1 1 ROMANIAN ENERGY SECTOR April 2006 Ioan Codrut SERES Minister.

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ROMANIAN ENERGY SECTORROMANIAN ENERGY SECTOR

April 2006 April 2006

Ioan Codrut SERES Ioan Codrut SERES MinisterMinister

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THE OBJECTIVES AND PRIORITIESTHE OBJECTIVES AND PRIORITIESFOR THE DEVELOPMENT OF ROMANIA’S ENERGY SECTOR FOR THE DEVELOPMENT OF ROMANIA’S ENERGY SECTOR

The main priorities are:The main priorities are:

• To preserve the national sovereignty over the primary energy resources and of the To preserve the national sovereignty over the primary energy resources and of the national policies in the energy sector;national policies in the energy sector;

• To maintain the dependency for imported primary energy resources at an acceptable To maintain the dependency for imported primary energy resources at an acceptable level and to diversify the import resources;level and to diversify the import resources;

• To support the development of competitive electricity, natural gas and energy markets;To support the development of competitive electricity, natural gas and energy markets;• To decrease the negative environmental pressure generated by the energy sector;To decrease the negative environmental pressure generated by the energy sector;• To improve the energy efficiency on the entire resources, production, transport, To improve the energy efficiency on the entire resources, production, transport,

distribution and consumption chain;distribution and consumption chain;• To support the production of energy based on renewable resources;To support the production of energy based on renewable resources;• To attract strategic investors for sustaining the restructuring and privatization of the energy To attract strategic investors for sustaining the restructuring and privatization of the energy

sector.sector.

The general aim of the energy sector is to meet the demand for energy consumption at the The general aim of the energy sector is to meet the demand for energy consumption at the lowest price possible, suited for a modern market economy and for a high life standard under lowest price possible, suited for a modern market economy and for a high life standard under the requirements of the quality, safety of supply and sustainable development principles.the requirements of the quality, safety of supply and sustainable development principles.

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NECESSARY MEASURESNECESSARY MEASURESTO ATTAIN THE PROPOSED OBJECTIVESTO ATTAIN THE PROPOSED OBJECTIVES

• To improve the energy efficiency on the entire production-transport-distribution-final To improve the energy efficiency on the entire production-transport-distribution-final consumption chain in order to achieve a reduction of the annual energy intensity by 2,5-3% consumption chain in order to achieve a reduction of the annual energy intensity by 2,5-3% during 2005-2008 in comparison with 2001;during 2005-2008 in comparison with 2001;

• To continue the development of regulatory framework regarding the natural monopole To continue the development of regulatory framework regarding the natural monopole activities on the basis of transparency, non-discriminatory and impartial principles by activities on the basis of transparency, non-discriminatory and impartial principles by independent regulatory authorities;independent regulatory authorities;

• To maintain the safety of the energy sector through investments in new technologies and To maintain the safety of the energy sector through investments in new technologies and the fulfillment of the environmental protection directives;the fulfillment of the environmental protection directives;

• The transformation of the state owned companies in the energy sector in order to be The transformation of the state owned companies in the energy sector in order to be important contributors to the state budget and not beneficiaries contrary to the present important contributors to the state budget and not beneficiaries contrary to the present situation;situation;

• To ensure the supportability of the electricity, heating and natural gas prices for the To ensure the supportability of the electricity, heating and natural gas prices for the consumers;consumers;

• To support the research and development activities in particular for the development of the To support the research and development activities in particular for the development of the technologies aimed at capitalizing the internal primary energy resources including the technologies aimed at capitalizing the internal primary energy resources including the renewable energy sources.renewable energy sources.

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MAIN PROJECTS FOR ENERGY SECTORMAIN PROJECTS FOR ENERGY SECTOR

• The accomplishment of Nabucco Project (natural gas transit from Caspian Sea area to The accomplishment of Nabucco Project (natural gas transit from Caspian Sea area to Western Europe, via Romania)Western Europe, via Romania)

• Interconnection of natural gas network with:Interconnection of natural gas network with:- the Hungarian system in Arad - Szeghed area- the Hungarian system in Arad - Szeghed area- the Ukrainian system in Siret - Cernauti area- the Ukrainian system in Siret - Cernauti area- the Bulgarian system in Giurgiu - Ruse area- the Bulgarian system in Giurgiu - Ruse area

• The PEOP project (crude pipeline Constanta – Trieste)The PEOP project (crude pipeline Constanta – Trieste)

• Continuing the civil nuclear program in order to finalize Unit no. 2 (in 2007) and Unit no. 3 Continuing the civil nuclear program in order to finalize Unit no. 2 (in 2007) and Unit no. 3 (after 2011) of Cernavoda Nuclear Power plant(after 2011) of Cernavoda Nuclear Power plant

• Realization of new hydropower capacities and rehabilitation of existing onesRealization of new hydropower capacities and rehabilitation of existing ones

• Realization of Tarnita – Lapustesti pumping stationRealization of Tarnita – Lapustesti pumping station

• Continuing the rehabilitation of electric energy network and increasing the number of Continuing the rehabilitation of electric energy network and increasing the number of interconnections with the EU countries in Black Sea areainterconnections with the EU countries in Black Sea area

• Participation to the regional energy market implementation, in order to be integrated in the Participation to the regional energy market implementation, in order to be integrated in the European Union marketEuropean Union market

• Supporting the establishment of the regional electric energy stock-exchange in BucharestSupporting the establishment of the regional electric energy stock-exchange in Bucharest

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THE SOCIAL IMPACTTHE SOCIAL IMPACTOF ROMANIAN ENERGY POLICYOF ROMANIAN ENERGY POLICY

• Maintaining the electric energy and natural gas prices on a supportable level for population Maintaining the electric energy and natural gas prices on a supportable level for population and companies, by:and companies, by:

- Consolidation the competitive energy market- Consolidation the competitive energy market- Interconnection with the electric energy and natural gas regional markets- Interconnection with the electric energy and natural gas regional markets- Improvement of price and tariff systems.- Improvement of price and tariff systems.

• Reducing the energy price for population and companies by increasing the energy-Reducing the energy price for population and companies by increasing the energy-efficiency, diminishing of specific consumption and using new and advanced technologies efficiency, diminishing of specific consumption and using new and advanced technologies in energy sectorin energy sector

• Increasing the safety of energy supplyIncreasing the safety of energy supply

• Transition to a direct social protection system for low income population by replacing the Transition to a direct social protection system for low income population by replacing the social tariff for electric energy and the subsidy for thermo energy with social assistance social tariff for electric energy and the subsidy for thermo energy with social assistance only for vulnerable consumer categoriesonly for vulnerable consumer categories

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REGIONAL ELECTRICITY MARKETREGIONAL ELECTRICITY MARKET

Significant benefits in considering investments on a regional basis in South East of Europe (SEE);

Regional Electricity Market needs the transmission investments to support the transfer of electricity between jurisdictions providing additional benefits from trading perspective;

Regional studies have provided a number of least cost investment plans, providing an indication of the potential generation and transmission options;

Among the most attractive plant from a regional perspective are new Cernavoda NPP units (Romania) and the development of Belene NPP (Bulgaria).

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STATUS OF NUCLEAR POWER IN ROMANIASTATUS OF NUCLEAR POWER IN ROMANIA

The Ministry of Economy and Commerce is responsible for the national strategy in the energy field, including NPP projects implementation and operation;

Nuclear power in Romania, based on Western safe technology, represents today 10% of the electricity production, with excellent safety and economical performances at Cernavoda NPP – Unit 1;

Based on the long-term commitment to nuclear power of the Romanian Government, the commercial operation of Cernavoda Unit 2 NPP is scheduled for the mid of 2007;

With two units in operation at Cernavoda NPP in 2007, the nuclear power shall generate around 18% of Romania gross electricity production.

Cernavoda NPP will have an important role in Romania for energy security, sustainability and improved environmental protection.

Positive public and local authorities perception of the nuclear energy.

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FUTURE OF NUCLEAR POWERFUTURE OF NUCLEAR POWER Based on a decision of the Romanian Government the Unit 3 and possibly 4 of Cernavoda

NPP are intended to be completed through a partnership with local or foreign private investors, without state guarantees.

Cernavoda Unit 3 project was already presented to the potential investors in 2004 and seven of them expressed their interest in developing the feasibility study.

By March 31, 2006 the Feasibility Study will be finalized and the negotiation with investors will start;

Tentative schedule is about 64 months with commissioning in 2013 of Unit 3 and in 2014 of Unit 4.

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UNITS 3 & 4 PROJECTUNITS 3 & 4 PROJECT The rationale of the Government in undertaking the

Project with third party investors include:• Bringing foreign expertise and finance into

Romania;• Bringing major international players into the

Romanian energy market in view of the liberalization of the sector;

• Implementing the Project more quickly than would otherwise be possible given the other financial commitments of SNN and the Government; and

• The Government’s unwillingness to provide sovereign guarantee for loans and PPAs concluded with state entities.

The Project is expected to be funded on a combined basis in a manner similar to other project financed power plants.

The project will be primarily funded by debt, the debt to equity ratio is expected to be in the region of 70:30.The debt needs to be secured on the future cash flows and assets of the Project in line with other power

plant project financings as no sovereign guarantees may be provided. Various options for structuring the power purchase agreements exist.

To enable the Project to proceed on this basis the additional risks inherent in the operation of nuclear power plants, including waste disposal, risk of nuclear accident and decommissioning of the plant, the Government would be required to confirm that it is willing to take on risks associated with waste disposal and decommissioning in excess of the statutory obligations of the PCO.

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NaturalNatural ga gas reserves arounds reserves around Europe Europe

47,570 bcm~80 years

33,530 bcm~183 years

4,000 bcm~83 years

1,770 bcm~22 years

4,520 bcm~43 years

NABUCCO GAS PIPE LINE PROJECT NABUCCO GAS PIPE LINE PROJECT

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NABUCCO PIPELINE ROUTENABUCCO PIPELINE ROUTE

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NABUCCO PIPELINE ROUTE IN NABUCCO PIPELINE ROUTE IN ROMROMAANIANIA

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PEOP PEOP PPRROJECT DEVELOPMENT COMPANOJECT DEVELOPMENT COMPANY PROPOSALY PROPOSAL

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ROMANIA TURKEY UNDERSEA CABLEROMANIA TURKEY UNDERSEA CABLE

PasakoyPasakoy

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THANK YOU!THANK YOU!