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The AES Corporation 8-K 2006




























































































































 

AES CORPORATION

 

2006 AES Investor Conference Series

 

 

Scott Cunningham

 

 

Vice President, Investor Relations

 

[GRAPHIC]

 

March 22, 2006

 



 

Safe Harbor Disclosure

 

Certain statements in the following presentation regarding AES’s business operations may constitute “forward looking statements.”
Such forward-looking statements include, but are not limited to, those related to future earnings, growth and financial and operating performance. Forward-looking statements are not intended to be a guarantee of future results, but instead constitute AES’s current expectations based on reasonable assumptions. Forecasted financial information is based on certain material assumptions. These assumptions include, but are not limited to continued normal or better levels of operating performance and electricity demand at our distribution companies and operational performance at our contract generation businesses consistent with historical levels, as well as achievements of planned productivity improvements and incremental growth from investments at investment levels and rates of return consistent with prior experience. For additional assumptions see the Appendix to this presentation. Actual results could differ materially from those projected in our forward-looking statements due to risks, uncertainties and other factors. Important factors that could affect actual results are discussed in AES’s filings with the Securities and Exchange Commission, including, but not limited to the risks discussed under the caption “Cautionary Statements and Risk Factors” in the Company’s 2004 Annual Report on
Form 10-K/A, as well as our other SEC filings. AES undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

www.aes.com

 



 

Today’s Agenda

 

Opening Comments

 

Scott Cunningham

 

 

 

EMEA Business Review

 

 

        Overview

 

Shahzad Qasim

        EMEA Generation

 

John McLaren

        AES Sonel

 

Jean David Bile

        AES Ukraine

 

Garry Levesley

        Q&A Session

 

All

 

 

 

Break

 

 

 

 

 

Southern Cone Latin America Business Review

 

 

        Overview

 

Andres Gluski

        AES Gener

 

Felipe Ceron

        AES Argentina

 

Eduardo Dutrey

        Q&A Session

 

All

 



 

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.

 



 

Appendix - Definitions

 

                  Free 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.

 



 

Appendix – Reconciliation of Subsidiary Distributions

 

 

 

 

 

 

 

Nine Months

 

 

 

Year Ended

 

Quarter Ended

 

Ended

 

 

 

December 31,

 

Mar. 31,

 

Jun. 30,

 

Sep. 30,

 

Sep. 30,

 

(US$ Millions)

 

2003

 

2004

 

2005

 

2005

 

2005

 

2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subsidiary distributions to parent

 

$

1,008

 

$

991

 

$

190

 

$

170

 

$

274

 

$

634

 

Net distributions to/(from) QHCs

 

46

 

13

 

5

 

 

 

5

 

Total subsidiary distributions

 

1,054

 

1,004

 

195

 

170

 

274

 

639

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Returns of capital distributions to parent

 

242

 

116

 

2

 

37

 

 

39

 

Net returns of capital distributions to/(from) QHCs

 

0

 

11

 

 

13

 

 

13

 

Total returns of capital distributions

 

242

 

127

 

2

 

50

 

 

52

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Combined distributions & returns of capital received

 

1,296

 

1,131

 

197

 

220

 

274

 

691

 

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

 

(46

)

(24

)

(5

)

(13

)

 

(18

)

Total subsidiary distributions & returns of capital to parent

 

$

1,250

 

$

1,107

 

$

192

 

$

207

 

$

274

 

$

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.”

 



 

 

AES EMEA Business Review

AES CORPORATION

 

 

Shahzad Qasim

 

President, Europe and Africa

 

[GRAPHIC]

March 22, 2006



 

AES Europe, Middle East and Africa (EMEA)

 

[GRAPHIC]

 

 

 

Population (MM)

 

Per Capita 
GDP (USD) 

 

Gross GWh
(thousands)

 

Country

 

 (2005 est.)

 

(2005 est.)

 

Gener.

 

Supply

 

Bulgaria

 

7.5

 

$

9,000

 

42

 

25

 

Cameroon

 

16.4

 

$

2,000

 

4

 

3

 

Czech Republic

 

10.2

 

$

18,100

 

8

 

52

 

Hungary

 

10.0

 

$

15,900

 

34

 

31

 

Netherlands

 

16.4

 

$

30,500

 

97

 

101

 

Nigeria

 

128.8

 

$

1,000

 

20

 

13

 

Oman

 

3.0

 

$

13,400

 

11

 

8

 

Pakistan

 

162.4

 

$

2,400

 

81

 

57

 

Qatar

 

0.9

 

$

26,000

 

12

 

11

 

Spain

 

40.3

 

$

25,100

 

261

 

218

 

Ukraine

 

47.4

 

$

6,800

 

180

 

114

 

United Kingdom

 

60.4

 

$

30,900

 

399

 

337

 

 

Source: The World Factbook; AES estimates.

 



 

EMEA at a Glance

 

[GRAPHIC]

 

5,700MW Total Installed Capacity

 

1,870MW Under Construction/Planned

 

3 Utilities in 2 Countries Serve 1.7MM Customers

 



 

My Priorities

 

Safety

 

        Reduction of lost time accidents and near misses

First

 

        Embedding safety as part of the culture

 

 

 

Operational

 

        Customer service

Excellence

 

        Loss reduction & collection efficiency

 

 

        Top decile generation plant performance

 

 

 

Business

 

        Platform expansion opportunities

Development

 

        Successfully participate in privatization

 

 

        Greenfield and new contract execution

 

 

 

Transaction
Execution

 

       Successful execution on Maritza construction project and plan for others

 

 

       Support from others in AES on privatization opportunities

 




 

AES EMEA Generation Strategic Overview

 

Contains Forward Looking Statements

 

AES Goals

 

AES 2008 Target

 

AES EMEA
Generation Role

 

 

 

 

 

 

 

Financial Goals

 

 

 

 

 

       Revenue Growth

 

 

Above Average

 

       Gross Margin Growth

 

$3.5 Billion

 

Above Average

 

       Earnings Per Share Growth

 

13-19% per Year

 

Below Average

 

        ROIC Improvement*

 

11%

 

Above Average

 

        Cash Flow Growth

 

 

Average

 

       Subsidiary Distributions*

 

 

New Project Contributions

 

       Restructuring Opportunities

 

 

Project Refinancing

 

Growth Goals

 

 

 

 

 

       Platform Expansion

 

 

Significant Opportunities

 

       Greenfield Investment

 

 

Significant Opportunities

 

        Privatization/M&A

 

 

Near-term Potential

 

 


* Non-GAAP financial measure. See Appendix.

 



 

Europe Generation Market Characteristics

 

Contains Forward Looking Statements

 

EU Generally

 

Hungary

 

UK

 

Spain

 

 

 

 

 

 

 

[GRAPHIC]

 

[GRAPHIC]

 

[GRAPHIC]

 

[GRAPHIC]

 

 

 

 

 

 

 

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

 

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

 

81GW of installed capacity

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

 

74GW of installed capacity

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.

 



 

Netherlands

 

Czech Rep

 

Bulgaria

 

 

 

 

 

[GRAPHIC]

 

[GRAPHIC]

 

[GRAPHIC]

 

 

 

 

 

22GW of installed capacity

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

 

18GW of installed capacity

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

 

10GW of installed capacity

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

 



 

Dependable Reserve Margin in 2004

 

[CHART]

 

Source: Cambridge Energy Research Associates.

 



 

Reserve Margin—EU Weighted Average

 

Contains Forward Looking Statements

 

[CHART]

 

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.

 



 

Capacity Additions—EU

 

[CHART]

 

Source: Cambridge Energy Research Associates, Platts.

 



 

Middle East and Africa Generation Market Characteristics

 

Nigeria

 

Oman

 

Qatar

 

Pakistan

 

 

 

 

 

 

 

[GRAPHIC]

 

[GRAPHIC]

 

[GRAPHIC]

 

[GRAPHIC]

 

 

 

 

 

 

 

6GW of installed capacity

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

 

3GW of installed capacity

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

 

3GW of installed capacity

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

 

19GW of installed capacity

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

 

Data from AES EMEA Generation.

 



 

AES EMEA Generation Financial Overview

 

(US$ Million)

 

 

 

 

 

 

 

Nine Months
Ending
September 30,

 

 

 

2003

 

2004

 

2005

 

 

 

 

 

 

 

 

 

Revenue

 

$

771

 

$

957

 

$

746

 

 

 

 

 

 

 

 

 

Gross Margin

 

$

306

 

$

372

 

$

302

 

 

 

 

 

 

 

 

 

Income Before Tax &Minority Interest

 

$

162

(1)

$

226

 

$

194

 

 

 

 

 

 

 

 

 

Distributions to AES Corporation

 

$

202

 

$

129

 

$

121

 

 


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.

 



 

AES Europe Generation

 

Biomass

 

Coal

 

Gas

 

Oil

 

 

 

 

 

 

 

Borsod, Hungary

 

Bohemia, Czech Republic

 

Cartagena (UC), Spain

 

Kilroot, NI UK

96MW

 

50MW

 

1,200MW

 

520MW

100% AES Owned

 

100% AES Owned

 

71% AES Owned

 

97% AES Owned

 

 

 

 

 

 

 

Tiszapalkonya, Hungary

 

Kilroot, NI UK

 

Elsta, Netherlands

 

Tisza II, Hungary

116MW

 

520MW

 

630MW

 

900MW

100% AES Owned

 

97% AES Owned

 

50% AES Owned

 

100% AES Owned

 

 

 

 

 

 

 

 

 

Tiszapalkonya, Hungary

 

Tisza II, Hungary

 

 

 

 

116MW

 

900MW

 

 

 

 

100% AES Owned

 

100% AES Owned

 

 

 

 

 

 

 

 

 

 

 

Maritza (UC), Bulgaria

 

Indian Queens, UK

 

 

 

 

670MW

 

140MW

 

 

 

 

100% AES Owned

 

100% AES Owned

 

 

 

[GRAPHIC]

 

UC – under construction

 



 

AES Africa and Middle East Generation

 

Gas

 

Oil

 

 

 

Barka, Oman

                  456MW

                  35% AES Owned

 

Ras Laffan, Qatar

                  756MW

                  55% AES Owned

 

Ebute, Nigeria

                  305MW

                  95% AES Owned

 

 

Lal Pir, Pakistan

                  362MW

                  55% AES Owned

 

Pak Gen, Pakistan

                  365MW

                  55% AES Owned

 

 

[GRAPHIC]

 



 

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

 

Balanced Revenues

(% of Total)

 

[CHART]

 

Data as of September 30, 2005

 

Impact on Revenue Growth from Capacity Additions (MW)

 

[CHART]

 

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

 



 

AES EMEA Generation Portfolio Largely Contracted with Fuel Pass Through

 

Portfolio Primarily Contract Generation

 

[CHART]

 

Data as of September 30, 2005

 

Fuel Risk as % of Capacity

 

[CHART]

 



 

EMEA Generation KPIs

 

Key Performance Indicator (KPI)

 

Safety Excellence

                  Lost time accidents (LTAs)

                  Days since last LTA

                  Near-miss reporting

 

 

Environmental Excellence

                  SOx emissions

                  NOx emissions

                  Opacity

                  CO2 emissions

 

 

Operational Excellence

                  Equivalent availability factor

                  Equivalent forced outage rate (EFOR)

                  Non-fuel O&M costs

 



 

Implementing KPIs in EMEA Generation

 

Safety

Environment

Operational Excellence

 

 

 

                  Implementation of a Safety Management System

                  Regular Safety Audits

                  Online Safety System

                  Safety Task Force

                  Safety Walkdowns

                  Regular Environmental Audits

                  Standardized auditing protocols based on ISO 14001

                  Online Environmental System

                  Environmental Task Force

                  Best practice implementation initiative

                  Heat Rate Task Force

                  Global sourcing

                  Strategic Asset Risk Reviews

                  Peer to peer reviews

 

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

 



 

EMEA Generation Safety Performance

 

Lost Time Accidents

 

[CHART]

 

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

 

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

 



 

EMEA Generation Environmental Performance

 

SOx Emissions

 

[CHART]

 

Dust Emissions

 

[CHART]

 

Favorable trends through a strategy of pursuing alternate fuels and plant improvements.

 



 

EMEA Generation Operational Excellence

 

EAF

 

[CHART]

 

EFOR

 

[CHART]

 

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

 



 

Ebute Performance Improvement

 

EFOR

 

[CHART]

 

Performance Initiatives

 

                  Hot Gas Path management

                  Staff training and performance

                  LTSA management

 

Plant Challenges

 

                  Nine barge mounted Frame 6 CTs

                  Unknown maintenance history

                  Poor availability of technical support

                  Poor local infrastructure

 

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

 



 

Platform Expansion Opportunities

 

Contains Forward Looking Statements

 

Lal Pir Pakistan

                  Construction of a 400MW CCGT

                  New PPA being negotiated with WAPDA

 

 

Tiszapalkonya Hungary

                  400MW CCGT

                  A tolling agreement to be negotiated

 

 

Kilroot N. Ireland

                  400MW CCGT

                  Negotiate a tolling agreement

 

 

Cloghan Point N. Ireland

                  Creation of a strategic oil reserve

                  Negotiations in progress with a European Govt.

 

 

Ebute Nigeria

                  Installation of an additional 65 - 115MW

                  Negotiations in progress with the PHCN

 



 

Platform Extension - Kilroot Biomass Trials

 

Contains Forward Looking Statements

 

                  Biomass is now being co-fired at the Kilroot power station in Northern Ireland

                  In 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 allowances

                  With a minimal capital investment from AES, the station can now burn up to 6% biomass by volume

                  This initiative is expected to contribute positively from 2006

                  The business is exploring the possibility of increasing its biomass % consumption by burning palm oil

 

Fast Growing Coppice For Biomass Production

 

[GRAPHIC]

 



 

Greenfield Example: Bulgaria

 

Contains Forward Looking Statements

 

670MW lignite-fired power plant

 

                  $1.4 billion project cost

                  15 year contract with NEK (national utility)

                  15 year lignite supply agreement minimizes energy supply risks

                  Letter of government support

                  €790 million non-recourse financing closed in December with commercial and multilateral banks

                  Completing site acquisition and permitting

                  Target early 2006 start of construction

                  $300 million+ new revenues expected by 2010

 

Proposed AES Maritza Plant, Bulgaria

(artist rendition)

 

[GRAPHIC]

 



 

Greenfield Example: Cartagena

 

Contains Forward Looking Statements

 

1,200MW gas-fired CCGT power plant

 

                  $860 million project cost

                  21 year contract with Gaz de France International (GDFi) for fuel and the purchase of power

                  Fuel and electricity off-take contracts insulate AES from market risks

                  GDFi to provide fuel through LNG terminal 1.5 km away

                  Non-recourse commercial financing closed and construction began in November 2003

                  Construction contractor delays have pushed back start-up date

                  Commissioning planned for Q3 2006

                  $130 million+ revenues expected annually beginning late 2006

 

AES Cartagena Power Plant

Cartagena, Spain

[GRAPHIC]

 



 

 

 

AES Sonel Business Review

AES CORPORATION

 

Jean David Bile

 

 

Vice President and AES Sonel General Manager

 

 

 

[GRAPHIC]

 

 

 

March 22, 2006

 



 

Sonel Strategic Overview

 

Contains Forward Looking Statements

 

AES Goals

 

AES 2008 Target

 

AES Sonel Role

 

 

 

 

 

 

 

Financial Goals

 

 

 

 

 

                  Revenue Growth

 

 

Above Average

 

                  Gross Margin Growth

 

$3.5 Billion

 

Above Average

 

                  Earnings Per Share Growth

 

13-19% per Year

 

Above Average

 

                  ROIC Improvement*

 

11%

 

Below Average

 

                  Cash Flow Growth

 

 

Below Average

 

                  Subsidiary Distributions*

 

 

Increasing

 

                  Restructuring Opportunities

 

 

Ongoing

 

Growth Goals

 

 

 

 

 

                  Platform Expansion

 

 

Focused

 

                  Greenfield Investment

 

 

 

                  Privatization/M&A

 

 

 

 


* Non-GAAP financial measure. See Appendix.

 



 

Cameroon Highlights

 

[GRAPHIC]

 

Cameroon at a Glance

Currency

 

CFA Franc BEAC (XAF)

Exchange Rate (03/17/2006)

 

1 (XAF) = 0.001856 (USD)

Per Capita GDP (2004 est.)

 

US $1,900

Inflation Rate (2004 est.)

 

1%

Economic Drivers

 

Petroleum, Bauxite, Iron Ore, Timber, Hydropower

Capital

 

Yaounde

Largest City

 

Douala

Population (July 2005 est.)

 

16,380,005

 



 

Cameroon Electricity Market Characteristics

 

Generation

 

[GRAPHIC]

 

AES Sonel is the sole generation company

 

Private sector/government partnership

 

100% self generated

 

933MW installed capacity

 

                  77% hydro

 

                  23% thermal

Transportation

 

 

[GRAPHIC]

 

AES Sonel has the sole transmission system

 

Private sector/government partnership

 

Over 1,800 km of high voltage and 12,000 km medium voltage lines

 

Distribution

 

[GRAPHIC]

 

AES Sonel is the sole distribution system

 

528,000 customers

 

Three distinct systems:

 

                  Southern Interconnected Grid (SIG) – includes Douala and Yaoundé

 

                  Northern Interconnected Grid (NIG) – three northern provinces served by Lagdo hydroelectric plant and 14MW thermal generation

 

                  Remote network – 86 small thermal units (24MW) support 31 small distribution systems

 

Commercial Base

 

[GRAPHIC]

 

1,200 medium voltage customers

 

Five large users

 



 

Cameroon Electricity Demand Growth

 

[CHART]

 

Industrial demand variability has influenced the relationship between electricity demand and GDP growth.

 



 

Cameroon Electricity Demand Growth

 

[CHART]

 

Historically, there has been a high correlation between public sector electricity demand and GDP growth.

 



 

Cameroon Regulatory Framework

 

 

 

Framework Concession (connection and service goals, tariff structure)

 

 

 

Low Voltage
Customers

 

 

 

 

 

 

 

 

 

Generating Concession

 

 

 

 

 

 

 

 

 

 

 

ARSEL

 

Transmission Concession

 

AES
Sonel

 

Medium Voltage
Customers

 

 

 

 

 

 

 

 

 

Low Voltage Distribution and Sales Concession

 

 

 

 

 

 

 

 

 

 

 

 

 

High/Special Voltage Sales License

 

 

 

Large
Customers

 



 

AES Sonel History

 

1938 - 1974

 

1938 – First electricity distribution at Yaoundé, Douala and Nkongsamba

 

1948 – Enelcam established to develop the first hydro power plant on the Sanaga River at Edea

 

1954-8 – Edea I (35MW) and Edea II (122MW) completed

 

1963 – EDC, an integrated utility, established in the French-speaking part of newly independent Cameroon

 

1974 - 1992

 

1974 – Sonel is created by merging Enelcam, EDC and Powercam, the utility in the former British Cameroon

 

1975 – Edea III is completed, adding 107MW of installed capacity

 

1981 – 1988 Songloulou, the largest hydro plant in the country (384MW) is commissioned

 

1984 – 72MW hydro plant of Lagdo on the Northern Integrated Grid is completed

 

1992 - 2001

 

1998 – Electricity Sector Law sets out the framework for the public call for tenders for the privatization of Sonel

 

Creation of ARSEL, the regulatory agency

 

2001 - 2005

 

2001 – AES Sonel is privatized, with AES acquiring a 56% interest

 

2004– Limbe thermal plant starts operation, increasing system reliability and providing fuel diversity

 

2005 – Launch of a $450 MM capex program to rehabilitate and expand network infrastructure and refurbish aging production facilities

 



 

AES Sonel is an Integrated Utility

 

[GRAPHIC]

 

AES Sonel Generation System

 

                  721MW hydroelectric

 

                  212MW thermal (diesel/fuel oil)

 

Note: Smaller thermal units not shown.

 



 

AES Sonel Customer Base

 

Billed Consumption (GWh) 2005

 

[CHART]

 

Revenues 2005 (1)

 

[CHART]

 

Electricity Sales Trend (GWh)

 

[CHART]

 


(1) Revenue data as of September 30, 2005

 



 

AES Sonel KPIs

 

Contains Forward Looking Statements

 

Key Performance Indicator (KPI)

 

Safety Excellence

 

                  Lost time accidents (LTA)

                  Near misses

                  Incident rate

                  Days without LTA

 

Operational Excellence

 

                  Distribution losses

                  Transmission efficiency

                  Cash collection efficiency

                  Unserved energy rate

 

Customer Service Excellence

 

                  Developing formal measurement tools

 



 

Losses and Transmission Efficiency Trends

 

Distribution Losses

 

[CHART]

 

Targeting technical and commercial losses

Better IT systems track consumption patterns

 

Transmission Efficiency

 

[CHART]

 

Rehabilitating the network infrastructure improves system reliability

 



 

Improved Operating Performance

 

Cash Collection Efficiency

 

[CHART]

 

Private sector collection gains

Favorable working capital trends

 

Unserved Energy

 

[CHART]

 

Higher production capacity and network efficiency support distribution performance

 



 

AES Sonel Financial Overview

 

(US$ Millions)

 

2003

 

2004

 

Nine Months
Ending
September 30,
2005

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

203

 

$

273

 

$

221

 

 

 

 

 

 

 

 

 

Gross Margin

 

$

13

 

$

33

 

$

63

 

 

 

 

 

 

 

 

 

Income Before Tax & Minority Interest

 

$

8

 

$

30

 

$

54

 

 

 

 

 

 

 

 

 

Distributions to AES Corporation

 

$

2

 

$

2

 

$

1

 

 

Note: Information is presented on an AES basis and is unaudited. Certain intercompany transactions may not be eliminated.

 



 

Social Commitment and Economic Development

 

Health

 

AES Sonel leadership in fight against HIV/AIDS is applauded by various organizations

 

12,000 people benefit from the company health coverage

 

12 medical centers across the country treat patients for malaria, diabetes, cardio-vascular disease and cancer

 

People Development

 

AES has organized two career fairs in Europe to recruit highly qualified Africans

 

Several expatriates are currently ensuring the transfer of skills to the local workforce

 

AES provides management training opportunities at Darden School of Business for company managers

 

Economic Development

 

4th largest company in Cameroon in terms of revenues

 

One of the biggest investors, importers and employers

 

AES activities contributes to the growth of the local banking system

 



 

AES Sonel Scenario Planning

 

Contains Forward Looking Statements

 

Strategic Issues

 

Revised and improved concession agreement

                  Finalization of amendments to the concession contract

 

Hydrology risk and fuel

                  Reducing hydrology risk as thermal costs adjust tariffs during bad hydrology years

 

Development of infrastructure

                  133MW in thermal capacity since privatization

                  $500MM investment planned over next five years

 

Political instability

                  Improved public private sector partnership

                  Improving standard of service to meet the customer and country needs

 



 

Strategic Opportunities

 

Value Enhancement Program

                  Asset management

                  Maintenance work management

                  Reconstruction project management

                  Revenue management

 

Demand Growth Projects

                  Proposed Alucam expansion will require new plant and infrastructure investment

                  Expansion could result in 69% demand increase by 2010

 



 

 

 

AES Ukraine Business Review

AES CORPORATION

 

Garry Levesley

 

 

AES Vice President, Director AES Ukraine

 

 

 

[GRAPHIC]

 

 

 

 

 

March 22,  2006

 



 

AES Ukraine Strategic Overview

 

Contains Forward Looking Statements

 

AES Goals

 

AES 2008 Target

 

AES Ukraine Role

Financial Goals

 

 

 

 

                  Revenue Growth

 

 

Above Average

                  Gross Margin Growth

 

$3.5 Billion

 

Average

                  Earnings Per Share Growth

 

13-19% per Year

 

Below Average

                  ROIC Improvement*

 

11%

 

Average

                  Cash Flow Growth

 

 

Above Average

                  Subsidiary Distributions*

 

 

Increasing

                  Restructuring Opportunities

 

 

Limited

 

 

 

 

 

Growth Goals

 

 

 

 

                  Platform Expansion

 

 

Significant Opportunities

                  Greenfield Investment

 

 

Significant Opportunities

                  Privatization/M&A

 

 

Significant Opportunities

 


* Non-GAAP financial measure. See Appendix.

 



 

Ukraine at a Glance

 

[GRAPHIC]

 

Ukraine at a Glance

 

Currency

 

Ukraine Hryvnia (UAH)

Exchange Rate (03/01/2006)

 

1 (UAH) = 0.197 (USD)

Per Capita GDP (at PPP 2004 est.)

 

US $6,410

Per Capita GDP (nominal, 2004)

 

US $1,375

Inflation Rate (2005)

 

10.3%

Economic Drivers

 

Ferroalloy production, machine building,
agriculture, energy, transportation

Capital

 

Kyiv

Largest City

 

Kyiv (population – 3.0 MM)

Population (July 2005 est.)

 

47.4 MM

 



 

Ukraine Electricity Market Characteristics

 

Generation

 

[GRAPHIC]

 

Seven large companies

12% private sector (installed capacity)

22 large CHPs

54,000MW installed capacity

                  25% nuclear

                  65% thermal

Generators with capacity >20MW sell to Wholesale Electricity Supplier under single buyer market model either through price bids (thermal) or at fixed tariffs (other)

 

Transportation

 

[GRAPHIC]

 

One State owned transmission company:

                  Owner of 22,513 km of 220 - 750KV lines

                  System operator & dispatcher

                  Manages system ancillary services

Parallel operation with Russian/CIS system

Burshtin Island (West Ukraine) operates in parallel with UCTE (European system)

Regulated transmission tariff

Import & export managed by State owned company Ukrinterenergo

 

Distribution

 

[GRAPHIC]

 

27 major distribution & regulated supply companies, 12 private, 15 state owned

Tariff review annually

For six companies: cost plus methodology; 17% rate of return on investments

For 21 companies:  total cost recovery in the tariff

Non-regulated supply companies, 10% of the market, free pricing

All purchase power from the Wholesale Electricity Supplier,  at the same hourly price

 

Commercial Base

 

[GRAPHIC]

 

No direct contracts with generators or wholesale market

All non-residential customers can choose to be supplied by regulated distribution company or non-regulated supply company

All residential customers must purchase from regulated distribution company

Bilateral contracts market is planned

 



 

Ukrainian Generation Market Profile

 

[GRAPHIC]

 

2005 Output by Generation Type

 

[CHART]

 

Total 2005 output 185,180 GWh

 



 

Ukraine Electricity Demand Growth

 

[CHART]

 

       Correlation between electricity demand and GDP growth has increased in recent years

       Electricity demand is expected to continue growing by more than 4% per year

 



 

Ukraine Electricity Market History

 

Contains Forward Looking Statements

 

1995

 

1996-2000

 

2001-2005

 

2006 and future

 

 

 

 

 

 

 

 

 

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

 

1996
Creation of the Wholesale Electricity Market modeled on the early version of the British power pool with a single buyer model

 

2001
Privatization of six distribution companies in a competitive tender procedure, of which AES acquired two companies

 

Implementation of sector debt restructuring

 

 

 

 

 

 

 

 

 

Functional vertical unbundling of generation, transmission and distribution

 

1997 – 1998
Private investors acquire 20-45% shares in nine distribution companies

 

2001
New distribution tariff method in line with the international practices and implementation thereof for distribution companies privatized in 2001

 

Streamlining of legal, technical and economic bases for further electricity market functioning

 

 

 

 

 

 

 

 

 

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

 

2000
Cash collections throughout the supply chain improved from 30% to 70%

 

2002
Governmental Program on further electricity market development

 

Gradual supply market opening

 

 

 

 

 

 

 

 

 

 

 

 

 

2004
Cash collections above 97%

 

Transition to bilateral contracts and balancing market model

 

 

 

 

 

 

 

 

 

 

 

 

 

2005
Law on comprehensive sector debt restructuring

 

Integration with adjacent energy systems, including the European system “Union for the Co-ordination of Transmission of Electricity” (UCTE) in next five to 10 years

 

 



 

Ukraine Electricity Market Operation Model

 

Thermal Rank Order, Price Bids Hourly

 

 

 

 

 

 

 

 

Transmission & Dispatch, System Operator

 

 

 

 

Hydro Regulated Tariff

 

 

 

Distributors & Regulated Supply Companies 90%

 

 

 

 

 

 

 

 

 

Nuclear Regulated Tariff

 

Wholesale Energy Market

 

Large Users

 

CUSTOMERS

 

 

 

 

 

 

 

CHPs Price Bids or Regulated Tariff

 

 

 

Non-regulated Supply Companies 10%

 

 

 

 

 

 

 

 

 

Wind Regulated Tariff

 

Market Operator

 

 

 

 

 



 

Ukraine Regulatory Framework

 

Regulatory Body

 

Authority

 

Rate Setting

 

 

 

 

 

 

 

NERC – National Energy Regulator Commission

 

Licensing & pricing

 

Set tariff for

 

 

 

 

 

 

 

Five Commissioners appointed by the President of Ukraine for six years

 

Procedure for sector cash flow allocation

 

Control over fulfillment of licensing conditions

 

Competition development to promote lowest long run marginal cost

 

Consumer’s rights protection

 

       generators (not thermal)

       transmission

       distribution, regulated supply

 

Manages residential and other sector subsidies

 

“Cost plus” or total cost recovery methodology

 

For six private distribution companies, including AES, 17% annual after tax return on investment with incentive regulation elements

 

Rates are confirmed in public hearing process

 

 

AES’s good regulatory relationships are supported by:

 

       Transparency of operations

       Willingness to invest

       Open communications

       Customer care focus

 

Other Players

 

Ministry of Fuel and Energy

 

 

 

Parliament

 

 

 

 

 

 

 

 

 

Antimonopoly Committee

 

 

 

 

 

 

 

 

 

Cabinet of Ministers

 

 

 

National Energy Company

 

 



 

AES Ukraine: Distribution

 

KYIVOBLENERGO

 

       Service area 28,000 km2

       818,000 customers

       3,000 employees

       2005 revenues $100 MM (9 months)

       90% AES-owned

 

RIVNEENERGO

 

       Service area 20,000 km2

       404,000 customers

       1,500 employees

       2005 revenues $52MM (9 months)

       80% AES-owned

 

[GRAPHIC]

 



 

AES Ukraine Customer Base

 

2005 Consumption (6 GWh)

 

[CHART]

 

Electricity Sales Trend (GWh)

 

[CHART]

 

YTD 2005 Revenues ($152 MM)*

 

[CHART]

 


* Data as of September 30, 2005

 



 

AES Ukraine Electricity Tariffs

 

Electricity  Tariffs (Kyivoblenergo)

 

[CHART]

 



 

AES Ukraine Safety Performance

 

LTA

 

[CHART]

 

2005 Safety Activity

 

Conducted 2,500 safety walks/inspections

 

Introduced unsafe conditions reporting and analysis

 

Identified 750 unsafe conditions

 

Live line working training of personnel and equipment procurement and certification is in progress

 

Started public safety educational campaign

 

[GRAPHIC]

 

Safety poster – be careful, father

 

Safety is defined as the top priority in AES Ukraine.

 



 

AES Ukraine Operational Performance

 

Collections

 

[CHART]

 

Losses

 

[CHART]

 

AES Ukraine demonstrated considerable operational improvements.

 



 

AES Ukraine Financial Overview

 

(US$ Million)

 

 

 

2003

 

2004

 

Nine Months
Ending
September 30,
2005

 

 

 

 

 

 

 

 

 

Revenue

 

$

164

 

$

190

 

$

152

 

 

 

 

 

 

 

 

 

Gross Margin

 

$

21

 

$

26

 

$

19

 

 

 

 

 

 

 

 

 

Income Before Tax & Minority Interest

 

$

16

 

$

16

 

$

13

 

 

 

 

 

 

 

 

 

Distributions to AES Corporation

 

$

1

 

$

18

 

 

 

Note: Information is presented on an AES basis and is unaudited. Certain intercompany transactions may not be eliminated.

 



 

AES Ukraine Market Issues and Opportunities

 

Contains Forward Looking Statements

 

Current Issues

 

Opportunities

 

Risks

 

 

 

 

 

 

 

Regulator political independence, discretion in decision making

 

Improvement of regulatory and business environment as country “normalizes” to European standards

 

Tariff regulation volatility

 

 

 

 

 

 

 

Temptations to resort to administrative controls

 

Low levels of competition from other major power companies

 

Retail supply competition

 

 

 

 

 

 

 

Residential tariff below cost recovery

 

Gradual transition to regulation by service quality standards in distribution business

 

Tariff design issues

 

 

 

 

 

 

 

Many cross-subsidies still exist distorting effective economic pricing signals

 

Energy prices increase to the European level and end of subsidies will increase the attractiveness of investments

 

Government controlled and inefficient fuel market

 

 

 

 

 

 

 

Market reformation stagnation, lack of forward looking vision

 

Further sector privatization likely in next two years

 

Political uncertainty, though volatility unlikely

 

 

 

 

 

 

 

Delays in sector privatization

 

 

 

In the short run no support from the government for private investment in the sector

 

 



 

AES Ukraine Scenario Planning

 

Contains Forward Looking Statements

 

Ukraine Moves East

                  Increased regulation of the economy

                  Reduction in foreign investments

                  GDP growth rate decreases

                  Currency depreciates

 

Ukraine Moves West

                  Liberalization of the  economy

                  Increase foreign investments

                  Electricity demand increase

                  Currency stable

                  Interest rate spreads tighten

 

Sustained High Energy Price

                  Economy growth slows down; GDP growth rate decrease

                  Currency depreciates

                  Tariff pressure

 



 

Ukraine Platform Expansion Opportunities

 

Contains Forward Looking Statements

 

Areas

 

Description of Selected Projects

 

 

 

Distribution

 

       Five companies owned by VSE (Russians)

 

       Six companies owned by three conflicting shareholders

 

       Four with different industrial groups

 

       12 state owned to be privatized

 

 

 

Generation

 

        Dniester Pump Storage

 

        Burstyn power plant (connected to UCTE System)

 

        Early wind opportunities

 

        Privatization of thermal generation companies

 

 

 

Fuel Supply

 

        Coal privatization

 

        Acquisition of privately owned coal mines

 

 

 

Gas
Transmission/
Distribution

 

        Major gas transit country

 

        Gas distribution companies

 

 

 

 

 

Non-Power
But Related

 

        Water companies

 

        Heat networks

 



 

AES Southern Cone Latin America Business Review

AES CORPORATION

Andres Gluski

President, Latin America

[GRAPHIC]

 

 

 

March 22, 2006