Langogan 6.8 MW run of the river hydro

Palawan, Philippines

The Proposition

To develop a portfolio of at least 50MW of small hydro in the Philippines within the next 5 years. To list the portfolio once established.

Justification;

Experienced and competent team

Welcoming investment environment for renewables in the Philippines

Proven technology

Risks analysis done and mitigation underway

Socio ecoomic development factored into the project implementation;Langogan is the first project

The teamNegotiations

Stakeholder relationshipsCommercial/legal

E&P and Gas and PowerProject controls/management

Investment appraisal

HydrologyCommunity consultationAgricultural engineering

Economics and modellingReporting

Development work

Land and hydrological SurveyingContracting and procurement

Project managementCommercial/legal

Construction management

Design engineeringCivil/electrical and controls

Project managementHSE

Management processes

Corporate law/company secretarial

Energy lawBanking

NegotiationsInvestment appraisal

Project managementCivil engineering

Estimating and cost controlContracting and procurement

Construction management

Corporate financeBanking

AccountingCommerce

Investment appraisal

60 years experience energy project developmentinc remote locations

in depth hydrology and engineering expertise

in depth knowledge of Philippines energy sector

10 years energy project investment appraisal

12 years energy project NGO work

Ex Shell, BP, Baker + McKenzie

the philippines power sector

7,000 islands, 92 Mln population [ 50 Mln Luzon, 18 Mln Visayas, 24 Mln Mindanao]

National Power Corporation, Luzon Grid

Power crisis, early 1990’s

Dependable capacity 13,205 MW [ 10,028 Luzon, 1,494 Visayas, 1,682 Mindanao]

Most expensive power in the World [affordability basis]

IMF recommendation led to EPIRA [2001]

Privatisation efforts ongoing since then, slow take up and mainly big power

Renewable Energy Act [2007]

Inadequate power development infrastructure

portfolio establishment & development plan

200920102011 20122013 2014

Langogan

Batang Batang

Liangan

Odiongan 2&3

Pasil

Langogan 6.8mw hydro - project setting

Opportunity studied by NPC [with halcrow + kennedy + donkin] 1992by PNOC [with Soluziona Energia] 2007, promoters 2007/8

Palawan population, 700,000Base load 10MW, Peak 21.7 MWERC approved tariff 5.6404Php [0.1175 US Cents]/kWhCurrently 100% diesel/bunker powered on short term contractsFrequent power outages [10 incidents/month ave x 1.16 hrs/incident]An environmentally sensitive areaA ‘backbone grid’

Real cost of generation - Php 17.58 [0.3662 US cents]/ kWhGeneration charge to consumers - Php 5.5501 [0.1156 US Cents]/kWhElectricity charge to consumers - Php 8.023 [ 0.16715 US cents]/kWh

Langogan 6.8MW hydro project – (pre) development history

1992 – NPC, feasibility study with Sir W Halcrow + Kennedy and Donkin [World Bank]Strong community resistance

2006/2007 – PNOC feasibility study with Soluziona Energia [Spanish Government]8 hour peaking assumption [= marginal economics]

2007 – promoters invited by NPC to “have another look”-screening/market assessment, review of previous NPC fs, screening economics-sourcing pre development funding-gaining LGU support-commencement of flow measurement + EIA-access survey/geotechnical review/design concept validation-further community consultation-cost estimate, further economics-PCSD application-water rights application-FEED-financing, CDM application-power sales agreement discussions -development and operating contract application

Dec 2008 - RE Act signed

Langogan 6.8MW hydro project – project metrics

CAPEX US$20mlnEquity (25%) US$5mlnInvestment-to-Date US$2mln

Time FID to Commercial operation 2 yearsGeneration charge Php 5.6404 [$0.1175]/kWhAnnual generation 31.7GWhPercentage of Palawan demand 24%NPV7 (After tax, 25 yrs) US$ 17.6 MlnIRR [E] 20.7%Revenues US$ 3.725/a escalating

Economics main assumptions;

25 year life, no residual valueEscalated in accordance with ERC approved formulaBase load facility - all power sold [RE Act]Debt Equity ratio 75/25OPEX US$ 1.288/a( escalated at 5.3%)

Philippines investment environment

Bishop: "I'm afraid you've got a bad egg, Mr Jones"; Curate: "Oh, no, my Lord, I assure you that parts of it are excellent!""True Humility" by George du Maurier, originally published in Punch, 1895.

A ‘curate’s egg’

PIATCO NAIA 3CorruptionVested interestsFeudalismNationalismPeace and order

SC38 MalampayaKorean investmentElectricity marketEducated experienced workforceRenewable Energy ActEPIRA

Korean investment: $1.2B of the $3.5B foreign investments in 2006 ( from the Phil chamber of commerce website)

langogan 6.8MW hydro project – pre development approach

initial permits and approvals gainedoutline scheme designapproval of sales terms

FID[final investment decision]

front end engineering designEPC contractingfinancing in placeall approvals gainedESA ready to sign

initial screening and evaluationestablish flow measuring

market assessmentfurther screening and economicsapplication for permits and approvalshydrology studies

scheme concept design

challenges & risks to be managedChallenges

[incidental] Philippines beauracracy

timing

lack of exclusivity

perceptions of the business culture in the Philippines

raising money

local EPC capacity

Risks to be managedCAPEX

Payments

way forward

complete Langogan FID requirements and build the facility within 20 months

accelerate pre development activities on 2.5MW Batang Batang

commence pre development activities on Mindanao opportunities

target 50MW in Philippines commercial operation by 2014

own and operate the portfolio

review other Philippines opportunities if introduced

step out to IndoChina