Şirkət profili

AzerEnerjiCorporate Presentation

July|2015

Page 2 • Corporate Presentation

Country overview

Azerbaijan at a glanceRating S&

PMood

y’sFitch

Kazakhstan

BBB Baa2 BBB

Azerbaijan

BBB- Baa3 BBB-

Russia BB+ Baa3 BBB-Turkey BB+ Baa3 BBB-Georgia BB- Ba3 BB-Ukraine CCC- Caa3 CCC

Capital: BakuArea: 86 ,600 km2

Population: 9.5 million (2014)Category: High-middle incomeGDP/capita: AZN 6,300 (2014)Currency: Manat (AZN)

11.7% compound annual real growth rate of the economy between 2010-2014. The economy grew almost 2 times during this period;70% the ratio of strategic reserves to GDP as of 2014. Strategic reserves is 8 times higher than external sovereign debt;1.4% the rate of inflation in 2014 (versus 2.4% in 2013). The annual inflation rate was only single-digit between 2009-2014;8.9% the ratio of external sovereign debt to GDP as of 2014. External sovereign debt-to-non oil GDP ratio was around 14.6%.

Russian Federation

Georgia

Turkey

Iran

Azerbaijan

Country brief info

Sources: State Statistical Committee

Country overview

WB Doing Business Rank 2015Georgia 15

Turkey 55

Russian Federation 62

Kazakhstan 77

Azerbaijan 80

Ukraine 96

• GDP per capita is expected to top AZN 10,000 by 2019 (IMF WEO – October, 2014)• USD/AZN exchange rate has been stable over the last 5 years within the band of 0.80-0.79;

Budget Revenues (AZN, mln)

2013 2014 2015 (E)

Oil Sector Taxes 2,640

2,802

2,300

Non-oil Sector Taxes 3,760

4,300

4,812

Custom's Duties 1,084

1,510

1,590

SOFAZ Transfers 11,350

9,337

10,388

Other 325

435

348

Total 19,159

18,384

19,438

Budget Expenditures (AZN, mln)

2013 2014 2015 (E)

General State Spending 1,805

1,998

2,047

Defence 1,529

1,637

1,779

Education 1,661

1,800

1,854

Social Security and Healthcare 2,483

2,798

2,818

Capital Investment 6,915

6,260

6,930

Debt Service 647

697

703

Other 4,810

4,873

4,969

Total 19,850

20,063

21,100


Azerbaijan Power Market Structure

Azerenerji JSC93%

Nakhchivan Energy Agency

4%

Generation

Renewable Energy and

IPPs3%

Azerenerji JSC98%

Transmission Distribution

Nakhchivan EA2%

AzerIshig JSC (former

Bakielektrikshebeke)98%

Nakhchivan EA2%


Azerenerji JSC

VisionLeading Electricity Company in Emerging Markets

Goals Delighted Customers, Energized Employees,

Environmental Leadership

Strategies Customer Focus, Operational Excellence

Values Integrity, Passion, Accountability, Commitment to

Excellence and Innovation


Azerenerji overview 2014100% Owned by the Republic of Azerbaijan22.1 TWh Power generated 95% Power generation share98% Power transmission share50% Power distribution shareAZN’m 831 Gross revenue26.1% EBITDA margin6.7x Net debt/EBITDA ratioBBB- Fitch/S&P credit ratings

Azerenerji overview


Azerenerji mandates

Social Mandate

Economic Mandate

Security Mandate

Diplomatic and Political

Mandate

The provision of a reliable and sufficient supply of power to the broad population is central to Government social policy, as is made clear through the dominant state policy programs– This is a key element of the Government’s strategy to provide better living standardsAzerenerji frequently provides “not for profit” power under Government direction– Azerenerji is and will remain in to the future the Government’s agent in achieving its social

goals

A reliable sufficient supply of electricity is indispensible to Government economic policy– It underpins economic diversification with the goal of reducing reliance on oil

– The development of small and medium enterprises is a key goal– The Government also supports certain key industries such as metallurgy and tourism

through directing the construction of energy infrastructure– It offers the prospect of developing a highly competitive alternative export industry to oil and

gas

Securing energy independence from neighbouring countries was a critical consideration for Azerbaijan following its independence and the ceasefire in Nagorno-Karabakh war– Following a concerted drive to invest in power generation capacity—for which Azerenerji was

the Government’s agent—Azerbaijan achieved electricity self-sufficiency in 2007– Generation capacity now surpasses domestic demand by about 40%

Azerenerji is responsible for ensuring the fulfilment of Government-to-Government contracts that oversee the smooth and reliable supply of electricity throughout the region– These arrangements play an important role in supporting Azerbaijan’s diplomatic efforts and its

strong relations with its neighboursAzerenerji is responsible for ensuring the smooth supply of electricity to the Autonomous Republic of Nakhchivan, a strategically important constituent part of Azerbaijan that is geographically separated


Generation

History of power generation

1897 1910-40 1950-70 1980-90 1990-2014

First Power Plant

Bibiheybat PPMingachevir HPP

Azerbaijan TPP

Shamkir HPP

MW

Shirvan TPP

Janub TPP

Fuzuli HPP

Sumgayit PP

+ over 2 000 MW• By 1920 total installed capacity of Azerbaijan was 56 MW and it reached to 250 MW by 1940

• Be late 1970 total installed capacity topped 2.8 GW while power generation was more than 15.4 bn kWh

• In 1981 the first unit of Azerbaijan TPP was commissioned. In 1989, the biggest power plant in South Caucasus — Azerbaijan TPP (8 units, 2 400 MW) was fully commissioned

• Starting from 2006, 10 modular power plants have been commissioned in various regions of Azerbaijan with total capacity over 750 MW.


Page 9 • Corporate Presentation | February 2015

Azerenerji power plants overview

Azerbaijan TPPMingechevir HPP

Sheki MPP Khachmaz MPP

Shahdagh MPP

Astara MPP

Janub CCPP

Shirvan TPP

Sumg ayit CCPP

Sangachal MPP

Baku MPPBaku CCPP

Shimal CCPP

Shamkir HPP

Yenikend HPP Varvara

HPP

Hydro PPThermal PPModule PPCombined Cycle PP

Generation Breakdown 2014

Generation Facility

Current Installed Capacity (MW)

Projected YE 2015 Installed Capacity (MW)

TPP

Azerbaijan TPP 2,400 2,600Janub CCPP 780 780Shirvan TPP 900 170Lerik ES - 17Baki IEM 107 157Sumqait CCPP 525.3 525.3Shimal CCPP 400 400Shimal II CCPP - 409Baki MPP 104.4 104.4Astara MPP 87 87Sheki MPP 87 87Khachmaz MPP 87 87Sangachal MPP 299.2 299.2Shahdagh MPP 104.4 104.4Total 5,881.3 5,827.3HPP

Mingechevir HPP

402 402

Shemkir HPP 380 380Yenikend HPP 150 150Fuzuli HPP 25.6 25.6Takhtakorpu 25 25Varvara HPP 16.5 16.5Small HPPs 2.6 2.6Total 1,001.7 1,001.7

Azerenerji generation profile

2,500 5025100

Azerbaijan TPP

Janub TPP

Sumgayit TPP

Mingachevir HPP

Shimal TPP

Shamkir HPP

Sangachal PP

Yenikend HPP

Baku CHPP

Astara PP

Varvara HPP

501,000 10

Sheki PP

Khachmaz PP

Baku PP

Shahdag PP

Tartar HPP

Installed Capacity, MW Age, years

Rehabilitated in 2000

On the territory occupied by Armenia

Gas

Hydro

Rehabilitation

Rehabilitated in 2006 - 2012


Azerenerji generation

Shirvan TPPThree major power generation plants in Azerbaijan

Azerbaijan TPP Mingechevir HPP

Azerbaijan TPP (rehabilitated in 2012)Shirvan TPP (which is in the process of replacing Janub CCPP with capacity of 780MW since the first HY of 2013Mingechevir HPP (rehabilitated in 2012)


Increasingly efficient generation

Annual Production by Types of Generation (bn kWh)

Fuel Mix (TWh)

Fuel Consumption in Conditional Units (gr/kWh)

Fuel consumption per kWh has decreased significantly

Strategy implemented by current head of state (formerly vice-president of SOCAR) to reduce fuel oil consumption – Fuel oil fired generation has been eliminated

Azerenerji has excelled in environmental performance and energy efficiency – Most environmentally friendly utility in the CIS– Top 5 European utility in energy efficiency


Transmission and demand planning

Backbone transmission lines and substations (110-500 kV)Voltag

eNumber

of TLLength (km)

Number of substation

s

Capacity of substations

(MVA)

500 kV 3 >477 2 2,100

330 kV 20 >1,309 7 3,695

230 kV 1 >31 - -

220 kV 28 >1,506 13 5,223

110 kV 284 >5,404 143 6,648

Total 336 >8,726 165 17,666

Overview

Increase connectivity between existing demand & existing generation sites

Respond to demand movement driven by growth, decline & demographic change

Connect new generation sites which differ from old sites according to changing fuel proximity

Optimize the geographic advantage of the country’s electricity transit capacity (North-South & East-West Energy Corridors)

Major principles of decision making in transmission and generation

13

Ongoing and Potential High VoltageTransmission Projects

Demand Forecast

220 kV Mingachevir-Absheron Transmission Enhancement Project. Financed by the Asian Development Bank ($160m)330 kV AzTPP-Imishli Transmission project. Financed by KfW (€30m)500 kV Azerbaijan TPP- Samukh-Gardabani (east-west corridor) transmission project. Financed by the government (AZN 51m)220kV Shirvan- Boyukshor transmission project. Financed by the government guaranteed loans (AZN 119m)220 kV Shimal TPP-Hovsan-Zabrat-Industrial Zone transmission project. Financed by the state budget (AZN 60m)

Transmission networks include 110, 220, 330 and 500 kV substations and transmission lines and 110 and 220 kV electric networks. Total length of high voltage transmission lines is

~ 8,726 km


Transmission efficiency

Transmission and Distribution Losses

Transmission losses are below 10% and will improve as transmission is upgraded

Unit 2009 2010 2011 2012 2013 2014

Gross Generation

GWh 18,095.77 17,888.05 19,234.93 20,620.9 20,786.8 22,119.0

by Thermal GWh 15,905.61 14,594.22 16,752.70 18, 955.5 19,520.6 20,963.7

by hydro GWh 2,190.15 3,293.83 2,482.23 1,665.5 1,266.2 1,155.3

Net Generation GWh 17,436.05 17,277.68 18,583.03 19,907.2 20,053.2 21,361.7

by Thermal GWh 15,253.77 13,992.17 16,107.84 18,247.9 18,792.7 20,167.6

by hydro GWh 2,182.27 3,285.51 2,475.19 1,659.3 1,260.5 1,149.1International Trade

Import GWh 42.69 32.20 50.17 67.7 127.3 124.0Export GWh 205.05 238.58 415.67 341.1 495.6 489.3Net Trade Balance

GWh 162.36 206.38 365.51 273.4 368.3 365.3

Net Supply to Grid

GWh 17,513.60 17,340.12 18,682.84 20,016.28 20,280.10 21,615.8

Sold Energy GWh 14,969 14,544 15,405 17,122 17,479 18,628Loss Percentage % 8.76 10.15 9.98 9.53 9.53 9.3


Electricity export and power trading

Major contractual agreements

Bilateral State

agreementsRussia

Georgia Turkey

SWAP transactions

(non-monetary)

Iran

Sales agreements

Russia Georgia

RussiaGeorgi

aYashma 330 kV

Agstafa

330 kV

AzIES500 kV

Yalama

110 kV

20% of Azerbaijan territory occupied by Armenia

Azerenerji is a backbone for Caucasus Energy System (East-West and North-South Energy Corridors)

500 kV330 kV

110 kV

Electricity Export/Import

The Government of the Republic of Azerbaijan placed huge emphasis on electricity independence from its neighbors following the break-up of the Soviet Union, which had left it with inefficient and degraded facilities, and after ceasefire in Nagorno-Karabakh war

Well diversified clientele base both by geography and consumer groupsThis was a major strategic goal of the Government of Heydar Aliyev, President of Azerbaijan from 1993-2003Starting 2000, the Government launched a concerted drive to raise generation capacityNonetheless, Azerbaijan remained reliant on its neighbors, principally Russia and Iran, for a substantial proportion of its electricity consumption well into the last decade: net imports amounted to 1.565bn KWh as recently as 2003With the roll out of installed generation capacity, imports gradually fell from 2003, until Azerbaijan achieved a net export position starting in 2007Domestic generation capacity now exceeds domestic demand by around 40%The linking of Azerbaijan’s grid to neighboring countries allows it to import power to smooth out the sustainability of the power supply during peak hours even though Azerbaijan is now a clear net exporter


Export opportunities to Turkey

Azerbaijan has over 2,000 MW excessive generation capacity; Existing cross-border transmission lines allows approximately 700 MW to export per year

■ Electricity demand in Turkey will at least grow up to 60% and reach 398 TWh by 2020 (TEIAS);

■ Supply deficit will start from 2018 and reach 7% in 2020 (TEIAS);

■ AGT Power Bridge Project was initiated by Azerenerji, GSE and TEIAS in 2009 for achievement of technical solution of the electricity delivery from Azerbaijan to Turkey though Georgian Power Transmission System;

■ With the current generation capacity, Azerbaijan power system may contribute to supply deficit coverage in Turkey.

■ Established office for electricity wholesale operations

Russian Federation

500 kVZestaponi

Gardabani

500 kV

Imishli

Borchka

Ighdir

Derbend

Parsabad

Nakhichevan AR

500 kV

330 kV

330 kV

330 kV

220

kV

154 kV

132 k

V

132 kV

Azerbaijan TPP

Existing Planned

400

kV Yashma

Georgia“GSE”

Azerbaijan“Azerenerji”

Iran

Turkey“TEIAS”

Azerbaijan-Georgia-Turkey (AGT) Power BridgeElectricity export potential to Turkey


Strategic goals

Transmission

Generation

Power Export

Additional 1800 MW thermal capacity by 2020200 MW capacity from HPPs33 % growth in total installed capacity

Construct four 220 kV substations adding 1,500 MVA capacityFifteen 110 kV substations with a capacity over 1000 MVA,Installation of new transformer capacities of 800 MVA in 500, 220 and 100 kV substationsConstruct ion and reconstruct ion of high voltage grid.

Currently Electricity export potential over 4.5 bln kWh with the potential to increase up to 6 bln kWhAzerbaijan-Georgia-Turkey (AGT) Power Bridge project


Azerenerji rating

Successfully anchored rating around the SovereignKey facts• Azerenerji JSC is a 100% state-owned diversified power holding focusing on electricity generation,

supply and cross country exchanges• It is Azerbaijani’s monopoly power generator with installed capacity of 6.9 GW and the sole national

operator of electricity export and import• Following a competitive selection process Goldman Sachs (GS) was mandated as joint ratings advisor

to support Azerenerji JSC in its first time ratings processGS Ratings Advisory involvement• GS worked with Azerenerji JSC in developing a rating strategy and advised the company on a number

of a rating-related matters throughout the process• GS helped Azerenerji to successfully achieve BBB-/Positive rating which is aligned with the rating of

Republic of Azerbaijan. After Fitch revised the Outlook on Azerbaijan’s Long-term IDR to Stable from Positive the outlook for Azerenerji IDR was revised accordingly.

• Key issues that needed to be addressed with the agencies– Debt Positioning : debt structure, leverage and future borrowing plans– Common opinion regarding volatility of power trading operations– Potential regulatory changes in energy sector– Capital Expenditure Requirements: Capital Investment program and funding of CAPEX, committed

and uncommitted CAPEX • Key positioning aspects included:

– Strategic importance for the Azerbaijan Government– Level of government support and the means by which it is provided– Fundamental sustainability of operational margins in Azerbaijan energy sector

Assigned ratings Fitch Ratings• Long-term foreign currency Issuer Default Rating (IDR): BBB-• Short-term foreign currency Issuer Default Rating (IDR): F3• Outlook: Stable Standart & Poor’s• Long-term foreign currency Issuer Default Rating (IDR): BBB-• Short-term foreign currency Issuer Default Rating (IDR): A-3• Outlook: Negative

BBB-/ Stable

BBB-/ Negative

BBB-/ Stable

Rating advisor


Azerenerji partners

Rating agencies

Rating Adviser

Auditor

International Financial Institutions and Commercial Banks

Key Suppliers



Financial profile

* 27% decrease in the EBITDA due to increased impairment loss on loans and trade receivables associated with delays in payments from large customers such as Bakielektrikshebeke etc.

** Decrease in the EBIT mainly due to 3 factors:1. Increase in the depreciation because of extensive CAPEX program and projects 2. Acquisition of Sheki and Sumgayit distribution networks.

70% 57% 32% 35%

Financial profile summary, AZN million

*** Increase in Net profit due to decision of the Cabinet of Ministers of Azerbaijan eliminating liabilities of the Group by AZN1,5bn payable to SOCAR for purchased oil and gas

2010 2011 2012 2013 2014

Revenue 607,692 672,474 749,997 743,252 830,705 EBITDA 245,071* 260,922 306,008 294,108 217,191 EBITDA Margin 40% 39% 41% 40% 26% EBIT 10,663** 76,079 89,342 92,110 (523) Net profit 897,219*** 192,471 158,550 84,589 35,099 Profit margin 148% 29% 21% 11% 4% Net debt 1,642,435 1,693,722 1,773,430 1,696,117 1,460,528 Cash 58,327 53,966 51,694 32,964 50,332 Operating CF 80,853 198,845 270,001 237,748 168,259 CAPEX 372,507 469,227 368,645 313,620 119,138 FFO/Net debt 0.15 0.14 0.16 0.17 0.13 Return on Equity 0.66 0.11 0.08 0.04 0.02 Net debt/EBITDA 6.62 6.36 5.80 5.77 6.72

Financial profile (continued)

Azerenerji has continued to generate revenues with stable growth of 12%: AZN 831m in FY 2014 (versus AZN 743m in FY 2013);EBITDA decrease (AZN 294m in 2013 versus AZN 214m in 2014) occurred due to rise in gas tariffs.

Similar decrease can be observed in cash flow indicators: Funds From Operations at AZN 203m and Cash Flow from Operations at AZN 168m in FY 2014 (AZN 250m and AZN 238m in FY 2013 respectively);The group generated Free Cash Flow of positive AZN 85m as of FY 2014 compared to negative AZN 63m in 2013 due to decrease in CAPEX.

CAPEX has been reduced to AZN 119m in 2014 compared to AZN 314m in 2013– Cash flow from operations is not a funding source for CAPEX – Funding sources for CAPEX are injections from the state budget and drawings under

sovereign debt facilities

Equity increased from AZN 2.20bn in 2013 to AZN 2.33bn in 2014 due to increase in retained earnings and injections from the state budget.

Financial profile summary in notes


Debt profile

70% 57% 32% 35%

Debt Maturities (AZN’000)

By type of Interest By type of currency

Azerenerji has a smooth debt amortization profile

An extended and even debt maturity profile eliminates the need for a major refinancing at any point Azerenerji has a solid track record of debt payment as it has fully serviced all government guaranteed loans coming due since 1999The Government has never been required to make a full or partial payment on a guarantee


Azerenerji investment plan

Azerenerji's CAPEX is determined in accordance with the state programs approved by the President of Republic of AzerbaijanThe great majority of CAPEX is directed towards the development and improvement of Azerenerji’s asset base. Azerenerji has limited maintenance CAPEX requirements (AZN 60m over 2015)The current plan envisages total investment of AZN3.8billion over 2015-2018 While the plan envisages significant capital spending over the coming years, Azerenerji has substantial flexibility to postpone expenditure. Implementation is contingent on Government priorities. If the Government has prioritized capital spending by Azerenerji it must make funds available from the state budget and via guarantees. If funds are not available, CAPEX will be postponed

List of selected investment projects

High Voltage Countrywide and Cross-Border Transmission Network Improvement (2015-2018) (AZN 574m)

Overview of investment plan

Cumulative Investment (2015-2018)

Distribution 45%

Distribution 45%

Azerenerji has substantial flexibility in the implementation of CAPEX

Distribution 45%

Transmission 20%

Distribution

45%Generation

56%

Transmission 39%

Other 5%


This presentation was prepared by Azerenerji JSC exclusively to indicate, on a preliminary basis, the status of the Company’s business activities. Statements in this presentation that are not of historical fact are “forward‐looking statements.” Such statements are subject to risks and uncertainties and may be identified by the use of words such as "expects,” "intends,” "plans,” "may,” "could,” "should,” "anticipates,” "likely,” "believes" and words of similar import. Forward ‐looking statements are based on current facts and analyses and other information that may be based on forecasts of future results, estimates of amounts not yet determined and assumptions of management. These statements are made as of the date of this presentation and the fact that this presentation remains available does not constitute a presentation by Azerenerji that Azerenerji believes these forward‐looking statements continue to be true as of any subsequent date. Although Azerenerji believes that the assumptions underlying, and expectations reflected in, these forward‐ looking statements are reasonable, it can give no assurance that these assumptions and expectations will prove to be correct. Actual results may differ materially from those expressed or implied by forward looking statements due to a number of factors, many of which are beyond the control of Azerenerji, including, but not limited to, Azerenerji’s ability to identify appropriate corporate acquisition and/or joint venture opportunities in the energy sector in Azerbaijan and, more generally, in Eastern Europe & Central Asia, and to establish the technical, managerial and operational infrastructure and to raise the necessary capital to be able to take advantage of, and successfully participate in such opportunities, future economic conditions, political stability and volatility and decreases in energy prices. Additional information on risks and other factors, may affect the businesses, operations and financial results of Azerenerji. Each recipient agrees that in no case Azerenerji, its agents, representatives, shareholders, directors or employees shall be liable for any direct, indirect or consequential loss or damages suffered by any person as a result of relying on any statement in or omission from this Presentation, along with other information furnished in connection therewith, and any such liability is expressly disclaimed. The Presentation and the information contained in it are of confidential nature and shall not be disclosed to third parties. Each recipient agrees that it will procure that each of each agents, representatives, advisors, directors, employees or its affiliates will not and will not permit any third party to copy, reproduce or distribute to other this Presentation in whole or in part at any time without prior written consent of Azerenerji and that it will keep as confidential information contained herein not already in the public domain and will use this Presentation for the sole purpose of setting out familiarizing itself with certain background information concerning Azerenerji.

DISCLAIMER

Engineering

Şirkət profili