Global Infrastructutre Summit, Basel, 22 May 2014

Innovative Infrastructure FinanceGiles Dickson, VP Environmental Policies & Global

Advocacy, Alstom

© ALSTOM 2013. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

Alstom = Infrastructure

BUILDING ESSENTIAL INFRASTRUCTURE AROUND THE WORLD

© ALSTOM 2013. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

Infrastructure = minimising risk

Four types of risk in infrastructure projects

•policy / political risk

•capacity risk

•commercial risk

• technology risk

Projects happen if risk is commensurate with reward

© ALSTOM 2013. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

Sharing infrastructure project risk

• Public/ Private sector

• Private sector

• Public/ Private sector

• Public sector

Policy Capacity

CommercialTechnical

Presentation title - 01/01/2007 - P 4Allocate risks to those best placed to handle them

© ALSTOM 2013. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

PPP model

Manchester Metro Line 1

Manchester Metro Line 1

Rouen Metrobus Line 1

Rouen Metrobus Line 1

Arlanda Airport Link

Arlanda Airport Link

Barcelona LRT Ph 1 & 2

Barcelona LRT Ph 1 & 2

Jerusalem LRT Line 1Jerusalem LRT Line 1

Florence LRT Lines 2&3Florence LRT Lines 2&3

Participation soldIn operation

In construction

Milan metro Line 5 + extension

Milan metro Line 5 + extension

Reims LRT Line 1Reims LRT Line 1

Arland

a

Barcelona

Reims

PPA September 2011 - Page 5

Nottingham LRT Line 2

Nottingham LRT Line 2

Alicante-Albacete ERTMS

Alicante-Albacete ERTMS

CNM High Speed Line

CNM High Speed Line

© ALSTOM 2013. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

PPP: Barcelona Trambaix Light Rail

• €300m• 28 years• private finance: 50 %• traffic risk for operator

− 15km line − 19 trams− civil works− power supply− signalling− engineering− operation & maintenance

Contract: November 2000Revenue: from April 2004

© ALSTOM 2013. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

Nimes Montpellier high-speed rail bypass

• €1.763bn• 25 years• Private finance: 66%

- 80km - civil works- track- electrification- signalling and telecoms

no traffic risk availability payments on

performance financial close in less than 4 months

Contract signed: June 2012Revenue: from October 2017

© ALSTOM 2013. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

Benefits of PPP model

• Simple: single contract

• Clear incentives for private entity to deliver

• Volume: more projects in shorter time

• Effective risk-sharing

• Saves time and money

© ALSTOM 2013. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

Limits to PPP model

• works well for public service out-sourcing, e.g. in transport, but ….

−long-term and inflexible contracts

−doesn’t make project more profitable

−public debt (consolidation)

−needs to be carefully structured

−costly tendering process

© ALSTOM 2013. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

Financial instruments to help share and contain risk to help contain risk instruments to help contain risks

Technology subsidies

Insurance Mechanisms

Loan guarantees

Credit enhancement

Public-Private funds

Presentation title - 01/01/2007 - P 10

Risk containment

© ALSTOM 2013. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

No one size fits all ….

Need to distinguish between:

• finance for new and re-financing for existing projects

• green field and brown field projects

• needs of different sectors: −roads −rail−telecoms−water −power generation −power transmission & distribution −airports −hospitals / schools

• developed, emerging and developing economies

© ALSTOM 2013. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

Getting public policies right: the basics

Government needs to offset the worst downside risks:

−policy or regulatory change

−inconsistency of regulation or enforcement

−nationalization, confiscation or expropriation of assets

Mismatch between long-term nature of investment and short-term policy and regulation

© ALSTOM 2013. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

Reducing political risk

Governments can reduce political risk by:

−long-term, predictable policy frameworks

−transparent planning and execution

−regulating in support of commercial activity

−regional co-ordination of policy and regulation

© ALSTOM 2013. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

Reducing capacity risk

Need to reduce capacity risk of investing in developing countries:

−Planning and co-ordination

−Policy / legal frameworks

−Physical / industrial capacity

−Financial services

© ALSTOM 2013. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

Helping projects access finance

Need to enhance projects’ credit-worthiness

• Subordinated debt

• Project bonds

• Concessional long-term debt financing

• Loan guarantees

© ALSTOM 2013. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

Reducing commercial risk

Need to support profitability of investmentsChallenge: • High up-front capital costs• Investors’ sensitivity to commercial returns • Need to revenues / cash flowResponses:• Ensure effective consumer markets, e.g. in power• Advance market commitments• Feed-in tariffs• Price guarantees• CO2 pricing for low-carbon projects

© ALSTOM 2013. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

Alstom PEF Semi-annual Report, April-September 2012

Case study: Caracas metro

VENEZUELA: Metro LOS TEQUES 2

• Contract value: €327m

• COFACE-covered French export credit funded by BNPP (lead bank), CACIB, DEUTSCHE BANK, NATIXIS, SG, UNICREDIT, CIC

• French Finance Ministry approved €667m COFACE cover

• Brazilian (BNDES) and Chinese (FONDEN) financing for the balance of the project costs

© ALSTOM 2013. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

ETHIOPIA: ASHEGODA Wind Farm (120MW) and Transmission Upgrades

• Client: Ethiopian Electric and Power Corporation (EEPCo)

• Contract value: €100m+

• Concessional loans issued by AFD

• Commercial bank loans partially guaranteed by Coface

Case study: Ashegoda wind farm, Ethiopia

Alstom PEF Semi-annual Report, April-September 2012

© ALSTOM 2013. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

UAE: DUBAI Al SUFOUH TRAM

• Client: Rail Transportation Authority

• Contract value: €385m

• Type of financing: COFACE-covered French export credit funded by HSBC (lead bank), CITI, DEUTSCHE BANK

• Project costs 100% debt financed : ONDD export credit for BESIX’s scope funded by DEUTSCHE BANK, plus IJARAH Islamic loan from AL HILAL BANK

Alstom PEF Semi-annual Report, April-September 2012

Case Study: Dubai tram

© ALSTOM 2013. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

Case Study: Vietnam hydro project

LAI CHAU Hydro

• $127m

• SINOSURE export credit

• Lenders: BNPP, CDB, BOC & CHINA EXIM

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© ALSTOM 2013. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

Project Financing Structure

(Special Purpose Vehicle)

© ALSTOM 2013. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

Public interventions to contain risk

• Green banks: to fill gaps in investment that commercial lenders cannot serve

• Green bonds: structured with appropriate ratings to allow institutional investors to provide greater debt financing

• Public Private Partnerships: apply public finance to the riskier part of the financing structure, to leverage private finance

• Insurance mechanisms for policy/political risk

• Credit enhancement at the mezzanine debt level

• Loan guarantee programs

• Underwriting of PPA agreementsPresentation title - 01/01/2007 - P 23

© ALSTOM 2013. All rights reserved. Information contained in this document is indicative only. No representation or warranty is given or should be relied on that it is complete or correct or will apply to any particular project. This will depend on the technical and commercial circumstances. It is provided without liability and is subject to change without notice. Reproduction, use or disclosure to third parties, without express written authority, is strictly prohibited.

Risks/Challenges for Lenders/Developers

• Banks face effects of recession and capital ratio regulation

• Pension and institutional investors lack expertise in the area, and can only invest in top rated securities

• Private equity funds may be unwilling to take project development risk, or face issues of scale

• Infrastructure funds face operation and construction risks and may be unclear on appropriate business models for some projects

• Utilities face increased competition, falling demand and weakened balance sheets

Presentation title - 01/01/2007 - P 24