DEVELOPING NEW GAS DEVELOPING NEW GAS INFRASTRUCTURE, INCL. LNGINFRASTRUCTURE, INCL. LNGREQUIREMENTS AND REQUIREMENTS AND PRACTICAL EXPERIENCEPRACTICAL EXPERIENCE

Marco Margheri – Head of EU liaison officeMarco Margheri – Head of EU liaison office

CEER workshopCEER workshop

Brussels – 9th November, 2006Brussels – 9th November, 2006

OBJECTIVEOBJECTIVE

As a leading energy operator in the Italian market, Edison is actively pursuing the increase and

diversification of its sources of gas supply, as well as trying to secure sufficient import capacity to make these supplies available to the Italian and European market.

The aim of this presentation is to share our “new entrant’s view” on the financing issues connected with new infrastructure development,

within the peculiar context of the Italian energy market,geographically bound to become a harbour forcompetitive and diversified supply routes.

AGENDAAGENDA1) WHO WE ARE1) WHO WE ARE

The leading new entrant on the Italian energy market

2) MARKET OUTLOOK2) MARKET OUTLOOK

Italian and European market outlook: why are shippers’ mid-stream investments key for

meeting gas demand and developing competition on the final market. A brief summary of

European examples

3)3) NEW INVESTMENTS: A NEW ENTRANT’S PERSPECTIVENEW INVESTMENTS: A NEW ENTRANT’S PERSPECTIVE

An outlook of project development phases and of key requisites for completion

4) PRACTICAL EXPERIENCE: DEVELOPING EDISON LNG AND PIPELINE 4) PRACTICAL EXPERIENCE: DEVELOPING EDISON LNG AND PIPELINE

PROJECTSPROJECTS

Edison’s latest developments, with drill-down on two projects listed among EU priorities:

North Adriatic LNG terminal and IGI Greece-Italy interconnection pipeline

BRIEFLY... WHO WE AREBRIEFLY... WHO WE AREBorn in 1881, Edison is one of Europe’s oldest energy companies. In 2005, it reported revenues of 6650 mln € (+ 32% in first 6 months of 2006, including a growth of more than 41% on the liberalized electricity market), and is currently carrying out one of the largest investment plans in Europe. it had to diversify its business, when the national monopoly on electricity was established in Italy on 1963; thanks to the first wave of EU Directives in 1996, it could re-focus its business on energy once again.

With more than 10.000 installed MWs and investments to grow up to 14.000 MWs, it is now Italy’s second largest electricity generator. Edison’s generation portfolio encompasses state-of-the-art CCGT thermo plants, as well as hydro and wind power plants, with high environmental sustainability.

13,3 bcm total sales of natural gas in 2005, and investments in both pipeline and LNG supply projects, will make Edison Italy’s second largest gas operator and first investor in new capacity.

THE CONTEXT: A LIBERALIZED MARKETTHE CONTEXT: A LIBERALIZED MARKET

Edison estimatesHistoric data

Electric generation

The liberalization process in Italy has led to roughly 20 billion € The liberalization process in Italy has led to roughly 20 billion € investment in new generationinvestment in new generationcapacity, adding nearly 15000 MW to the portfolio (more than 80% with CCGT technology)capacity, adding nearly 15000 MW to the portfolio (more than 80% with CCGT technology)

These investments were carried out by a number of These investments were carried out by a number of new entrants,new entrants, leading to one of the leading to one of the most most competitive marketplacescompetitive marketplaces throughout Europe throughout Europe

INCUMBENT: 39%INCUMBENT: 39%INCUMBENT: 39%INCUMBENT: 39%

Import with existing

infrastr.; 74

Domestic production;

12Domestic

production; 4

Existing Import

capacity; 84

Existing unused capacity; 6

New capacity to develop;

30

Demand; 118

Demand; 86

0

20

40

60

80

100

120

140

2005 2020

Import with existing

infrastr.; 245

Domestic production;

330Domestic

production; 220

Existing Import

capacity; 305

Existing unused capacity; 60

New capacity to develop;

225

Demand; 750

Demand; 575

0

100

200

300

400

500

600

700

800

2005 2020

ITALY: Gas Demand growth and sources

ITALY: Gas Demand growth and sources

EU30 (EU 25 + N, CH, TK, RO, BG): Gas Demand growth and sources

EU30 (EU 25 + N, CH, TK, RO, BG): Gas Demand growth and sources

Source: IEA World Energy Outlook and Edison internal review data

CAGR: 1,8%

CAGR: 2,1%

THE CONTEXT: GAS IS A KEY ARENATHE CONTEXT: GAS IS A KEY ARENA

530

114

Gas consumption will increase throughout Europe, with gas as the Gas consumption will increase throughout Europe, with gas as the only growing fossil sourceonly growing fossil source; the ; the Italian demand is foreseen to increase steadily, driven by Italian demand is foreseen to increase steadily, driven by power generationpower generation. .

Availability of Availability of additional volumesadditional volumes is a key enabler; is a key enabler; diversifyingdiversifying sources & sources & improvingimproving sourcing sourcing conditions will be a key success factor in the competitive arena. conditions will be a key success factor in the competitive arena. And... capacity is missing!And... capacity is missing!

All the projects under development are necessary to meet 2020 demand.Different business model, but significant volumes are key for Italy

All the projects under development are necessary to meet 2020 demand.Different business model, but significant volumes are key for Italy

UE-301: Import capacity* (Bcm)

* Norway gas hub, Ormen Lange, BBL, Interconnector are considered as UE30 internal sources and are not included in UE 30 import capacity

LNG under developmentPipelines under development

Existing pipelines Existing LNG LNG under construction Pipelines under construction

* EU.25 + Norway, Switzerland, Turkey, Romania and Bulgaria

INVESTMENTS: THE EUROPEAN CONTEXTINVESTMENTS: THE EUROPEAN CONTEXT

7

Example 1 - The UK:- focus on volumes

- various TPA exemptions (up to 100% capacity)

- LNG: LT market strategy

Example 2:-Focus on capacity

- LNG: ST market strategy

Italy:a naturalplatform

for anopen mkt

WHY M-S? IT’S A LONG WAY TO THE LAKE!WHY M-S? IT’S A LONG WAY TO THE LAKE!

The existing market structure is still The existing market structure is still strongly dominatedstrongly dominated by the incumbent operator. New entrants by the incumbent operator. New entrants need to need to integrateintegrate all along the supply chain in order to all along the supply chain in order to increase competitionincrease competition on the downstream on the downstream market (both heavy use and retail). market (both heavy use and retail).

Upstream investments (production&supply) on additional volumes are Upstream investments (production&supply) on additional volumes are the strategic goalthe strategic goal. Mid-. Mid-stream investments are a stream investments are a key enabler key enabler to negotiate volumes and make them available to the market.to negotiate volumes and make them available to the market.

INCUMBENT: 65%INCUMBENT: 65%INCUMBENT: 65%INCUMBENT: 65%

Major gas suppliers in Italy in 2005 (bcm)

purchases from domestic sources

ENI ENEL Edison Others

12.1

56.1

16.5 13.3

10.2 7.6

Edison share of total Italian portfolio availability: 15%

TOWARDS A COMPETITIVE MARKETTOWARDS A COMPETITIVE MARKET

A consistent A consistent flow of investmentsflow of investments is currently taking place in Italy, through is currently taking place in Italy, through mid-size industrialmid-size industrial projectsprojects, preparing a diversified and open import market. , preparing a diversified and open import market. ShippersShippers are leading the way. are leading the way.

The Italian Government has adopted relevant The Italian Government has adopted relevant EU legislationEU legislation (with subsequent (with subsequent AEEG regulationAEEG regulation) ) and recently launched a strategic initiative to prioritize initiatives and support and recently launched a strategic initiative to prioritize initiatives and support timely developmenttimely development. .

WIN / WIN: FROM THE LAKE TO THE HUBWIN / WIN: FROM THE LAKE TO THE HUB

Italian DemandSources: MSE, SRG, Edison

Domestic production

Existing + under construction + committed import capacity (North Adriatic LNG, TAG, TTPC)

2 new regas/pipeNew regas/pipe

A solid domestic demand and a diversified competitive arena allow for A solid domestic demand and a diversified competitive arena allow for maximizationmaximization of the system of the system capacity. This will result in the development of a capacity. This will result in the development of a liquid hubliquid hub, with diversified sources of supply to be , with diversified sources of supply to be traded traded across Europeacross Europe. .

The Italian trading hub can thus represent a valuable The Italian trading hub can thus represent a valuable contributioncontribution to the diversification of sources to the diversification of sources of supply for of supply for central Europecentral Europe as well as a as well as a key efficiency factorkey efficiency factor in optimizing the risk of industrial in optimizing the risk of industrial investments under development.investments under development.

New regas/pipe

NEW INVESTMENTS: AN EU FRAMEWORKNEW INVESTMENTS: AN EU FRAMEWORK

A A stable regulatory frameworkstable regulatory framework is required in order to facilitate investments in new infrastructures by implementing Directive 2003/55/CE and its national applications. is required in order to facilitate investments in new infrastructures by implementing Directive 2003/55/CE and its national applications.

CEER and ERGEG should support the CEER and ERGEG should support the harmonisationharmonisation of national and regional regulations of neighbouring countries with the acquis communautaire, avoiding potential of national and regional regulations of neighbouring countries with the acquis communautaire, avoiding potential overlaps and distortion of competition among Member States.overlaps and distortion of competition among Member States.

Implementation of Implementation of compatible regulationcompatible regulation in supplying & transit countries would stabilize the gas business framework. in supplying & transit countries would stabilize the gas business framework.

Gas interconnections between North Italy and Central Europe (e.g. through Switzerland and Austria) should allow for Gas interconnections between North Italy and Central Europe (e.g. through Switzerland and Austria) should allow for bi-directional gas flowbi-directional gas flow. In such way the gas arriving in . In such way the gas arriving in Italy from the “Southern route” could be made available to Central European countries, diversifying the gas suppliers for such region.Italy from the “Southern route” could be made available to Central European countries, diversifying the gas suppliers for such region.

The The unbundlingunbundling of existing interconnections should be implemented to facilitate the access of new operators. of existing interconnections should be implemented to facilitate the access of new operators.

Site selectionSite selection

Local consent Local consent investigationinvestigation

Agreements with site owners

Design Basis definition (~30%)

AuthorisationsAuthorisations

Preliminary commercial contracts

CAPACITY SECURING:CAPACITY SECURING:TPA exemption requestTPA exemption request

Pre-Basic Design (~20%)

Financial structure

Corporate structure

VOLUMES:VOLUMES:Definitive commercial Definitive commercial contractscontracts

Basic Design (~ 10%)

Regulated access Regulated access codecode

Local consent investigation

Design Basis definition

Agreements with Agreements with relevant TSOsrelevant TSOs

Concept Concept identificationidentification

Pre-Basic Design (~20%)

Preliminary commercial contracts

Authorisations

Intergovernmental Intergovernmental agreementsagreements

CAPACITY SECURING:CAPACITY SECURING:TPA exemption requestTPA exemption request

Host country Host country agreementsagreements

Basic Design (~ 10%)

VOLUMES:VOLUMES:Definitive commercial Definitive commercial contractscontracts

Corporate structure

Financial structure

LN

G T

erm

inal

LN

G T

erm

inal

WHEN A SHIPPER DEVELOPS A PROJECT...WHEN A SHIPPER DEVELOPS A PROJECT...

PRE-FEEDPRE-FEED PRE-FEEDPRE-FEED OPS.OPS. OPS.OPS. CONSTR.CONSTR. CONSTR.CONSTR. FEEDFEED FEEDFEEDFEASIBILTYFEASIBILTYFEASIBILTYFEASIBILTY

2 years 1 year 3 years >20 years

2-3 years1-2 years1 year2 years >20 years

1 year

Final investment Final investment decisiondecision

Final investment Final investment decisiondecision

Pip

elin

eP

ipel

ine

Critical pathCritical pathCritical pathCritical path

Preliminary Preliminary investment investment

decisiondecision

Preliminary Preliminary investment investment

decisiondecision

...SUPPLY IS KING! ...SUPPLY IS KING! 1. Cash flow comes from contracted volumes, not from

available capacity:

1. Secure and/or credible (sensitivity analysis as the mainstream financial market methodology) market potential, through financial commitment by customers

2. Availability of volumes within a long-term perspective, through direct negotiation with supplying countries

3. Balanced and predictable transport costs

4. Reliable and economic access to storage & distribution

2. Minimize operational risk for construction and management:

1. Strong political support by EU, national and local authorities

2. Optimal project outline, matching available volumes and minimizing route or operational risks in the long term

Rosignano LNG

IGI

GALSI

Capacity: 8-10 Bcm Commercial ops : 2010/11

Capacity: 8-10 Bcm

Commercial ops : 2010/11

Capacity: 8 Bcm

Commercial ops: 2010/11 Capacity: 8 Bcm

Commercial ops : 2008

North Adriatic LNG

OUR PRACTICAL EXPERIENCEOUR PRACTICAL EXPERIENCE

Main project characteristics:

World’s first offshore LNG regas terminal.

Shareholders: Exxon Mobil (45%), Qatar Petroleum (45%), Edison (10%).

Capacity and volume allocation:

8 Bcm/year Send-Out capacity. 250.000 cm LNG Storage Capacity.

80% for 25 years TPA exemption granted by the Italian government and the EU.

Edison/RasGas II 25 years 6,4 bcm/y supply contract

Start up in 2008

CASE 1: NORTH ADRIATIC LNGCASE 1: NORTH ADRIATIC LNG

ExtractionExtraction Liquefaction Liquefaction plantplant

ShippingShipping Regasification Regasification terminalterminal

Gas LNG LNG Pipeline

For the North Adriatic LNG Project : Production Facilities have been developed in the field (North Field Reservoir – Qatar) Liquefaction plant constructed and operational A 25 years agreement for LNG supply has been signed (through 80% TPA exemption) LNG carriers have been constructed (roughly 150k mc LNG = 90 mln smc NG) The regasification plant is under construction

AN INTEGRATED VALUE CHAIN TO BE COVEREDAN INTEGRATED VALUE CHAIN TO BE COVERED

CASE 1: NORTH ADRIATIC LNGCASE 1: NORTH ADRIATIC LNG

LT SUPPLY APPROACH KEY FOR LT SUPPLY APPROACH KEY FOR MAXIMIZING VOLUMESMAXIMIZING VOLUMES

NUMBER OF OPERATORS KEY FOR NUMBER OF OPERATORS KEY FOR OPTIMIZING CAPACITY&COSTSOPTIMIZING CAPACITY&COSTS

First offshore storage and regasification terminal in the world:15 km offshore; on the seabed in 30m water depth; not visible from the coast.Operation will start in 2008.

Under construction:Work progress over 40%. Already awarded contracts 1 billion Euro.

Strong environmental commitment:More than 100 prescriptionsThe project is subject to a wide and complex Environmental Monitoring Plan under execution by ICRAM (MOE).

Ongoing activities:26 dedicated employees, additional recruiting ongoingTraining – Investment for over 1 mln €

Terminale

CASE 1: NORTH ADRIATIC LNGCASE 1: NORTH ADRIATIC LNG

A EUROPEAN PRIORITY PROJECTA EUROPEAN PRIORITY PROJECT

The North Adriatic LNG is listed among TEN-E European priority projects The North Adriatic LNG is listed among TEN-E European priority projects (Dec. 1364/2006/EC: Annex I, NG.4; Annex III, 8.12)(Dec. 1364/2006/EC: Annex I, NG.4; Annex III, 8.12)

Main project characteristics:Onshore Section will be realized exclusively by DEPA Offshore section will be realized through a SPV (Poseidon Co) owned by Edison and DEPA on an equal basis 8 to 10 bcm/year throughput capacity

Currently undergoing Pre-FEED phase: Authorization Procedure in Italy and

Greece Marine Survey and feasibility results

updates Commercial Agreements (i.e. supply,

transit) negotiations TPA exemption procedure

CASE 2: IGI PIPELINECASE 2: IGI PIPELINE

The IGI Project (developed by Edison and Depa in cooperation with Botas) represents the missing link that, once realised, will allow the flow of Caspian and Middle East reserves into Italy and western Europe via Turkey and Greece.

The ITG project, linking Turkey and Greece is currently under construction, by Depa and Botas, and operations are soon expected to start..

Italian and Greek Governments have recently signed, in the presence of the Turkish Government, an Intergovernmental agreement, recognising the strategic relevance of the IGI Project and committing to support its fast development

CASE 2: IGI PIPELINECASE 2: IGI PIPELINE

A PROJECT OF EUROPEAN INTERESTA PROJECT OF EUROPEAN INTEREST

The IGI pipeline is listed among TEN-E European priority projects, and included amongThe IGI pipeline is listed among TEN-E European priority projects, and included amongprojects of European interest projects of European interest

(Dec. 1364/2006/EC: Annex I, NG.3; Annex III, 7.12)(Dec. 1364/2006/EC: Annex I, NG.3; Annex III, 7.12)

WHAT DO WE NEED: PROJECT SCENARIOWHAT DO WE NEED: PROJECT SCENARIO

UnleashedNegotiation

Power

Predictablecash flow

Seamlessimplementation

& mgmt.

TPA exemptionfor new infrastructuresfostering competition

on the final market

Stable frameworkfor network access,Including entry / exit

and cross-bordermanagement

Strong political supportat all levels for priority

projects, ensuringcoordination of effortsand a more effective

communication to stakeholders

A jointEU,

national,and local

EFFORT- Legislation- Regulation- Decisions

GOAL ACTORS ACTIONS OUTCOME

MS: national legislation and regulation (Italy: L239/04 and subs.)

Local authorities: EIA, construction permits and monitoring

EU: D 2003/55 and subs. regulation&decisions; TEN-E priorities

- Bring new entrantson the market

- Reduce dominantoperator’s mkt share- Diversify sources

- Ensure non-discriminatory

conditions- Develop a Southern

hub for Europe

- Ensure “Permitting”in due time

- Ensure flawless construction and

management

MERCIMERCITHANK YOUTHANK YOU GRAZIEGRAZIE