www.ero-ks.org1

Energy Regulatory Office

Dr. Nick F Frydas

Chairman of ERO

11o Εθνικό Συνέδριο γιά την Ενέργεια

15-11-2006

The New Lignite Mine &

New Generation Projectin Kosovo

www.ero-ks.org2

Project Components

In compliance with the: - Kosovo Energy Strategy- carried out studies and regional electricity market opportunitiesKosovo is soliciting 15/8/2006 expressions of interest from qualified private investors in an energy development projects that encompasses the following components:

The development of a new coal mine for existing generation units(Sibovc SW) and/or the development of a new mine (the Sibovc mine)

for coal supply to the new power plant

Construction of a new power plant ‘Kosovo C’ with an estimated installed Capacity of up to 2100 MW and associated transmission capacity

Rehabilitation of certain units (3 x 200 MW) of the existing power plant ‘Kosovo A’

www.ero-ks.org3

Kosova’s Lignite Basins

Reserves [Million Tonnes]

Geological Exploitable

t t ce t tce

Kosova 264 11500 2957 9804 2521

Dukagjini 95 2737 782 1625 464

Other 87 22 74 19

Total 14324 3761 11503 3004

Lignite Basin

Area[km2]

0.320.9147.8814913.85Sibovc

0.351.0147.5775014.4MirashWest

0.340.9847.7786014.1Bardh

%comb

% total%kJ/kg%

SulphurMoistureLower

heating value

Area Ash

www.ero-ks.org4

Northern part of “Kosova” lignite basin “Sibovc”

542.98542.97542.37542.57541.96541.79

541.30541.16541.20540.96541.64542.25541.20541.02540.35

540.77541.28540.93540.74540.46540.66540.74541.08

542.61542.72542.20542.92542.58 548.16

543.83544.84546.39548.81549.96550.47548.45546.63545.86545.30544.17

545.34548.26548.22547.89548.81543.31550.69550.71550.89

550.32550.09549.06548.05549.92549.39549.52549.79

549.60550.89551.85550.24553.05543.80544.23544.76543.99543.60543.58543.76543.58543.29552.96

543.59543.38545.62545.30545.84546.54546.83547.45547.94

552.00551.71551.93553.21554.32555.27

548.49548.94549.39549.46550.48549.95549.87549.91549.98549.96549.52549.14548.48547.61546.30547.14546.58546.29546.88547.30547.15548.15550.93552.83552.58

556.90557.46561.60561.91562.38565.43561.70565.31

563.78562.49562.36561.69560.78562.28562.90562.88562.54562.83563.34564.82

564.96564.99564.21564.37559.68

563.89564.21563.50558.15

567.20566.97558.45560.14560.86

567.40567.27567.25

562.08563.70562.19 556.64561.63 557.63563.74 557.26564.80565.82565.68566.32557.17557.63558.13559.40559.89560.31560.98562.20562.12562.70562.96

563.51565.39

566.54566.17566.29566.18566.40565.97565.76565.99565.75565.78565.69566.04565.48564.56564.67564.37564.52564.63562.95563.12565.07564.56564.59564.44564.23560.85564.83555.81555.71558.22559.38559.99562.81564.55565.88566.10

568.73572.98573.49573.67573.72573.59573.94

568.30568.42568.26568.40567.94567.76567.75567.73567.76

571.50571.21572.15571.90574.02572.27578.71576.93576.65578.33579.62

568.54572.00575.12576.98579.09

574.92569.58569.30569.29571.00577.34577.51578.38572.81572.05574.80575.33572.01 568.32570.29 569.04569.70 568.92571.62 570.97568.93569.27569.14569.17 574.04578.88

580.67579.91586.38

581.16583.15585.56585.77586.30585.85585.76581.69583.97585.67

598.14601.52602.47605.74608.48611.49610.01612.02611.78609.64613.88610.48615.85613.27

608.71609.64610.65618.70618.39622.19

619.35622.26623.59546.03

550.21550.79550.32551.18551.42552.74547.86547.30545.95544.26542.84 553.75

536.88536.86537.10537.76537.42537.60537.81537.97538.74539.38539.38539.73539.33

537.38537.13537.81537.83537.70538.26538.34538.83539.51539.31539.71

551.79550.51549.96

545.99544.42544.28543.52542.81540.77541.90547.25546.58543.19540.44543.16547.69549.39550.67546.10545.71544.53547.94548.32547.51547.92548.46550.23541.79540.89540.47540.48540.62541.08541.59541.38540.61539.96

540.07542.79544.76546.52545.42546.89540.48549.00540.23547.88548.68549.81547.01545.45546.50540.14542.21540.60542.06544.78

552.87

551.07548.87546.46

552.33551.71562.22552.99553.09554.16554.57555.65562.85

557.54556.74553.60

556.29556.36559.61559.29561.52

S = 234.3565 hA

Palaj

Janjina Voda

DumpOutside

Sibovc

Lajthisht

Hade

TPP B

Obiliq

TPP A

Krushec

DumpAsh

DumpAsh

DumpDumpOutside

Lismir

Nakarade

7499000 7500000 7501000 7502000 7503000 7504000 7505000 7506000 7507000 7508000 7509000 7510000 7511000

4722000

4723000

4724000

4725000

4726000

4727000

4728000

4729000

0 500 1000 1500 2000

Sibovc

North

South

D-Field

"South-Field"Bardh

Mirage

MirageSE

MesozoicOutcrop

Lignite Pinch-out

Decoaled

Decoaled

Structur Map

1 1´

3

3´

2

2´

Sibovc Lignite Field

Area: 19.7 km²Geological Reserves: 990 mt Exploitable Reserves: 830 mt

www.ero-ks.org5

Sibovc Lignite Mining Area – Cross Section

0 250 500 750 1000 1250 1500 1750 2000 2250 2500 2750 3000 3250 3500 3750 4000 4250 4500 4750 5000 5250 5500 5750 6000 6250 6500 6750 7000 7250 7500 7750 8000Section Meter

300

350

400

450

500

550

600

650

700

750

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bove

Mean

Sea

Leve

l

300

350

400

450

500

550

600

650

700

750

800

578

473

547

476

599

469

537

472

623

461

528

473

631

461

542

475

631

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466

626

461

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602

451

538

472

620

460

538

464

632

431

495

444

633

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449

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613

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490

426

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373

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544

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593

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85708801

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845969257507

8683900288019077

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84496783

80479203

86798361

696388478537

8927912388018843

79307955

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692470427770

56367607

8990

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9839

10120

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83748378

77466913

972688939458

70478320

8395

0

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1025010210

95679337

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99699676

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552

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Erosion

Section 3 - 3'

D-FieldBardh-MirashSibovc

0 250 500 750 1000 1250 1500 1750 2000 2250 2500 2750 3000 3250 3500 3750 4000 4250 4500 4750 5000 5250 5500

Section Meter

300

350

400

450

500

550

600

650

700

750

800

Met

er A

bove

Mea

n Se

a Le

vel

300

350

400

450

500

550

600

650

700

750

800

574

524

549

535

584

525

542532

583

514

541

516

577

502

544

508

581

501

559

519

592

493

551

503

607

512

556

512

632

480

537

494

649

465

520

482

626

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557

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596

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9 722932 0

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10 183

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Section 2/ 2`

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NE

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194

Erosion?

Section 2 - 2'

Sibovc

Key parametersArea: 19.7 km2

Geological reserves: 990 m tExploitable reserves: 830 m tOverburden to Coal Ratio: 0.9 m3: 1 tAverage Coal Seam Thickness: 75 m

www.ero-ks.org6

Comparison of Sibovc with European Coal Mines

Shikule

Dubrava

Gracanica

Tamnava

Drmno

CirikovacOslomej

Bogutovo selo

Kysloki

Bardh, Mirash

Ptolomajs

Megalopolis

Visonta

Bukkarbany

Trojanovo 1

Trojanovo N

Trojanovo 2

Oltenija Lausitzer

Zapadni ceski

Belhatov

Konin

Rheinland

Mitteldeutschland

Suvodol

Sibovc

0

1

2

3

4

5

6

7

8

9

10

3000 4000 5000 6000 7000 8000 9000 10000 11000 12000 13000 kJ/kg

[ m3

: t ]

Sikule (BiH)

Dubrava (BiH)

Gracanica (BiH)

Tamnava (Ser&Mo)

Drmno (Ser&Mo)

Cirikovac (Ser&Mo)

Oslomej (MK)

Bogutovo selo (BiH)

Kysloki (TR)

Bardh, Mirash (Kosova)

Ptolomajs (GR)

Megalopolis (GR)

Visonta (H)

Bukkarbany (H)

Trojanovo 1 (BG)

Trojanovo N (BG)

Trojanovo 2 (BG)

Oltenija (RU)

Lausitzer (D)

Zapadni ceski (CZ)

Belhatov (PL)

Konin (PL)

Garzw eiler II (D)

Mitteldeutschland (D)

Suvodol (MK)

Sibovc

www.ero-ks.org7

Potential Mines

Existing PP (KEK) and other consumer – 140 mtNew IPP – 690 mt

990 mt(19.7 km2)

690 m.t mine.8200 kJ/kg2000 MW

395 mt7300 kJ/kg600 MW537 mt

8150 kJ/kg1000 MW

new minenew mine - which start from the existing mines Mirash/Bardh and advances in Northern direction of the Sibovc field

For illustration:For illustration:2000 MW

7500 h/a = 15 TWh1.1 t/MWh

= 16.5 mt/a690 mt

>> 41.8 years

140 m.t mine.

www.ero-ks.org8

Main Mining Plan - SibovcCapital Expenditures - Sibovc

Approx. 370 m€ - equipment 60 m€ - resettlement

Coal Production16 mt/yearfrom 2019 - 22 mt/year

Cost of Coal€ 7.51/ton at 12% IRR€ 8.69/ton at 15% IRR

Assumed cost of equity 20 %Assumed WACC 15 %

Country - IRR Comparisons IRR (nominal)Egypt 15%-18%Kenya 15%Malaysia (1st wave IPPs) 18%-25%Malaysia (2nd wave IPPs) 12% (target)Philippines 17,50%

www.ero-ks.org9

New Power Plant Site – Comparative Advantage

Water Supply / Iber Lepenci Irrigation System

Road and Rail infrastructure

Close vicinity to the new lignite mine – Sibovc

Interconnection / 400 kV Switch Yard

www.ero-ks.org10

New IPP – Construction Phases

Commissioning of the new TPP (first unit 300 MW or 500 MW) in two phases:

- 1st phase, € billion 1.1 – 1.3 + development cost of mine € million 300

- 2nd phase (10% less expensive), if two 300 MW units in one 600 MW –saves additional 15 %.

www.ero-ks.org11

LPTAP – Project Management

Chair: Minister of Energy and Mining

• SRSG’s office • Head of UNMIK Pillar IV (EU Pillar)• Minister of Environment

and Spatial Planning• Chair. Energy Regulatory

Office

• Prime Minister’s Office • Minister of Economy and Finance• Minister of Labor and Social Welfare• Chair. Ind. Commission for Mines and Minerals

Project Steering Committee

Environmental and SocialTask Manager and assistant

Administration and AccountingTask Manager and assistant

PowerTask Manager and assistant

MinesTask Manager and assistant

Project Manager

ProjectOffice

www.ero-ks.org12

LPTAP – Procedures and Timing

2006 2007 2008

EOICall for EOI has been published on

August 15, 2006

Deadline for submission of EOI is

November 30, 2006

Procurement of:

1.Transaction Advisory Services

2.Legal Advisory Services

3.Social and Environmental Safeguards Advisory services is ongoing

RFP

• Short listed Companies / Consortia will receive Request for Proposal during Q2 of 2007

• Evaluation of Proposals and selection of successful bidder shall be concluded by Q4 of 2007

Contract Negotiation and Closing

Negotiations with a successful bidder on mutually-acceptable, appropriate terms and conditions that will assure the successful development of the Transaction

www.ero-ks.org13

Criteria for expression of interest

A Prospective Bidder must meet the following minimum criteria:

1. Has developed green field, coal or lignite fired electric generation projects, which are now either in construction or operation, totaling more than 2,500 MW

2. Has raised more than € 2 billion of limited recourse project debt or through long term corporate financing as of November 30, 2006 inthe energy and/or mining sector; or has a minimum of € 2 billion in free cash reserves, as stated in the year-end 2005 audited financial statements

3. Has developed and is operating, as of November 30, 2006, mines producing more that 20 million tons per year of coal or lignite

4. Has control of or operates one or more generation companies and/or concessions with an aggregate capacity of at least 10,000MW as of November 30, 2006

www.ero-ks.org14

Asset Packages

Asset Packages Lignite

- Sibovc SW Lignite Field

- Whole Sibovc Field

Asset Packages Power Generation

- TPP Kosovo A• Over haul (life extension until 2010/14, approx. EUR 50 mln)• Capital rehabilitation (life extension until 2020, approx. EUR 145 mln)

- TPP Kosovo C

• 1.000 MW

• 2.000 MW

www.ero-ks.org15

One Vertically Integrated Mining-Power Project- One Investor -

In this case we have one single investor and operator who:

- develops and operates whole Sibovc Field

- invests in and operates Kosovo A (two asset options, overhaul and rehabilitation)

- invests and operates Kosovo C (two asset options, 1.000 MW and 2.000 MW)

- supplies lignite to Kosovo A, B and C

Investor 1

Kosovo A

Kosovo B

Kosovo C

Kosovo A

Kosovo C

WholeSibovc Mine

develops and operates

supplies with lignite

www.ero-ks.org16

One Vertically Integrated Mining-Power Project - One Investor, only Kosovo A -

In this case we have one single investor and operator who:

- develops and operates Sibovc SW

- invests in and operates Kosovo A (full rehabilitation)

- supplies lignite to Kosovo A, B

Investor 1

Kosovo A

Kosovo B

Kosovo A

Sibovc SWMine

develops and operates

supplies with lignite

www.ero-ks.org17

Two Vertically Integrated Mining-Power Projects - Two Investors -

Investor 1

Kosovo A

Kosovo B

Kosovo A

Sibovc SWMine

Kosovo C

Kosovo C

Investor 2

Rest of SibovcMine

develops and operates

supplies with lignite

www.ero-ks.org18

Arms Length Mining and Power Projects- One Mining Investor / Two Power Investors -

Investor 1(lignite investor)

Kosovo A

Kosovo B

Kosovo C

Investor 2

Investor 3Sibovc Mine

Kosovo A

Kosovo Cdevelops and operates

supplies with lignite

www.ero-ks.org19

Arms Length Mining and Power Projects- One Investor in each -

Kosovo C

Investor 2(power investor)

Investor 1(lignite investor)

Kosovo A

Kosovo B

Kosovo C

Kosovo A

Sibovc Mine

develops and operates

supplies with lignite

www.ero-ks.org20

Findings of Market Test – Ranking of Options (i)

Integrated vs. diversified options

Almost all major companies showing their interest expressed a high preference to have a captive mine which is under their control.

Main reasons for this:

security of supply

operational synergies

technological synergies

The first argument is also very important for companies which would consider a diversified option. The mining operator in this case would have to demonstrate an adequate and very solid track record in lignite mining in order to keep the performance risk of the lignite supplier within acceptable levels.

www.ero-ks.org21

Findings of Market Test – Ranking of Options (ii)

Non competitive vs. competitive options

The companies accept competition although the opinion prevails that the local market is not ready for competition at the moment because of:

low willingness to pay by the end customers

legal conditions are not given by now (all customers will be eligible only after 2013)

persisting monopoly in the distribution sector

Furthermore the functioning of the South Eastern European EnergyMarket has yet to be tested. They acknowledge that competition will happen anyhow in the export market.

www.ero-ks.org22

Findings of Market Test – Ranking of Options (iii)

Overhaul vs. capital rehabilitation of Kosovo A

Full rehabilitation of Kosovo A on a stand alone basis was not considered an attractive option to most of the companies

A few medium sized companies would consider that option as possibility to achieve market entrance and presence in order to expand the operations at a later stage

Clear preferences emerged towards the option to keep Kosovo A operative only until Kosovo C is commissioned.

It is argued that:

Real status & costs of capital rehabilitation of Kosovo A is not known (All companies will conduct their own technical and economic feasibility studies)

Kosovo A is basically outdated technologically

Carbon credits would only be available if efficiency gains would be achieved (It is assumed that with the investments proposed this would not be the case)

www.ero-ks.org23

Findings of Market Test – Ranking of Options (iv)

Small (1.000 MW) vs. Large (2.000 MW) configuration of Kosovo C

Kosovo C – in first stage - smaller option (up to 1.000 MW)

Second stage - to build another up to 1.000 MW capacity

This is recommended by the respective pre-feasibility study for Kosovo C for several reasons:

grid might not be in the condition to guarantee stability for 2.000 MW

market risk and performance has to be assessed by a smaller configuration

investment would be distributed over a longer period of time

www.ero-ks.org24

Findings of Market Test –Major Concerns

Pre-qualification criteria

Creditworthy off taker in the internal market

Possibility of Public Service Obligation also for new generation capacities

Status of related infrastructure

Property of assets

www.ero-ks.org25

Conclusions

Sibovc SW on stand alone basis is not attractive to market players

Market players interest in Sibovc SW is only in combination with Kosovo C (and whole Sibovc)

Market players interest in Kosovo A is limited to short term until commissioning of Kosovo C

www.ero-ks.org26

Illustrative example of participation and linkages

SPV - Mining Kosovo C

Kosovo A

Kosovo B

Lignite supply agreements

Investor*

owns 100%

affermage

Kosovo

PPA with guarantees

Investor*

holds up to 100%operates mine through MCpays for costs incurred so far up to its sharebuy out option

Kosovo

holds up to 49%transfers license

IFIscan hold minority shareprovide guarantees

Export Marketsellspower

*Investor is the same in mining and power

www.ero-ks.org27

Energy Regulatory Office

ThankYou

Energy Regulatory OfficeHamdi Mramori Street No 1Prishtina – Kosovo (UNMIK)

Tel: +381 (0) 38 247 615 ext. 101Fax: +381 (0) 38 247 620e-mail: info@ero-ks.org

www.ero-ks.org

www.ero-ks.org28

Transaction Adviser

Purpose

To provide transaction advisory services and assisting the PSC of LPTAP in attracting private sector participation

Scope of work (in three phases):

Phase 1: Preparatory work

• review the market structure & take measures (structural, legal environmental etc.) to facilitate the transaction

• prepare final investment package (based on Options Analysis) & recommend short list of qualified bidder

Phase 2: Prepare RFP and Bidding

• prepare necessary documents to undertake a competitive & transparent bidding process – issuance of a RFP to approved short list bidders

Phase 3: Negotiations and Closing

• Assistance in concluding negotiations with a successful bidder on mutually-acceptable, appropriate terms and conditions (in close cooperation with Legal Advisors)