CASE NUMBER: IB-29 VERSION: (A) 02/15/02

AES IN NIGERIA
We havent had the problems opening plants internationally that people predicted. For some reason, people thought that our principles and our way of doing things couldnt work overseas. But we havent really experienced anything like that. Roger Sant, Co-Founder and Chairman, AES.

It was November 2001. With a steady tropical rain falling outside, Norman Bell, business manager for the AES Barge independent power producer (IPP) facility in Lagos, Nigeria, sat in his office and considered the options in designing an organization to fulfill AES stated values in the new environment of Nigeria. There were several pending issues critical to moving forward on the development of the nominal 270-megawatt (MW) gas-fired emergency power plant being built by U.S.-based AES, on which it expected its capital investments to total $225 million. The Barge IPP facility was AESs first operating asset in Africa. AES had bought a 95 percent interest in the facility from U.S.-based Enron Corp. in December 2000. Enron had divested as a result of a corporate-wide shift in strategy from asset-based production to market making. Yinka Folawiyo Power (YFP), a Nigerian company that had been instrumental in bringing Enron into Nigeria, owned the remaining 5 percent. The plant had commenced generation with 90 MW in June 2001, and had billed the customer, National Electric Power Authority (NEPA), for first commercial month in July 2001. Now that the construction phasewhich had been contractor ledwas ending, and the operational phasewhich would be AES ledwas commencing, Norman thought it was a good time to review the lessons that had been learnt during the past eleven months as well as to put together the right conditions to further propagate AES values in the new organization. This activity was made more important by new IPP opportunities in Nigeria, as well as by government-proposed privatization and the split up of NEPA, in which foreign power producers
Ade Dosunmu, MBA 2001, prepared this case under the supervision of Professor John McMillan as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. The case was edited by Mary Petrusewicz. Copyright 2002 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or request permission to reproduce materials, e-mail the Case Writing Office at: cwo@gsb.stanford.edu or write: Case Writing Office, Stanford Graduate School of Business, 518 Memorial Way, Stanford University, Stanford, CA 94305-5015. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means electronic, mechanical, photocopying, recording, or otherwise without the permission of the Stanford Graduate School of Business.

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like AES would be interested. Norman knew that possible future AES expansion in these areas and in other parts of Africa would depend on the quality of the organization that had been built at the Barge IPP facility. THE AES CORPORATION AES Corporation was one of the largest power companies in the world, with ownership or interest in 180 plants totaling over 60,000 MW in twenty-eight countries, and another 10,000 MW in the advanced development stage in twelve countries. It also distributed electricity in ten countries. Its total assets were $35 billion, and it employed over sixty thousand people (Exhibit 1). AES had been founded in 1981 by Dennis Bakke and Roger Santtwo former energy conservationists who emphasized a socially responsible and employee empowered organization. AES Corporate Values When founding AES, Bakke and Sant had stressed social values in the organization over profits. They believed their purpose was to build a company that was honest, treated people fairly, and provided safe, clean, inexpensive energy. If these needs of society were met, they believed, profits would be made. The values of the founders were stated in the prospectus when the company went public in 1991: These values are goals and aspirations to guide the efforts of the people of AES as they carry out the business and purposes of the company: Integrity. AES has attempted to act with integrity or wholeness. The company seeks to honor its commitments. The goal has been that things that AES people do in all parts of the company should fit together with truth and consistency. Fairness. The desire of AES has been to treat fairly its people, its customers, its suppliers, its stockholders, governments, and the communities in which it operates. Defining what is fair is often difficult, but the company believes it is helpful to routinely question the relative fairness of alternative courses of action. AES has tried to practice its belief that it is not right to get the most out of each negotiation or transaction to the detriment of others. Fun. AES desires that people employed by the company and those people with whom the company interacts have fun in their work. AESs goal has been to create and maintain an environment where each person can flourish in the use of his or her gifts and skills and thereby enjoy the time spent at AES. Social Responsibility. The company has acted on its belief that AES has a responsibility to be involved in projects that provide social benefits, such as lower costs to customers, a high degree of safety and reliability, increased employment, and a cleaner environment.

As a result of this stance, the U.S. Securities and Exchange Commission required that the following statement be inserted in the section on investment risks: An important element of AES is its commitment to four major shared values: to act with integrity, to be fair, to have fun, and to be socially responsible. AES believes that earning a fair profit is an important result of providing a quality

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product to its customers. However, if the company perceives a conflict between these values and profits, the company will try to adhere to its valueseven though doing so might result in diminished profits or foregone opportunities. Moreover, the company seeks to adhere to these values not as a means to achieve economic success, but because adherence is a worthwhile goal in and of itself. Over the years, AES had continued its unique way of doing business and came to be known as one of the premier empowered organizations where employees were able to make decisions and act according to their own judgment. Reflecting on the reasons for the success of the organization in a 1998 interview, Bakke said: It has to do with our structure and our practiceshiring, compensation, information flow, and so on. Theyre like an ecosystem. Everything about how we organize gives people power and the responsibility to make important decisions, to engage with their work as businesspeople, not as cogs in the machine. AES in Africa By 2001, AES was pursuing an aggressive expansion strategy in Africa, as it had done in other international operations. It had invested resources in both generation and distribution entities in several countries across the continent (Exhibit 2). Initially, AES activities in Africa were controlled from AES Sirocco, based in London, with responsibilities for Africa, Europe, and the Middle East. But in a reorganization in February 2001, AES Africa activities were transferred to a new entityAES Frontier, based in London, with responsibilities for the U.S. states of Texas and Oklahoma, and the Africa region. In reorganizing, the head of AES Sirocco, Mark Fitzpatrick, moved to head the new AES Frontier division. Fitzpatrick had an excellent reputation at AES and had been instrumental in the rapid growth of the companys European and African activities since heading them in 1990. He was also an executive vice president and one of the five officers of the corporation. AES saw Africa as a region where it could significantly grow its generation capacity and revenues due to low per capita use of electricity and the commencement of privatization of many utilities across the continent. The privatization situation in some countries was similar to that launched in the early 1990s with the deregulation of the British power industry by the Thatcher government. This movement had led to tremendous international growth for AES and other independent power producers during the nineties. The difference was that African countries were less developed and presented greater risks on several dimensions. AES project finance strategy was consistent and generally done in a way that minimized risks to the corporation. Each project was typically set up as a separate legal entity, and AES secured non-recourse project financingdebt and equity instrumentsto aid in execution. In Africa and other developing countries, AES made extensive use of debt from multilateral agencies (MLAs) and development finance institutions (DFIs), either made available directly to the projects, or onlent through the relevant government. AES investments would typically be in the form of equity participation or other participating securities paid in cash, usually for majority shareholding. The company was almost always the operatorit was responsible for building and operating the plants. The company always sought to maximize the use of debt, but rarely secured political risk

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insurance (PRI). For example, the company considered securing PRI from the Multilateral Investment Guarantee Agency (MIGA) for the Songas Project in Tanzania, but did not submit a formal application (Exhibit 3). Generally, AES considered that if PRI were really required in a country, then AES should not be in that country. The main exception was when lenders required PRI for a project. By 2001, this position was being questioned by certain managers within AES, but remained the predominant approach, at least with regards to AES equity investments. To mitigate political risk in Africa and elsewhere, AES turned to structured financing tools. For example, for the Songas Project, Songas signed a twenty-year power purchase agreement (PPA) with the Tanzanian electricity operator, TANESCO. Payments to Songas were based on calculations to cover all costs and an expected rate of return of 22 percent on Songas equity. A credit enhancement package consisting of an escrow account ($50 million) and a liquidity facility ($20 million) were negotiated to mitigate risks that the payments would not materialize. Both facilities were to be funded by the Tanzanian government and maintained in bank accounts with a triple A-rated U.S. bank. AES had rights that were senior to other project participants, including debt holders, to access these accounts to make itself whole in the event of a default by TANESCO on the contractual terms. Entry into Nigeria AESs $225 million commitment bought out 95 percent of Enrons 100 percent ownership of the Barge IPP project in two stages, first buying a 30 percent stake from Enron in October, and later buying a further 65 percent in December 2000 (at which point YFP exercised an option to acquire the remaining 5 percent of the project). This was done because AES needed to assure itself that it would be accepted by the Nigerian governments and NEPA as a majority shareholder and operator prior to full commitment. Any outstanding costs to complete the project in readiness for production would be borne out of the $225 million investment. AES planned to issue debt to finance part of its investment, which was under negotiation by 2001. In addition to the Barge facility, AES obtained an option to buy Enrons 70 percent stake in a proposed 548 MW IPP at another Lagos locationAgbaraas part of the purchase deal. The remaining 30 percent was held by YFP. The Agbara project, if fully developed, was to be an integrated gas to electricity project, with gas coming from nearby offshore fields in which YFP had interests. Negotiations were still underway between Enron and NEPA for the critical PPA for the Agbara project by 2001. Subsequent to the purchase of Enrons interests in Nigeria, AES is separately developing a majority interest with a new partner in rehabilitating and operating a 1,000 MW gas turbine plant at Sapele in mid-western Nigeria. In contrast to the Enron buy out, this deal came through an advertisement for expression of interest by the Nigerian central government. In October 2001, AES was named the preferred bidder on the Sapele plant and went into further negotiations with the government. Regarding AES entry into Nigeria, Norman Bell said: The Enron Barge project was already under construction. It was attractive because it would give us early megawatts in Africa. One of the reasons we wanted this was because we had not yet secured an operating entity in Africa. This would be a big boost to our efforts.

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AESs Nigeria partner, YFP, did not have any particular expertise in power generation, but acted as a business partner with knowledge of the local environment. YFP was part of a family controlled, diversified conglomerate with interests in trading, cement, and consumer products manufacturing. In addition, YFP provided logistics and operational support to Enron via a subsidiary company. Regarding YFPs role, Norman Bell said: They have been useful in creating a buffer for our organization in the local environment. For example, we lease all our vehicles through YFP. This allows us to avoid potential liabilities in a country we dont know very well, where foreign companies may be seen as wealthy entities. But over time, we have been able to develop our own knowledge of the local environment principally through our employees and have used this knowledge to obtain many services at competitive rates, and to develop the ownership of the project by our people. Building the AES Nigeria Barge Organization On transfer of the Barge IPP project to AES, AES inherited several of Enrons sub-contractors. A number of new Nigerian employees, including an accountant and thirty technicians/engineers, were directly employed during the first six months of AES ownership. The American construction manager and sixteen Philippine technicians/engineers, who had brought in the largely Philippine origin project equipment for installation, also transferred to AES on temporary contracts. The foreign technical personnel were required to help install and operate the plant and to transfer skills to the Nigerians. A top priority for AES was for local employees to understand and practice AES values and its unique way of doing business. AES brought in people from other operations and charged them with absorbing and then transferring to new employees both AES values and technical knowledge. There were four such AES personnel in Nigeria by November 2001: business manager Norman Bell and three team leaders (Exhibit 4). AES planned to have the project manned at least 95 percent by local employees at the end of Bells stay in Nigeria, which was scheduled for 2003. In addition to social responsibility factors, the company found that expatriate employees cost more not only in monetary terms and benefits, but also in time taken to adjust to the local environment and in continuity during leaves and transfers. In designing a local people strategy and compensation levels, Norman Bell was mindful of the need to focus on AES values and on the fact that AES was setting the terms for what would essentially be a new industry in Nigeriaprivate power generation. Norman found that the Nigerian environment was very different from his past experience in differences in compensation within the economy. There were much wider expectations at different experience levels from entry to team leader. He also found that there could be large differences between the salaries paid for similar jobs at different firms within one industry. He faced the difficulty of setting an appropriate compensation level for the new Nigerian employees given the wide spread of data that he had. Early on, he had decided not to use the salaries paid at NEPA, an inefficient government run monopoly in his benchmarking surveys. To solve this problem, Norman sought more information from some new employees and YFP. He hired a consulting firm to do a salary survey of the oil and gas sector as a benchmark for AES. The oil and gas sector was very important in Nigeria and was part of the larger energy

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industry of which AES was a downstream operator, hence it was felt that data from this industry would be a good approximation of appropriate compensation at AES. In the resulting survey, Norman picked a salary range between the high offshore salaries and the low service company salaries to set a compensation for AES local engineers (Exhibit 5). All the AES engineers were started on the same level since they were all undergoing training in operating the facility. In addition, Norman introduced a compensation structure that was similar to that used by AES in other locations as well as other items that were relevant to the local environment only. Items included: Promotions, payments, and bonuses tied directly to evaluation of employees understanding and practice of AES values. Plant, safety, and environmental performance bonuses. Award of options in AES Corporation. Workmens compensation, health insurance, and pension scheme.

One unusual item that AES provided the local engineers was cell phones. Telephone penetration in Nigeria was less than 2 percent, and most employees could otherwise not be reached in a business or personal emergency. The average cost for cell phone and subscription was $200 and the billing rate was $0.4/min. AES provided the handset, the subscription payment, and a 60minute card each month. The employee was free to use the phone beyond this number of minutes at personal expense. Despite the progress on setting up the organization, Norman felt that there was still considerable work to be done to bring AES values to the Nigerian environment: There are a number of significant issues we face here. One is the large distance between people of different strata in the society. This can lead to breakdown of communications with subordinates being unable to express their ideas. Fortunately, we see much less of this among the young people who work for us. A second issue is that often, people are seemingly out to get the maximum benefits for themselves, which can be detrimental to the organization and is contrary to AES values. For example, there was a situation where some of our employees wrote me a memo asking for an AES vehicle, and financial sponsorship of accommodations to attend an out-of-town marriage of another employee. I sat down and wrote a memo showing the implications of such an idea for the four AES values. In the end, I took the responsibility of refusing the request. I did not yet feel our organization was mature enough for the decision to be theirs. NIGERIA Located at the eastern boundary of West Africa, Nigeria was the most populous country in Africa with an estimated 120 million people in 2001 (Exhibit 6). The three main ethnic groups, HausaFulani, Yoruba, and Igbo, constituted about 65 percent of the population and dominated the political landscape of the country. The country was also religiously diverse; Muslims constituted 50 percent of the population, Christians 40 percent, and indigenous religions 10 percent.

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The first recorded European contact with a Nigerian ethnic group was by Portuguese sailors who encountered the kingdom of Benin and other coastal peoples in the fifteenth century. Increased contacts led to trade in agriculture, crafts, and manufactured goods between the Europeans (British, Spanish, Portuguese, French) and the independent African kingdoms. The transactions later came to include the trans-Atlantic slave trade, in which a total of 12 million West Africans were sold into bondage in the Americas and Europe. Because a large numbers of slaves came from some of the independent kingdoms now part of Nigeria, much of western Nigeria culture and religion survives in South America and the Caribbean into the twenty-first century. Coincident with the end of the slave trade came increased domination by the European countries, and by the end of the nineteenth century most of the Nigerian kingdoms had lost their independence to Britain. In 1914, the British established Nigeria by amalgamating the southern and northern Nigeria protectorates, although these entities continued to be ruled separately. Nigeria gained independence in 1960. By 1967, competition amongst the various ethnic groups had resulted in a civil war, which lasted until 1970. The end of the civil war saw a succession of military rgimes (with one brief period of civil democratic rule from 1979 to 1983) in Nigeria until 1999, when elections were conducted. By 2001, the resulting presidential system of government was half way through its term and elections were due in 2003. Economic Environment Nigeria was predominantly an agricultural and trading economy at independence. Farm products such as cocoa, groundnuts, and oil palm accounted for the bulk of exports and employment in the years preceding the oil boom. In the 1970s, crude oil rose to a dominant position in the economy, particularly in the export sector. By 2001, the World Bank estimated that crude oil accounted for 85 percent of exports and almost 30 percent of GDP at factor costs. The 1970s and 1980s had seen steep declines in other exports as the oil boom and government policy drove real exchange rates up (Exhibit 7). Successive Nigerian governments pursued import substitution and central planning models of economic development in the 1970s and 1980s. With the end of the oil boom in 1983, these models were discredited as local industries failed to achieve world competitiveness and central planning led to corruption and rampant mismanagement. Nigerias per capita GDP plunged from $370 in 1985 to $310 in 2000. At the same time foreign indebtedness rose sharply, reaching $29 billion or 67 percent of measured GDP in 2000. Starting in 1985, under pressure from international lending institutions, the successive governments attempted to change course in economic policy with a series of structural adjustment programs designed to move to a market based economy. These attempts met with very limited success due to entrenched local interests, corruption, and mismanagement, and a protracted political crisis that went on from 1993 to 1999 involving disputes over democratic elections that were annulled by the ruling army. Corruption Corruption was an acute problem in Nigeria. The centralization of power by the military, the lack of transparency in government, and plunging standards of living had bred a multi-layered problem that extended into all strata of society. The German based NGO, Transparency

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International (TI), routinely ranked Nigeria among the worst offenders in corruption in its annual surveys (Exhibit 8). Nigerian President Olusegun Obasanjo, who was elected in 1999, promised to make the fight against corruption a key part of his administration. According to the 2001 TI corruption report: President Obasanjo has not had an easy ride since he made anti-corruption the centerpiece of his reform program on coming to power. While he has pushed his reform program forward, the pace of change has been slow, which was perhaps inevitable in a country where corruption is so deeply embedded. It took over a year for the legislature to pass Nigerias Anti-Corruption Act, and the AntiCorruption Commission it was intended to establish was only sworn in at the end of September 2000. Observers suspect that the delay was linked to a series of corruption scandals that broke out in the legislature. The most prominent of which was the impeachment in August 2000 of Senate President Chuba Okadigbo, who was alleged to have misused public funds. Later in November 2000, the presidency was alleged to be involved in a plot to bribe members of the lower house of parliament in a bid to influence votes. Parliamentarians led by Obasanjos fellow party members who had been at loggerheads with him displayed large bundles of currency allegedly received from the presidential liaison to the assembly and alleged they were in possession of video evidence implicating the president and vice president. This dispute died after closed consultations within the ruling party. The Power Industry in Nigeria Electric generation in Nigeria began in 1896. By 1929, the first hydroelectric station was constructed by the Nigeria Electric Supply Company (NESCO), the countrys first utility. Government domination of the sector started in 1951 with establishment of the Electric Corporation of Nigeria (ECN), which constructed the first interstate trunk line by 1962. By 1962 the electric generation, distribution, and retail industry was nationalized and federalized with establishment of the National Electric Power Authority (NEPA), which was given a statutory monopoly of commercial electricity production and sales. Over the years as NEPAs performance deteriorated, it came to be called various nicknames such as Never Expect Power Always (NEPA) by the populace. In 1998, NEPAs statutory monopoly was repealed. As a result, a number of private firms commenced negotiations with NEPA and regional governments to generate electricity in Nigeria. It continued as a de facto transmission and distribution monopoly into 2001, pending enactment of legislation to restructure the industry. By 2000, the installed nominal capacity of NEPAs system was 5906 MW. There were 11,000 km of transmission and 43,000 km of distribution lines. However, due to lack of maintenance and under investment, peak generation was only 1,500 MW, and overall transmission and distribution losses were estimated at between 30 and 40 percent. Consumer electricity demand on NEPAs system was estimated at 4,500 MW, of which 2,400 MW were supplied by self-generation in the form of small diesel and petrol sets that were used as back up to NEPAs erratic supply. Only 36 percent of the population had access to this system. It was estimated that to fulfill projected national power demand by 2005, an additional 12,700 MW of generation capacity would be required.

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Since the 1998 repeal of NEPAs monopoly, a number of IPPs had commenced. Initially, these were promoted by local entrepreneurs who secured political backing in their local area or state, and then invited technical expertise from foreign companies. This was the situation with YFP, the Nigerian company that held 5 percent of the AES Barge IPP project. In 1999, YFP convinced the newly elected governor of Lagos State that an IPP project would significantly improve power supply to Lagos, and secured commitment of the government to back the project, with Enron as the majority partner. After difficult negotiations, an original PPA signed in 1999 was thrown out, technical aspects of the project such as capacity (from 90W to 270MW) and fuel (diesel to gas) were changed, and other federal government and World Bank fiscal and environmental concerns were cleared. A new PPA was signed in June 2000 and construction commenced. The key terms for the revised PPA were as follows: Monthly payments to AES from the customer, NEPA, based on available capacity from AES. The negotiated capacity price was based on a set amount per kilowatt-month of available capacity. There was to be a penalty for each megawatt-hour of shortfall if actual supplied available capacity was less than a certain percentage of maximum available plant capacity in any one business year. Irrevocable Letter of Credit (LOC) placed with guarantor banks by NEPA for their payment obligations. A thirteen and one-quarter year project life commencing from the floating final completion date (AES target date was January 1, 2002). Gas utilized is pass through for AES; i.e. NEPA purchases fuel gas for operations direct from Nigeria Gas Company (NGC). The project was to remain owned by the operator at expiration of the contract with negotiations on possible further supplies or disposition.

While these projects were ongoing, NEPAs electricity supply remained comatose. As a result, the central government began to take a more direct interest in electricity improvement efforts including negotiating new IPPs, and refurbishment of NEPAs facilities through direct investments and public/private contractual partnerships such as Rehabilitate, Operate, and Transfer (ROT) projects. The government set a short-term target date of December 2001 to achieve stable power supply in the country; as a result, during 2001 a large number of such projects were underway. In addition, a new national electricity policy was promulgated. This policy sought to promote the total liberalization, competition, and private sector led growth of the electricity sector. The policy laid a framework for moving from the monopoly industry through interim structures to a liberalized sector by 2008. Specifically, the policy proposed the unbundling of NEPA into multiple privatized generating companies, privatized distribution and retail companies, and one company responsible for transmission and dispatch. In addition, it sought to encourage new entrant companies initially in generation and later in electricity wholesale and retail. Apart from AES, a number of other organizations had taken advantage of the IPP opportunities and were in the process of building new power plants (Exhibit 9). These included consortia led by oil and gas companies that had been active in Nigeria for many decades and had large gas resources, which they had found hard to put to good use. Despite a recent upsurge in building large gasliquefaction-for-export projects, about 65 percent (or 2.7 billion cubic feet per day) of gas produced in Nigerian oilfieldsenough gas to power between 9,000 MW and 18,000 MW of

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electric production1was still flared, with a monetary penalty of 15 cents per thousand cubic feet of flared gas imposed on companies by the government. This national electricity policy was also tied to the governments overall privatization effort, which included selling just under two hundred state-owned enterprises. As a result, power industry investors closely watched developments in the privatization effort as a gauge of the governments determination in moving to a private sector led economy. By 2001, the government had privatized several banks and manufacturing entities, had sold licenses in an auction for mobile telephony, and was in negotiations with competitively chosen preferred bidders for the national telephone carrier, NITEL, and the largest shipping yard in the country. Conclusion Norman had enjoyed the challenges of his job in Nigeria, and felt that AES was on track to create an organization that conformed to the values of the company. He felt that his twenty years in the British Royal Navy prior to joining AES in September 1994 had prepared him for challenging work. He was determined to reduce the numbers of foreign personnel and bring in more Nigerians into positions of higher responsibility in the next two years. He wondered what he and the organization should be doing to accelerate this process and ensure that it would be successful.

Based on 1,000 Btu/ft3 energy content of gas, and 27% and 55% cycle efficiencies for simple or combined cycle power plants, respectively.

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Exhibit 1A AES Summary Data, 19972000

Income Statement Items All dollar amounts in $ million For the Years Ended December 31 Net Sales Net Income Earnings per Share

2000 6,691.0 665.0 $1.46

1999 3,253.0 337.0 $0.96 6

1998 2,398.0 311.0 $0.84

1997 1,411.0 188.0 $0.56

Balance Sheet Items All dollar amounts in $ million For the Years Ended December 31 Total Assets Total Current Liabilities Total Non-Current Liabilities Total Shareholder Equity

2000 31,033.0 4,882.0 21,340.0 4,811.0

1999 20,880.0 2,570.0 15,673.0 2,637.0

1998 10,781.0 1,976.0 7,011.0 1,794.0

1997 8,909.0 1,204.0 6,224.0 1,481.0

Exhibit 1B Net Generation Capacity 19902001

60000 50000 megawatts 40000 30000 20000 10000 0

1988 1990 1992 1994 1996 1998 2000 2002

Source: AES Corporation

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Exhibit 2 AES Projects in Africa, 2001

# 1 Description Development SONGASgas wells, processing, pipelines, and 113 MW gas turbine (GT) plant, Songo Island/ Dar es Salaam (first integrated gas to electricity project for AES worldwide). Purchase 600 MW coal fired plant, Johannesburg. Country Tanzania Status Approved. Closed financing. All contracts signed. Startup imminent. Pending financing approval. Won bidding. Negotiating PPA. Complete. Bidding. Negotiation. Pre-qualified for bidding. Negotiating PPA. Complete.

South Africa

Development 250 MW hydroelectric facility, Bujagali.

Uganda

Repair, Operate, and Transfer 1020 MW GT plant, Sapele.

Nigeria

5 6 7 8 9 10

Development Barge 270 MW GT plant, Lagos. Privatization 450,000 customer 900 MW electric utility Development 300 MW GT plant , Tema Development 600 MW Kafue Lower and 120 MW Itezhi-tezhi hydroplants. Development 150 MW GT, Edea. Privatization 452,000 customer 800 MW electric utility.

Nigeria Senegal Ghana Zambia Cameroon Cameroon

Source: AES Frontier Internal Documents

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Exhibit 3 AES in Tanzania SONGAS Project Financial Structure

Equity Holders
AES $50 million Pref A* CDC $18 million Pref B*

Assumed Debt

Lenders
Concessionary Terms

World Bank $32 million

World Bank $150 million

TDFL $4 million Common TPDC $3 million Common

TANESCO $1 million Common

IDA $18 million

GOT EIB $37 million

GOT

Pref A & B shareholders also hold some common Commercial Terms

$ 78 million

$30 million

$210 million

PPA with TANESCO

SONGAS LIMITED
Gas Sale to Cement Plant Sources: AES and Songas Project Web site http://www.songas.com/financial.htm Key to Abbreviations: CDC Commonwealth Development Corporation Ltd TPDC Tanzania Petroleum Development Corporation TDFL Tanzania Development Finance Company Ltd IDA International Development Association GOT Government of Tanzania EIB European Investment Bank

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Exhibit 4A Summary Background of AES Barge Expat Personnel

Norman Bell Business Manager for AES Nigeria Barge Limited Retired from the Royal Navy in the rank of engineering lieutenant and recruited into the Medway Power Plant, under construction in the U.K., as a plant engineer in September 1994. Mainly employed as a control room engineer, gaining experience in all aspect of operations of a 660MW CCGT Power Plant, until selection for the position of plant leader in October 1996. As a plant leader, gained further experience in the commercial and operations aspects of a power plant, with a focus on closing out the EPC contract and special projects. Left Medway to take up current position in January 2001. Rodney Daigle Joined the Nigeria project in March 2001 from AES Southland, which had been a fairly recent acquisition by AES. His background is mainly in operations and he was a control room supervisor at Southland. Has a great deal of varied employment experience both in and out of the power plant, even as a light aircraft pilot in Africa. Hired into AES Nigeria Barge Ltd. as a team leader in March 2001. Bret Pardew After serving six years in the U.S. Navy, was recruited into AES in 1991 at the Hawaii plant where he was employed on mechanical maintenance. Having spent six years in Hawaii and qualifying in all areas of plant maintenance, was hired into AES Lal Pir in Pakistan as part of the team to introduce the AES values and culture. Selected for a position as a plant leader, he worked as a commissioning and start-up engineer, eventually taking over the balance of plant area responsibilities. He also gained invaluable experience in the business and commercial aspects of plant operations before moving to AES Leninogorsk in Kazakstan in 2000. His primary role here was as a plant leader, mentoring the local employees in the AES culture and values while changing the recent acquisition into an AES business. Hired into AES Nigeria Barge Ltd. as a team leader in July 2001. Foster Mouton Employed in the power industry since 1991, Foster progressively gained experience and additional qualifications. He was recruited into AES in 2000 at AES Ironwood, a 700MW CCGT plant under construction in Pennsylvania. Activities included construction, commissioning, and start-up. Foster advanced into the position of control room engineer with responsibility for the EPC and PPA agreements. He was hired into AES Nigeria Barge Ltd. in November 2001 to implement the AES values and culture and to undertake specific projects while taking on the role of a team leader.

Source: AES Nigeria Barge Limited Internal Documents

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Exhibit 4B AES Barge Limited Organization Chart Project Manager

McIaren

Business Manager
Norman Bell Receptionist Ruth Imaji Team Leader ExPat 1 Rod Daigle Team Leader ExPat 2 Bret Pardew Team Leader ExPat 3 Foster Mouton Team Leader NG 1 Obi Ezeoke Admin. Assistant Dupe Awosika Team Leader NG2 & 3 TBA Team Leader NG Tunji Ajayi Finance

Operations Yolando Labitad Shift Tech Advs x 5

Group A NG Engineers

Aurelio Samultinog

Operational Maintenance Mania Garcia + 8 Expat Maintainers

Group D NG Engineers Group E NG Engineers

Group B NG Engineers

Group C NG Engineers

Accounts Assistant Secretarial Warehousemen

Plant Responsibilities EPC Contract Training/Qual books Safety NEPA Protocol PPA Waste Disposal Environmental Control Room Procedures MMS IT Area Responsibilities PB202
PB207 Control Room

Plant Responsibilities EPC Contract Training/Qual books NEPA Protocol Barge Structure FED-EX/Shipping Agent Control Room Procedures Boats & Misc Equipment Water Treatment Condition Monitoring MMS
Plant Communications

Plant Responsibilities EPC Contract Fire Protection System NEPA Protocol Generators Emergency Plan Fire Brigade

Plant Responsibilities EPC Contract Turbine Units NEPA Protocol HV Transmission MMS Lifting Gear Compressed Gases Fuels/Oils Contract/Supplies Workshops

Plant Responsibilities

Plant Responsibilities

EPC Contract EPC Contract Shore Fuel Gas System PPA LV distribution system Machinery/plant Iins NEPA Protocol DTD Contract Drawings & Tech Library Stores Site/Building Services Finance/Financing C&I Annual & Long term Plans Security Contract Misc. Insurance Station Filing System Area Responsibilities PB205
PB210

Area Responsibilities Balance of Plant

Jetty

Area Responsibilities PB203

PB208 PB211

Area Responsibilities PB204

PB209 Workshop

Area Responsibilities Admin Building

Grounds Stores

Source: AES Barge Limited Internal Documents

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Exhibit 4C AES Nigeria Barge Limited Values Surveys Questions and Employee Responses
How well has AES made its presence in Lagos and Nigeria as a whole? The project is still considered by many as ENRON Nigeria Barge Ltd. The need for more publicity is there. The presence of AES in Lagos and Nigeria has been felt, but people, including NEPA and news media, still refer to the project as ENRON. Now that AES is generating an average of 150 MW, many homes in Lagos have been enjoying steady power supply. AES has adequately made its presence felt in: Employment opportunities for the Nigerians Improve electricity supply for the nation Encouraging other foreign investors into the Nigerian economy. Do you feel you are adequately compensated for your work? No. Salary is very low as compared to the energy sector of Nigeria No. The welfare package including salary is insignificant compared to the cost/profit of the project. What % profit is for staff welfare? The medical plan is very limited in coverage. Loan scheme at 0% interest would help. To a large extentyes. For now it is ok but still room for improvement. How would you rate the leaders of the project? Excellent: 12% Good: 67% Fair: 21% Poor: 0% The leaders should interact with the engineers more; spend more time on the barges. The leaders are very supportive, caring, and open. Good for now, always room for improvement. Do you feel your talents are being completely utilized? No, there should be more than just taking hourly readings. We are all degreed engineers; we need to work in our disciplines more. We need to establish a separate maintenance group, now we have no idea how to do the repair work. Construction is still in progress; hopefully we will be doing more after project completion. The training program supplied by ENRON was very poor and now we only have OJT. What would you do to make AES Nigeria Barge a better business and improve the FUN aspect of work? When individuals ideas are considered prior to making decisions. Take AES as my personal company and carrying out my duties/responsibilities with a happy mind. Be involved in more business decisions. By working hard and putting in my best so as to achieve the AES Nigeria Barge goal to supply electricity to the people of Nigeria. Is AES Nigeria Barge fulfilling its commitments to the Shared Values? The issue of Fairness should be taken into consideration seriously.

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Social Responsibility is being attended to by various projects, including employment opportunities. Fairness in salary is not being fulfilled. Too early to say. Yes, always room for improvement.

How would you describe the working environment at AES Nigeria Barge? Excellent: 0% Very Good: 40% Below average: 36% Poor: 3% Dont know/no answer: 21% How well do you think that your contributions to AES are appreciated? Excellent: 6% Very Good: 61% Below average 15% Poor: 0% Dont know/no answer: 18% Fun means creating an environment where people can use their gifts and skills to make positive contributions without being squelched; a place where peoples experiences are stimulating, exciting, and fulfilling. Overall, how accurately does this description describe what is occurring at AES Nigeria Barge? Excellent: 6% Very Good: 46% Below average 33% Poor: 0% Dont know/no answer: 15% Please place a checkmark in the corresponding columns below to indicate following items at AES Nigeria Barge. Communication: Excellent: 6% Good: 61% Fair: 18% Poor: 12% Support among Team Members Excellent: 40% Good: 45% Fair: 15% Poor: 0% Access to information: Excellent: 30% Good: 30% Fair: 37% Poor: 0% how you would rate the

NA 3% NA 0% NA 3%

AES Notes: *NA No answer The overall rate of submittals was: 92% Survey Conducted November 2001 Some questions in survey did not provide for checking answers, only comments, hence no percentage responses are available for those questions.

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Exhibit 5 Excerpts from AES Nigeria Barge Limited Compensation Survey Per year compensation ranges for oil and gas industry in Nigeria Probable entry points for college graduates in engineering

Figures are in Nigerian Naira (N), $1 = N120 (November 2001).

Low Entry midpoint

Company Job Group Total cash Benefits in Kind Gross Incl. Bonuses 1 2 3 4

C
839,000 492,174 1,331,174

G-J 3
918,267 962,172 1,880,439 1,591,735 833,944 2,425,679

8
1,365,193 299,650 1,664,843

12

High Entry midpoint

Company Job Group Total cash Benefits in Kind Gross Incl. Bonuses 1 E 1,547,000 916,666 2,463,666 2 G-J6 1,317,909 429,672 1,747,581 3 6 1,887,554 1,000,951 2,888,505 4 15 1,897,518 476,981 2,374,499

AES Entry midpoint

Total Cash 930,000 Benefits in Kind 471,706 1,401,706

Notes: Probable entry points are the casewriters judgment based on work experience in the Nigerian oil industry. AES entry salaries are benchmarked against the low entry point, and are the casewriters estimation as opposed to company data.

Sources: AES Nigeria Barge Limited compensation survey of oil and gas industry. Yahoo! Currency Converter, http://rd.yahoo.com/search/iy/stocks/currency+converter/*http://finance.yahoo.com/m3?u.

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Exhibit 6 Maps of Nigeria and Africa

MOROCCO

TUNISIA

Nigeria
ALGERIA LIBYA EGYPT

MAURITANIA MALI NIGER CHAD SUDAN

SENEGAL

BURKINA FASO

N IG ER IA
CENTRAL AFRICAN REPUBLIC CAMEROON CONGO DEMOCRATIC REPUBLIC OF CONGO UGANDA

ETHIOPIA

SOMALIA

KENYA

NIGERIA

TANZANIA

ANGOLA MOZAMBIQUE ZAMBIA ZIMBAWEE BOTSWANIA

NAMIBIA

MADAGASCAR

SOUTH AFRICA

1. Map of Africa with position of Nigeria shown by shading. 2. Map of Nigeria showing states and large cities.

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Exhibit 7 Comparative Macro Economic Indicators (2000 unless otherwise indicated)

Gross domestic product ($ billion) GNI per capita ($ Atlas Method) GDP growth (annual %) Gross capital formation (% of GDP) Inflation, GPD deflator (annual %) Foreign direct investment, net ($ billion)a Aid flows per capita ($)a Electric power per capita (KwH 1998) Paved roads (% of total) Adult illiteracy (%) Female Male Life expectancy (years) a Population (millions) Urban population (% of total) Population growth (%)
a

Nigeria 41.2 260 2.8 22 26 1 1.2 85 30.9c 44.2 27.6 47.5 126.9 44 2.4

Cote dIvoire 9.3 660 -2 -2 0.35 28.8 9.7d 37.1 45.1 46.1 16 46 2.3

Ghana 5.4 350 4 31 35 0.017 32.3 289 24.1d 61.2 19.7 57.9 19.2 38 2.2

South Africa 125.9 3,020 3.1 15 7 1.38 12.8 3,832 11.8b 15.4 14.0 48.5 42.8 50 1.6

USA 9882.8 34,260 5.2 2 275.5 11.832 58.8c 76.9 281.6 77 1.2

1999 1998 c 1997 d 1996

b

Source: Compiled from World Bank World Development Indicators Data Query, http://www.worldbank.org/data/dataquery.html.

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Exhibit 8 Corruption Indices

2001Top and Bottom 10 Countries Country Country TI Score Rank
1 2 3 4 4 6 7 8 9 10 Finland Denmark New Zealand Iceland Singapore Sweden Canada Netherlands Luxembourg Norway 9.9 9.5 9.4 9.2 9.2 9.0 8.9 8.8 8.7 8.6

Country Rank
82 83 84 84 84 84 88 88 90 91

Country
Tanzania Ukraine Azerbaijan Bolivia Cameroon Kenya Indonesia Uganda Nigeria Bangladesh

TI Score
2.2 2.1 2.0 2.0 2.0 2.0 1.9 1.9 1.0 0.4

AES Countries of Operation and TI Country Rank

Country

Average TI Score, 19972001 3.2 8.6 0.4 3.9 1.7 9.1 6.9 3.3 4.6 2.9 3.1 7.8 5.2

Year AES Started Operation 1993 1999 2001 1996 2001 1997 2000 1996 2001 2000 1996 2001 1996

Country

Argentina Australia Bangladesh Brazil Cameroon Canada Chile China Czech Republic Colombia Dominican Republic Germany Hungary

India, Italy Kazakhstan Nigeria Netherlands Mexico Oman Pakistan Panama United Kingdom United States Venezuela

Average TI Score, 1997 2001 2.8 4.9 2.7 1.5 8.9 3.3 2.4 8.5 7.62.3 2.68

Year AES Started Operation 1994 2001 1997 2001 1998

1997 1999 1990 1981 2000

Key TI index: 10 = totally clean, 0 = totally corrupt. Sources: Transparency International http://www.transparency.org/, AES Corporation

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Exhibit 9 Ongoing Power Generating Developments/Projects in Nigeria, 2001

Project Sponsor ENI/Agip Oil (Italy ) 20% , Phillips (U.S.) 20%, Nigerian National Petroleum Corporation (NNPC) 60% Operator ENI/Agip Shell (Anglo/Dutch) 30%, Elf (France) 10%, Agip 5%, NNPC 55%. Operator Shell Exxon Mobil (U.S.) 40%, NNPC (60%) Operator Exxon Mobil NEPA/ Contractor: Asea Brown Boveri (ABB) Sweden Eskom (South Africa) Description 450MW, $425 million IPP, in Kwale, mid-western Nigeria. Will eliminate flares in new oilfields. 276 MW IPP, in Afam, eastern Nigeria Will utilize part of current excess gas. 388 MW IPP, in Eket, southern Nigeria Will utilize part of current excess flare. 450 MW 3 phase combined cycle facility in Abuja, central Nigeria. Undisclosed terms. 2,000 MW IPP in Enugu, eastern Nigeria Will utilize local coal production. Undisclosed terms. Status Scheduled completion December 2003.

Scheduled completion December 2001.

Scheduled completion unknown. PPA negotiations ongoing. Unknown completion

Unknown completion

Sources: U.S. Department of Energy, http://www.eia.doe.gov/cabs/nigeria_ipp.html. Shell Nigeria, http://www.shellnigeria.com/frame.asp?Page=2001GasFla.