Financing Infrastructure - a Siemens Financial Services Perspective Johannes Schmidt CEO Project and Structured Finance Infrastructure & Cities and Industry, Siemens Financial Services GmbH

Contents 1 Cities and investment needs 2 Trends in infrastructure financing 3 Financial solutions of Siemens 4 Criteria for successful projects

Contents 1 Cities and investment needs 2 Trends in infrastructure financing 3 Financial solutions of Siemens 4 Criteria for successful projects

The dawn of the "urban millennium" has started 50% of world GDP is produced in cities with a population over 750K. 75% of energy consumed in cities; 80% of CO2 emissions are produced in cities. Regional power-houses “urban millenium" In 2007 ~50% of the world's population was living in cities. An increase from 3.5B to 4.7B is expected until 2030. Population Major energy and climate factor 4

The basic needs of a city drive the market for intelligent infrastructure solutions Sustainable Intermodal mobility / efficient and effective mobility Sustainable and decentralized energy supply Efficient water supply and waste management Security Rigorous reduced carbon footprint of the entire city (e.g. smart buildings, transportation) Financing Competitive Livable Requirements are drastically changing from closed island solutions / single products to interlinked intelligent infrastructure solutions 5

Increasing importance of financing in city-context Europe Asia-Pacific North and South America Africa, Middle East, CIS Budget constraints at cities with concurrently essential needs for action lead to high importance of private sector finance Source: SFS Paper, Sustainable Cities, 2011

Example rail transportation Market growth worldwide divided by regions 1.7% 3.8% 2.7% 11.5 10.2 4.9% 7.2 4.7 5.7 5.5 1.6 2.3 NAFTA Western Europe Eastern Europe CIS B€ B€ B€ 2.1% 2.5% B€ 23.0 20.0 5.6% 53.5 3.1% 44.9 1.3 1.6 1.5 2.2 Rest of America Africa / Middle East Asia / Pacific World x% Market size 2007/08/09 Market size 2015/16 CAGR 2007/08/09 - 2015/16 Source: UNIFE World Rail Market Study – Status Quo and Outlook 2020

Contents 1 Cities and investment needs 2 Trends in infrastructure financing 3 Financial solutions of Siemens 4 Criteria for successful projects

Challenging financial environment Debt level of selected European states in percent of the GDP Greece Italy Portugal Ireland Spain Germany Euro area Even if infrastructure improvements usually pay for themselves over a number of years, initially all have to be financed to start with. Source: EU Commission, Autumn Prognosis 2010, effective November 2010

Significant investment gap as a consequence $20-25 trillion Public funding1) $15-20 trillion Global infrastructure investment needs until 2030 $35-40 trillion Including $7-8 trillion for transport infrastructure Funds that governments can allocate in the development of infrastructures Funds potentially required from the private sector, including equity and dept Source: BCG analysis Page 10 10

Opportunity for private sector as intermediary Positive demand outlook for Project Finance 1 Investors seeking investment opportunities 3 Opportunity for private sector as intermediary Expected to increase in particular for power/ energy and infra-structure Private equity seeking stable, inflation-linked investment opportunities Opportunity to match private equity with rising financing demand Role of government/ development banks 2 Budget constraint leading to higher need for private finance while policy objectives like climate leading to targeted support mechanisms

Financing structure for Russian State Railways (RZD) Challenge RZD wanted to modernize the existing fleet by state-of-the art vehicles to connect St. Petersburg - Moskau - Nizhny Novgorod with a project value of €318 million Russian State Railway (RZD) Passenger and freight service for national and international routes (100% state-owned) 85.500 km of track, 1.2 million employees, 1.3 billion passengers a year, 1.3 billion tons of freight per year Solution Siemens offered an attractive and innovative technical solution comprising the project planning, the delivery and 30 year maintenance of eight High Speed Trains thus enabling RZD to reduce substantially the overall life cycle costs of its fleet Long term financing for the project planning and the delivery contract by means of Euler Hermes covered and uncovered loans achieving very attractive terms and conditions for RZD Benefits Trade Finance Magazine award „Deal of the Year“ for the financing of the trains

Evaluation of European PPPs Evolution of European PPPs per annum Value of projects (in €millons) Total 253,744.9 Number of projects Total 1340 Source: European Investement Bank, Economic and Financial Report 2010/04, private Public Partnerships in Europe – Before and During the recent Financial Crisis, Kappeler/Nemoz, 2010.

Challenge: Project finance in most regions have become more difficult after the financial crisis Source: Dealogic Project Finance Review, first nine month 2011 final results, October 2011 14

Changes in the financial environment Stringent Debt/Equity ratio (from 90/10 to 70/30); margins only decreased slightly Clear focus on customer relationship / regions (bank/exporter and bank/importer) Tenors shorter / Export Credit Agency (ECA) coverage helps to achieve longer tenors (power plants 12 years repayment, renewables up to 18 years) Arranging / underwriting stopped, trend to club deals, smaller ticket sizes Substantial coordination effort on Siemens’ side to pick and align the most suitable partners Specifics of regional markets (Europe vs. US), margin differential / development more obvious Significant reduction in on-balance sheet financing of renewable energies expected

Contents 1 Cities and investment needs 2 Trends in infrastructure financing 3 Financial solutions of Siemens 4 Criteria for successful projects

Financial Services – the essence of what we do and who we are SFS is a reliable financing and risk management partner for Siemens businesses and their customers in times when financing of investments becomes increasingly important. 1 Being part of the Siemens Group, SFS differentiates itself through superior market know-how and asset expertise in Siemens' domains. 2 Offering technological product and service know-how as well as financial expertise provides an easier, more comprehensive customer interface. 3 SFS supports the Siemens growth initiatives by focusing on the same Sectors and key regions as the operating units – thereby building and enhancing customer relationships. 4

Financial Services (SFS) Under the roof of Financial Services we provide an extensive portfolio of financial solutions Financial Services (SFS) Activities Financial Solutions Entities Commercial Finance Asset Finance & Leasing Vendor Finance Supply Chain Finance Structured Finance (Debt & Equity) Project & Equity Participations Leveraged & Working Capital Finance Financial Advisory Asset-Based Lending Venture Capital Equity Investments Industrial Insurance Solutions Private Finance Solutions Asset Management Credit Warehouse Pension Management Treasury Tasks for Siemens Guarantees & Letters of Credit Trade Finance e.g. Siemens Financial Services GmbH Project and Structured Finance e.g. Siemens Financial Services Inc. Venture Capital e.g. Siemens Bank GmbH Enlarge sales financing options Investment loans Project finance loans Insurance Investment Management … Treasury

Project and Structured Finance Infrastructure & Cities and Industry PSF IC&I Americas EMEA Asia, Australia (AA) Relationship Mgmt. & Structuring (R&S) Debt Equity Risk Mgmt. (incl. Portfolio Mgmt.) Primarily serving as Sector liaison Advisory services: advise on finance topics and offer trainings If applicable, structuring of deals incl. analysis of asset to be financed and deal team mgmt. in case of SFS financing Separate role: Market screening for placement for identification of up-to-date standards and pricing Primarily originating 3rd party deals in close coordination with R&S and equity team Support of R&S in initial structuring of deals Contribution of debt related expertise incl. structuring skills, e.g. covenants, collateral, payment schedules, default probability, amendments, debt service capabilities, market standards If applicable, structuring of deals incl. analysis of asset to be financed and deal team mgmt. in case of SFS financing Primarily originating 3rd party deals in close co-ordination with R&S and debt team Support of R&S in initial structuring of deals Contribution of equity related expertise, e.g. participation, control requirements, leverage assessment, details on vehicle, dividend streams If applicable, structuring of deals incl. analysis of asset to be financed and deal team mgmt. in case of SFS financing Credit decisions along entire structuring process, incl. final approval Monitoring of existing exposures Continuous assessment of portfolio Execution of underwriting process Proactive identification of portfolio de-risking measures

Financing for Thameslink Rolling Stock Project The Department for Transport (DfT) in UK established a major bid process to procure new rolling stock including the construction and operation of maintenance depots for 20 years. On 16th June 2011 the Minister of State for Transport announced that the preferred bidder for the supply and maintenance of the new Thameslink fleet will be Siemens Plc Thameslink Rolling Stock Project Equity & Debt Financing Total project volume: more than ₤3 billion The total project will be worth more than ₤3 billion to Industry Mobility. SFS’ strong commitment to the project is reflected in their decision to invest equity, subordinated debt and provide a finance solution for the depot facilities Thameslink is an excellent example to demonstrate how SFS support could provide a unique advantage to the wider group to ensure it secures a significant contract. It shows how a financial partnership with our Sector can lead to overall success for Siemens

Contents 1 Cities and investment needs 2 Trends in infrastructure financing 3 Financial solutions of Siemens 4 Criteria for successful projects

The goal: create win-win situations that produce stable earnings for public and private partners From an unstable equilibrium… Uncertainty-filled projects, e.g., because of: Untenable access to risk sharing High bidding costs Excessively long contract terms Lack of competition …to stable earnings for the public and private sectors Project quality criteria (example: UK): Determination of service to be outsourced Risk sharing Earnings expectations Key conditions and preconditions Bankability Binding schedule Self-commitment of sponsors Statutory process Error intolerance Win-win situation +5-10%

Example 1: Criteria for successful equity investments Infrastructure projects Example 1: Criteria for successful equity investments Emphasis on financing the development, construction and operation of infrastructure projects Capital requirements of the projects range from around €100 million to more than €1 billion Mostly minority holdings of 10 to 40 percent Specialization in energy, transportation, healthcare, airports Company influence necessary (e.g. through representation in company bodies) Exit prospects within five years Insurance for country risks where possible and economically viable use of export insurance to improve risk-return profile Strict adherence to market conditions when Siemens serves as a supplier 23

Example 2: key success factors for successful Public Private Partnerships Identifiability The interfaces to the economic environment must be clearly identifiable and definable Example: power plant vs. railroad network Stable demand Due to the long service life, efficient risk sharing requires a reliable basis for long-term planning Example: energy and water supplies, mobility Low risk of substitution Similarly, the risk related to the introduction of competing solutions and technology must be limited throughout the project Example: bridges / tunnels in road construction Flexible contract design Sustainable solutions must be project focused, not based on standardized stipulations Transportation sector example: Arlanda airport rail connection Stockholm Low risk of “politicization” It must not be possible to use the project for political purposes Example: administrative prices as an election campaign tool (local public transport, energy, water, disposal)

Outlook: How to finance infrastructure projects in today’s environment Sound project economics Robust contractual and legal framework – permits and government approvals Low construction risk – including proven technology, cost and schedule control and contractor experience Low political risks, especially in emerging markets Extensive due diligence – technical, environmental, economic and legal factors Credible partners and credit-worthy counterparties – including suppliers

Questions & Answers

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Published by Siemens Financial Services GmbH Project and Structured Finance Infrastructure and Cities & Industry Johannes Schmidt Werner-von-Siemens-Str. 50 91052 Erlangen, Germany Phone +49 (0) 9131-7 37336 Fax +49 (0) 9131 7-37338 E-Mail johannes.schmidt@siemens.com Web www.siemens.com/finance