capacity allocation, • (iii) cross-border balancing and clearing The IMO shall be subject to regulatory control, because only a reliable and transparent energy market attracts investors • In the future a migration towards an ISO could be considered (would include network operations)

14. Know-How and Investments • Establishing the IMO: “Private Public Partnership” with an eligible investor that • has the know how to create a stable regional energy market • and enhances the attractiveness of energy related investments • Infrastructure and generation investments: The donors support investment projects in the BSCE region and provide • Cheap loans and/or grants for grid & other infrastructure investments, market operator‘s investments, generation investments • This way grid operations can be provided cheaper  matter of affordability of market prices for grid-utilisation • Stable political and economical environment  equal playing field for all investors

15. Prerequisite in the host country Overall Legislation of the host country • Clear law • Reliable framework • Free transfer of profits • Investment friendly law of taxation • Plans for transition

16. Resolving Transitional Problems Transitional problems • Problems in connection of the changes of the social and economic environment • Social problems • Economic problems • Tensions between winner- and loosergroups • Who is responsible for declining of living standard • Handling with problems in connection of the changes of the social and economic environment • Talks with political opinion leaders • Talks with trade unions • Plans for transition

17. Contact Federal Ministry of Economics and Labour Schwarzenbergplatz 1 1010 Vienna Austria Dr. Alfred Steffek Deputy Director General of Energy and Mining Head of Legal Devision Tel.: +43 1 71100 Ext. 3001 Ext. 3007 Fax.: +43 1 717 35 83 E-mail: alfred.steffek@bmwa.gv.at