AES EMEA Generation Business Review AES CORPORATION · AES Goals AES 2008 Target AES EMEA...

AES CORPORATION

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AES CORPORATIONAES EMEA Generation Business Review

John McLarenVice President

March 22, 2006

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AES EMEA Generation Strategic OverviewContains Forward Looking Statements

Financial Goals

Revenue Growth

Gross Margin Growth

Earnings Per Share Growth

ROIC Improvement*

Cash Flow Growth

Subsidiary Distributions*

Restructuring Opportunities

Growth Goals

Platform Expansion

Greenfield Investment

Privatization/M&A

AES Goals AES 2008 Target AES EMEA Generation Role

--

$3.5 Billion

13-19% per Year

11%

--

--

--

--

--

--

Above Average

Above Average

Below Average

Above Average

Average

New Project Contributions

Project Refinancing

Significant Opportunities

Significant Opportunities

Near-term Potential

* Non-GAAP financial measure. See Appendix.

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Europe Generation Market Characteristics

EU dominated by large regionally focused integrated players

Generators typically sell into power pools or bilateral contracts

EU legislation targets liberalization, competition, renewables and environmental improvements

EU Emissions Trading commenced in 2005 as a precursor to Kyoto

Emissions reduction targets largely born by power generators

EU Generally

8GW of installed capacity

Dual market system

80% of power comes from PPA contracted generators

Power pool system has begun for uncontracted electricity

Privatization of the off-taker MVM underway

Reserve margin around 15%

Net 12% electricity imported

570MW of coal-fired electricity was retired from 2003- 2005

Forecasted 3.7% per year GDP growth through 2010

Joined EU in May 2004

Hungary UK Spain


Fully liberalized market with low barriers to entry

Low reserve margin around 15%

Northern Ireland primarily based on PPA contracted generation

Northern Ireland market merging with the Rep of Ireland

GDP growth forecasted at 2.4% per year through 2010

UK targets 10% of generation to come from renewables by 2010


Fully liberalized market dominated by indigenous players

Based on power pool system; bilateral contracts allowed

Reserve margin over 30%

Target 12% of generation to come from renewables by 2010

GDP growth forecasted at 3% per year through 2010

Data from AES EMEA Generation.

Contains Forward Looking Statements

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Europe Generation Market Characteristics


Fully liberalized sector

Next exporter of electricity (16.1%)

Dominated by a few integrated players

Generation primarily gas-fired

Electricity demand slow in recent years

Reserve margin above 17%

1.9% per year GDP growth expected through 2010

Netherlands


Dominated by government controlled utility CEZ – 68% of generation

Large power exporter

Electricity consumers to choose their supplier by 2006

61% of power is coal fired

Reserve margin over 35%

4% per year GDP growth expected through 2010

Joined EU in May 2004

Czech Rep Bulgaria


Focused on rehabilitating generation

Of 9,762 MW, 77% was available to meet peak demand in 2004

Privatization plan underway

Liberalization targeted for 2007

PPAs will be grandfathered

Scheduled to join the EU in 2007

EU Directives incorporated into 2003 Energy Law

4% per year GDP growth expected through 2010



www.aes.com

% Dependable Reserve Margin

81.4

61.0

UK 15%

Spain 33%

74.2

38.2

Netherlands17%

22.415.6

Czech Republic 41%18.0

14.3

Hungary 13%

8.26.4

Peak Demand (GW)Installed Capacity (GW)

Dependable Reserve Margin in 2004

5.9

Ireland

4.5

15%

Source: Cambridge Energy Research Associates.

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Reserve Margin—EU Weighted Average

Planning Reserve Margin 15%

0%

5%

10%

15%

20%

25%

30%

35%

1995 2000 2005 2010

Percent

0

200

400

600

800

Gigawatt

Dependable CapacityTotal PeakWeighted Average Reserve Margin


Source: Cambridge Energy Research Associates, UCTE.Note: non-coincidental peak.Reserve Margin is (Dependable Capacity minus Peak Demand) divided by Peak Demand.Chart includes plants under construction from 2005 on but for wind and planned retirements.

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Capacity Additions—EU

0

10

20

30

40

50

60

70

80

90

100

1980 1985 1990 1995 2000 2005 2010

Nuclear HydroCoal Natural GasOil WindOther Needed Capacity

History Pipeline

Equilibrium Need


Gigawatt

Source: Cambridge Energy Research Associates, Platts.

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Middle East and Africa Generation Market Characteristics


Maximum Load is 3GW

Demand exceeds firm supply by 69%

Ebute provides 8% of generation

Government owns the transmission, distribution and 81% of generation

Privatization of generation and distribution planned for 2006

GDP growth expected to be 5% per year through 2010

Nigeria


AES provides 16% of the nation’s electricity capacity and 20% of its water

Generation based on long-term PPAs

Government manages the power sector

Privatization plans underway

Annual growth in peak demand around 5%

GDP growth expected to be 3% per year through 2010

Oman Qatar


State owns transmission and distribution and contracts with generators through long-term PPAs

AES first IPP in the country

100% gas-fired generation

Annual growth in peak demand 6%

GDP growth to be 8% per year through 2015


Demand exceeds firm supply by 3%

Generation, transmission, and distribution is undertaken by two vertically integrated utilities: WAPDA (state owned) and KESC (newly privatized)

The State owns 70% of Pakistan’s installed capacity

Privatization of generation and distribution is planned

IPPs based on long-term PPAs

Pakistan



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AES EMEA Generation Financial Overview

(US$ Million)Nine Months

Ending September 30,

20052004

$957

$372

$226

$129

2003

$771

$306

(1)$162

$202

$746

$302

$194

$121

Revenue

Gross Margin

Income Before Tax &Minority Interest

Distributions to AES Corporation

Note: Information is presented on an AES basis and is unaudited. Certain intercompany transactions may not be eliminated. (1) Excludes any impact of the partial sale of Barka and Pakistan.

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AES Europe Generation

Coal

Natural GasOilBiomass

Indian Queens, UK140MW100% AES Owned

Maritza (UC), Bulgaria670MW100% AES Owned

Tisza II, Hungary900MW100% AES Owned

Tiszapalkonya, Hungary116MW100% AES Owned

Tisza II, Hungary900MW100% AES Owned

Elsta, Netherlands630MW50% AES Owned

Kilroot, NI UK520MW97% AES Owned

Tiszapalkonya, Hungary116MW100% AES Owned

Kilroot, NI UK520MW97% AES Owned

Cartagena (UC), Spain1,200MW71% AES Owned

Bohemia, Czech Republic50MW100% AES Owned

Borsod, Hungary96MW100% AES Owned

OilGas CoalBiomass

UC – under construction

10www.aes.com

AES Africa and Middle East Generation

Natural GasOil

Ebute, Nigeria305MW95% AES Owned

Pak Gen, Pakistan365MW55% AES Owned

Ras Laffan, Qatar756MW55% AES Owned

Lal Pir, Pakistan362MW55% AES Owned

Barka, Oman456MW35% AES Owned

OilGas

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AES EMEA Generation Portfolio – Diverse Geography and Impacts of New Capacity

Balanced Revenues(% of Total)

Impact on Revenue Growth from Capacity Additions (MW)

0

200

400600

800

1,000

1,200

2003 2004 2005

Existing Additions

Europe48%

Middle East46%

Africa6%

Positive future contribution from Cartagena in 2006/07 and Maritza in 2009/10

Data as of September 30, 2005

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AES EMEA Generation Portfolio Largely Contracted with Fuel Pass Through

Portfolio Primarily Contract Generation

88%

12%

Fuel Pass Through Fuel Margin Risk

Fuel Risk as % of Capacity

0%

20%

40%

60%

80%

100%

2003 2004 2005

Contract Generation Competitive Supply

Data as of September 30, 2005

13www.aes.com

EMEA Generation KPIs

Key Performance Indicator (KPI)

Lost time accidents (LTAs)Days since last LTANear-miss reporting

Safety Excellence

Equivalent availability factor Equivalent forced outage rate (EFOR)Non-fuel O&M costs

Operational Excellence

SOx emissions NOx emissionsOpacity CO2 emissions

Environmental Excellence

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Implementing KPIs in EMEA Generation

Safety, protecting the environment and operational excellence are the prime focus of the KPIs within the EMEA group.

Safety

Implementation of a Safety Management SystemRegular Safety AuditsOnline Safety SystemSafety Task ForceSafety Walkdowns

Environment

Regular Environmental AuditsStandardized auditing protocols based on ISO 14001Online Environmental SystemEnvironmental Task Force

Operational Excellence

Best practice implementation initiativeHeat Rate Task ForceGlobal sourcingStrategic Asset Risk ReviewsPeer to peer reviews

15www.aes.com

EMEA Generation Safety Performance

Safety Statistics

All plants have more than a year without an AES LTA

Three plants have more than seven years without an AES LTA

1,461 near misses reported in 2005

Lost Time Accidents

2003 2004 2005

20042003 2005

36

0

Getting Better

EMEA Generation’s top priority is safety in the workplace as demonstrated by the significant safety performance improvements over the last three years.

16www.aes.com

EMEA Generation Environmental Performance

SOx Emissions Dust Emissions

70% Improvement 85% Improvement

Getting BetterGetting Better

200420032002 2005

10259

120196

200420032002 2005

7.76.48.6

1.3

Favorable trends through a strategy of pursuing alternate fuelsand plant improvements.

17www.aes.com

EMEA Generation Operational Excellence

EAF EFOR

2.3% Improvement 2.8% Improvement

20042003 2005

5.2%3.2%

6.0% Getting Better

20042003 2005

86.0%92.3%

90.0%

The drive to operational excellence is key to the success of the plants.

18www.aes.com

Ebute Performance Improvement

Performance Initiatives

Hot Gas Path managementStaff training and performanceLTSA management

Plant Challenges

Nine barge mounted Frame 6 CTsUnknown maintenance historyPoor availability of technical supportPoor local infrastructure

EFOR

T &D Reliability39% Improvement in SAIFI

14.3 9.6

32

2003 2004 200520042003 2005

14.3%32.0%

9.6%

22.4% Improvement

Getting Better

Ebute has significantly improved its availability while working in a difficult environment but real benefits are still to be gained.

19www.aes.com

Platform Expansion Opportunities

Construction of a 400MW CCGTNew PPA being negotiated with WAPDALal Pir Pakistan

400MW CCGT A tolling agreement to be negotiatedTiszapalkonya Hungary

400MW CCGT Negotiate a tolling agreementKilroot N. Ireland

Creation of a strategic oil reserve Negotiations in progress with a European Govt.Cloghan Point N. Ireland

Installation of an additional 65 - 115MWNegotiations in progress with the PHCNEbute Nigeria


20www.aes.com

Platform Extension - Kilroot Biomass TrialsContains Forward Looking Statements

Biomass is now being co-fired at the Kilroot power station in Northern IrelandIn burning biomass the business is able to generate a revenue stream through its generation of ‘renewables credits’In addition, the energy produced does not require the allocation of CO2 allowancesWith a minimal capital investment from AES, the station can now burn up to 6% biomass by volumeThis initiative is expected to contribute positively from 2006The business is exploring the possibility of increasing its biomass % consumption by burning palm oil

Fast Growing Coppice For Biomass Production

21www.aes.com

Greenfield Example: BulgariaContains Forward Looking Statements

670MW lignite-fired power plant$1.4 billion project cost15 year contract with NEK (national utility)15 year lignite supply agreement minimizes energy supply risksLetter of government support€790 million non-recourse financing closed in December with commercial and multilateral banksCompleting site acquisition and permittingTarget early 2006 start of construction$300 million+ new revenues expected by 2010

Proposed AES Maritza Plant, Bulgaria(artist rendition)

22www.aes.com

Greenfield Example: CartagenaContains Forward Looking Statements

1,200MW gas-fired CCGT power plant$860 million project cost21 year contract with Gaz de France International (GDFi) for fuel and the purchase of powerFuel and electricity off-take contracts insulate AES from market risksGDFi to provide fuel through LNG terminal 1.5 km awayNon-recourse commercial financing closed and construction began in November 2003Construction contractor delays have pushed back start-up dateCommissioning planned for Q3 2006$130 million+ revenues expected annually beginning late 2006

AES Cartagena Power PlantCartagena, Spain

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Appendix - Assumptions

Forecasted financial information is based on certain material assumptions. Such assumptions include, but are not limited to: 1) no unforeseen external events such as wars, depressions, or economic or political disruptions occur; 2 ) businesses continue to operate in a manner consistent with or better than prior operating performance, including achievement of planned productivity improvements including benefits of global sourcing, and in accordance with the provisions of their relevant contracts or concessions; 3) new business opportunities are available to AES in sufficient quantity so that AES can capture its historical market share; 4) no major disruptions or discontinuities occur in GDP, foreign exchange rates, inflation or interest rates during the forecast period; 5) negative factors do not combine to create highly negative low-probability business situations; 6) business-specific risks as described in the Company’s SEC filings do not occur.

In addition, benefits from global sourcing include avoided costs, reduction in capital project costs versus budgetary estimates, and projected savings based on assumed spend volume which may or may not actually be achieved. These benefits will not be fully reflected in the Company’s consolidated financial results.

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Appendix - DefinitionsFree Cash Flow - Net cash from operating activities less maintenance capital expenditures. Maintenance capital expenditures reflect property additions less growth capital expenditures.Lost Time Accident (LTA) - An incident in which the injured person is kept away from work beyond the day of the incident.Near Miss - An incident that occurred but did not result in any injury. In AES, we have expanded this to include unsafe conditions that have been observed.O&M - Operation and maintenance.Reliability Centered Maintenance (RCM) - An integrated maintenance methodology that optimizes among reactive, interval-based, condition-based, and proactive maintenance practices to take advantage of their respective strengths in order to maximize facility and equipment reliability while minimizing life-cycle costs. Return on invested capital (ROIC) - Defined as net operating profit after tax (NOPAT) divided by average capital. NOPAT is defined as income before tax and minority expense plus interest expense less income taxes less tax benefit on interest expense at effective tax rate. Average capital is defined as the average of beginning and ending total debt plus minority interest plus stockholders’ equity less debt service reserves and other restricted deposits.System Average Interruption Duration Index (SAIDI) - A measure of the cumulative duration of electric service forced and sustained interruptions experienced by customers each year, excluding “force majeure” events. SAIDI is calculated as the total number of customer minutes of sustained interruption divided by the number of customers served.System Average Interruption Frequency Index (SAIFI) - A measure of the number of outages per customer per year. SAIFI is calculated by dividing the total number of customer-sustained interruptions by the number of customers served.

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Appendix – Reconciliation of Subsidiary Distributions(US$ Millions) Nine Months

EndedSep. 30,

2005

Quarter EndedYear EndedDecember 31,

$1905

195

2

--

2

197

(5)

$192

Mar. 31,2005

$170--

170

37

13

50

220

(13)

$207

Jun. 30,2005

$274

$274

Sep. 30,2005

$1,00846

1,054

242

0

242

1,296

(46)

$1,250

2003

$99113

1,004

116

11

127

1,131

(24)

$1,107

2004

Subsidiary distributions to parentNet distributions to/(from) QHCsTotal subsidiary distributions

Returns of capital distributions to parent

Net returns of capital distributions to/(from) QHCs

Total returns of capital distributions

Combined distributions & returns of capital received

Less: combined net distributions & returns of capital to/(from) QHCs

Total subsidiary distributions & returns of capital to parent

--274

--

--

--

274

--

$6345

639

39

13

52

691

(18)

$673

Note: On the regional financial slides included subsequently in this presentation series, subsidiary distributions to parent, which exclude returns of capital and project financing proceeds, have been referred to as “Distributions to AES Corporation.”

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