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Sonelgaz Group Projects funding

Algerian Electricity and Gas Company

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Summary

1. Introduction2. Strategic choice of funding of the Sonelgaz Group3. The financial arrangements used in the Sonelgaz Group 4. Comparison between methods of financing5. Challenges

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1. Introduction

In order to cover financially its development programs, the Sonelgaz Group, in search of financial resources, as a consolidated entity, to enable it to ensure the development of its infrastructure has initiated a major capital raising on the banking and financial market in accordance with national regulations

Moreover, as a public company involved heavily in the development area, the Sonelgaz Group, has set a goal to be a major player in the national banking and financial market. With this in mind, the Group has used various mode of financing  regarded as a lever for development.

To do this, the Group Sonelgaz studied the different funding opportunities and has achieved the establishment of conventional funding arranged locally in the short,medium and long term as well as the use of the bond.

The Group, since 2006, also pledged a new funding formula that is the finance project for new investments in electricity production in partnership, through  Hadjret Ennous projects « SKH » wilaya de Cherchell Koudiet Eddraouch "SKD" wilaya d’El Tarf and Terga"SKT" in the wilaya of Ain  Temouchent

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The Group Sonelgaz, and as part of the financial coverage of its investments, characterized by the mobilization of funds for development of its activities (investment capital) on one hand, and for  rural electrification programs of public gas distribution on the other hand, uses the following resources:

Bank loans State grants (in respect of rural electrification programs and public gas

distribution)

Customer participation (as regards the rural electrification programs and public gas distribution)

Self-financing The legal and regulatory framework, requires the Sonelgaz Group to raise funds on  the Algerian banking market, and this has been since 2006.

Indeed, the Algerian banking and financial market is considered advantageous for the development and the financial balance of Sonelgaz Group. Conditions that are offered are financial levers of growth for the Group:

The excess liquidity found at the Algerian public banks facilitates the fund raising for the Group (level, time)

2. Funding strategic choice

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2. Funding strategic choice(Cont’d) The stability of interest rates offered by the Algerian financial

market and discount for  electricity generation activities , transmission and distribution of electricity and gas and, unlike loans raised from banks offering external variable rates, averaged 5.87%

The use of local currency (against Value or value) in transactions exempt the Group Sonelgaz to be exposed to currency risk. The Sonelgaz group had to undergo  between 2000 and 2006, an exchange difference arising on nearby 4.5 billion dinars

It should be noted however, that arbitration in the use of resources, particularly for infrastructure projects has resulted in the deferral of some investment programs.

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3.1.Bank credit lines

Contracted with Algerian national banks, these lines are granted to finance, as appropriate, apart of the operation and a part of the financing needs of structuring projects and the means of production of electricity, transmission of electricity  and gas, or distribution of electricity and gas and this in order for to meet local expenditures (disbursements, benefits, advances ....) or foreign currency (foreign trade)

3. Financial package used at the Sonelgaz Group

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87,5 Billions Dinars

- Institutions 2004 – 2005-2006

- Large Public 2005 - 2008

- - Generation : 22,8 B DZD - - Power Transmission : 42,8 B DZD- - Gas Transmission : 4,1 B DZD - - Distribution : 17,8 B DZD

3. Financial packages used at the Sonelgaz Group

3.2. Bonds: Financial achievements

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Generation- Realization Oum El Assel diesel plant - Acquisition of 32 diesel generators

- Refurbishing of Skikda control command - Extension of the GT plant of Illizi

(2x3 MW)

Distribution- Realization of 15 000 km for electricity

-Realization of 10 000 km for gas

3. Financial package used at the Sonelgaz Group

Electricity transmission - Strengthening the 400kV level in

-Realization of 3 links of optical fiber-Operation and Maintenance of high voltage networks of Arzew and Skikda industrial areas

Gaz transmission - Realization of 190 DP - realization of 28 HV substations

3.2. Bonds: Physical realizations

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The Project Finance is a financing method based on the ability of a project to generate sufficient revenue to:

Cover the operating costs of the project Allow the reimbursement of loans raised Ensure the return on equity of investors

    

It is mainly characterized by :

The need to create an independent legal entity, dedicated Project Company The provision by shareholders and lenders of necessary funds  to accomplish the

project. The assurance of a continued production from the exploitation and throughout the life

of the project Allocation of revenues to operating costs, lenders and shareholders, without

discretion for reinvestment The limited involvement to shareholders

3. Financial packages used at the Sonelgaz Group 3.3. The Finance project

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Bank funding Shareholders / Capital stock

Other Sonelgaz

Bank leader *

bank Pool

Project company

30%70 %

(*): the bank leader acts as security agent , manager and account manager .

3. Financial packages used at the Sonelgaz Group

Direct agreement

Agreement related to accounts

Funding agreement

Security documents

SP

3.3.the finance Project –Design and structure

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4. Comparaison of financing processes

conventional Finance Undertaken primarily by companies

with sufficient funds Action of the Board on behalf of the

shareholder in terms of monitoring Affiliation to

management control (governors) Cash flow obeys the company policy

The Finance Project

Can be undertaken by a corporation / partnership.

The necessary capital and cash flows are isolated from other activities of investors.

Contractual arrangements have commitments that impose control

Cash flow obeys distributed to shareholders

Organisation

Bond loan

Undertaken primarily by companies sufficient funds

Prior authorization of the COSOB Organizing communication campaigns for

operations for the general public Cash flow obeys the company policy

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4. Comparaison of financing processes

Conventional Financing

Financing time Settingshort Reinvestment of funds generated

Finance Project

Financing arrangements very long and highly structured

Relatively high costs of arrangement

Financial Flexibility

Bond

Highly structured financing arrangements

Relatively high costs of arrangement Immediate availability of funds

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Loan Contractual Structure

Conventional Financing

Debt service provided by all fund sponsors

Signing a loan agreement by programme

Project Finance

Debt service provided by cash flows generated

Design of loan contracts based on specific characteristics of the project

4. Comparaison of financing processes

Bond

Debt service provided by all fund sponsors Establishment of an information

leaflet and signed Investment Agreement and guidance

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The willingness of the SONELGAZ group to move continuously toward the local banking and financial market and to play a key role as a major sustainable stakeholder, which will be more confirmed by the level of trust that investors and donors will put in the Group 

Funding of projects designed by public banks Contribution to the development of national economy Sonelgaz main actor in the financial market Sonelgaz, main actor in the bank marketplace with credit lines lines in excess of

100 billion dinars annually

Opening for the participation of corporations in the financing of investment projects Financial Analysts multidisciplinary teams (legal, technical, financial) Need to develop local expertise to advisors (technical, insurance, legal, finance) with

organization by business / industry, and specialization in practice (construction, operation, financing ... etc.)

5. Challenges

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Thank you

Direction Exécutive de la Stratégie Financière et de la ConsolidationDirection des Opérations Financières et Engagements02, Boulevard Krim Belkacem - AlgerTel : 021.72.31.45Fax : 021.72.15.61