Legal Framework & ProjectContractual Framework

Kosovo e Re Powerplant:International Investors’ Conference

Pristina, Kosovo20 January 2010

John J. Beardsworth, Jr. Hunton & Williams

Outline

I. Legal Framework

II. Project Contractual Framework

Legal Framework

Former Legal Framework was based largely on European standards; ad hoc implementation.

Independence February 2008. Under Government of Kosovo, legislative and

regulatory frameworks continue to evolve rapidly, broadly within EU norms.

Little judicial clarification on most commercial laws.

In Transition

Legal Framework:Electricity and Mining sectors

5 year statutory limit on Power Purchase Agreements to be removed/extended.

Uncertainty regarding application of Law on Public-Private Partnerships to mining will be clarified.

Electric Sector laws under revision now.

Government Committed to Conforming Lawsto Project Structure

Legal Framework

Identify Legal and Regulatory Concerns as part of due diligence.

Express concerns to Transaction Advisor and Legal Advisor – the earlier the better.

Assume “Deal Breaker” issues will be addressed by time RfP is published, and resolved before transaction effective date.

Conclusions:

Project Contractual Framework

Project Agreements being drafted for clarity for both Bidders and Government/ Counterparties.

This deal has inherent complexities in its various components – mining, new build, rehabilitation.

Parallel sector unbundling; counterparty identification will be addressed throughout transaction process.

Balancing Clarity and Complexity

Project Contractual Framework

Transaction and Legal Advisors developing transaction process and draft termsheets with counterparties now.

Draft RfP will include drafts of primary project documents/contracts for comment.

Objective is to have “final” contract drafts on primary documents included in Bidding Package.

Process Underway

Project Contractual Framework

1. Asset Transfer Agreements2. Regulatory Documents3. Operating Agreements4. Support Agreements/Documents5. Shareholder Agreements

Five Groups of Project DocumentsUnder Development

Project Contractual Framework

Electric Assets: Kosovo B Mining Assets: Sibovc

• Assets and liabilities included/excluded specified.• Form of transfer (sale, license, other Public-Private

Partnership structure) may vary with asset class and related liabilities.

• Compensation may be cash or shares.

1. Asset Transfer Agreements

Project Contractual Framework

Generation Licenses: Kosovo B, New Unit Mining Licenses: Sibovc SW, Exploration License for Sibovc Electricity Export License: “Trader” license

• Will provide stable and long term rights for project activities under other agreements.

• Exploration License for entire Sibovc field; Mining Licenses related to generation facilities as existing/ to be constructed.

• Project Companies must comply with normal regulatory oversight and performance standards.

2. Regulatory Documents

Project Contractual Framework

PPA for New Unit with DiSCo PPA for Kosovo B with DiSCo Lignite Sale Agreement for Kosovo A Lignite Sale Agreement for Kosovo B and New Unit

3. Operating Agreements:Primary

Project Contractual Framework

• PPAs will contain normal performance criteria and standards.

• PPAs include 2 part tariffs, including availability and energy payments.

• PPAs will extend past financing period to provide certainty to lenders.

• PPA for Kosovo B will provide outage allowance and tariff readjustments for rehabilitation works following COD of New Unit.

3. Operating Agreements:Primary

Project Contractual Framework

• LSAs will provide uniform “mine boundary” pricing for all units; pricing proposal under development.

• LSAs will provide for sales of power plant fuel requirements at each unit.

• LSA for Kosovo A to terminate at retirement of facility.

• LSA for Kosovo B, New Unit expire at end of PPA terms.

3. Operating Agreements:Primary

Project Contractual Framework

Interconnection Agreement with KOSTT for Kosovo B and New Unit

Transmission Service Agreement with KOSTT for Kosovo B and New Unit

Water Supply Agreement with Iber-Lepenc water company Overburden Disposal Agreement for Bardh mine-pit Ash Disposal Agreement for Mirash mine-pit

3. Operating Agreements:Other

Project Contractual Framework

• KOSTT Agreements based on standard terms, Grid Code.

• Interconnection Agreement provides physical interconnection; Transmission Service Agreement addresses scheduling/dispatch issues.

• Water Supply Agreement to provide reliable water supply to generation units.

• Overburden and Ash Disposal Agreements to provide access to existing mine pits.

3. Operating Agreements:Other

Project Contractual Framework

Implementation Agreement with Government of Kosovo• Provides terms of payment support and certain

performance support for state entities.• Provides change in law protection for regulatory

instruments and Kosovo legal framework.• Provides terms of option for additional unit (may be

separate document).

4. Support Agreements

Project Contractual Framework

Between Government of Kosovo and mining entity shareholders

Between Government of Kosovo and generation entity shareholders

• Number of agreements and appropriate parties depends on project company structure adopted by winning bidder/consortium.

• Addresses principal terms of interest to Government.

5. Shareholder Agreements

Project Contractual Framework

Schedule requires parallel development of contractual framework with transaction structure.

Short-listed bidders will have substantial opportunity to provide input prior to submission of Bids.

Kosovo seeking a successful project in interests of all parties, so will request proposals based on customary and “bankable” documents.

Conclusions:

Legal Framework & ProjectContractual Framework

John J. Beardsworth, Jr.Hunton & Williams

JBeardsworth@Hunton.com+1 (804) 788-8637

Thank you.