MINISTRY OF ENERGY OF GEORGIA

Investment and trading

Opportunities in

Energy Sector of Georgia

Power Sector - Major Stakeholders

MENR

ESCO

GNEWRC

Distribution Co.s

Generation

GSE/ET/SakrusEnerg

o

Ministry of Energy -Sets policies and is responsible for facilitating investment projects

Independent regulator – GNWERC*- Establish tariffs, licensing rules and

standards- Resolve relations between customers and

companies

Technical operator/Transmission Services - HV lines, HV substations and dispatching

- GSE and ET (100% state owned)- SakRusEnergo (50% state owned and 50%

owned by Inter RAO)

Electricity System Commercial operator – ESCO - balancies market, emergency import/export- Reserve capacity trader

Generation - 59 Hydropower plants- 3 Thermal plants

Distribution Companies - All 3 Distribution Co.s under the private

ownership Telasi, Energo-pro Georgia, Kakheti Distribution

• Georgian National Energy and Water Supply Regulatory Commission

Hydropower Potential

• Immense untapped hydro resources

• One of the top country in water resources percapita

• 300 out of 26,000 rivers are significant in terms ofenergy production

• Only 18% of total hydro potential is utilized

• HPP Greenfield potential of 40 TWh

4

Financials/Ratios

Income Statement

Cash Flow

Balance Sheet

NPV

IRR

Technical Projection

HPPs Technical Data

Hydrological Data

Topographic

Maps

Other Necessary Data

Pre-Feasibility Studies FOR HPPS

74 HPP projects on pre feasibility level with financial and technical projections with installed capacity of up to 670 MW

MINIMUM BUREAUCRACY

5

*HPPs with less than 13 MW do not require Generation License•GNEWRC- Georgian National Electricity and Water Regulatory Commission

Construction

Permit

Ministry of Economy & Sustainable Development

Issued within 60 working days

Generation

License

GNEWRC

Above 13MW*

Issued within 30 working days

No payroll tax or social insurance tax

No capital gains tax

No wealth tax, inheritance tax

Foreign-source income of individuals fully exempted

Very strong political commitment to low and simple taxation and improve services

Taxation is simple, low, efficient and fair

‘04 ‘05 ‘06 ‘07 ’08 ‘09 ’10 ‘11 ‘12

Number of Taxes

21 7 7 7 6 6 6 6 6

VAT 20% 20% 18% 18% 18% 18% 18% 18% 18%

Income Tax 12-20% 12% flat 12% flat 12% flat

Social Tax + Income Tax

32% 25%

Social Tax + Income Tax

20%

20% 20% 20%

Social Tax 33% 20% 20% 20% - - - - -

Corporate Income Tax

20% 20% 20% 20% 15% 15% 15% 15% 15%

Dividend & Interest

Income Tax

10% 10% 10% 10% 10% 5% 5% 5% 5%

Existing Transmission lines• Russia 1155 MW

Existing & Planned Transmission Lines• Turkey 2000 MW• Armenia 835 MW• Azerbaijan 1150 MW

7

Construction of new high voltage 500/400 KV line connecting to Turkey finished

MOU for additional 154 KV line connecting to Turkey was signed

Georgian power grid is connected to the grids of all of neighboring countries

INFRASTRUCTURE AND TRADING OPPORTUNITIES WITH NEIGHBORING

COUNTRIES

Government Regulations –Prioritizing renewable Investments

Renewable projects based on Build-Own-Operate (BOO)

All new HPP plants are totally deregulated - No tariff set for the newly built HPPs - investor is free to choose the market and negotiate the price

There is no fee for the connection to the transmission grid

No license required to export and no tariff set

Developer benefits from carbon credits trading

New HPPs have priority access to the capacity on the new interconnection to Turkey (Long term contract with TSO)

Generation and Export activities are exempted from VAT

PPA for 20% of annually generated electricity for 10 year period for domestic supplies

100%

Thermal & ImportHydro

ProjectedSeasonal Asymmetry of Generation and

Consumption

Winter Summer

Generation

Consumption

HIG

H

LO

W

LO

W

HIG

H

80%

20%

Current

Thermal Power Plants Hydropower Plants

2013

Percentage structure in generation of electricity

RENEWABLE Energy projects

• 21 Under Construction

Installed capacity of 686 MW Annual generation up to 2,784 GWH

• 11 In the Process of Obtaining Construction permit

Installed capacity of 1,086 MW Annual generation up to 3,027 GWH

• 32 Projects Under Feasibility

Installed capacity of 570 MW Annual generation up to 915 GW

64 On-Going Energy Projects

Percentage Structure of the Indicator in Total FDI Inflow by

Q2 2013

www.geostat.ge

Electricity Import/ExportDATA

2006(Sep-Dec)

2007 2008 2009 2010 2011 20122013

(Jan-Oct)

Import from Turkey 31.762 149 54.3 - 0.00014 0.002823 0.000548 -

Export to Turkey -31.53 -215.6 -216 -182.3 -303.366 -218.625 -79.008 -

Import fromAzerbaijan

15.523 107.4 34.6 31.5 10.138 23.42 97.794 -

Export to Azerbaijan -29.986 -109.6 -30.9 -21.5 -14.344 -5.924 -11.79 -6.612

Import from Armenia - - - 0.04 - - 0.000408 0.001014

Export to Armenia - - - -19.8 -89.447 -117.474 -67.917 -73.16

Import from Russia 12.802 176.8 560.1 223.3 211.937 447.542 516.797 366.287

Export to Russia -0.568 -300.2 -432.7 -525.8 -1117.123 -588.575 -369.432 -370.602

Import total: 60.087 433.3 649 254.8 222.08 470.96 614.59 366.29

Export total: -61.807 -625.5 -679.6 -749.4 -1524.28 -930.6 -528.15 -450.37

Net Export -1.72 -192.20 -30.60 -494.60 -1302.20 -459.64 86.44 -84.08

www.esco.ge

Electricity Import/Export Chart

GWh

-6000

-5000

-4000

-3000

-2000

-1000

0

1000

2000

3000

4000

2006(Sep-Dec) 2007 2008 2009

2010 2011 2012 2013(Jan-Oct)

DATA FROM Doing Business 2014WB/IFC

Indicator(Rank)

Geo

rgia

D

B20

14

Geo

rgia

D

B20

13

Arm

en

ia

DB

201

4

Az

erb

aij

an

DB

201

4

Bel

aru

s D

B2

014

Bu

lga

ria

D

B2

014

Ro

ma

nia

D

B2

014

Tu

rkey

D

B2

014

Bes

t p

erf

orm

er

glo

ba

lly

Starting a Business 8 7 6 10 15 65 60 93New

Zealand

Dealing with Construction Permits

2 2 79 180 30 118 136 148Hong Kong SAR, China

Getting Electricity 54 54 109 181 168 135 174 49 Iceland

Registering Property 1 1 5 13 3 62 70 50 Georgia

Getting Credit 3 3 42 55 109 28 13 86 Malaysia

Protecting Investors 16 16 22 22 98 52 52 34New

Zealand

Paying Taxes 29 32 103 77 133 81 134 71 UAE

Trading Across Borders 43 45 117 168 149 79 76 86 Singapore

Enforcing Contracts 33 33 112 28 13 79 53 38 Luxembourg

Resolving Insolvency 88 92 76 86 74 92 99 130 Japanwww.doingbusiness.org

INVETSMENT ADVANTEGES

Deregulated power sector with very impressive turnaround since 2004

Distribution companies privatized and operating at high profit

Significant existing private investment in generation assets

GoG's strong support and commitment aimed at developing hydropower resources

Simplified Procedures

Diversified & Expanding export markets including EU

15

Thank you