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Allan DawsonChief Executive Officer

Energy Market Company

Market Evolution: The Situation in Asia Pacific

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Agenda

Asia - hot spot of global growth, energy investment and change

Australia and New Zealand more mature electricity markets

Regional overview China, India Japan, Korea Philippines, Indonesia, Singapore Australia and New Zealand

Summary of key themes

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Asia - Overview

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Asia: Hot spot of growth

Asia (especially India and China) are key global growth areas

Total energy consumption is high but per capita consumption is low

Developmental disparities within the region Electricity sector reform is progressing … slowly

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Investment RequirementsRegions 2001-2010 2011-2020 2021-2030

Total 2001-2030

OECD North America OECD EuropeOECD Pacific

1,062650381

1,179717333

1,247697287

3,4882,0641,000

Total OECD 2,903 2,228 2,231 6,552

RussiaOther transition

economies

269168

391221

389233

1,050622

Total transition economies

438 612 622 1,672

ChinaOther Asia (including

India)Middle EastAfricaLatin America

578489268248339

787689332392440

888876444567558

2,2532,0551,0441,2081,337

Total developing countries

1,923 2,641 3,332 7,897

Inter-regional transportation

97 129 134 360

Total World 4,551 5,610 6,320 16,481

Annual Average 455 561 632 549

Source: International Energy Agency (IEA) World Energy Investment Outlook 2003

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Electricity Investment

Source: International Energy Agency (IEA) World Energy Investment Outlook 2003

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Electricity Market Reform

Diversity in regional development reflected in: Level of electrification Quality and reliability of supply Level of subsidies

Most nations are somewhere along the reform path: Reforming legislation Establishing new institutions and markets Introducing competition to supply and demand

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Electricity Market Reform

Main driver for liberalisation is encouraging private sector participation and attracting investment

Another driver is improving country’s competitiveness by introducing competition into a key sector of economy

There is also desire to reform state-owned incumbents to improve efficiency

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China

Industry overview Large and growing economy Electricity market is second largest after US Installed generation capacity in excess of 350GW but

per capita consumption low Facing supply shortage and associated blackouts Transmission system is fragmented Surplus supply cannot be moved to where it is needed

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China

Investment requirements US$1.9 trillion investment required for electricity

generation by 2030 Significant investment to build transmission corridors

to move electricity to energy-hungry regions Major supply reliability issues Central government has put in measures to help

taper investment in high energy consuming industries

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China

Reforms: Pilots Trial market project in 1999

5 provinces + Shanghai Objective to allow separation of generation and

grid interests and encourage competitive supply The experiment was short lived in all pilot areas

because: Increased demand in 2001 that absorbed excess

supply Monopoly utilities created unfair competition

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ChinaReforms: Next wave State Power Corp was broken up in 2002 into 5 generation

companies and 2 grid companies State regulator established in 2003 – State Electric

Regulatory Commission Recent unexpected power shortages have led government to

consider market orientated policies to attract new investment The measures the government is pursuing or has

implemented include: Regulatory changes Electricity pricing reform Investment reform

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India

Industry overview 100GW of generation capacity by 2012 Private participation is essential if growth targets to be

met Quality, access, theft and subsidies are big issues Industrial consumers pay the bulk of the money collected Little price signals or incentives for efficient production

and transmission or investment State corporations dominate the sector They are in various stages of being disaggregated and

will provide building blocks for a market

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India

Reforms: Corporatisation 1990s – Corporatisation of State Electricity Supply

Boards Structured so they could be broken up into potentially

competing generation, transmission and distribution companies

Private sector participation in supply

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IndiaReforms - Electricity Act 2003 Eases requirements for private entry into generation Opens transmission and distribution to private participation Requires all transmission utilities to provide non-

discriminatory open access Proposes a new tariff framework based on competitive

bidding Designed to encourage competition in electricity supply

but basic framework for power markets is yet to be determined

Requires contracts for new projects to be determined by competitive bidding

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Japan

Sector dominated by 9 regional franchises J-Power only major player that operates in multiple

regions Large consumers are contestable Mid-sized consumers will become contestable in 2005 Full deregulation is scheduled for 2008 New energy exchange will be established so generators

can price electricity sold onto the national grid IPO of J-Power is the biggest in Japan for 6 years

(US$3.4b)

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Korea

KPX established in 2001 to operate the one-way bidding pool based on marginal costs and capacity payments

Marginal costs are determined by a committee, so generators can submit only capacity offers, not price offers

A two-way bidding pool (TWBP) has not yet been established as planned

Government is rethinking plan to introduce competition in the power distribution sector

Genco privitisation programme well behind schedule

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Philippines Legislation passed in 2001 Renegotiation of PPAs Regulator and market operator established Market rules written and systems currently being

developed and implemented Net pool with distributed utilities required to trade at least

10% of its total demand from spot market Locational marginal pricing methodology Expect market trials to commence in June/July 2005 and

commercial operations in December 2005/ January 2006 Process to sell transmission operator and gencos

continues

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Indonesia

Legislation passed 2002 Tariffs to be increased to economic levels by 2005 Requirement to establish a trial market by 2007 Renegotiation of PPAs

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Singapore

Market liberalisation programme began in 1995 Reform designed to promote the supply of

competitively-priced electricity New arrangements for wholesale trading commenced

on 1 January 2003 Prices established every half-hour for approximately

400 locations Recent participation of demand side in reserves market Retail contestability for large and medium sized

customers Full retail competition deferred at this stage

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Key themes in Asia

Investment requirements are astonishing Electricity market reform is progressing …slowly Reform delays in most jurisdictions About face by Thailand and Malaysia Investment climate for asset sales yet to improve Attention also focused on energy security and

diversification due to oil price increase If oil prices and shortages bite, focus on reform likely

to resume

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Australia

NEM operating since 1998 Zonal market but now considering nodal pricing Bass link will allow participation by Tasmania in 2005 Reform underway in Western Australia FRC - 5.5m customers are contestable Likely changes to regulatory structure

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New Zealand

NZEM operating since 1996 Establishment of Electricity Commission represents a

major regulatory shift Minister and Commission have strong involvement now

whereas before it was a voluntary self-regulated market Implications:

Mandatory pool ‘Dry-year’ supply contracted by Commission making

it a regulator and market participant Commission likely to adopt new approaches for

transmission investment and transmission pricing