Saudi Arabia Solar Trade Mission: Financing Panel - Introduction. Tim Armsby, Partner and Regional Head of Energy & Infrastructure

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1 Saudi Arabia Solar Trade Mission: Financing Panel - Introduction Tim Armsby, Partner and Regional Head of Energy & Infrastructure

2 Agenda Introduction Background to private sector participation in regional power generation Proposed K.A.CARE program

3 Introduction Eversheds: 44 offices across 26 jurisdictions within major cities in Europe, the Middle East, Africa and Asia. 7 offices in the Middle East including Saudi Arabia Leading renewable energy practice Extensive track record in conventional projects in the Middle East

4 Private sector participation in regional power generation

5 Private sector participation in power generation Long track record of independent Water and Power Projects (I(W)PPs) in the Middle East First was Manah power project, Oman 1995 Similar programs implemented across the GCC and wider MENA region Generally 2 models have been adopted (BOO / BOOT) Typically utility scale with a single offtaker and limited fuel supply risk. Limited renewable energy examples in GCC (Shams plant in Abu Dhabi is only IPP, but this was a state initiated project). State participation in SPV is a key characteristic in many schemes including KSA. In other states there is an IPO requirement through local stock exchange Strong appetite from developers, investors and lenders even during financial crisis. Documentation now fairly mature

6 Power projects in the Kingdom Electricity sector restructured in late 90s in conjunction with wider privatisation program Led to creation of Saudi Electricity Company (SEC) as principle generator, Electricity & Cogeneration Regulation Authority (ECRA) as sector regulator, and the Water & Electricity Company (WEC) as principle offtaker. Ongoing restructuring towards a single buyer model will create 4 generating companies and separate distribution companies. Expected to be completed in First IPPs were captive plants for Aramco and SABIC (2003) Followed by 3 WEC I/WPPs, but program stalled and SEC now taking lead SEC has tendered 4 IPPs (Rabigh 2 still under procurement) and first hybrid project to be tendered in near future (Dubah IPP) Significant number of projects still procured on EPC basis.

7 SEC Program Program is now seen as leading model for the Kingdom. Characterised by: Documentation largely based on WEC program. Terms now well understood and largely mature. Build Own Operate (BOO) model utilised In contrast to WEC, no government guarantee (SEC has sovereign equivalent credit rating although is dependant on state support) Feedstock supplied at SEC cost (highly subsidised rates) c. 20 yr Power Purchase Agreement (PPA) with single offtaker SEC participation in equity of operating company is generally 20-50% (cf WEC/Aramco little or no equity participation) Generally seeing 75-80% debt and highly competitive margins

8 Proposed K.A.CARE Program

9 K.A. CARE Most significant program ever announced 54GW by 2032 Many similarities to SEC program, but some significant areas of difference especially with later phases There remain many grey areas and yet to see form of PPA so e.g. position on termination, compensation events, etc. remains unclear. Training, localisation, local content, regulatory environment, procurement and timetable requirements have attracted significant debate and likely to be subject to some change From a financing perspective there are a number of other areas that need further consideration/clarity Note that K.A. CARE not the only entity involved in this sector.

10 Government equity stake K.A.CARE in White Paper reserved its position on this Recent conventional projects financed with government equity stake Banks may have concern as nongovernment equity stake will require absolute non-recourse debt finance Raises risk perception for new program if a different route taken

11 Self-sourcing of sites Conventional power projects have involved pre-packaged development assets White Paper envisages pre-package sites and self-sourced sites International developers attracted to self-sourced sites because of expertise in identifying prime sites and ability to source own technical data for reliance by them and the bank Key challenge is in securing bankable suite of development assets: Bankable lease Consents, approvals and access rights Re-zoning complex but possible Proving ownership Many developers joint venturing with low hanging fruit partners i.e. real estate owners

12 The Technologies Wind and solar are intermittent technologies Needs to be built into financial model paid for output, no capacity charge Need for EPC availability and performance guarantees (local content issues?) Review of White Paper proposal on monthly limit in PPA to 105% of contract price need for true up

13 Corporate Structuring Conventional power projects tend to be one-off. Renewable developers develop multiple projects usually under holdco structure Holdco structures in Saudi more challenging to achieve: industrial licences in Saudi need to be awarded to each SPV despite same ownership impact on non-recourse debt structure Security structures: enforcement of security interested in Saudi not tested may be a need for offshore structures and/or establishment of local joint stock company

14 Any questions? Tim Armsby Partner Eversheds, Abu Dhabi T E. timarmsby@eversheds.com Faisal Tabbaa Deputy Managing Partner Dhabaan and Partners / Eversheds, Riyadh T E. faisaltabbaa@eversheds.com...thank you!

15 EVERSHEDS LLP Eversheds LLP is a limited liability partnership.