Energy Infrastructure and New Sources of Capital

1
Energy Infrastructure andNew Sources of Capital

• Hugo Verdegaal, Managing Director
• Citi Oil Gas Banking Banking
• June 25th, 2008

Strictly Private and Confidential
2
Table of Contents
1. Emerging Market Context
2. Privatization Trends
3. Private Equity in U.S. Energy Infrastructure
4. Major Infrastructure Funds
5. Case Study BORCO
3
1. Emerging Market Context
4
Global Infrastructure Market

• Massive need for global infrastructure investment
• The OECD estimates a 53 trillion need for
  infrastructure investment through 20301
• Constitutes approximately 2.5 of world GDP
• Rising social costs are increasing the need for
  private investment
• Growth of public sector debt and deficits are
  spurring privatizations
• Increasingly greater awareness and appreciation
  of private sector contributions

Estimated Average Annual World Infrastructure
Expenditure ( in billions)
Source OECD 1 Excludes ports and airports 2
OECD countries, Russia, China, India and Brazil
only
1
5
GDP Growth in Major Emerging Markets
Source Economist Intelligence Unit.
2
6
Per Capita Energy Consumption
Source Economist Intelligence Unit
3
7
Energy Infrastructure Requirements in Emerging
Markets
4
8
2. Privatization Trends
9
Infrastructure Demand Why Private Investors Are
Piling Up
Risk mitigated by regulation/contract
Often monopolies
High Entry Barriers
High gearing capacity
Inflation hedged
Long maturity
Inelastic demand
Stable equity return
Higher return compared to similar risk profile
assets Low Correlation with other asset classes
5
10
Infrastructure Supply From Public to Private
Typical Government Dynamics
Fiscal discipline Search for efficiency Previous
underinvestment Stimulate growth
Privatization - trade sale - IPO PFI / PPP style
projects Contracting out
Infrastructure activity in the private sector
Typical Sector Dynamics
A larger proportion of infrastructure moves to
the private sector, the secondary market becomes
more efficient, and the sector develops until it
demands the full range of banking services.
6
11
Private Capital Invested in Infrastructure
2006/2007 Estimated Cumulative Investments in
Infrastructure (Transaction Value in billions)
United Utilities
Puget Energy
TXU Corp
ICA
Farac package I
Peel Holdings
Associated British Ports
PD Ports
7
12
Private Sector - Infrastructure Options for
Government
Public Private Partnerships (PPP)
Privatisation Asset Sales
Conventional Procurement

• Procurement of assets by the public sector using
  government funding

• PPP
• Umbrella term covering a variety of procurement
  initiatives
• Often Government shareholders
• Corporate or strategic reasons
• May not involve investment. May be source of
  funds for Government monetisation of assets
• PFI
• One form of PPP is PFI
• Essentially a concession / project finance where
  investment is required

• Sale of Public Sector infrastructure assets
• Statutory regulation
• Assets privately owned for fixed period or in
  perpetuity

PPP/PFIs is a method of procurement of services
that is more efficient than traditional
procurement (i.e. that delivers value for
money), while retaining government ownership of
infrastructure assets
8
13
3. Private Equity in U.S. Energy Infrastructure
14
Where Private Capital Invested in the U.S. in
2007 / 08
The surge of private capital raised for
infrastructure investments led to a number of
successful transactions in the U.S. last year.
Investments were made in Power/Energy, Ports,
Rail, Roads, Telecom Water/Waste.

• Gas TD
• Source Gas
• Arkansas Western Gas
• CNG Holdings
• Colonial Pipeline (USA)
• NGPL

Power Cogentrix Northern Star
Generation TXU Puget Energy ConEd Black
Hills

• Ports
• Carrix, Inc (US, International)
• MTC
• AmPorts (US, Latin America)
• Maher Terminals (US, Canada)

• Roads
• Northwestern Parkway
• Capital Beltway HOT Lanes
• Miami Tunnel

• Telecom
• Global Towers Communication Towers

• Water / Waste
• Synagro
• Waste Industries

• Railroads
• Florida East Coast

• Other
• UE Waterheater

9
Significant merchant generation
15
4. Major Infrastructure Funds
16
Recent Private Funds Raised Testimony to Market
Strength
A number of new private infrastructure funds
primarily managed by investment banks and private
equity groups have been announced since the
start of 2006. A shortlist below already
accounts for over 150 billion in new capital
By Banks Geography Size (USbn)
ABN AMRO Renewable energy Fund NA 0.3
ABN Australia NA 0.3-0.4
ABN AMRO Infrastructure Capital Global 1.47
Citi Infrastructure Investors Global 3.0
Credit Suisse Asia, EM 1.0
Dexia (20) / GIMV (20) Benelux 0.14
ECP MENA Fund I MENA 0.52
Franklin Templeton/ Hana Bank Korea 0.6
Global Infrastructure Partners (GE /Credit Suisse) Global 5.6
Goldman Sachs Infrastructure Partners Global 6.5
Gulf One Infrastructure Fund I GCC 2.0
HBG Infrastructure India/Pakistan 0.2
HSBC/Dubai International Capital MENA 0.5
ICICI Bank India 2.0
IDFC/Citi/Blackstone/IIFCL/3i India 2.0
ING Atlas Infrastructure Fund Europe 1.4
Ithmar, Abraaj Capital, Deutsche Bank MENA, SE Asia 2.0
Kookmin Bank/ ING Korea 1.2
Korean Emerging Infrastructure Fund (Darby Overseas / Hana Bank) South Korea 0.6
Macquarie Infrastructure Partners I and II US, Canada 4.0 and 6.0
Macquarie Korea Opportunities Fund S.Korea 0.4
Macquarie-Equity Partners Infrastructure Fund No.1 (EPIC) Global 0.1
Macquarie Telecommunications Infrastructure Global 3.0
Merrill Lynch Global 2.0
Morgan Stanley Global 3.5
NIBC European Infrastructure Fund I EU 0.5
Prudential MG Infrastructure Fund Europe 2.0
RREEF (Deutsche Bank) European Infrastructure, NA Europe, N.America 8.9
Santander Latin America 1.0
Thomas Weisel India Infrastructure Fund India 0.2
UBS/ADIC Infrastructure Fund I MENA 0.5
UBS Infrastructure Fund Global 1.5
By Banks (continued) Geography Size (USbn)
UTI India Fund India 0.5
Vietnam Infrastructure Ltd Vietnam 0.4
ZonesCorp Infra Fund (Macquarie Bank / Abu Dhabi Commercial Bank) Middle East 0.3
By Private Equity Firms Geography Size (USbn)
AIG Highstar III Global 3.5
Alinda Infrastructure Fund I US, Canada, EU 3.0
Apollo Infrastructure Global 5.0
Carlyle US/Global 1.0
Carlyle Riverstone Renewable Energy Infrastructure US/Global 1.0
Clessidra Capital Partners Europe / Italy 1.5
Conduit Capital Partners Latin Power III Latin America 0.3
EMP Global Indonesia 1.0
EOT Infrastructure Fund Scandinavia 1.4
Hastings Private Equity Fund II Australia 0.2
IDFC Private Equity Fund II India 0.4
ILFS Urban Infrastructure Fund India 1.0
ILFS/Abu Dhabi Investment Company MENA 1.0
Infracapital Partners W. Europe 2.0
Instrata Capital Kuwait Investment / Sage Capital Gulf MENA 1.0
Julius Baer Infrastructure Fund Global TBC
NGP Energy Infrastructure and Resource Partners US 1.5
Saratoga Capital Indonesia Fund Indonesia 0.5
3i Infrastructure Europe, NA, Asia 1.0
By Operators Geography Size (USbn)
Brisa Europe, US 0.7
TransUrban Infrastructure Fund Global 2.0
Source Citi estimates, Probitas Partners.()
Notes fund raising in progress.
10
17
Established Infrastructure Players
Greenfield
Construction
Growth
Growth
Seasoned Operation
Risk Premium 810
Risk Premium 68
Risk Premium 36
Risk Premium 23
Construction
Construction
Investors looking for morestable cash flows and
yield
Construction companies are willing to assume
higher risk levels
Investors who desire lower risk/more mature
assets
Scope of Opportunity/Development
11
18
Volume of Capital Increasing, Enabling Larger
Deal Sizes
New and larger direct investors
Increasing allocations to infrastructure
Volume of capital for infrastructure has
increased significantly

• Equity raised or allocations to funds for direct
  investment estimated at US330bn
• This capital is mostly targeted at developed
  markets infrastructure
• Historically dominated by Australian and Canadian
  investors
• There are strong signs of interest from European
  and Middle Eastern investors and we expect US
  interest to follow

Increasing volume of capital
More experienced investors
Single deal size capacity has increased
Fewer investors required to achieve a sale

• Single ticket capacity has increased
  substantially
• Larger names can invest over US1bn in a single
  transaction
• Reduces the number of parties required in an
  auction

12
19
Sovereign Wealth Funds A New Source of
Infrastructure Capital

• Sovereign Wealth Funds (SWFs) are big, and
  getting bigger
• As SWFs grow and multiply, more activity is
  moving to the aggressive end of the spectrum
• More direct acquisitions and strategic
  transactions
• Growing involvement in the alternative investment
  industry
• In most cases, SWFs are largely passive investors
  looking to take non-control minority stakes and
  simply earn a stable return
• Examples include the equity placements by
  Citigroup and Merrill Lynch as well as GICs
  involvement in Ferrovials bid for BAA
• Governments are weighing perceived threats of
  SWFs against potential benefits. Managing
  political risk in SWF-related transactions is key

Sovereign Wealth Funds
Country Fund Name Assets Managed (USmm) Assets Managed (USmm) Source of Funds
United Arab Emirates Abu Dhabi Investment Authority 875,000 Oil
Kuwait Kuwait Investment Authority 300,000 Oil
China China Investment Corp 200,000 FX Reserves
Singapore GIC 128,000 Non-commodity
Singapore Temasek Holdings 100,000 Non-commodity
Qatar Qatar Investment Authority 60,000 Oil and gas
13
20
5. Case Study BORCO
21
Case Study BORCO Terminal Acquired by First
Reserve
On February 2, 2008, Petroléos de Venezuela
(PDVSA) signed an agreement to sell its
wholly-owned subsidiary, Bahamas Oil Refining
Company (BORCO), to First Reserve Corporation
(FRC) for US900 mm.
Transaction Highlights
Acquisition Rationale

• BORCO is a crude and products storage terminal
  located in Freeport, Bahamas with an installed
  storage capacity of 19.7 million barrels and 3
  deep-water jetties
• First Reserve has agreed to buy 100 of BORCO for
  US900 million in cash, before any adjustments,
  to take over BORCOs operations
• First Reserve has formed a strategic partnership
  with Shell
• Shell has already agreed to a contract to occupy
  a significant portion of the storage capacity
• Vopak has reached agreement with First Reserve to
  form a strategic joint venture
• The terminal will be operated by Vopak
• Vopak will acquire a 20 interest in the
  terminal, which will be named Vopak Terminal
  Bahamas
• Deal Multiples
• Firm Value / 2008E EBITDA multiple of 19.1x
• Firm Value / Storage Barrel of US45.70
• This transaction is part of PDVSAs strategy to
  monetize its non-core international assets
• The transaction is expected to close in 1H2008
• Citi acted as exclusive strategic financial
  advisor to PDVSA in this transaction

• Strategic Geographic Location
• Within 80 miles of the Florida coastline
• One of the few deepwater marine terminals
  equipped to handle VLCCs and ULCCs that can
  service the U.S. East Coast
• Flexible Service Options
• Capability to receive, store, heat, blend and
  transfer crude oil, fuel oil, diesel, gasoline,
  jet fuel, naphtha and ballast water
• Significant Growth Opportunities
• Maximization of local, Florida and East Coast
  markets via transshipment, bunkering, and tug
  towing
• 208 acres of undeveloped land to build additional
  storage terminals
• Existing permit for development of an onsite
  refinery
• Favorable Tax and Regulatory Environment
• No income or capital gains taxes
• Freeport is a bonded area with favorable import
  regulations
• Strategic Positioning Going Forward
• First Reserve will be able to develop strong
  relationships with its clients, primarily Shell,
  as operator of the terminal

14
22
(No Transcript)