Financial Advisor for the K2R4 Project

In the frame of the Memorandum of Understanding signed in December 1995 between Ukraine, G-7 Countries and the European Commission concerning closure of Chernobyl, the K2R4 project (the Project) aimed at the completion, rehabilitation and modernization to acceptable safety level in accordance with IAEA's recommendations, of the Khlmenitsky 2 and Rovno 4 units under construction.

Since 1994, the European Commission (EC) provided extensive support to the Project through the TACIS programme. In this context, a Project Management Group (PMG) was set up in Kiev, composed of Ukrainian experts from the Goscomatom of Ukraine' and Western experts. It established technical information needed by the potential lenders in the frame of their due diligence.

The further step of the Project's development was the negotiation of all technical contracts and the preparation and negotiation of loan agreements.

The overall financing package was estimated to approximately 1,500 million US dollars to be financed by Ukraine, by EURATOM, the EBRD, Export Credit Agencies and Russia. EA or the Ukrainian State would be the borrower. Assembling a funding package of this scale was a major undertaking. Given the complexity of the deal, it was the EC's view that the State of Ukraine and EA should benefit from the services of a qualified consulting firm ("the Financial Advisor") who would assist in lining up the required finance and the negotiations with the lenders.

On the basis of the documentation prepared by EA (with the support of PMG and previous financial advisor) Ukrainian Authorities and lenders in the previous stages of the Project, the Financial Advisor provided support inter alia for:

• Finalizing the Financial Plan for the Project.
  • Reviewing and negotiating the financing documentation and security package with lenders.
  • Implementing measures to comply with the conditions precedent to loans effectiveness and first drawdowns.

The project was carried out according to the objectives stated above. Specifically:

The primary task of the Financial Advisor was to provide advice, recommendations and assistance to Ukraine and the EA in respect of all financial aspects of the project. In that frame:

1. Develop and permanently update a timetable to loans signature and effectiveness and first drawdowns.
2. Pursue investigations concerning potential lenders in view of obtaining film commitments with a precise definition of their conditions and constraints.
3. Advise with respect to the financing plan, in particular review and update the existing Financial Plan taking into account the origin of goods and services to be defined during the General Contractor negotiations; the Financing Plan will precisely define the breakdown of services and goods to be financed by each funding source.
4. Review, update and adapt the financial model of the Project with relevant scenarios and sensitivities taking into account the updated Financing Plan the current and prospective macro-economic situation in Ukraine and the electricity sector evolution.
5. Co-ordinate the financing arrangements between different sources of funding.
6. Establish different reimbursement scenarios and advise in the choice for fixed/floating interest rates and capital reimbursement profile.
7. Participate in and give advice during the negotiations between the Borrower, EA and the lenders.
8. Review and comment the loan documentation (Term Sheets, Loan agreement, Guarantee Agreements, Security Package and other documents) and all relevant Project documentation.
9. Provide advice in the preparation and setting up of the payment mechanism for the Project.
10. Prepare and participate in the implementation of all measures specified in the conditions precedent to loans effectiveness and first drawdown.