June 2019 1
Project HovavTeaser
June 2019
PLEASE NOTE: This information may include "Inside Information" in accordance with Israel's Securities Law, 1968, and making use of this information may constitute a criminal offence pursuant to that Law. Therefor Please treat this information as CONFIDENTIAL
June 2019 2
Executive Summary
• In the last decade, substantial natural gas reserves were discovered in Israel’s economic water. Combined with government policy, this paved the way for substantial activity of independent power producers (‘IPPs’). IPPs, including renewables accounted for approximately 31% of Israel’s actual electricity generation in 2018.
• Following these developments and the recent structural reform in both the electricity sector and Israel Electric Corporation Ltd. (‘IEC’), IEC will be selling Ramat Hovav power generation site (the ‘Site’).
• Relevant entities interested in the sale of the power generation site and in receiving additional information regarding the conditions of participation in the sale process are invited to submit their details to IEC by way of e-mail to: [email protected]
• The Site’s capacity is approximately 1,137MW, composed of a Class F combined cycle unit (units 8-9, unit 8 being a gas turbine and unit 9 a steam turbine) with capacity of 366MW, a Class E combined cycle unit (units 3-4-5, units 3 and 4 being gas turbines and unit 5 a steam turbine)
200
335
236
366
2 Gas Turbines E(1,2)
CC Class E(3, 4, 5)
2 Gas Turbines(6, 7)
CC Class F (8, 9)
Installed Capacity By Turbine Type (MW) Site Actual Generation (GWh)
1,987 1,828
2,609
3,205 2,913
2014 2015 2016 2017 2018
4 Gas Turbines CC Class E CC Class F
• with capacity of 335MW and four gas turbines (units 1,2,6,7) with capacity of 100MW, 100MW, 118MW, 118MW, respectively, operated as a “Peaker”. All Gas turbines in the Site are dual fuel, primary fuel being Natural Gas and secondary fuel being Diesel oil.
• East of the Site there is an adjacent area of 35,794 sqm owned by ILA that can be used for future development of generation capacity. However, it has not yet been determined if this area will be part of the sale process.
June 2019 3
Section 1
June 2019 4
Generation Capacity Development in Israel
Generation Capacity and Demand (MW)
Source: IEC’s financial statements for 2018A / 2017A, Electricity Authority’s Roadmap for the Development of the Generation Segment, June 2018
11,297 11,649 11,664 12,769 12,759 13,248 13,483 13,617 13,617 13,617 13,617 13,335
71174 228
278 518516
734
1,9562,980 3,060 3,199
3,334359
596
754 917 946 1,303
10,070 10,200 10,280
11,53011,110
11,89011,640
11,335
12,905
12,623
12,74612,921
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
RenewableEnergy IPPs
IPPs (Gas Fired)Installed Capacity
IEC InstalledCapacity
National PeakDemand (MWh)
Trends
▪ The demand for electricity in Israel is growing at a fast and steady pace, from approximately 4,000 MW in 1990 to 12,921 in 2018
▪ Demand is driven by population growth, the increase in electricity use per household and growth of the business sector
65% 65%59% 59% 61%
52% 49% 45%36% 32% 30%
26%33%
39% 35%
17%44% 50% 53%
62%63% 66%
9% 2% 2% 6% 22% 4% 1% 2% 2% 5% 4%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Others
Natural Gas
Coal
Electricity Generation Fuel Mix Development
The temporary decrease in natural gas usage for electricity generation In 2012 was due to multiple outages of the gas supply from EMG.
June 2019 5
Israel Electric Corp. at a Glance
Source: IEC’s financial statements for 2018A1. As of December 31, 20182. 52 substations are privately owned3. A State of Israel guarantee for the existing securities of IEC are negligible compared to the company’s overall financial debt
Denotes USD figures USD/NIS exchange rate of 3.75 as of December 31, 2018.
• Established in 1923, 95 years of operation, the Israel Electric Corporation Limited (“IEC”) is the sole vertically integrated electric utility company in Israel and generates, transmits, distributes and supplies the majority of the electricity used in Israel
• IEC is 99.846% owned by the State of Israel
• IEC had total assets of NIS 85.9 billion and 11,476 employees as of December 31, 2018
• As of December 31, 2018, IEC serves 2.8 million residential, commercial, agricultural and industrial customers throughout the State of Israel including East Jerusalem and the Palestinian Authority
• Total electricity sales of 52,157 GWh for the period ended December 31, 2018
IEC Power Grid
Gas turbine (internal combustion) / Combined-cycle (internal combustion and steam)
Steam (dual purpose)
400 kV lines
161 kV lines
13.3 GWInstalled capacity
17Power stations
Generation (1)
5,586 kmHigh and ultra-high voltage
transmission grid
213(2)
Switching stations &sub-stations
Transmission (1)
64,264 kmMedium and low
voltage lines
2.8 mnCustomers
Distribution (1)
2018 Key Financials Credit Ratings as of December 31, 2018
IEC GlobalBaa2 / BBB(Moody’s / S&P)
(Positive / Stable)
State of Israel (3)
A1 / AA- / A+ (Moody’s / S&P / Fitch)
(Positive /Stable / Stable)
IEC LocalAa2.il / ilAA+
(Midroog / Maalot S&P)(Stable / Stable)
Revenues
NIS 23.6 billion
$B6.3
EBITDA
NIS 8.0 billion
$B2.1
June 2019 6
Electricity Sector - Overview
Transmission
Source: IEC’s financial statements 31/12/2018
DistributionGeneration
total installed capacity – 13.3 GW
total energy generated – 69,644 GWh
11 switching
stations
5,586 Km high
and ultra-high
voltage lines
202
Substations
64,264 km
medium and low
voltage lines
2.8 million
customers
IPP’s
2018
MW % GWh %
IEC 13,335 74% 47,905 69%
IPPs (Gas fired) 3,334 19% 19,701 28%
Renewables 1,303 7% 2,038 3%
Total 17,972 100% 69,644 100%
Energy GeneratedInstalled Capacity
June 2019 7
Energy Sector in Israel – Future Outlook
Natural Gas Sector Recent Developments
▪ Until the early 2000s, natural gas use in Israel was minimal. Since then, substantial natural gas reserves have been discovered in Israel’s economic water (‘Yam Tetis’ ‘Tamar’, ‘Karish and Tanin’ and ‘Leviathan’). Israel’s gas reserves are estimated at 980 BCM.
▪ Natural gas consumption for electricity generation is expected to reach 12.4 BCM in 2030 which will account for 70% (67 TWh) of expected generation.
▪ The rapid development in natural gas supply enables IPPs to compete in the electricity generation segment by investing in a more efficient generation technologies such as combined cycle power plants.
▪ On July 29th 2018, following the government resolution regarding the reform in the electricity sector1, the government of Israel has approved the proposed resolution no. 4080 for shutting down and transferring to preservation the coal generation units 1-4 in Hadera by 20222.
▪ According to the Electricity Authority, the future electricity generation for the Israeli economy is expected to reach 97 TWh in 2030, with a peak demand expected to reach 19,622 MW in 2030.
▪ According to the Electricity Authority, in order to support the electricity consumption forecasts, the installed capacity in 2030 should reach 23,350 MW.
Electricity Consumption and Generation Forecast*
Electricity Sector Natural Gas Consumption Forecast (BCM)*
8.59.1
8.3 8.3 8.6
10.310.7 11 11.3 11.5 11.7 12 12.2 12.4
2017A 2018A 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
68 70 72 74 76 78 81 83 85 87 90 92 95 97
12,746
12,921
14,420
14,802
15,197
15,609
16,072
16,524
16,966
17,497
17,999
18,512
19,051
19,622
2017A 2018A 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Total production (TWh) National Peak demand (MWh)
Source: BDO - Israel Natural Gas Demand Forecast 2017-2040, Ministry of Energy, Delek drilling financial reports for 2017A, Electricity Authority’s Roadmap for the Development of the Generation Segment, June 2018 , Review of Natural Gas Market in Israel 2018, May 2019 - Natural Gas Authority, Government resolution 40801.Government resolution no. 3859 dated 03/06/2018 regarding the structural reform in the electricity sector and restructure process in IEC2.Under resolution 4080, the shutting down of units 1-4 in Hadera will be subject to (1) the connection of 3 different gas fields to INGL transmission network via different ports, and (2) a new combined cycle power plant (600 MW) will be built by a subsidiary of IEC and will be operational no later than 01/06/2022.
* 2017-2018 based on actual data. Future years data is a forecast.
June 2019 8
Regulatory Environment
Source: Ministry of Energy, EA reports1.with the exception of a production facility of less than 16MW. License for production, supply and distribution of capacities larger than 100MW, 100MW and 5% of the market’s consumption respectively, require an additional approval of the Minister of Energy.2.Book of Standards in English and in Hebrew. See also EA resolution No. 5 (1358) dated 13/5/2019 regulating transactions between the System Operator and electricity generators connected to the Transmission grid and new standards for these producers.3.The Resolutions include, inter alia, decision of the Ministerial Committee for Social and Economic Affairs (the Socio-Economic Cabinet) No. SE/43 of November 4, 2002 and also Government Resolution number 3484: Government policy in the field of energy production from renewable sources, of July 17, 2011.4.Israeli government’s resolution 3859.
The Electricity Sector Law 1996
▪ The Electricity Sector Law 1996 (“ESL”) and the regulations promulgated thereunder provide the legal and regulatory framework for both public and private activities in the electricity sector. Any entity interested in engaging in any activity in the Electricity Sector must obtain a license under the ESL1.
▪ It is the government's declared policy to encourage the entry of private producers and suppliers into the Electricity Sector and the entire regulatory scheme is constantly being adapted with the view of enhancing the fulfillment of this policy.
Ministry of Energy
▪ The Ministry of Energy is responsible for the energy economies and national resources of the State of Israel including: electricity, fuel, LP gas, natural gas, etc. The Ministry of Energy supervises the public and private entities involved in these fields and acts to ensure an adequate solution to the changing energy and infrastructure needs of the national economy, while regulating the market and protecting both the consumer and the environment.
Book of Standards
Existing IPP’s Tariff arrangements
▪ In accordance with Government resolutions3 and the Ministry of Energy policy to incentivize the private sector to join the electricity generation sector, tariff arrangements including availability tariffs, as well as financing supporting arrangements, were provided to the IPPs in order to mitigate certain risks, inter alia, force majeure.
▪ According to clauses 30 (2) and 33 of the Electricity Sector Law, 1996, the EA is in charge of publishing the Book of Standards, for setting the standards for the level and quality of services provided by an essential service provider licensee to electricity consumers, electricity supply licensees, independent power producers, electricity storage licensees or to another essential service provider 2.
Ramat Hovav’s Regulation
▪ According to clause B.9.f of Government resolution 3859 approved on 3/6/2018, the EA is instructed to publish regulation that will enable a competitive and efficient sale of the generation sites which are to be sold, six months prior to the publishing of the competitive bid process by IEC4.
June 2019 9
IEC Structural Reform Highlights
1.Amendment No. 16 to the Electricity Sector Law 1996, can be found here.2.Under advanced process of selling Source: IEC’s financial statements, Israeli government’s resolution 3859.
Electricity Generation Segment
By 2023, 5 gas fired generation sites with total installed capacity of 4,500MW (including the Site) will be sold. In addition, IEC will build and operate two new gas-fired combined cycle turbines in ‘Orot Rabin’ site with a total installed capacity of app. 1,200MW.
Transmission & Distribution Segment
IEC will retain a natural monopoly in the transmission and distribution segments while the supply segment will be incrementally opened to competition.
System Operator ActivityThe system operator and planner (part of IEC today) will be transferred to a new government-owned corporation and will be totally separate from IEC.
Operational Efficiency Measures
The reform includes IEC reducing approximately 1,800 permanent employees and implementing a more flexible working relationship between IEC’s management and the workers’ labor union.
▪ Government resolution 3859 approved on 3/6/2018 and Amendment No. 16 to the ESL1, regarding a reform in the electricity market and a structural change to IEC requires a vast reform in IEC’s activity.
TotalEshkolOld Hagit SitesReadingRamat HovavAlon Tavor2Site
20232022202120202019Expected Sale Year
4,491MW1,683MW660MW428MW1,137MW583MWInstalled Capacity
Electricity Generation Sites Sale Planned Schedule
June 2019 10
Section 2Section 2
June 2019 11
Ramat Hovav Site Location
Ramat Hovav
Power Plant
June 2019 12
The Ramat Hovav Site Location – Cont.
Legend
1. Transmission and switching 161 KV.
2. Transmission and switching 400 KV.
3. Future development Transmission
and switching.
4. Generation units 8-9 (CCGT- F
Class).
5. Fuel Storage and Generation site.
Includes:
• Generation units 1,2,6,7 (GT)
• Generation units 3,4,5 (CCGT –
E Class)
• Fuel Tanks
6. Future development of generation
capacity area.
Note: The exact size and borders of the
Transmission and switching areas will be
determined in the future.
52,665 Sqm
61,516 Sqm
8,482 Sqm
1
2
3
4
539,943 Sqm
85,034 Sqm
6
35,794 Sqm
Diesel Oil pipeline and skidPRMS (outside of site border)
Transmission and switching facilities (Not to be Sold)
Power generation area
June 2019 13
The Ramat Hovav Site – Overview
Generation Units
Actual Generation Diesel oil (GWh)
Actual Generation NG (GWh)
1,981
1,689
2,582
3,035 2,875
2014 2015 2016 2017 2018unit 1 unit 2 unit 3 unit 4 unit 5 unit 6 unit 7 unit 8 unit 9
6
140
27
170
38
2014 2015 2016 2017 2018
unit 1 unit 2 unit 3 unit 4 unit 5 unit 6 unit 7 unit 8 unit 9
Installed
Capcity (MW)
Year of
Inception
Gas turbine (unit 1) 100 1989
Gas turbine (unit 2) 100 1989
CC (GT unit 3) 115 1993
CC (GT unit 4) 115 1993
CC (ST unit 5) 105 1999
Gas turbine (unit 6) 118 2009
Gas turbine (unit 7) 118 2010
CC (GT unit 8) 250 2010
CC (ST unit 9) 116 2013
Total 1,137
June 2019 14
Section 3
June 2019 15
Key Terms and Prerequisites1
Key General TermsKey Prerequisites
• The assets are being sold for the sole purpose of generating electricity, as permitted under a new electricity generation license to be granted to the buyer by the EA, subject to compliance with the conditions required under the relevant regulations and the Electricity Sector Law, and the criteria of the EA and subject to the buyer obtaining all required approvals for the purchase of the assets and their operation.
• The assets are being sold AS IS, WHERE IS and WITH ALL FAULTS. No representations or warranties will be made by IEC regarding the assets except as expressly set forth in the final sale agreement.
• The operation and maintenance of the assets after the execution of the final sale agreement, will be at the sole responsibility of the buyer.
• The site will be sold without a GSPA (Gas Supply Purchase Agreement), however there might be an option to buy gas for a certain period from IEC.
• The Site is operated by approximately 50-602 employees that will be seconded to the Buyer by IEC for a period of 5 years after the completion of the sale process. The buyer will bear all employment costs regarding the employees for the above period.
• Buyer must have a strong financial position and the financial capability of operating the assets as required by the Electricity Sector Law regulation and EA criteria.
• Buyer must have a proven experience operating gas-powered power plants as required by the Electricity Sector Law regulation and EA criteria.
• Buyer must meet all other terms and criteria as will be defined by the EA in the new electricity generation license to be granted to buyer.
• The transaction will be subject to approval by the Competition Authority and other regulatory approvals.
• The transaction will be conducted by IEC and will be subject to the Israeli Tender Law and regulations.
• Buyer will have to secure additional permits/approvals inter alia, Israel Land Authority approval, environmental permits, business licensing etc.
1. Terms and prerequisites presented in this document are not final. Final transaction terms and prerequisites are under formulation2. Detailed information regarding the exact number of employees to be “lent” by IEC to Buyer will be provided in the process documents
June 2019 16
Site Sale Process – Key Milestones*
TeaserA teaser for the sale process sent to a broad base of potential participants for the purpose of initiatingthe process
PQ PublicationPublication of an invitation for Pre-Qualification to participate in a tender for the submission of bids topurchase the Ramat Hovav production site
ClosingExecuting all transaction documents, transferring the responsibility on all operation & maintenance ofthe Site to the buyer, including finalizing all legal and regulatory issues
06/2019
6/2019-8/2019
Bid Submission
3/12/2020
Signing
PQ Evaluation ProcessFollowing the receipt and evaluation of the PQ forms , selected participants will be invited to participatein a tender for the submission of Bids
9/2019
10/2019–04/2020
Phase I
Phase II
Preferred bidder is to be declared shortly after submission, subject to an additional competitive biddingprocess or “Best and Final” stage. SPA to be signed following final negotiations
Selected participants will gain access to a VDR, and will be given the opportunity to conduct further duediligence after which bids will be submitted
*The above schedule and process are tentative and subject to approvals and other developments
As part of the sale process, tariff arrangements for the Site’s post-sale operation will be determined and published by the EA
June 2019 17
Disclaimer
➢ IEC shall be under no obligation to issue a procurement procedure in connection with the sale of Ramat Hovav site, or any other site, whether pursuant to this Teaser or otherwise.
➢ IEC shall be under no obligation to enter into any transaction with any party whomsoever who responds to or participates in this Teaser, whether in connection with the sale of Ramat Hovav site, or otherwise.
➢ IEC shall be entitled to use the information obtained from the process as well as any data, solution, process, technique or suggestion contained in any of the responses or documents/response material submitted to IEC in relation thereto. IEC shall be permitted to use such information in order to facilitate and progress the sale process and/or in order to secure any permits and approvals which may be required during the process
➢ A response to the Teaser shall not bestow upon any person or entity responding thereto any advantage in any procurement procedure, if such procedure should be issued at all, and IEC shall not be obliged to include any respondent to this Teaser in any procurement process.
➢ Any exceptions, changes or additions to these above instructions (whether contained in any response to the Teaser or otherwise) shall be devoid of validity and legal effect and shall not obligate IEC.
➢ The schedule presented in the Teaser is preliminary , non-binding, and is both subject to any change and the granting of appropriate permissions by the regulator. IEC makes no representations or warranties with regard to any of the information contained therein and accordingly, shall assume no risk or responsibility for any damages which any third party may incur as a result of the information contained herein.
➢ The stages of the procedure are subject to change at the discretion of IEC as well as in accordance with the requirements of the competent authorities, should the circumstances dictate.
➢ IEC does not undertake to contact any of the entities which express interest in the procurement process, nor will it be obliged to respond to details addressed to the IEC following the publication of this Teaser.
➢ PLEASE NOTE: This information may include "Inside Information" in accordance with Israel's Securities Law, 1968, and making use of this information may constitute a criminal offence pursuant to that Law. Therefore please treat this information as CONFIDENTIAL
June 2019 18
Contact Details
The dedicated mail address for the project:[email protected]
Amir Livne, Head of strategy and restructure process, VPIsrael Electric Co.Phone: +972-76-8630003 Fax: +972-72-3459367
Sam Gortler, Executive ChairmanGoren Capital GroupTel: +972- 3- 6938000Fax: +972-3-6914000E-mail: [email protected]
