1. Electricity and Co-Generation Regulatory Authority (ECRA) Workshop on Reforming the Electricity Industry in Saudi Arabia 6 th November 2006 Prepared for

2. 2 Introduction and Speaker  HSBC Bank plc (“HSBC”) is delighted to present our thoughts at the Electricity & Co- Generation Regulatory Authority (“ECRA”) workshop, together with other leading market participants  Paul Eardley-Taylor is a Director in HSBC’s Power & Utilities team, responsible for Project Finance transactions across the Europe, Middle East and Africa region  Paul acted as Financial Adviser to Water & Electricity Company LLC (“WEC”) in respect of the successful development and tender of the 900 MW / 880,000 m 3 /d Shuaibah IWPP (Closed January 2006) and is acting as Financial Adviser to WEC in respect of the 850 MW / 212,000 m 3 /d Shuqaiq IWPP (preferred bidder status)  We will provide some summary thoughts on investors and lender expectations and requirements across a deregulating industry, noting possible incentive measures and assessing how Saudi Arabia handled its main power privatisation to date

3. Select HSBC Power Transactions Middle East Ras Abu Fontas B2 Qatar, 2006 USD 525 million Financial Adviser and Mandated Lead Arranger Shuqaiq IWPP Saudi Arabia, Ongoing C, USD 1,900 million Financial Adviser Fujairah IWPP UAE, Ongoing USD TBA million Financial Adviser Q-Power Q.S.C. Qatar, 2005 USD 695 million Mandated Lead Arranger and Joint Bookrunner Shuaibah IWPP Saudi Arabia, 2006 USD 2,500 million Financial Adviser Mandated Lead Arranger Taweelah B IWPP UAE, 2005 USD 2,500 million Financial Adviser Mandated Lead Arranger Sidi Krir IPP Egypt, 2006 USD 251 million Sole Arranger Hedge Arranger Sole International Underwriter Sole Bookrunner Al-Ezzel IPP Bahrain, 2004 USD 492 million Mandated Lead Arranger Hedging Co-ordinator

4. 4 HSBC in the Global Utility sector Source: Global Finance, June 2006 Sector Winners - Power Global Finance World's Best Investment Banks - 2006 Global Announced M&A deals - Utilities - 1 January to 30 June 2006 Adviser Source : Bloomberg, July 2006 1JP Morgan 116,987 2Lehman Brothers 116,368 3HSBC115,162 4Merrill Lynch & Co113,983 5BNP Paribas Group112,710 6Rothschild 73,957 7Goldman Sachs & Co 71,489 8Deutsche Bank AG70,838 9Morgan Stanley 69,764 10Lazard LLC 67,110 BankAmount (US$m) Global Finance – Annual Awards 2006

5. 5 It all depends on the applicable sub-sector…..  Generation — Major portfolio disposals (UK, Italy). Russia (UES) to follow in 2007. — Major plant sell-offs (UK (again), Australia, Abu Dhabi) — Standalone IPPs / IWPPs span the world (including the GCC)  Transmission & Distribution — Very rarely offered to the market (“the family silver”) (UK, Latin America) — Attractive regulated asset bases (RPI regulation). GCC Interconnector ?  Supply — Disaggregate before – post losses - re-integrating into vertical utilities  Renewables — Globally, a major growth area (principally wind generation) Unbundling the industry into its components

6. 6 It depends on the private sector risk proposition……..  Country credit rating — Investment grade threshold (major impact on IRR requirements) — IPP / utility default history in Argentina, India, Indonesia, Pakistan and UK  Relationship with the State — What do stakeholders want the deregulatory process to achieve? — Ownership, Fund Raising / Investment, Purchasing or Competition objective?  Role of incumbents post deregulation — Contrast UK / Italy with France, Germany or Ireland with Australia  Role of subsidies and competition — Subsidy of consumers (GCC) or subsidy of producers (Renewables) — Will the market rules change post investment? (UK) Merchant risk spectre From the investor perspective, key risk issues which will impact upon appetite and required returns are as follows…

7. 7 Case Study – Shuaibah IWPP Borrower: Borrower:Shuaibah Water and Electricity Company Sponsor: Sponsor:Saudi-Malaysian Consortium, PIF and Saudi Electricity Company Status: Status:Closed - January 2006 Project Cost Project Cost:US$2,500 million Project: Project:Greenfield 900 MW and 194 MIGD IWPP Shuaibah IWPP Saudi Arabia, 2006 US$ 2,500 million Financial Adviser Financial Adviser to the Awarding Authority Shuaibah IWPP Saudi Arabia, 2006 US$ 2,500 million Financial Adviser Financial Adviser to the Awarding Authority Key Features: -First IWPP in Saudi Arabia -World’s largest new-build IPP/IWPP to date (Dealogic) -20 year PWPA with the Water and Electricity Company HSBC Roles: -Financial Adviser to WEC/Government Awarding AuthorityAwards: –EMEA Power Deal of the Year 2005” (PFI) –EMEA Power & Water Deal of the Year 2005 (Euromoney)

8. 8 Shuaibah IPP – Incentives & Obligations From a high level perspective, respective obligations and incentives in the Shuaibah IWPP are as follows….  The above is one approach which the market deemed suitable to raise USD 300m of private sector Equity and USD 1.9 billion of senior debt in a “First Of A Kind” deal

9. 9 Typical Mitigants and Remedies In conclusion, typical mitigants and remedies are as follows…  Solving the Asset Value Problem — Competitive auctions (usually English auction or reverse auction)  Generation: — PPAs / PWPAs, Renewables Obligations (often backed by legislation)  T&D — Regulated Asset Base and regulatory ring fence  Supply — Usually, let the market decide (compete on customer service, branding, billing)  Role of Government — Need for clear and consistent stakeholder objectives for deregulation — Historic ownership obligation becomes a future regulatory obligation — In Saudi Arabia, likely need to continue Government support mechanisms