1. Financing District Cooling Projects presented by Tim Griffiths BSc FCA MSI Executive Director, Chescor Capital 17 February 2009

2. Agenda Page of16

Economics of District Cooling

Project financing

Optimizing the project

Lenders Perspective

Arranging Debt

Bank Debt versus Bonds

Conclusions

3. Economics: comparison with alternative Page of16 Capital costs (one-off)

Redundancy

Diversity Factor

Thermal Storage

Capital Cost per ton

Distribution System

Connection

Overall

Opex costs (continuing)

Energy Usage

Water consumption

Overall

Impact on cost 4. Page of16 Attractive to Capital Intensive Capex Opex Equity Debt Strong Predictable Cash Flows Investors Lenders Typical Returns 10 15 % 15 20 % Project IRR Equity IRR Economic characteristics of district cooling 5. Project financing versus corporate financing Page of 16Corporate financing Equity investors Lenders debt Company Project assets Project financing Project assets Special Purpose Vehicle Lenders debt Equity investors Limited recourse security security Company Project assets 6. Conditions for project financing

Project cash flows must be sufficient to service debt

• interest and principal

• =>Long term financing (10 + years)

All risks to lenders must be eliminated

• Construction risk

• Market risk

• Consumption risk

• Credit risk

• Operating risks

• Inflation risk

• Other risks as applicable Refinancing, Interest rate, Exchange rate

Page of 16 7. Advantages/disadvantages of project financing

Advantages

Enables high debt to equity ratio

• Releases equity for other projects

• Maximizes shareholder value

Enables equity risk sharing in projects

• Funds (usually prohibited from giving guarantees) can invest into SPV

Avoids refinancing risk

Disadvantages

More restrictions in use of funds

Restrictive covenants (debt service cover ratios etc)

More complex documentation (risk mitigation)

Less flexible administration (most changes require lenders consent)

Page of16 8. Page of16 Consider financing at the outset 9. Optimizing phasing Page of16 10. Page of16 Lenders Perspective Customer View

Essential service

Economic advantages

Contractual Arrangements

Capacity (covers debt service)

Consumption

Connection

Tariff Structure

Build to customer demand

Modular expansion

EPC lump sum contracts

Opex predictable

Capex/Opex

Long-term (2025 yrs) contracts

Take or pay from fixed date

Creditworthy customers

Irrevocable contracts

Strong Predictable Cash Flows Inflation Linked 11. Page of16 Arranging Debt Project Activity Efficient Financing Credit Crunch Financing Construction/Capex Operations/Revenues 10 15 year debt 10 15 yeardebt 24 36 months 10 12 year debt 10 -12 year debt 20-25 years Project Timeline Cash flows predicable, but modest returns require 10+ years to repay principal Construction finance only> refinancing risk> sponsors guarantee required 12. Page of16 Arranging Debt Markets return to normal Long-term loans Reasonable rates District Coolingone of first to benefit 13. Page of16 Arranging Debt A Structured approach Prepare Information Memorandum Mandate Compare Responses & Negotiate Formal Requestfor Proposal Key factors Tenor Interest Rate Fees Responses from banks vary widely Debt markets are not efficient Comprehensive IM aids banks understanding of projects, esp. risk mitigation Cost + terms depend on -

Availability of funds to bank

Perception of risks involved

14. Page of16 Bank debt versus Bonds

District Cooling assets need long term debt either

• Bank loans, or

• Bonds/Sukuk

Banks are currently reluctant to lend long term. The solution may lie in issuing bonds to investors

Bonds/Sukuk are

• Tradable debt-type instruments

• Investors can be funds, individual investors or banks

The project financing structures described above are largely applicable to both bank debt and bonds

15. Page of16 Bank debt versus Bonds

Significant pools of liquidity, with funds and individual investors, still exist

Especially Islamic investors

Corporate bonds/sukuk are attractive to investors, and are currently being recommended by private wealth managers

District Cooling assets are particularly attractive to Islamic investors asset backed - strong cash flows - Shariah compliant

If the banks continue to have problems lending long-termthen bonds/sukuk will become the best method of financing

Liquidity may remain an issue, but many bond investors hold to maturity.

16. Conclusions

Re-establishment of infrastructure growth is important to most economies especially now

District Cooling is economically advantageous in the right conditions

District Cooling projects require long term funding

Financial System currently broken

Either

• The banks will start to lend long term,

• or

• District Cooling providers will need to go round the banks issue bonds /sukuk

Page of 16 17. Conclusions

To maximize shareholder value we need to finance district cooling projects efficiently by -

• Planning the financing as an integral part of the project

• Identifying and mitigating all project risks construction, market, credit, operational and financial (refinancing, interest rate, exchange rate)

• Ensuring appropriate contractual arrangements are in place

• Matching the capex to meet customer demand (just-in-time)

• Planning comfortable and achievable debt service ratios by -

• • Setting appropriate debt/equity ratio

• • Obtaining long term finance,

• • Sculpting repayment schedules

• Competing the banks to ensure optimal terms

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