Transcript COMPANY PROFILE OF September 2013 Background Change is Opportunity. The bigger the change – the bigger the opportunity. Penetrating new markets/fields becomes easier during change. The.

COMPANY PROFILE
OF
September 2013
Background
Change is Opportunity.
The bigger the change – the bigger the opportunity.
Penetrating new markets/fields becomes easier during change.
The change induced by Yam – Tethys off-shore NG discovery has generated an
opportunity for private power generation.
Sigma Epsilon was established to take advantage of this opportunity and to play a key role in a
privatized Israeli power generation market by:
First: became a player through IPP and Co-Generation projects.
Then: use the position gained for winning part of IEC during the privatization process joining forces with
a strong strategic partner like: E-On, Suez, EDF. Sigma’s STRATEGIC GOAL IS A KEY ROLE IN A PRIVATIZED
ISRAELI POWER GENERATION MARKET, DALIA project is just an interim goal, MEANS TO THIS END.
The change induced by TAMAR and LEVIATHAN MEGA DISCOVERIES have
generated opportunities related to Natural Gas utilization and export.
Sigma Epsilon has an agency agreement with Linde for NG technologies.
Sigma and Linde promote jointly:
Decentralized strategic/operational LNG storages.
LNG in Eilat (EAPC – INGL).
Small LG plant for industry and transportation.
Strengths
Sigma Epsilon is a PROFESSIONAL – ENTREPRENEURIAL
company, a rare combinations enabling:
Creative entrepreneurship
Superior projects based on innovative solutions and calculated risk.
Sigma epsilon represents a combination of secured future cash
flow based on mature projects and very high growth potential
through promising new initiatives.
Sigma Epsilon LTD
Sigma Epsilon Power Engineering Ltd. was founded about 9 years ago, by Dr.
Eli Barnea (former CEO of Bateman Engineering), Moshe Lasry (former
Deputy CEO and chief engineer of IEC) & Yigal Porat (former head of R&D
division of IEC), with the intention to seize business opportunities arising
out of the then pronounced Government of Israel (GOI) privatization policy
of the power energy industry, and availability of Natural Gas in Israel.
Dr. Eli Barnea
A Chemical Engineer. CEO of Bateman Engineering during 1991-2002. under his direction the
company specialized in projects of NG treatment and compression and executed three such
projects totaling about - $200 M each in Russia, Turkmenistan, and Uzbekistan. The projects
were carried out on the basis of EPC - LSTK including organization of ECA funding with much
innovation e.g. First co-finance of USEXIM with Czech EGAP and Israel’s Basasach.
Moshe Lasry
Mechanical Engineer with 28 years of experience in IEC , reached the position of No. 2 in the
Company (chief engineer). Among his activities in IEC he was involved and responsible for the
design of the most power plants in Israel: coal, gas turbines and combined cycles. After retiring
from the IEC he managed for Delek Infrastructures the construction of the first IPP project in
Israel based on gas turbines operated on natural gas: 87 MW – IPP Delek Ashkelon.
Yigal Porat
An electrical engineer with 32 years experience in the IEC , was the Head of Research and Development
Division. He was responsible for long-term planning and development of the generation and transmission
systems of IEC including examination of new technologies such as nuclear power ,pumped storage,
renewable energy such as solar and wind energies. After retiring from IEC he consulted for several years
to the public Utility Authority – Electricity, to the Ministry of Environmental Protection and to the
Ministry of National Infrastructures on various topics including long term planning and development of
the generation and transmission systems pumped storage, renewables and innovative technologies such
as IGCC.
Samir Khoury
A Mechanical Engineer, Entrepreneur, and Businessman with 36 years experience of management,
designing, and construction projects in process production industrial projects in Israel and abroad. He is
owner and CEO of SK Engineering & projects, SK Energy, and SK Watertech. Samir has established the
first own company SK Engineering & Projects in 1994. See website:- www.sk-engpeo.com. Head of
Engineering Department of Urdan Company during 1986-1993, Mechanical Designner in Bateman
Company during 1982-1985.
Mature Projects Overview
Since its foundation Sigma Epsilon has initiated 4 projects that has
matured and evolved to become independent companies.
The Project
Project details
Established
Current holdings
(concatenated)
Project value (in
million USD)
Dalia Power
Engineering
Group
870 MW (2×435 MW)
combined cycle gas
turbine power
* plant
at Zafit North
2005
16.4%
Through Hiram Epsilon
SE. Int.Energ Group
~1,000
IPP Delek
R.Gavriel
70MW cogeneration
power plant at Nilit,
Migdal Haemek
2008
22.4%
Through Sigma Epsilon
Gavriel Tavor
~100
IPP Delek Alon
Tavor
70MW cogeneration
power plant at Tnuva,
Alon Tavor
2009
22.4%
Through Sigma Epsilon
Gavriel Tavor
~100
Alon Energy
Centers
70MW cogeneration
power plant at Sugat,
KiryatGat
2012
28%
Through Sigma - Massad
Kiryat-Gat
~80
Barnea
1.5%
Rony Omesi
21%
Menahem Sela
~38.6%
4EN
SK Energy+Eliass
Khoury
Rubin Energy
~40.1%
~2.6%
~2.2%
SK has an option on additional 6%
Dalia Power Energies
 Largest IPP in Israel – 2 X 435 MW = 870MW.
 Cornerstone ceremony 3 June 2013 honored by the presence of the President of
the state of Israel and the President of Alstom.
 Construction and overall project progress – 54% complete. Turbines were
shipped and expected on site October 2013.
 Gas supply – Agreement with Tamar partnership signed January 8 2012. overall
contract value US$5 Billion over 17 years. First contract signed by Tamar. About
10% of Tamar sales.
 EPC, LTSA, O&M turbines supply – Alstom.
 Finance – Largest senior debt in NIS : ~ NIS 3.4 Billion. Arranger and syndicate
leader – Bank Leumi + NIS 4.0 M preferred share capital (institutional) + NIS
270M regular shareholders capital. Overall investment exceeding NIS 4.0 Billions.
 Ranking (by Midrug) A₁ (corresponds with A+) during construction, Aa3
(corresponds with AA-) during operation.
Integration with the environment – connection to the
electricity grid and the gas pipeline
Kefar
Menakhem
Haruvit
Forest
Tsafit
Gas
Railway
Wadi
Ha’ella
IEC
Power
Plant
9
Sigma Epsilon holdings in DaliaAfter selling Landau shares in Hiram Epsilon
Lifshitz
Eli
Einam Gal
(Fishman
Sigma Epsilon
Barnea
Saramieto
(Fishman)
8%
32%
1%
59%
48.75%
Menachem
Sella
37.28%
Mishkey
Emeq Izrael
11.47%
2.5%
Israel
Infrastructure
Fund
S.E. Int.-Energ.
Group
6.7%
20%
Hiram Epsilon
25.7%
Dalia Power Energy
Meshek
Energya
47.6%
Dalia Power Energies - Strengths/Unique Advantages
The site has been chosen by a unique process resulting in a best site in Israel.
Selection was made jointly by Dalia and the National Infrastructure Committee.
Selection was based on a starting with all eligible sites followed by gradual
elimination. Such unique process is expensive as the preliminary studies
(architecture, environmental impact etc) must be repeated several times, but results
in best location.
Dalia’s site has the following advantages:
Only junction in Israel of super high tension lines. Hence, practically unlimited
energy dispatch capabilities.
Little air pollution. Hence, practically no environmental constrains.
far away and close simultaneously: close to Israel’s center of gravity of power
consumption (greater Tel Aviv) yet not close to residential area.
Alstom: contractor for main equipment, EPC, LTSA and O&M needs the project
strategically. Hence:
All economic parameters superior to the “Normative Costs” approved by the PUA.
Potential for accelerated schedule.
High motivation to perform to Dalia’s full satisfaction.
Only IPP in Israel with SOVERIGN GUARANTEE for 18 years power purchase.
Dalia Power Energies - Strengths/Unique Advantages (Cont.)
A unique site selection process leads to a unique advantage: the
possibility of doubling Dalia with additional 870 MW to reach 1700 MW.
Against severe constraints of site availability in Israel – this is a strong
advantage.
Dalia’s twin sister “Ha’Ela” energies is the only site in Israel with:
Land status changed from “agricultural” to “power generation”.
Dispatch ability of additional 870 MW.
Gas pipeline with sufficient free capacity.
Existing switchyard with sufficient capacity.
Ha’Ela has been incorporated September 2013.
DALIA + HA’ELA JOINTLY REPRESENT OVER 12% OF INSTALLED CAPACITY IN ISRAEL.
STRONG POSITION FOR FUTURE PRIVATIZATION TENDERS OF IEC, AND BEST SITE IN THE
COUNTRY WITH TOTAL GAS TURBINE CAPACITY (CCGT) OF OVER 3000 MW (DALIA +
HA’ELA + ZAFIT + EXPANSION)
Summary of Financial Model Results
Annual average of main financial parameters in real terms
2016-2018
2019-2021
2022-2024
2025-2027
2028-2031
Revenue
1,325
1,365
1,318
1,314
1,324
EBITDA(1)
550
548
524
518
522
Free cash flow for debt
service (2)
494
502
440
359
351
)288(
)297(
)260(
)213(
)208(
Free cash flow (4)
206
205
179
146
143
Dividends for preferred
share
Dividends for regular share
65
78
78
78
78
107
111
114
70
60
Senior debt service(3)
Yields (real term)
Senior debt cover
Project yield
10.1%
ADSCR average
1.69
Regular shares yield
28.1%
ADSCR min.
1.69
Energy Centers for Industrial Parks
Co-generation vs. conventional IPP.
Co-generation yields additional 15-20% revenue due to income from thermal
energy. Very little additional OPEX/CAPEX.
Co-generation saves transmission costs (±10%).
High quality customers  relatively high plant factor.
The above mentioned advantages are sufficient to compensate for size deficiency in
most cases.
When a single plant consumes electrical power and thermal energy sufficient for
optimal co-generation plant (~ 70MW,~ 50 ton/h steam) then the simple option
is to own it. In case of outsourcing the yield for the co-generation plant owner
will be at most moderate (as the industrial plant holds all the cards: site, power
consumption, steam consumption) but not necessary low risk due to be
dependence on a single client.
Energy Centers for Industrial Parks (cont.)
The energy center enables the benefits of co-generation while
avoiding the problematic situation of facing a single strong
client.
The initiator locates an industrial park with overall electrical energy
consumption and thermal energy consumption sufficient for an optimal plant
while no single plant can.
The plant will in most cases be located at the yard on the biggest steam
consumer.
The concept has a “cake increasing” effect. The share of the hosting plant in
the bigger cake may not be much smaller compared with owning a smaller
cake all alone.
Once the contract with the host plant is concluded all other plants in the
industrial park represent a captive market.
The energy center facilitates the availability of NG in the industrial park.
Energy Centers - Mature Projects
Sigma Epsilon has initiated and promotes 3 energy center projects that will
produce positive cash flow as of 2015. in two of these projects Delek is the
majority (57%) partner:
IPP Delek Ramat Gabriel (Migdal Ha’Emek) – 70 MW co-generation CCGT at
Nilit plant Ramat Gabriel.
IPP Delek Alon Tavor (Afula) – 70MW co-generation CCGT at Tnuva dairy
plant, Alon Tavor.
Both projects are statutorically very advanced and financial closure is
anticipated on December 2013.
Delek is at a process of divestment from downstream project to enable focus
on upstream, and recently sold its share to Rapac (agents of General Electric
gas turbines) jointly with Denham (a large US private equity fund).
Two years ago Sigma Epsilon has transferred its 28% in both projects to a
subsidiary “Sigma Epsilon – Gabriel Tavor” and allocated 20% of the shares of
this company to Gat Energy, owned by Prof. Dan Galai and Rami Ella against an
investment of $2.0M (executed) undertaking for additional $4.4M loan on
financial closure.
Energy Centers - Mature Projects (cont.)
A contract for a third Energy Center was signed this year with Sugat Sugar Mill at
Kiryat Gat. The majority share holder in this project (55%) is Alon Group.
The project has two unique features:
Sugat is a major consumer of thermal energy (60 tph steam) but consumes only 7 MW
of electrical power. Most of the power (~ 60 MW) will be sold to the electronic industry
in Kiryat Gat (Intel, Micron).
Even though the company has been established only this year a positive cash flow is
anticipated as of the beginning of 2014 since according to the agreement we are going
to take over an existing power plant once NG becomes available on site and the NG
transmission and PRMS are already in construction, and due to be completed on
November 2013
JV with Dor – Alon and Massad Oz
Agreement for the establishment of the JV has been concluded on December 2011
between Dor Alon and Sigma – Massad energy Centers.
Ownership structure:
Dor Alon – 55%
Sigma Massad – 45%
Ownership structure of Sigma - Massad
Sigma Epsilon – 62.2%
Massad – Oz – 37.8%
First project is Alon Gat at Sugat Sugar Mill – Kiryat Gat.
The cooperation is strategic and is based on mutual exclusivity in future power generation
projects in Israel aimed at achieving 300 MW co-generation capacity within 3 years.
Sigma Epsilon is allowed to expand existing project on its own:
Dalia – Ha’Ela
Ramat Gabriel
Alon Tavor
Alon Energy Centers declared short term goal is to own ±300MW cogeneration plants
within 3 years. Kiryat Gat may be expanded to 120MW, and there are ongoing
negotiations for acquiring share in two additional projects.
New venture: Conversion of industrial plants from
liquid fuels to natural gas
Change is opportunity
• The Change – within the next 10 years essentially complete conversion of the industry
from fuel oil, diesel, LPG into Natural gas is anticipated.
• The Opportunity -Significant barriers to entry.
-Return on investment to the customer allows high profitability on the
basis of bonus for early completion..
• Background • State seeks rapid conversion in order to improve the environment and profitability
of enterprises.
• Natural gas distribution network is progressing slowly. Plants conversion is the
main limiting factor.
• Conversion comprises of:
• In factory piping
• Pressure reduction and metering
• Dual-fuel burners
• Internal modifications of thermal equipment
Conversion of plants to natural gas (cont.)
• Barriers:
• Regulation
• Skilled manpower for engineering
• Skilled manpower for installation
• Advantages:
• Involvement in 3 of the few ongoing projects
• Sugat
• Nilit
• Tnuva
• Marketing model based on low base price & high bonus for early completion.
• In house expertise: Moshe, Harel
• Recruitment and training of personnel - creating skill
• Design / execution by SK creates a potential time savings
• Relying on the experience and expertise of IEG
• The Target –
• Annual Turnover 5 $ => $ 10 million a year
• Annual Profit 1 $ => $ 3 million a year
• Creating a significant current income for Sigma Epsilon