To: Bob Sheppard

From: Michael Taylor

Date: 11/16/2020

Subject: MegaPower Financing

In analyzing the facts in the MegaPower case we identified a number of issues to address in determining
the appropriate structure and method of funding. First, to get the effort started for the power plant we
identified Goodolbois Construction (“Goodolbois”) as an ideal partner in building this electricity plant. In
selecting Goodolbois we determined they were the premier partner for the plant compared to Insider
due to their investment grade rating, guarantees, and history. While Insider has experience within
Oligopia, their ties to the previous regime, lack of investment grade rating, and having no previous work
experience worked against them in this matter. Refer to Table 1 for structure of the 250m construction
project, timing of cash flows for construction spend, and equity contributions.

Once we had identified the best company to construct the plant we began evaluating the revenues that
would be generated. We recognized the opportunities of merchant power, of Oligopia Electric Company
(“OEC”), and of the method for benchmarking the energy purchased. First, we determined that entering
into a long term energy contract to sell all energy at 95% of current rates and benchmarked was the best
option for the project. While the merchant power opportunity does provide revenues that are on the
higher end, the lack of a PPA and lack of negotiated revenues raised concern for the team. We also felt
that the new power plant coming in would increase the supply of power and therefore decrease the
demand for merchant energy, reducing the importance of that revenue stream. The comparative
stability of our project to OEC we feel gives us a better chance going forward as their below investment
grade ratings will raise our opportunities in the market down the line. We felt that stabilizing the
revenues of the project would be important to get the project moving forward. We opted for an
approach that we felt would be profitable while also minimizing risk to the project. It is with that
thought that we then decided to benchmark revenues against the FX index. The FX index was a more
conservative method and had smaller step-ups than the inflation indexed revenue stream offered,
however, we felt that this was the better way to guarantee the financial stability of the project, as
discussed later. Refer to Table 2 for projections over lifetime of project for revenues generated from
energy sales.

In selecting a gas supplier, we noted that this expense, while the biggest individual expense for the
project, was not likely to greatly impact the overall profitability of the project. With this in mind, we
selected National Energy of Oligopia (“NEO”). NEO controls the market in Oligopia, had debt ratings at
the national level, and were prepared to guarantee the amount of gas needed for the project. Given
these positives presented, we did not deem it necessary to move forward with Elite Energy. Elite
offered a nearly 5% discount, but lack of ratings, lack of history with projects of this size, and close ties
to the previous regime gave the team pause and made NEO the clear choice. Refer to Table 2 for
projections over lifetime of project for expenses related to gas purchases from NEO.
Doing the project through a construction loan will offer a lower overall cost when compared to issuing a
bond. By providing 56.5m in equity, given the quoted project costs, we think working through a bank is
the best use of MegaPower capital resources, and offers competitive returns for the bank given the
quoted interest rates and market returns.

We selected to finance the deal in US dollars. We chose this option as: (1) the market did not seem
ready to fund a deal denominated in ollies. The ollie did not appear to garner global interest as a
currency to have project exposure to. (2) Investors are drawn to deals which will have the stability of
being funded in USD. (3) We mentioned above that we benchmarked the step-ups for the revenues
against the FX index. While this decision decreases potential revenue opportunities for MegaPower, it
does provide stability to the project that would not otherwise be afforded as we will be more likely to be
able to pay back US denominated debt than if there is a big devaluation during the loan period that
results in the revenues being worthless. That we can price rates concurrent with a devaluation of the
ollie to be able to pay back banks/investors is an attractive opportunity.

In order to be responsive to the risk and return profile of potential investors, as well as costs associated
with a bond issue or construction loan we have determined that funding through a bank market is the
best course of action. Financing through the bank market offers lower transaction costs to MegaPower
which is a key consideration for the project. Refer to Table 3 for pro forma distribution information.

We determined that the project should move forward at 22.5% equity. We note that MegaPower is
particularly sensitive to the amount of equity to contribute to the project, and note that 25% was a
targeted max amount of equity with US projects requiring 10-20% and some international projects
requiring upward of 40% equity or more. Given the safety afforded from the PPA contract in place with
FX indexed pricing, gas supply from the national gas company, and dollar denominated financing, we
feel a lower amount of equity contribution is appropriate and 22.5% should provide sufficient comfort
when combined with the other factors in determining the financial stability of the project.

Ultimately, there is a huge opportunity to maximize returns in the construction of this project. The
opportunity to save on construction costs, increase availability for merchant power and decrease the
commitment from a PPA, build in ollies and index the revenues of the project to 5% annual step-ups are
enticing and provide for the potential for a very successful project. We feel the various selections made
by the team provide returns that would far exceed any benchmark set by MegaPower while also provide
attractive investment options from third parties and a reliable energy source for a developing country
and allow for minimum equity to be invested on the part of MegaPower.
Table 1: Construction Loan
Quarter: 0 1 2 3 4 5 6 7 8
Spending 0 15% 3% 5% 11% 13% 25% 18% 10%
Curve

Equity 22.5%
Cost of Plant 250.0
Swap Rate 5.00% Spread 2.50% Stepup 0.25%
Unused Fee 0.00%
Debt
193.75
Equity 56.25
Quarter: 0 1 2 3 4 5 6 7 8
Beginning
proceeds - - 30.8 31.9 38.1 59.6 86.5 144.1 185.2
Financing
expenses - - - - - - - - -
Construction
spending - 37.5 7.5 12.5 27.5 32.5 62.5 45.0 25.0
Interest Exp
0.35 0.65 0.72 0.97 1.42 2.21 3.12 3.71
Unused Fee
- - - - - - - - -
Equity
commitment - (7.0) (7.0) (7.0) (7.0) (7.0) (7.0) (7.0) (7.0)
Ending
proceeds - 30.8 31.9 38.1 59.6 86.5 144.1 185.2 206.9
Table 2: Revenues and Expenses in Ollies (Currency symbol Q)

(in millions) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Inflation
Indexed Gas 1,199.61 1,229.34 1,260.55 1,293.33 1,327.74 1,363.87 1,401.81 1,441.65 1,483.47 1,527.39 1,573.51 1,621.93 1,672.77 1,726.15 1,782.21

FX Indexed
Gas 1,199.61 1,198.73 1,199.45 1,199.46 1,198.78 1,199.53 1,197.51 1,198.87 1,197.54 1,197.46 1,196.70 1,197.08 1,196.76 1,195.75 1,195.78

Total
Revenues 1,199.61 1,198.73 1,199.45 1,199.46 1,198.78 1,199.53 1,197.51 1,198.87 1,197.54 1,197.46 1,196.70 1,197.08 1,196.76 1,195.75 1,195.78

Q Q Q Q Q Q Q Q Q Q Q Q Q Q
Gas Expense 869.6 804.4 744.1 688.2 676.5 693.5 710.8 728.6 746.8 765.5 784.6 804.2 824.3 844.9 Q 866.0

Q
O&M US 20.1 Q 21.6 Q 22.2 Q 22.7 Q 23.3 Q 23.9 Q 24.4 Q 25.0 Q 25.6 Q 26.3 Q 26.9 Q 27.6 Q 28.2 Q 28.9 Q 29.6

Q
O&M Q 15.1 Q 17.0 Q 17.5 Q 17.9 Q 18.3 Q 18.8 Q 19.2 Q 19.7 Q 20.2 Q 20.7 Q 21.2 Q 21.7 Q 22.2 Q 22.8 Q 23.3

Q
Depreciation 69.4 Q 69.4 Q 69.4 Q 69.4 Q 69.4 Q 69.4 Q 69.4 Q 69.4 Q 69.4 Q 69.4 Q 69.4 Q 69.4 Q 69.4 Q 69.4 Q 69.4

Total
Operating Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q
Expense 974.2 912.4 853.1 798.3 787.5 805.5 823.8 842.7 862.0 881.8 902.0 922.8 944.2 966.0 988.4

Operating Q Q Q Q Q Q Q Q Q Q Q Q Q Q
Income 225.4 286.3 346.4 401.2 411.2 394.0 373.7 356.2 335.6 315.7 294.7 274.2 252.6 229.8 Q 207.4
 Table 3: Potential Returns for MegaPower Project

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

ATX Cash Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q
for DSCR 236.83 280.30 325.78 366.36 377.95 371.69 367.97 364.13 270.72 258.80 246.18 233.92 220.94 207.25 193.83

ATX Cash
in USD 47.08 54.43 61.70 67.72 68.22 65.44 63.33 61.10 44.38 41.41 38.47 35.66 32.88 30.12 27.49

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
(28.10) (28.10) 15.57 21.11 25.81 30.18 30.80 29.08 26.05 24.38 44.38 41.41 38.47 35.66 32.88 30.12 27.49

IRR 36.03%

MegaPower
Cash Flows 1 Year 2 Year 2010 2011 2012 2013 2014 2015 2016 2017

Principal
Payment 16.00 19.00 23.00 26.00 27.90 29.00 32.00 34.00 - - - - - - -

Interest
Payment 15.52 14.32 12.89 11.54 9.52 7.36 5.28 2.72 - - - - - - -

1.49 1.63 1.72 1.80 1.82 1.80 1.70 1.66

After Tax
DSCR 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4

Debt Service
Payments 31.52 33.32 35.89 37.54 37.42 36.36 37.28 36.72

Investor $ $ $ $ $ $ $ $ $ $
Cash Flows (59.60) (147.30) 31.52 33.32 35.89 37.54 37.42 36.36 37.28 36.72

IRR 7.10%