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AES AES Kazakhstan Business Review AES ... (Unit 8) 500MW (Unit 2) 12 AES Kazakhstan Financial Overview Revenue Gross Margin Income Before Tax & Minority Interest Distributions to

Mar 12, 2020

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  • AES CORPORATION

    May 9, 2006

    AES CORPORATION AES Kazakhstan Business Review

    Dale Perry Vice President

  • 1www.aes.com

    Financial Goals

    Revenue Growth

    Gross Margin Growth

    Earnings Per Share Growth

    ROIC Improvement(1)

    Cash Flow Growth

    Subsidiary Distributions(1)

    Restructuring Opportunities

    Growth Goals

    Platform Expansion

    Greenfield Investment

    Privatization/M&A

    AES Goals AES 2008 Target AES Kazakhstan Role

    AES Kazakhstan Strategic Overview

    --

    $3.5 Billion

    13-19% per Year

    11%

    $2.6-2.9 Billion

    --

    --

    --

    --

    --

    Above Average

    Above Average

    Above Average

    Above Average

    Above Average

    Increasing

    Significant

    Significant Opportunities

    Focused Opportunities

    Focused Opportunities

    Contains Forward Looking Statements

    (1) Non-GAAP financial measure. See Appendix.

  • 2www.aes.com

    Kazakhstan Highlights

    15,185,844 Population (July 2005 est.) AlmatyLargest City Astana Capital

    major deposits of petroleum, natural gas, coal, iron ore, manganese, chrome ore, nickel, cobalt, copper, molybdenum, lead, zinc, bauxite, gold, uranium

    Economic Drivers

    6.9%Inflation Rate (2004 est.) US $7,800Per Capita GDP (2004 est.)

    1 (KZT) = 0.007472 (USD) Exchange Rate (01/10/2006) Kazakhstan Tenge (KZT)Currency

    Kazakhstan at a Glance

  • 3www.aes.com

    40

    50

    60

    70

    80

    90

    1992 1994 1996 1998 2000 2002 2004 2006E 2008E 2010E

    Nominal GDP

    Kazakhstan Electricity Demand Growth

    Source: Company information

    TW h

    N om

    inal G D

    P (U

    S $ B

    illions)

    60

    50

    40

    30

    20

    10

    0

    Generation (TWh)

    Contains Forward Looking Statements

    Recent correlation between electricity demand and GDP growth expected to continue

  • 4www.aes.com

    Kazakhstan Electricity Market Characteristics

    Generation Distribution Commercial BaseTransmission

    18,200MW installed capacity (approximate)

    67% Coal 11% Other thermal 22% Hydroelectric

    50% private sector ownership (approximate)

    AES is largest private sector generator

    Three regional transmission systems – government owned

    23,000 km of 220 KV – 500KV lines Transmission dispatch Manages system ancillary services

    9 - 500KV interconnections to the Russian grid

    Zonal transmission tariff ranges from $3.15 - $6.50/MWH

    12 major distribution & regulated supply companies, predominantly government owned

    Annual tariff review

    Tariff methodology is cost plus profit

    Moving away from Electricity Supply Organization (ESO) price regulation

    ESO contracts typically range from hourly to quarterly

    Bi-lateral contracts between generators/traders and consumers/traders

    Government entities are required to purchase directly from generators (i.e. no traders)

  • 5www.aes.com

    Overview of AES Kazakhstan Power Assets

    (1) Management only with no revenues Note: Capacities are gross

    Ekibastuz Gres I 4,000MW (coal) Maikuben mine

    Western System

    Southern

    Northern, Central and Eastern

    Russia

    Uzbekistan

    Kyrgyzstan

    RussiaShulbinsk 702MW (hydro)

    Ust-Kamenogorsk 331MW (hydro) 1,356MW (coal CHP)

    Sogrinsk CHP 301MW (coal)

    Distribution Businesses Under Management

    Eastern Kazakhstan REC(1) 280,000 Customers

    Semipalatinsk REC(1) 180,000 Customers

    Ust-Kamenogorsk Heat Net(1) 260MW (coal)

  • 6www.aes.com

    Kazakhstan Generation Market Profile

    www.aes.com

    2005 Generation (MWh) Market Share (%)(1)

    KarGRES 10%

    Total Installed Capacity = 18,200MW

    AES 29%

    Imports and Other 20% Aksu GRES

    22%

    GRES-2 12%Bukhtarma HPP 7%

    AES Ekibastuz 18% AES UK HPP 4% AES Shulba HPP 4%

    AES UK & Sogra CHPs 3%

    (1) Excluding Western Kazakhstan 2005 generation figures

  • 7www.aes.com

    Kazakhstan Electricity Market History

    Electricity sector functions as a single vertically integrated system operated by the Ministry of Energy

    Sector is bankrupted by barter and non- transparent transactions

    Rapid un-bundling of Generation

    Creation of national grid company , Kazakhstan Electricity Grid Operating Company (KEGOC)

    Stalled attempt to privatize distribution

    Creation of a regulatory body to form electricity market and ensure its effective functioning

    Cash collection and barter transaction issues are significant business issues

    Kazakhstan and Russia are electrically disconnected due to high non-payment issues from Kazakhstan

    Bi-lateral contract relationships develop

    Lack of long term regulatory certainty

    Reserve margins drop, with some load shedding seen in peak winter season

    Convoluted mix of free market and regulated market begins to clear up

    Implementation of zonal transmission tariff methodology

    Continued integration with adjacent energy systems of Central Asia, Russia and China

    Creation of the Wholesale Electricity Power Pool

    New Electricity Law completely un-bundles electricity sector, creating retail supply companies split from distribution (wires) businesses

    Sector sees regulatory interaction with both Anti-monopoly Committee (natural monopolies) and Competition Committee (market dominance activities)

    Non-payment issues decrease as demand increases, in-line with country’s economic recovery

    Kazakhstan and Russia are re- connected

    No long term contracts exist in market

    1995-1997 1998-2000 2001-2005 2006 and future

    Contains Forward Looking Statements

  • 8www.aes.com

    Import/export approved by KEGOC

    Regulation agreement is in place for all generators

    Hot, cold reserve pool are nominated day ahead into

    KEGOC

    Balanced schedules submitted to KEGOC

    Wholesale Energy Market

    Bi-lateral trades monthly, yearly, multiyear

    Kazakhstan Electricity Market Operation Model

    Large Industrials

    Transmission & Dispatch, System Operator

    C

    U

    S

    T

    O

    M

    E

    R

    SMarket Operator

    REC’s and Genco’s

    Exports and Traders

  • 9www.aes.com

    Kazakhstan Power Prices are Some of The Lowest in The World

    Source: IEA US DOE, national sources and ECON aggregate

    Current Kazakh wholesale power prices are among the lowest in the world

    E st

    on ia

    La tv

    ia

    Li th

    ua ni

    a

    Bu lg

    ar ia

    & R

    om an

    ia

    B os

    ni a

    & H

    er ze

    go vi

    na

    Tr an

    sc au

    ca su

    s

    Ky rg

    yz st

    an

    U kr

    ai ne

    M ol

    do va

    R us

    si a

    K az

    ak hs

    ta n

    C EN

    TR EL

    N O

    R D

    EL

    U C

    TE

    0

    20

    40

    60

    U S$

    / M

    W h

  • 10www.aes.com

    Tight Russian Reserve Margins Expected by 2009

    Source: Renaissance Capital Report: “Form and Substance” August 2005

    RussiaSiberiaUral North

    Caucasus European

    Russia

    Equilibrium energy price (US$/MWh)

    Required capacity payment (US$/kW*year)

    Total wholesale price (US$/MWh)

    Cost of new entry (US$/MWh)

    Wholesale price discount to cost of new entry (%)

    Peak demand (GW)

    Available capacity (GW)

    Available peak capacity (GW)

    Reserve margin (%)

    $16

    80

    27

    27

    0%

    71

    89

    80

    11%

    $16

    103

    29

    29

    0%

    9

    10

    9

    (1%)

    $13

    97

    26

    26

    0%

    32

    38

    35

    7%

    $8

    117

    23

    24

    5%

    31

    35

    32

    1%

    $16

    98

    29

    29

    0%

    150

    181

    154

    3%

    Ekibastutz Target Markets

  • 11www.aes.com

    Contains Forward Looking Statements

    U S

    $ C

    en ts

    / K W

    h

    2004 2005 2006E 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E

    300MW (Units 3 - 7)

    500MW (Unit 1)

    0

    1

    2

    3

    Potential AES Ekibastuz Price and Demand Scenario Offers Attractive Growth Prospects

    AES Ekibastuz Repowering Investment and Potential Timeline at Assumed Power Prices

    500MW (Unit 8)

    500MW (Unit 2)

  • 12www.aes.com

    AES Kazakhstan Financial Overview

    Revenue

    Gross Margin

    Income Before Tax & Minority Interest

    Distributions to AES Corporation

    2003

    $103

    $25

    $21

    $29

    2004

    $137

    $36

    $30

    $8

    ($ Millions)

    2005

    $158

    $40

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