Sonelgaz Group Projects funding

1. AlgerianElectricity and GasCompany Sonelgaz Group Projectsfunding

2. Summary • Introduction • Strategicchoice of funding of the Sonelgaz Group • The financial arrangements used in the Sonelgaz Group  • Comparison between methods of financing • Challenges

3. 1. Introduction In order to cover financially its development programs, the Sonelgaz Group, in search of financial resources, as a consolidated entity, to enable it to ensure the development of its infrastructure has initiated a major capital raising on the banking and financial market in accordance with national regulations Moreover, as a public company involved heavily in the development area, the Sonelgaz Group, has set a goal to be a major player in the national banking and financial market. With this in mind, the Group has used various mode of financing  regarded as a lever for development. To do this, the Group Sonelgaz studied the different funding opportunities and has achieved the establishment of conventional funding arranged locally in the short,medium and long term as well as the use of the bond. The Group, since 2006, also pledged a new funding formula that is the finance project for new investments in electricity production in partnership, through  HadjretEnnous projects « SKH » wilaya de CherchellKoudietEddraouch "SKD" wilayad’ElTarf and Terga"SKT" in the wilaya of Ain ​​Temouchent

4. 2. Fundingstrategicchoice The Group Sonelgaz, and as part of the financial coverage of its investments, characterized by the mobilization of funds for development of its activities (investment capital) on one hand, and for  rural electrification programs of public gas distribution on the other hand, uses the following resources: • Bank loans • State grants (in respect of rural electrification programs and public gas distribution) • Customer participation (as regards the rural electrification programs and public gas distribution) • Self-financing The legal and regulatory framework, requires the Sonelgaz Group to raise funds on  the Algerian banking market, and this has been since 2006. Indeed, the Algerian banking and financial market is considered advantageous for the development and the financial balance of Sonelgaz Group. Conditions that are offered are financial levers of growth for the Group: • The excess liquidity found at the Algerian public banks facilitates the fund raising for the Group (level, time)

5. 2. Fundingstrategicchoice(Cont’d) • The stability of interest rates offered by the Algerian financial market and discount for  electricity generation activities , transmission and distribution of electricity and gas and, unlike loans raised from banks offering external variable rates, averaged 5.87% • The use of local currency (against Value or value) in transactions exempt the Group Sonelgaz to be exposed to currency risk. The Sonelgaz group had to undergo  between 2000 and 2006, an exchange difference arising on nearby 4.5 billion dinars It should be noted however, that arbitration in the use of resources, particularly for infrastructure projects has resulted in the deferral of some investment programs.

6. 3. Financial package usedat the Sonelgaz Group 3.1.Bank creditlines Contracted with Algerian national banks, these lines are granted to finance, as appropriate, apart of the operation and a part of the financing needs of structuring projects and the means of production of electricity, transmission of electricity  and gas, or distribution of electricity and gas and this in order for to meet local expenditures (disbursements, benefits, advances ....) or foreign currency (foreign trade)

7. 3. Financial packages usedat the Sonelgaz Group 3.2. Bonds: Financial achievements • Institutions 2004 – 2005-2006 • Large Public 2005 - 2008 87,5 Billions Dinars • - Generation: 22,8 B DZD • - Power Transmission : 42,8 B DZD • - Gas Transmission : 4,1 B DZD • - Distribution : 17,8 B DZD

8. 3. Financial package usedat the Sonelgaz Group 3.2. Bonds: Physicalrealizations • Generation • RealizationOum El Asseldiesel plant • Acquisition of 32 diesel generators- Refurbishing ofSkikda control command  • Extension of the GT plant of Illizi(2x3 MW) • Distribution • Realization of 15 000 km for electricity-Realizationof 10 000 km for gas • Electricity transmission • Strengthening the 400kV level in-Realizationof 3 links ofopticalfiber-Operationand Maintenance ofhigh voltage networks ofArzew and Skikda industrial areas • Gaz transmission • Realization of 190 DP • realization of 28 HV substations

9. 3. Financial packages usedat the Sonelgaz Group 3.3. The Finance project The Project Finance is a financing method based on the ability of a project to generate sufficient revenue to: • Cover the operating costs of the project • Allow the reimbursement of loans raised • Ensure the return on equity of investors It is mainly characterized by : • The need to create an independent legal entity, dedicated Project Company • The provision by shareholders and lenders of necessary funds  to accomplish the project. • The assurance of a continued production from the exploitation and throughout the life of the project • Allocation of revenues to operating costs, lenders and shareholders, without discretion for reinvestment • The limited involvement to shareholders

10. 3. Financial packages usedat the Sonelgaz Group 3.3.the finance Project –Design and structure Bank funding Shareholders/ Capital stock 70 % 30% Project company Bank leader * bank Pool Other Sonelgaz (*): the bank leader actsas securityagent, manager and account manager . Agreement related to accounts Funding agreement Security documents Direct agreement SP

11. conventional Finance Undertaken primarily by companies with sufficient funds Action of the Board on behalf of the shareholder in terms of monitoring Affiliation to management control (governors) Cash flow obeys the company policy The Finance Project Can beundertaken by a corporation / partnership. The necessary capital and cash flows are isolated from other activities of investors. Contractual arrangements have commitments that impose control Cash flow obeys distributed to shareholders 4. Comparaison of financingprocesses Organisation Bond loan • Undertaken primarily by companies sufficient funds • Prior authorization of the COSOB • Organizing communication campaigns for operations for the general public • Cash flow obeys the company policy

12. ConventionalFinancing Financing time Settingshort Reinvestment of fundsgenerated Finance Project Financing arrangements very long and highlystructured Relativelyhighcosts of arrangement 4. Comparaison of financingprocesses Financial Flexibility Bond • Highlystructuredfinancing arrangements • Relativelyhighcosts of arrangement • Immediateavailability of funds

13. ConventionalFinancing Debt service provided by all fund sponsors Signing a loan agreement by programme Project Finance Debt service provided by cash flowsgenerated Design of loancontractsbased on specificcharacteristics of the project 4. Comparaison of financingprocesses LoanContractual Structure Bond • Debt service provided by all fund sponsors • Establishment of an information leaflet and signedInvestment Agreement and guidance

14. 5. Challenges • The willingness of the SONELGAZ group to move continuously toward the local banking and financial market and to play a key role as a major sustainable stakeholder, which will be more confirmed by the level of trust that investors and donors will put in the Group  • Funding of projectsdesigned by public banks • Contribution to the development of national economy • Sonelgaz main actor in the financial market • Sonelgaz, main actor in the bankmarketplacewithcreditlineslines in excess of 100 billion dinars annually • Opening for the participation of corporations in the financing of investment projects • Financial Analysts multidisciplinary teams (legal, technical, financial) • Need to develop local expertise to advisors (technical, insurance, legal, finance) with organization by business / industry, and specialization in practice (construction, operation, financing ... etc.)

15. Thankyou Direction Exécutive de la Stratégie Financière et de la Consolidation Direction des Opérations Financières et Engagements 02, Boulevard KrimBelkacem - Alger Tel : 021.72.31.45 Fax : 021.72.15.61