2. Page 2 • Corporate Presentation
Country overview
Azerbaijan at a glance
Rating S&P Mood
y’s
Fitc
h
Kazakhsta
n
BBB Baa2 BBB
Azerbaijan BBB- Baa3 BBB-
Russia BB+ Baa3 BBB-
Turkey BB+ Baa3 BBB-
Georgia BB- Ba3 BB-
Ukraine CCC- Caa3 CCC
Capital: Baku
Area: 86 ,600 km2
Population: 9.5 million (2014)
Category: High-middle income
GDP/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
3. Country overview
WB Doing Business
Rank 2015
Georgia 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
Page 3 • Corporate Presentation
4. Azerbaijan Power Market Structure
Azerenerji JSC
93%
Nakhchivan
Energy Agency
4%
Generation
Renewable
Energy and IPPs
3%
Azerenerji JSC
98%
Transmission Distribution
Nakhchivan EA
2%
AzerIshig JSC
(former
Bakielektrikshebeke)
98%
Nakhchivan EA
2%
Page 4 • Corporate Presentation
5. Azerenerji JSC
Vision
Leading 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
Page 5 • Corporate Presentation
6. Azerenerji overview 2014
100% Owned by the Republic of Azerbaijan
22.1 TWh Power generated
95% Power generation share
98% Power transmission share
50% Power distribution share
AZN’m 831 Gross revenue
26.1% EBITDA margin
6.7x Net debt/EBITDA ratio
BBB- Fitch/S&P credit ratings
Azerenerji overview
Page 6 • Corporate Presentation
7. 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 standards
Azerenerji 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 neighbours
Azerenerji 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
Page 7 • Corporate Presentation
8. Generation
History of power generation
1897 1910-40 1950-70 1980-90 1990-2014
First Power Plant
Bibiheybat PP
Mingachevir 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 8 • Corporate Presentation
10. 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
Page 10 • Corporate Presentation
11. 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 2013
Mingechevir HPP (rehabilitated in 2012)
Page 11 • Corporate Presentation
12. 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
Page 12 • Corporate Presentation
13. Transmission and demand planning
Backbo
ne
transmi
ssion
lines
and
substat
ions
(110-
500 kV)
Voltage Number
of TL
Length
(km)
Number of
substations
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
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 Voltage
Transmission 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
Page 13 • Corporate Presentation
14. 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 1,149.1
International
Trade
Import GWh 42.69 32.20 50.17 67.7 127.3 124.0
Export GWh 205.05 238.58 415.67 341.1 495.6 489.3
Net 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 18,628
Page 14 • Corporate Presentation
15. Electricity export and power trading
Major
contractual
agreements
Bilateral State
agreements
Russia
Georgia
Turkey
SWAP
transactions
(non-
monetary)
Iran
Sales
agreements
Russia
Georgia
RussiaGeorgia
Yashma
330 kV
Agstafa
330 kV AzIES
500 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 kV
330 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 groups
This was a major strategic goal of the Government of Heydar Aliyev, President of Azerbaijan from 1993-2003
Starting 2000, the Government launched a concerted drive to raise generation capacity
Nonetheless, 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 2003
With the roll out of installed generation capacity, imports gradually fell from 2003, until Azerbaijan achieved a net export
position starting in 2007
Domestic 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
Page 15 • Corporate Presentation
16. 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
Zestaponi
Gardabani
Imishli
Borchka
Ighdir
Derbend
Parsabad
154 kV
Azerbaijan TPP
Existing Planned
Yashma
Georgia
“GSE”
Azerbaijan
“Azerenerji”
Iran
Turkey
“TEIAS”
Azerbaijan-Georgia-Turkey (AGT) Power BridgeElectricity export potential to Turkey
Page 16 • Corporate Presentation
17. Strategic goals
Transmission
Generation
Power Export
Additional 1800 MW thermal capacity by 2020
200 MW capacity from HPPs
33 % growth in total installed capacity
Construct four 220 kV substations adding 1,500 MVA capacity
Fifteen 110 kV substations with a capacity over 1000 MVA,
Installation of new transformer capacities of 800 MVA in 500, 220 and 100 kV substations
Construct 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 kWh
Azerbaijan-Georgia-Turkey (AGT) Power Bridge project
Page 17 • Corporate Presentation
18. Azerenerji rating
Successfully anchored rating around the Sovereign
Key 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 process
GS 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
Page 18 • Corporate Presentation
20. Page 20 • Corporate Presentation
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
21. 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
Page 21 • Corporate Presentation
22. 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 1999
The Government has never been required to make a full or partial payment on a guarantee
Page 22 • Corporate Presentation
23. Azerenerji investment plan
Azerenerji's CAPEX is determined in accordance with the state
programs approved by the President of Republic of Azerbaijan
The 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%
Page 23 • Corporate Presentation
24. 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
