ENRON RISK ASSESSMENT AND CONTROL DEAL APPROVAL SHEET DEAL NAME: Nigeria Power Holding Ltd. Date DASH Completed: November 1. 2000 divestiture RAC Analyst/Underwriter: N/A I Michael Thbolet Counzerparzy: The AES Corporation Investment Type: Divestiture Business Unit: APACHI Capital Funding Source(s): Business Unit Originator: Sean Long/Keith Sparks Expected Closing Date: October 4, 2000 OPublic ~Private Expected Funding Date: October 4, 2000 OMerchant L~Strategic Board Approval: OPending OReceived ODenied ON/A ~Conforrning ONonconforrning RAC Recommendation: ~Proceed with Transaction OReturns below Capital Price ODo not Proc~ed APPROVAL AMOUNT REQUESTED Divestiture of projects up to S 127,230,000* *Towl cash EXPOSURE SUMMARY This transaction, cancel existing exposure Existing exposure approved Total (S 142,160,000) $ 142.160.000 $ 0 GOVERNMENT EXHIBIT CrnriNo H040025 TRANSACTION SUMMARY This DASH proposes approval of: 1) a staged sale of all of Enron APACHI's interests in Nigeria to AES and 2) a related guaranty (up to $180 million) to the seller to secure our subsidiary's obligations under the Purchase and Sale Agreement. The following APACHI assets will be sold contingent upon satisfaction of conditions precedent: 1)95% interest in Enron Nigeria Barge Ltd. which owns rights to a 270 MW barge mounted IP? project in the State of Lagos. This sale would occur in two stages. At closing, AES will own 30% of Nigeria Barge Ltd. AES will then have the option to purchase Enron's remalnin2 65% interest in this entity upon completion of their further due diligence and subject to certain conditions, Enron has the right to put the interest to AES. 2) Enron's 60% share in a 548 MW gas fired, simple cycle, combustion turbine Power Plant development project. 3) Enron's 70% share in an option to build a 240 km pipeline to supply the gas fired power plant, described above. Expected Net Cash to Enron's Current Event Date Enron Basis Gain on Sale ~stitur: Divestiture of 30% of Enron Nigeria Barge Ltd. 10/4/00 $8,785,000 $6,802,147 $1,982,853 Contingent Divestitures: Sale of Remaining 65% of Enron Nigeria Barge Ltd. Q4, 2000 $81.01 3,566 $84,069,823 S16,943,743 Amended PPA Signing for 548 MW project 2001 $7,500,000 $2,000,000 $5,500,000 Earlier of Financial Close and start of Construction of 548 MW project 2001 $28,875,094 SO $28,875,094 TOTALS FOR ALL SALES (including all Contingent Divestltures): Si 26,173,660 S72,871.970 S53.301.690 _____________________________________________________ E00044034 19 DEAL DESCRIPTION Enron APACHI has entered into an amended and restated Barge Power Purchase Agreement ("Barge PPA") between Enron Nigeria Power Holding Ltd. ("Enron Nigeria"), Enron Nigeria Barge Ltd. and various Nigerian federal and state governments and the national power company (see Nigeria Barge II Dash). The capital committed by Enron for this Barge PPA, including a value of $49.7 million for seven power barges and $7.0 million for two gas fired combustion turbines currently owned by U RAC Deal Approval Sheet Deal Name: Nigeria Power Holding Ltd. sale Enron. is $142.2 million. The original PPA, that was amended, was for 90MW with a term of three years and was signed on December 6th, 1999. The Barge PPA (approved by Enron's Board of Directors) covers the construction and operation of 270 MW of barge-mounted, gas-fired generation facilities for a term of 13 years, 3 months ("Barge Project"). The Barge Project is supported by a letter of credit of $60 million. Enron Engineering and Construction Company ("EE&CC") has entered into an Engineering. Procurement and Construction Contract ("EPC Contract") with Enron Nigeria Barge Ltd. which inc]udes the construction of onshore facilities, the refurbishment, reconditioning and conversion (frequency and fuel) of 7 existing liquid fuel fired barge mounted, combustion turbines, the construction of two power barges using combustion turbines purchased from Enron North America and associated performance guarantees (290MW). In addition to the Barge PPA, Enron Nigeria is scheduled to sign an amended IP? Power Purchase Agreement ("IPP PPA"), within the month, with the same counterparties. The IPP PPA covers the construction and operatiob of a gas fired. simple cycle, combustion turbine Power Plant, with a nominal capacity of 548MW for a term of 20 years ("IPP Project"). The IPP Project will be supported by an additional letter of credit. In addition to the Barge Project and IPP Project. the PPA dated December 6, 1999, includes the right for Enron Nigeria to build a 240 km Pipeline to supply gas to the power plant ("Pipeline Project"). On December 29, 1999, Enron Nigeria Barge Holding Ltd., a wholly owned subsidiary of Enron Nigeria Power Holding Ltd., sold approximately 35% of the cash flows (value at time of transaction) in Enron Nigeria Barge Ltd.. to Ebarge, a wholly owned subsidiary of Merrill Lynch, for S28.0 Million. This purchase price, which entitled Ebarge to a tranche of Preferred Shares and Common Shares, was funded with 25% equity (Merrill Lynch) and 75% seller-financed debt (Enron Nigeria Power Holding Ltd.). Enron APACHI recognized $12.5 million of pre-tax earnings in 1999 with this transaction. In June of- 2000, LJM2 purchased the shares of Ebarge from Merrill Lynch. To this date, the loan between Ebarge and Enron Nigeria Power Holding Ltd. ($2 1.0 million principal) has accrued $2.0 million in interest due to Enron Nigeria Power Holding Ltd.. On October 4. 2000. Enron APACHI, Enron Nigeria Barge Holding Ltd., Ebarge, Yinka Folawiyo Power (YFP) and AES Corp. (AES ,entered into a transaction for the purchase and sale to AES of 100% of the shares owned by Ebarge (now the cash flows are valued at approximately 19% of Enron Nigeria Barge Ltd.), and enter into a second Share Purchase Agreement with Enron APACHI for 100% of Enron Nigeria Power Holding Ltd. (holder of interests in Barge, IPP and Pipeline Proiects) ("Transaction"). This transaction: 1) eliminated UM2 Ebarge as the shareholder of Enron Nigeria Barge Ltd, 2) significantly reduced Enron Corp.'s exposure in Nigeria by way of equity syndication, and 3) generated cash flow and earnings in the 3rd quarter of 2000 through 2001. Exhibit II outlines the current and "new" ownership structures. As stipulated in the Share Purchase agreement between Enron APACHI, Enron Nigeria Power Holding Ltd., and AES. two transactions will occur: - Purchase of 95% interest in Enron Nigeria Barge Ltd. and 2- Purchase of 100% interest in Enron Nigeria Power Holding Ltd. The sale of equity encompasses a portion of YF Power's interest in the Project Companies. 1- Purchase of 95% Interest in Enron Ni2eria Barre Ltd. The purchase of a 95% interest in Enron Nigeria Barge Ltd., will be consummated with two payments. The first installment will took place October 4, 2000. A payment of $41.0 million was charged to~S in exchange for a 30% ownership in Enron Nigeria Barge Ltd. To achieve this, AES will entered into a Share Purchase Agreement with Ebarge (through LIM) which initiates the sale and purchase of 100% of Ebarge's shares in Enron Nigeria Barge Ltd. (Preferred A shares and Common) at a price of $31.6 million. $8.6 million of this acquisition price returns to LJM (through Ebarge). The remaining S23.0 million is transferred to Enron Nigeria Power Holding Ltd., on behalf of Ebarge, for repayment of interest and principal for the seller finance loan. Subsequently, as agreed upon in the second Share Purchase Agreement between ABS. Enron Nigeria Barge Holding Ltd. and Enron APACHI, the Preferred A shares newly acquired by ABS from Ebarge, and the Preferred B Shares of Enron will be retired. The ordinary shares will be re-classified and new ordinary common shares issued to Enron, as agreed in the Enron Nigeria Barge Ltd.'s shareholders agreement. ABS will own 30% of the ordinary shares after the restructuring and paying Enron Nigeria Barge Holding Ltd. a promote fee of 59.785 million (of which S 1 million is paid to YFP) to purchase the additional 11% interest in Nigeria Barge Ltd.. The second installment which will increase AES' ownership in Enron Nigeria Barge Ltd. to 95% will occur upon satisfaction of the condition precedent related to the barge company transaction in the Share Purchase Agreement. There must be a reasonable likelihood of ABS being well received by all parties related to the Power Purchase Agreements in Nigeria. When such an event takes place ABS will pay to Enron Nigeria Barge Holding Ltd. the promote balance due and all of Enron's costs up to the transfer of shares. At this point Enron Nigeria Barge Holding Ltd. will have no interest in Enron Nigeria Barge Ltd. Page 2 E0004403420 RAG Deal Approval Sheet Deal Name: Nigeria Power Holding Ltd. sale and ABS and YE? will be the sole shareholders (95 %15% respectively). For Enron Nigeria Barge Holding Ltd. to sell 95% of the interest in Enron Nigeria Barge Company it must pay YE? for the option rights to 35% of a total 40% interest. This option expires December 15, 2000. This DASH grants approval to extend this option until June 30, 2001. Seotember 29.2000 AES Payment for 30% Ownership Less: Purchase Price to Ebarge Less: Payment to YFP $41,000,000 ($31,600,000) (S1 .000.000) Proceeds to Enron Nigeria Barge Holding Ltd. Pius: Loan and interest Paid to Enron Nigeria Power Holding Ltd. Cash to Enron at Sept. 29, 2000: $8,400,000 $23000000 $31,400,000 Conclusion of Satisfactory Due Diligence by AES Less: Payment to YFP Proceeds to Enron Nigeria Barge Holding Ltd. at Milestone 65% of Barge Turbine and capital cost $43,794,684 ($22.91 2.257) $20,882,427 S63,571 ,775 Cash to Enron for its Sale of 100% interest in Enron Nigeria Barge Ltd. $115,854,202 2- Purchase of 100% interest in Enron Nieeria Power Holdin2 Ltd. On October 4, 2000, in addition to acquiring up to 95% of Enron Nigeria Barge Ltd. through Ebarge and Enron Nigeria Barge Holding Ltd., AES has entered into a put-call option agreement with Enron APACHI (Share Purchase Agreement). This put- call expires December 15, 2000. This DASH grants approval to extend this put-call until June 30, 2001. Upon the occurrence of certain conditions outlined below, AES has the option to call 100% of Enron APACHI's shares in Enron Nigeria Power Holding Ltd. at a promote price plus the pro-rated share of costs, less payment to YFP. Similarly, Enron APACHI has the option to put the same shares to AES at the same promote price subject to certain conditions as outlined below. When the conditions precedent are met and payment is made, AES is left with full ownership of Enron Nigeria Power Holding Ltd. and interest in its subsidiaries. These interests include ownership in the following Nigerian Project Companies; 80% (20% from YE? Equity through Enron) of the IPP Company, and 70% of Pipeline Project. YFP and Enron Nigeria Power Holding Ltd. have entered into a Project Development Contract (PDC) with which gives YF? the option to a call 40% interest in Enron Nigeria Barge Ltd., a 40% equity stake in Enron Nigeria LPP Ltd., and a 30% equity stake in Enron Ni2eria Pipeline Ltd.. AES will be required to pay the remaining proceeds (as designated as the strike price) for 100% of Enron Nigeria Power Holding Ltd. upon reaching certain milestones as specified in the Share Purchase Agreement. For each milestone a designated monetary amount will be transferred from AES to Enron APACHI. Share will be exchanged when the first payment from AES is made. A success fee will also be paid to Enron at the earlier of Financial Close and Start of Construction. The following schedule illustrates the sale of 100% of Enron Nigeria Power Holding Ltd.: Milestone I Condition Precedent Estimated Timing Payment to to Sale Enron Amended IPP PPA Signing October 1, 2000 $7,500,000 Earlier of Financial Close and Start of Construction of IPP 2001 $26,875,094 Cash to Enron (not including capitalized costs) $34,375,094 Page 3 ECO0440~21 RAC Deal Approval Sheet Deal Name: Nigeria Power Holding Ltd. sale Strategic Rationale This transaction allows Enron to achieve many of its immediate goals including cash in-flow, earnings recognition and asset divestment. This structure permits either a partial or full divestiture of the Nige~an barge project at a profit, as well as a sale of the Enron's interest in the 548 MW IPP development project and related pipeline at a gain upon satisfaction of conditions precedent. Enron will not be required to invest any additional capital to achieve the goals of this transaction. Due to the timing of the payments there is some Nigeria risk exposure, however it is lower, and potentially significantly lower than at present. All capital costs incurred before sell down will be recovered in full as the payments under the Share Purchase Agreement represent promote fees. TRANSACTION SOURCES AND USES OF FUNDS (000) (Assumes closure of all contingent transactions) Sources Uses Sale of shares $127,230 Enron Corp advances S 127,230 Total $127,230 S127.230 RETURN SUMMARY (existing 270 MW barge IPP) Probabilistic DCF Cumulative PV @ 29.5% by Component IAR Capital Price Cash Outflows + Outstanding NA $ (80.800) Fees -100.00% $ - Ongoing Cash Flows 34.38% S 94,247 Terminal Value 34.62% S 917 Total 34.62% $ 14,365 Semivariance. +/. 0.358 Given the time frame for closing this transaction, RAC has not been given the time to rerun the probabilistic model on the existing 270 MW. RAC has not been presented models on the new 548 MW IPP, or a model on the pipeline. The barges have been valued at their capitalized cost to Enron. The discount rate of 29.05% was based on a blending of Nigerian sovereign risk with partial benefit for the LC covered portion of the investment. The Nigerian sovereign spread over equivalent Treasuries was 32.55%, equivalent to a weak CCC- rated bond. A CCC bond has an implied 44% likelihood of default exists over the contract life. Given the CCC- credit profile of the sovereign risk, the default risk is greater than 44%. The model assumes that upon default the LC is drawn and the barges are recovered and sold within a five-year time frame at 50% of book value. Not including the time value of money, and if the two-step sale of the barge IPP project is completed, the 270 MW barge IPP will yield an accounting gain of $25.42 million exceeds the $14.37 million in NPV from the June, 2000 DASH. This assumes the option which AES holds for the second stage 65% total purchases is executed. This return summary does not reflect any gain on sale of the 548 MW powerplant and related pipeline project. Upon satisfaction of conditions precedent, the gain on these sales is expected to be approximately $10.9 million. TRANSACTION UPSIDES/OPTIONALITY N/A - Divestiture EXIT STRATEGY N/A Page 4 ECOO44O~22 ~RR DistribuLion 50.0% .. - . - 45.0% 40.0% 35.0% 30.0% 25.0% 10.0% 20.0% 15.0% 5.0% E~pec~ 0.0% ~ - (N .? = -s .z - v~ ~' - % r. -. RAC Deal Approval Sheet Deal Name: Nigeria Power Holding Ltd. sale MILESTONES December 15, 2000 - Purchase of remaining 65% and execution of new PPA December 31, 2001 - Financial Close and start of Construction of 548 MW IPP RISK MATRIX (Maximum 5) 1 jl_________________ I I I.___ I I I J I I I I . - I I DESCRIPTION MITIGATION/COMMENTS Credit Risk of Councerparty - paymenc of the on- The AES Corporation will issue a corporate guarantY. They are going obligations from the AES Project Comoanv rated BBIBaI Non-signing of amended I?? PPA Negotiations have been completed and there are no outstanding issues. The signing is scheduled when Chairman of Nigeria Technical Board. Livel Imoke returns to Abuja. Neither Financial Close or Start of Construction ENE has sold down 30% of the Barge Project and a portion of the of IPP Project is met IPP. This covers most of ENE's exposure irrespective of final payment KEY SUCCESS FACTORS NA Poor Fair Good Very Good Excellent Core Business x Strategic Fit X Upside Potential X Mana2ement X Risk Mitigation X OTHER RAC COMMENTS: RAC has not been presented sufficient time to rerun the model on the 270 MW barge IPP project, nor were models presented on the 548 MW IPP and 240 km pipeline project. Thus, RAC's analysis is limited to an accounting analysis of undiscounted cash flows. The first transaction at closing, the sale of 30% of the barge lPP and recasting of the YFP option, yields a cash profit of $1.98 million. Should AES complete its due diligence and gain additional commercial comfort. thereby executing their option to purchase the remaining 65%, APACHI would realize a $16.94 million profit. While not taking into account the time value of consideration, completion of these two transactions could total $18.92 million versus the $14.37 million value RAG derived in June. This comparison does not take into account the offsetting value of the option AES will hold for the second-round 65% purchase. The amended PPA signing is expected in early 2001, which would yield an additional $5.5 million gain. Should the 548 MW IPP reach the earlier of financial close or start of construction, Enron stands to gain another $28.88 million. Despite the short period to analyze this transaction, RAG is supportive based on the reduction of the significant Nige~an country risk (which caused RAC to recommend not proceeding with the additional barge investment in June), the positive accounting earnings, and cash generated from this sale. EC004403423 ?a2e ~ RAC Deal Approval Sheet Deal Name: Nigeria Power fiolding Ltd. sale APPROVALS Onginator Legal Regional Management RAG Management Enron Global Finance Office of the Chainnan Name Sean Long Yao Apasu Rebecca McDonald/Jim Hughes Rick Buy/Dave Gone Andy Fastow/Ben Glisan Jeffrey Skilling/Joc Sutton Date '/ l~II 4~4L±*z22 Page 6 ~AC Deal ApprOVal Sbee Deal Name: Nigeria Power Holding Ltd. £31e A?PROVALS Ouig~at~ Lzgal keg ional Managen~enr P.AC na~et~1ent Enro~ Global Finance Offic, of the Chai~man Date Name Sean Long Yac ADasU RebEcca McDonald/~ Hughes Rick Buyfbave Gone Andy PaaiowfBeu GIisaj~ Jeffrey Skilling/Joc Simon PaSc 6 ~COo~o342 I RAG Deal Approval Sheet Deal Name: Nigeria Power Holding Ltd. sale EXHIBIT I NIGERIA BARGE COMPANY VALUATION GAIN CALCULATION Total Basis (From Balance Sheet at Transaction) 63,955 LJM Basis (From Balance Sheet at Transaction) 15.324 18.62% Basis Enron Barge Holding 48,631 Percent Alocated to Enron Barge Holding Shares - 81% Sold to AES 30.00% Amount in EBarge 18.62% Amount Allocated to "New Shares" 11.38% NEW ENE BARGE HOLDING PERCENT: 70.00% Percent of Enron Shares: 14.0% Promote: 8,400 Basis 6.802 IGain: 1,598 I ENRON NIGERIA BARGE LIMITED BALANCE SHEET AS AT SEPTEMBER 29. 2000 PRE-RSSTRUCTURING Assets: Fixed Assets - Barges Capitalized Work In Place mv. In Subsidiary Other Cur. Assets AIR-Intercompany NIR-lntercompany Liabilities NP-Intercompany NIP-intercompany Other Cur. Liabilities Net Assets Shareholder's EquIty AES Common ENE Barge Hold, Common YFP Common Retained Earnings Total SIE Sept. 29, 2000 Adi. Bal 56.800,000.00 7,154.757.23 0.00 0.00 0.00 0.00 0.00 0.00 0.00 63,954,757.23 22,126,146.68 41,828,610.55 0.00 0.00 ESTIMATED Oct. 2000 Adi. Bal 56,800.000.00 41.002.730.03 0.00 0.00 0.00 0.00 0.00 0.00 0.00 97,802,730.03 32,280.538.52 60,632,055.01 4.890.136.50 0.00 63,954,757.23 97.802.730.03 Common Stock 0.00 Preferred Stock 80,563.95 Additional PlC 48,550,193.28 Retained Earnings 0.00 Minority Interests 15.324.000.00 TOTAL SIE 83.954.757.23 33.847.972.80 (Additional CAPEXEOUI7Y) (Barges/lbrb,nes and 0ev. Costs) NOTE: Barges and Turbines are purctlased at NO gain ~at cost) EC0044O3426 Page 7 Gain calculatIon (BARGES 68% SALE) Promote 520.882.427 Proportion of Costs (65%) S63 571 775 Total Proceeds from Sal.: S84 464,202 Less: Basis (Enron Barge Holding Ltd.) S60 632 055 GAIN ON SALE: S23.322,147 RAC Deal Approval Sheet Deal Name: Nigeria Power Holding Ltd. sale EXHIBIT fl EC004403427 Page 8