March 2012 © European Bank for Reconstruction and Development 2010 | Financing and investment in Russian power industry European Bank for Reconstruction and Development

EBRD: financing power sector Cumulative EBRD financing to power & energy projects since 1991 is €6.9 bn across 158 projects with €24 bn total value In 2011 invested over €1.2 bn in 25 projects with a total value of €3.9 bn Privatisations: Made key investments in power and energy sector privatisations in Bulgaria, Moldova, Poland, Romania and Turkey Renewables represent c. 15% of total financing today, comprised primarily of wind and hydro, but also including biomass Financing by Region (1991 – 2011) Unaudited as at 31 December 2011 Note: SEE includes Romania and Bulgaria. Turkey became a country of operation in Source: EBRD data 100% = €6.9 2

ЕBRD in the Russian Power Sector Support for sector reform Total volume of direct financing for the Russian energy sector – €1.4 bn Total volume of mobilised funds (including syndication) – €2.4 bn 17 large transactions with the leading power and energy companies The first long-term loans in roubles in the sector (Mosenergo, FGC, RusHydro) The first ever IFI shareholder in reorganised generating companies (OGK-5, TGK-9) Participation in long-term rouble bond issues (RusHydro – 5 year, Federal Grid – 7 and 10 years) 3

Support for power reform in Russia Beginning of reforms Final stages of reforms Equity Debt Policy Dialogue / TCs 2001: Loan to RAO UES/ MOU 2004: Distribution tariff methodology TC First IFI to support privatization process and high-calibre strategic investors in generating companies through equity participations : Loans for energy efficiency investments (Lenenergo, Mosenergo, HydroOGK); and infrastructure – FGC, System Operator 2005: Dispatch tariff methodology review 2006: Transmission tariff methodology review 2008: Heat Law review Clean coal study Assessment of power sector reform (Frontier’s Report) 2009/10: BAT assessment review (OGK-5) Technical audits/project reviews (TGK-8, TGK-13) Integrated Approach to projects in Russian thermal generation sector Draft Capacity Market Law review (internal) 2003: RAO UES business plan TC 2007: Wind farm regulatory framework TC 2001: Establishment of RAO UES Restructuring Committee 2010/11: Renewables support TC 2006: OGK-5 public offering2007: TGK-9 privatization2008: OGK-5 strategic sale 2010: Investment into Rushydro bond issue to finance efficiency-improving investment programme 2010/11: Investments into FGC bond issues to finance grid system reliability improvement 2011: loan to RusHydro to fund balance sheet optimization of its newly acquired subsidiary in Russia’s Far East : Loans for energy efficiency with private gencos: OGC-5 and TGK-13

Key EBRD projects in the Russian power sector 5

Debt and equity financing of private generating companies, created on the basis of OGKs and TGKs, for investment programmes aimed at energy efficiency improvements Debt financing of grid companies to fund investment programmes aimed at modernisation and reduction of losses Dialogue with regulating authorities regarding further energy market liberalisation, improvement of RAB regulation, development of the legislative base for renewable sources of energy Financing for independent power producers (IPPs) on the basis of project financing Financing of viable projects in renewable energy sector EBRD strategy in the Russian power sector 6

Current issues in the sector Changes in electricity and capacity market rules Capacity market is still de facto regulated Long-term electricity and capacity contracts are not attractive both for suppliers and customers De facto de-privatisation in the generating sector: exit of the private investors, consolidation of generating assets by the state companies RAB: significant growth of tariffs due to absence of mechanism to control investment costs included in the tariffs Renewable energy: absence of a price support mechanism 7

EBRD: Foundations of Operations Apply sound banking principles to all projects – We do not subsidise Advance the transition to a full market economy – Priority to promote private sector involvement and market expansion Support, but not replace, private investment: additionality – Act as a catalyst for higher and riskier involvement of financiers Achieve environmentally sound and sustainable development Client’s integrity, reputation and corporate governance quality are important 8

Debt Financing Long-term debt financing (10-15 years) in RUB, EUR or USDLong-term debt financing (10-15 years) in RUB, EUR or USD Corporate loans and non-recourse financingCorporate loans and non-recourse financing Floating or fixed rateFloating or fixed rate Specified use of proceeds: investment projects and partial refinancingSpecified use of proceeds: investment projects and partial refinancing Standard covenants (Debt/EBITDA, EBITDA/Interest)Standard covenants (Debt/EBITDA, EBITDA/Interest) Additional funds mobilised through loan syndicationAdditional funds mobilised through loan syndication 9

Equity Investments Key parameters EBRD Financing EBRD equity stake Minority stake (usually below 20-25% of share capital) Entry Price Market price or price paid by strategic investor EBRD contribution to Corporate Governance Improvements Board’s seat for an EBRD representative or an Independent Director Agreement on corporate governance requirements, environmental and financial policy Protection of minority rights Agreements Shares’ Purchase Agreement Shareholder’s Agreement 10