“Caucasus Power Transmission Network’’ (Armenia-Georgia overhead transmission line/substations) Loan Project

Terms and Conditions of Provided Investment Facilities With the view of Project implementation 188,2 mln. euro Loan and Grant facilities have been provided in the framework of “Caucasus Power Transmission Network’’ Project. On December 12, 2014, in the framework of “Caucasus Power Transmission Network’’ (Armenia-Georgia overhead transmission line/substations) a trilateral Loan and Project Contracts have been signed between KFW Bank, MoF of RoA and HVEN CJSC at the extent of 75,0 million euro and 10,2 million euro BMZ ID: 2012 66 949 and BMZ ID: 2007 66 352. On March 13, 2015 a relevant sub-loan Agreements have been signed between MoF of RA and HVEN CJSC.

The principal amount repayments of 75,0 mln The principal amount repayments of 75,0 mln. euro are equally semi-annual installments from 2019-2029. Annual interest rate is 1,85 %. Front end fee is 750 thousand euro. Annual interest rate towards outstandings is 0,25%. The principal amount repayments of 10,2 mln. euro are equally semi-annual installments from 2025 to December 30, 2054. Annual interest rate is 0,75%. With the view of the overall Project financing a Financial Agreement with the European Investment Bank has been signed on March 16, 2015 regarding to 10,0 mln. euro loan involvement. It is also planned to sign Financial Agreement through the “Neighborhood Investment Facility” (NIF) provided by the European Union Commission regarding to 10,0 million euro grant. The principal amount repayments of 10,0 million euro loan starting from 2020 up to 2043. The annual interest rate is 2%. Annual percentage rate is floating, relevant to EURIBOR.

On December 11, 2015, in the framework of “Caucasus Power Transmission Network’’ III (Stage II of Project) (Armenia-Georgia overhead transmission line/substations) BMZ ID: 2014 68 735 a trilateral Loan and Project Contract has been signed between KFW Bank, MoF of RoA and HVEN CJSC at the extent of 83,0 million euro. Principal amounts repayments are divided equally semi-annual - from 2020 till 2030. Annual interest rate is 1,8 %. Front end fee is 830 thousand euro. Annual interest rate towards outstandings is 0,25%. On December 21, 2015 a Contract has been signed with the Company Fichtner GmbH & Co.KG which has been selected in the result of Tender for the Consultancy Services “Study of Environmental and social impact, and preparing and Implementation of Project” for Option 1-3 with 4 229 150 euro and for Option 4 with 2 227 euro (without local taxes).

Project Objective To connect the regional integrated Energy systems between Armenia, Georgia, Iran and Russia through the 500/400/220kV high-voltage direct current converter station located in “Ayrum” substation To provide with reliable, flexible and mutually beneficial cross-border exchange capabilities of energy system connecting to each other Armenian and Georgian Power grids. To improve the structural and operational reliability of networks and security of energy supply. To improve the operations of energy power market. To optimize the active and reactive energy regulation and effective transfer of energy between the generation and load centers within the given country and between the countries. To enhance the security of regional energy systems, as well as ensure parallel work opportunities. To reduce Technical losses.

Project activities The project is foreseen to implement with the following 3 phases: PHASE 1 (Phase 1 parallel with the Phase 2) comprises the following: Construction of 500kV OTL with approx. 8 km. length between the border of Armenia-Georgia and 500/400/220 kV “Ayrum” converter substation with Optical Ground Wire (OPGW ) Construction of 500/400 kV “Ayrum” substation and 350 MW capacity first converter module. With the view of connecting with 220kV “Alaverdi” OTL, installation of 400/220kV transformer and two 220kV bays in “Ayrum” substation (including construction of approx. 2km OTL ). Installation of protection, control, telecommunication and measuring equipments for the purpose of measuring of active and reactive capacities.

PHASE 2 is divided into phase 2a and phase 2b PHASE 2 includes the following: Construction of 400kV double circuit OTL between “Ayrum” and “Ddmashen” substations with approx. 95km length. Construction of first circuit of OTL from “Ayrum” substation up to “Ddmashen” substation. Construction of 400/220kV “Ddmashen” substation. Installation of one 400/220kV transformer in “Ddmashen” substation. Connection from “Ddmashen” substation up to 220kV OSY (open switchyard) existing in Hrazdan TPC, with approx. 10km 220kV two single circuit OTL. Installation of protection, control, telecommunication and measuring equipments in “Ayrum” substation for the purpose of measuring of active and reactive capacities. Construction of 220kV “Lori” OTL with approx. 50km length. Construction of 110kV “Tumanyan-1, 2” OTL with approx. 3km length.

Phase 2b includes the following Construction of second circuit of 400kV OTL of “Ayrum” substation up to “Ddmashen” substation. Installation of second 400/220kV transformer in “Ddmashen” substation including the respective HV equipment in the 400 and 220kV levels. Installation of second 350 MW converter module and additional 500/400kV HV equipment. Installation of protection, control, telecommunication and metering equipments in “Ayrum” substation.

PHASE 3 includes the following: Construction of the third 350 MW converter module including the extension of respective substation. Installation of protection, control, telecommunication and metering equipments in “Ayrum” substation. In the framework of allocated 188,2 mln. euro will be implemented procurement of works and equipments foreseen by Phase 1 and Phase 2.

Project Implementation Deadlines In the framework of “Caucasus Power Transmission Network’’ (Armenia-Georgia overhead transmission line/substations) Loan Project, the Stage 1+2a of the Project is foreseen to complete in 2018. The Stage 2b is foreseen to complete in 2021 and the Stage 3 is foreseen to complete in 2025. ծ

EXPECTING RESULTS FROM THE PROJECT After completion of the Project will be increased the level of Energy system security of Armenia and the electricity supply reliability, which in its turn will enable the enhanced and sustainable economic development. Operation of “Armenia-Georgia 400 kV OTL” will also enhance the expansion of Energy power cross-border trade in the region and will reduce transmission losses. In the result of Project implementation Armenia will become a transit country for electricity transmission.

The impact on Electricity tariff in the result of Project Implementation Project Name   01.08.2016-01.08.2017 01.08.2017-01.08.2018 01.08.2018-01.08.2019 01.08.2019-01.08.2020 01.08.2020-01.08.2021 01.08.2021-01.08.2022 01.08.2022-01.08.2023 01.08.2023-01.08.2024 01.08.2024-01.08.2025 01.08.2025-01.08.2026 01.08.2026-01.08.2027 01.08.2027-01.08.2028 01.08.2028-01.08.2029 01.08.2029-01.08.2030 “Caucasus Power Transmission Network-1’’ (Armenia-Georgia overhead transmission line/substations) Loan Project mln. dram 1,045.0 1,154.6 1,838.9 6,588.4 12,482.8 12,290.4 12,098.1 11,905.7 11,823.0 11,740.1 11,546.1 11,352.1 11,158.1 8,713.9 Impact on tariff 0.154 0.170 0.270 0.968 1.835 1.806 1.778 1.750 1.738 1.725 1.697 1.668 1.640 1.281

The impact on Electricity tariff in the result of Project Implementation