Georgia Global Utilities Company presentation May 2019 Tbilisi
Georgia Global Utilities Company presentation May, 2019 Tbilisi, Georgia
Contents • Industry overview • Company overview • Performance highlights GGU May 2019
Industry overview – utility market Largely privatized utility sector with high barriers to entry ■ Utilities sector represents ~3% of total economic output in Georgia and is constantly ■ ■ ■ growing at a sustainable rate (CAGR 8. 2% in 2006 – 2017) Bulk of sector players are natural monopolies and the barriers to entry are high Large part of the industry is privatized, except for the fraction of WSS utilities and irrigation Reforms are in progress in utilities sector to approximate the sector with EU energy regulations in accordance to Georgia’s undertaking under the Association Agreement with the EU Georgian National Energy and Water Supply Regulatory Commission (GNERC) is an independent body that regulates the utilities market GNERC is independent from the Government of Georgia and has no direct supervision from any state authorities and its independence is guaranteed by a legally mandated, self -sufficient revenue stream from the regulation fees paid by utility market participants (0. 3% of the utility revenues) The sector is regulated by the set of laws, by-laws and government decrees on tariff setting, utilities (water, electricity, natural gas) market rules, grid / network codes, legislation on licensing, resource extraction and environmental accountability GGU - only profitable player on Georgia’s WSS market Coverage byby population Coverage population Water Electricity (privatized) Natural Gas (privatized) ■ Largely depreciated water and sanitation infrastructure with average water losses at c. 74% (c. ■ ■ 3 times higher than on average in most of the European countries 1) Average collection rates from households in Georgia - c. 50% GGU’s average collection rates - around 96% Water utilities other than GGU heavily subsidized by state c. 45% of the population serviced on the municipal level with bad service quality, frequent interruptions and poor coverage Note 1: The European Federation of National Water Services, 2017 GGU May 2019
Industry overview – water tariff setting methodology Existing assets Net book value WACC New CAPEX Return on assets Depreciation • Independent regulator – GNERC 1 • New tariff setting methodology since August, 2017 • 3 year tariff setting period • WACC of 15. 99% for first regulation period (2018 -2020), up from previous 13. 54% • New WSS tariffs already set for 2018 -2020 period • The WSS tariffs in Tbilisi have increased by 23. 8% for residential customers and decreased by 0. 4% for legal entities, serving as a first step towards gradually unifying WSS tariffs Note 1: Georgian National Energy and Water Supply Regulatory Commission (GNERC) is an independent body that regulates the utilities market GGU May 2019 Total operating expenses Allowed revenue
Industry overview – electricity market (1/2) Electricity supply and consumption, 2018 Actual and forecasted consumption Source: ESCO GWh 1, 500 23, 000 mptio Consu 18, 000 1, 000 6. 6 TWh CAGR: 5. 7% 13, 000 500 n, 5% 8, 000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Generation, renewables Generation, TPPs Net imports Internal consumption § Electricity deficit during Aug-Apr § Currently, 8 -month PPA policy in place § 16. 8% of total consumption produced by gas-fired TPPs, 12. 0% - imported (2018 data) Nov Dec 3, 000 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 Generation, actual 20 18 20 19 20 20 20 21 20 9% 9% 7% 20 24 20 25 20 26 20 27 20 28 7% 9% Apr May Jun Jul Aug Anticipated deficit of at least 6. 6 TWh by 2030 Import-export dynamics 1, 497 1, 509 2, 500 2, 000 10% 793 9% Oct Nov 800 Compared to HPPs, wind power plants (WPPs) have more even distribution throughout the year, adding more portion of output to domestic supply deficit § Merchant risk is c. 30% in May-Aug, as opposed to 48% on average in run-of-river HPPs May 2019 0 Dec § Note 1: Based on preliminary measurement of GGU windfarm locations GGU Sep 30 Consumption growth forecasted at minimum 5. 0% CAGR in coming 15 years 484 450 545 699 660 479 686 559 1, 500 589 2013 2014 2015 Import § 1, 000 500 % of annual output, WPPs Mar 20 § § 400 Feb 29 Consumption, +5% 1, 200 7% 9% Jan 20 Growth of internal consumption 7. 7% in 2017 (9. 7% and 14. 4% growth in Jul & Aug) and 6. 1% in 2018 (10. 8% and 1. 0% in Jul & Aug) 1, 600 8% 23 Generation, forecast GWh 8% 20 § Distribution of windfarms annual generation 1 9% 22 2016 2017 2018 - Export Import’s share in domestic consumption has tripled in 2017 -2018 compared to 2016, as the y-o-y growth in consumption is almost entirely supplied for by imports
Industry overview – electricity market (2/2) Market structure after steps taken towards deregulation Import Electricity market update ESCO Direct consumers PPA Non-PPA deregulated Electricity Law was amended in June 2017, deregulating all HPPs below 40 MW and gradually moving the large industrial consumers out of the regulated pricing scheme to the free market • From May 1 st 2019 customers with consumption of at least 5 GWh per month are required to register as direct customers, together with existing direct consumers constituting almost one-third of total consumption (excluding Abkhazia region) • Starting from 1 st May 2019, 10 new direct customers will secure electricity from generating companies directly or from traders (electricity wholesale suppliers) • This development will positively affect competitive pricing of electricity and market liquidity, further motivating investments in renewable energy sector Free Market Household and commercial Regulated 1 • Energo-Pro Telasi (w/ <5 GWh consumption per month) customers TPP Abkhazia region 2 Direct consumers after deregulation • Existing consumers: 1. 8 TWh • Heavy Industry: 1. 0 TWh • Data centers: 0. 3 TWh 2018 metrics: Total installed capacity: 4, 203 MW Total supply/demand: 13. 7 TWh Note 1: GWP and GAA own regulated HPPs for self-consumption purposes, which do not go through the distribution companies’ sales Note 2: Abkhazia region is supplied for from the state-owned Enguri & Vardnilli HPPs GGU May 2019 Total expected demand of direct consumers: 3. 1 TWh
Utility – business cycle Description of business cycle Production Water production – – – River water intake Wells Infiltration basins Water treatment, transportation and dispatch – – – Dispatch centre Trunk pipelines (<500 dm) 6 water treatment plants 55 pumping stations 101 reservoirs Note 1: Schematic diagram given above represents infrastructure of Tbilisi water supply GGU May 2019 – – Distribution Treatment Water distribution and sales Wastewater collection and treatment 5 business centres managing the whole network in Tbilisi Division by districts – – Wastewater collection system Gardabani WWTP
Utility – operational highlights Overview 2 types of customers: Electricity Consumption (KWh m) EBITDA evolution (GEL m) Legal entities – 100% metered clients • Households – c. 70% non-metered clients 018 2014 -2 – Increase in number of customers at a CAGR of 3. 5% over 2011 -2017 (currently serving 561 K customers) – Collection rates are around 96% – The reduction of own electricity consumption will allow for more third party sales and diversification of revenues 2014 -2018 +51% -26% k. Wh millions • GEL millions – Performance track record Efficiency gains Selected data Elevation k. Wh/m 3 0. 2% Level 4 2. 4 Level 3 1. 7 3. 0% Level 2 1. 1 5. 3% Level 1 0. 5 38. 9% Level 0 0. 0 52. 6% Metering program and grid rehabilitation works focused on higher elevation zones % of total water supply GGU May 2019 Thousands except for connections Water sales (m 3 ) 2 H 18 139, 820 193, 565 -27. 8% 184, 028 -24. 0% 323, 847 341, 528 -5. 2% Electricity consumption (kwh) 116, 703 147, 661 -21. 0% 120, 442 95. 0% 86, 547 2017 Change Electricity generation (kwh) 1, 452 3. 4% 2018 3. 5% 2, 832 90, 219 1 H 18 change 7. 8% 179, 819 173, 820 New connections 93, 272 2 H 17 Change 2, 183 -3. 1% 237, 145 290, 714 -18. 4% 29. 7% 5, 015 2, 347 NMF
Disclaimer – forward looking statements This presentation contains forward-looking statements that are based on current beliefs or expectations, as well as assumptions about future events. These forwardlooking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could or other words similar meaning. Undue reliance should not be placed on any such statement because, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and GGU and its subsidiaries (the “GGU Group")’s plans and objectives, to differ materially from those expressed or implied in the forwardlooking statements. There are various factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. Among the factors that could cause actual results to differ materially from those described in the forward-looking statements are changes in the global, political, economic, legal, business and social environment. The forward-looking statements in this presentation speak only as of the date of this presentation. The GGU Group undertakes no obligation to revise or update any forward-looking statement contained within this presentation, regardless of whether those statements are affected as a result of new information, future events or otherwise. GGU May 2019
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