CONFIDENTIAL MEMORANDUM

To: OPSCOM Date: 21 December 2004

Via: Mary Ellen Collins

From: Volker Recker cc: Olivier Descamps

Francis Delaey
Paul Kearny
Maaike de Bie
Irena Postlova

Subject: Moldova: Giurgiulesti Port Terminal - Opid 1669

For Approval

The Bank Exposure is shown in the table below, excluding unpaid interest of USD 2.4MM (USD 1.5MM for the Bank’s account):
Equity 1.5 (all amounts are in USD MM as of 12/04)
EBRD 1.5
Debt (excluding overdue interest) 15.3
EBRD 9.9
B-Lenders 5.4

The purpose of this Memorandum is to request approval for a settlement proposal in

which Azpetrol (via its affiliate Azertrans S.R.L. Moldova) aquires the assets of the
Giurgiulesti Oil Terminal from Terminal S.A (the “Borrower”).

The B-Lenders (National Bank of Greece, Commercial Bank, General Bank)

communicated to the team that they would be interested in a one-off payment (haircut
solution). Azpetrol proposed the following arrangement:

 USD 5.5MM upfront cash payment by Azertrans (Moldova) S.R.L.

(“Azertrans”), an affiliated company of the Azpetrol Group recently
established in Moldova, upon signing of the agreements. The upfront cash
will be used to fund the upfront cash payments to the Bank and the B-
Lenders.
 The Bank will receive a USD 2.0 MM equity interest in Azertrans (USD
2MM fixed deferred payment to the Bank upon exit via a put-call agreement
after 5 years, put/call with Azertrans).
 USD 5.3MM unsecured deferred payment to the Bank (no interest, 2 years’
grace period and repayment in equal quarterly instalments over 6 years,
repayments to be made by Azertrans).
As contemplated in this transaction, USD 12.80MM would be paid to the lenders over a
period of 8 years. The Bank would receive USD 9.9MM, representing full payment of
its outstanding principal and the B-Lenders would receive a one off payment of USD
2.9MM, representing 54% of their outstanding principal. The Bank would receive USD
2.6MM (26% of the principal) upfront upon signing of the agreements. The exact
legal structure of the whole transaction is currently being defined by the transaction
parties and their respective outside counsel. The B-Lenders have accepted Azpetrol’s
proposal. The Sponsors indicated their approval.

The team recommends acceptance of Azpetrol’s proposals based on the following:

 EBRD receives its full outstanding principal amount. The Bank would not be
perceived as “forgiving” on the disbursed loan; however it would write off its
equity interest
 Although it is difficult to assess the credit worthiness of the newly established
Azertrans, the planned USD 13.5MM equity contribution and the fact that
Azpetrol is prepared to make a substantial upfront payment while financing the
completion of the project with equity demonstrates a serious financial
commitment.
 It appears the Bank’s only other viable option to recover some funds is through
arbitration against the Republic of Moldova. This very costly process could take
up to 3 years. Even if the Bank were successful in arbitration, it would still be
questionable if the Bank would recover any funds due to the well known
financial constraints of the Republic of Moldova.
 Azpetrols seems well experienced to make such a project work in Moldova.
Azpetrol’s strategy to set up its own customer base for the oil terminal seems
well suited to tackle the very difficult problem caused by the existence of a
significant black market for oil products in Moldova.

2. Background

The original project is the green-field construction of a port terminal for refined oil
products on the Moldovan bank of the river Danube. The Borrower is a private
company owned by Technovax, Technodomiki and Avax, the Greek sponsors (40%),
the Moldovan State (40%) and the Bank (20%). The contractual framework relied on a
concession granted by the State under the terms of which the State undertook to
construct the rail link to the port, provide its share of equity, and provide the terminal
with a guaranteed throughput of 1Mt p.a. The project has suffered a number of delays
right from the start due to the unwillingness and/or inability of the Moldovan
government to fulfil its obligations under the Project Agreements. As a result, the
Borrower ran out of funds and the physical work on the project was stopped. The
project is only 60% completed. After 2 1/2 years had passed, since the disbursement of
further funds were stopped in October 1999, all parties agreed on a mediation exercise
which was supposed to create a platform to find a way out of the impasse. The
mediation meetings, conducted by a Bank appointed mediator, took place in Bucharest
in February 2002. The agreements reached and ultimately signed by all parties
confirmed the minimum expectations of the lenders and reached the agreement that the
Government would seek to sell the entire project including permits/concession etc. to a
new investor within 6 months. The Government of Moldova introduced a Russian
investor who owns Azov Seaport and represented that he had shown an interest in the
acquisition of the Project. There were also direct discussions with the Russian Ministry
of Transport which expressed an interest to acquire the Project assets. Their specific
interest in the purchase of the land was not acceptable to the Government of Moldova
since Moldovan law prohibits land sales by the Government to other states. The
Government maintained direct contacts with various parties which ultimately did not
make any serious proposals. None of the parties which held discussions with the
Government entered into detailed due diligence work regarding the Project. The real
value of the project is the combination of the strategic and unique location and the
various permits, as well as the already built 60% of the projects physical construction.
In July 2004 the Bank was approached by Azpetrol, a company from Azerbajain who
expressed interest in buying the unfinished terminal. Azpetrol is known to the Bank
from another project (EBRD Property Group). In anticipation of buying the unfinished
terminal, Azpetrol signed a framework/investment agreement with the Government of
Moldova in December 2004.

3. Proposed Future Activities of the Terminal

Azertrans (Moldova) S.R.L. (“AZTRAN”), an affiliated company of the Azpetrol

Group, intends to purchase the existing assets related to this oil terminal from Terminal
S.A., complete it and convert the territory of the oil terminal as well as the adjacent
territory into the Giurgiulesti International Free Port. The Giurgiulesti International Free
Port will have a special status regulated by a specific law providing residents the
Giurgiulesti International Free Port with a lucrative framework conditions for their
investments similar to those granted in free zones. As the general investor in the
Giurgiulesti International Free Port, AZTRAN plans to undertake following the
completion of the Petroleum Terminal a number of other investments within
Giurgiulesti International Free Port such as the construction of a multi-purpose cargo
terminal, the construction of a passenger terminal, and the construction of infrastructure
within the territory of Giurgiulesti International Free Port enabling the above
investments as well as additional investments of affiliated and non-affiliated companies
within the territory of Giurgiulesti International Free Port.

Two affiliated companies of AZTRAN – Azpetrol (Moldova) S.R.L. (“AZMO”) and

Azpetrol Refinery S.R.L (“AZREF”) – intend to complement AZTRAN’s investments.
AZMO plans to establish a petrol station network consisting of up to 50 petrol stations
throughout the Republic of Moldova in parallel to AZTRAN’s completion of the
Petroleum Terminal. AZMO will import petroleum products from the Black Sea and
Caspian Sea areas via AZTRAN’s Petroleum Terminal and sell the petroleum products
throughout the Republic of Moldova. Hence, AZMO’s investment will provide
AZTRAN with considerable throughput volumes and thereby support AZTRAN’s
investments into the Petroleum Terminal. In the medium-term, AZREF plans to
construct the first refinery in the Republic of Moldova within the territory of
Giurgiulesti International Free Port. AZREF intends to provide refining services on a
tolling basis to AZMO and other parties selling oil products in Moldova and other
countries accessible via the Danube. The envisaged refinery will have a minimum
capacity of one million tons and be capable of producing petroleum products meeting
the EU regulations coming into force in 2007. A more detailed project description
together with a rough overview of the financial plan from Azpetrol is attached to this
Memorandum for your further reference.

4. Approval: Course of Action/Waivers and Releases

The team seeks the approval of the Operations Committee to (1) enter into all necessary
agreements to implement the basic commercial agreement reached with Azpetrol and
(2) provide the necessary waivers and releases in connection therewith, including,
without limitation, (a) waiver of it claims against Moldova under the State Performance
Guarantee; (b) waiver of it claims against Technovax, Technodomiki and Avax (the
Greek Sponsors) under the Project Funds and Project Completion Guarantee
Agreement; and (c) the release of the Performance Bond (issued by the General Bank of
Greece in support of obligations of the Greek Sponsors).

As a result,

 EBRD would write off its equity, forgive USD 1.6MM in interest and USD
4.0MM in default interest, but would receive full payment of the principal loan
amount outstanding.
 The B-Lenders would forgive USD 2.5MM in principal, USD 0.8MM in interest
and USD 2.2MM in default interest, but would receive a proportionally higher
amount (54% instead of 35%) of the upfront cash payment.
 The Sponsors would be released of their guarantee obligations (their prime
objective) in the amount of USD 5MM in exchange for waiving their right to
initiate an arbitration against the Republic of Moldova. The Sponsors would
also write off their equity interest.
 The Government of Moldova would be released from its extensive obligations
under the performance guarantee in exchange for extensive tax concessions to
Azertrans and the write off of its equity interest.
 AZERTRANS S.R.L.

GIURGIULESTI INTERNATIONAL
FREE PORT

PROJECT REPORT
 1. BACKGROUND

Moldova is one of the poorest countries of Europe with a per capita GNP of
approximately US$400. The total population of Moldova is 4.3 million (including
Transnistria) and an estimated 55 percent of the population lives in poverty. It is located
between Ukraine and Romania and in the absence of any adequate port facilities on the
Danube or Prust rivers currently does not have direct access to the open sea. Moldova is
predominantly an agricultural country, with few natural resources. Poor economic
performance over the past decade has been attributed to political instability and
unresolved separatist conflict. Today, Moldova is one of the Region’s most heavily
indebted countries and it has been facing a liquidity crisis in servicing its debts.

Part of Moldova’s outstanding sovereign obligations are related to an unfinished oil

terminal on the river Danube owned by Terminal S.A. supported by debt financing
provided by a consortium of banks led by the EBRD. Due to a number of reasons the
construction of the oil terminal came to a halt in [ ]. Terminal S.A. and the lenders to
Terminal S.A. wish to dispose of the existing assets and use the proceeds of the sale to
cover the outstanding debts and thereby relinquish the sovereign obligations related to
this project.

Azertrans (Moldova) S.R.L. (“AZTRAN”), an affiliated company of the Azpetrol

Group, intends to purchase the existing assets related to this oil terminal from Terminal
S.A., complete it and convert the territory of the oil terminal as well as the adjacent
territory into the Giurgiulesti International Free Port. The Giurgiulesti International Free
Port will have a special status regulated by a specific law providing residents the
Giurgiulesti International Free Port with a lucrative framework conditions for their
investments similar to those granted in free zones.

As the general investor in the Giurgiulesti International Free Port, AZTRAN plans to
undertake following the completion of the Petroleum Terminal a number of other
investments within Giurgiulesti International Free Port such as the construction of a
multi-purpose cargo terminal, the construction of a passenger terminal, and the
construction of infrastructure within the territory of Giurgiulesti International Free Port
enabling the above investments as well as additional investments of affiliated and non-
affiliated companies within the territory of Giurgiulesti International Free Port.

Two affiliated companies of AZTRAN – Azpetrol (Moldova) S.R.L. (“AZMO”) and

Azpetrol Refinery S.R.L (“AZREF”) – intend to complement AZTRAN’s investments.
AZMO plans to establish a petrol station network consisting of up to 50 petrol stations
throughout the Republic of Moldova in parallel to AZTRAN’s completion of the
Petroleum Terminal. AZMO will import petroleum products from the Black Sea and
Caspian Sea areas via AZTRAN’s Petroleum Terminal and sell the petroleum products
throughout the Republic of Moldova. Hence, AZMO’s investment will provide
AZTRAN with considerable throughput volumes and thereby support AZTRAN’s
investments into the Petroleum Terminal. In the medium-term, AZREF plans to
construct the first refinery in the Republic of Moldova within the territory of
Giurgiulesti International Free Port. AZREF intends to provide refining services on a
tolling basis to AZMO and other parties selling oil products in Moldova and other
countries accessible via the Danube. The envisaged refinery will have a minimum
capacity of one million tons and be capable of producing petroleum products meeting
the EU regulations coming into force in 2007.
2. MARKET AND COMPETITION
Currently Moldovan importers and exporters of any goods rely solely on road, rail and air
transportation. Although a small part of the territory of the Republic of Moldova borders the
Danube, Moldova has yet to realize its potential for transporting goods from and to the Republic
of Moldova via the Danube and with its status of an international water way free access to the
open sea. Hence, a port on the Danube would provide exporters and importers an additional, low
cost access to large parts of eastern and central Europe as well as other international markets.

When comparing the competitiveness of the various transportation modes it is apparent that due
to the absence of difficulties experienced on border crossings, the low shipping transportation
tariffs compared to road and rail tariffs the transportation by ship via the Danube and/or the
open sea would be substantially more competitive than the transport of goods by road, rail and
air transport to and from Moldova.

Against this background, AZTRAN expects to attract in addition to the Petroleum cargos from
its affiliated companies AZMO and at a later stage AZREF also cargos such as petroleum and
other cargos from third parties. Furthermore, AZTRAN expects to increase throughput volumes
and realize additional revenues through the attraction of additional investors to Giurgiulesti
International Free Port. These investors will be able to lease part of the land from AZTRAN
with a fully established infrastructure within Giurgiulesti International Free Port, construct
plants for the manufacturing, packaging, processing, labeling and other activities and benefit
from the favorable investment framework available to the residents of Giurgiulesti International
Free Port, the low cost but highly skilled labor in Moldova as well as the easy and cost effective
access to international markets via the Danube.

With the completion of the Petroleum Terminal during the first phase of AZTRAN’s investment
program, the Company expects the following throughput volumes.

Volumes 06 07 08 09 10 11 12 Total
000’ tons
Azpetrol(1) 150 150 150 200 200 500 700 2050
Other Volumes 75 75 75 100 100 250 350 1025
Total 225 225 225 300 300 750 1050 3075
(1) Guaranteed

Azertrans’ key clients for its transportation and logistics services are expected to be the
affiliated AZMO for the transshipment of petroleum and in the medium-term third-party clients
of AZREF.

Once the envisaged multipurpose cargo terminal has been completed the Company’s clients will
include furthermore the importers of metal, timber, paper, fish, textiles, equipment and raw
materials for the light industry as well as the exporters of agricultural products such as wheat,
wine, tobacco, textiles, construction material, metals and machinery.
3. THE COMPANY
AZTRAN has been established in 2004 as a special purpose vehicle for the realization of the
Giurgiulesti International Free Port project. The framework conditions for the Company’s
investments as well as the investments of its affiliated companies are regulated in a specific
agreement with the Government of Moldova – the so-called Host Investment Agreement. The
HIA outlines AZTRAN’s envisaged investments and the Government’s undertakings supporting
these investments. The Government’s undertakings range from the provision of land, the
construction of infrastructure outside Giurgiulesti International Free Port supporting Azertrans
operations, a special tax and customs regime similar to those of economic free zones for
Giurgiulesti International Free Port, security arrangements, covenants as well as a guarantee of
the state warranting the agreed framework conditions. A condition to the effectiveness of HIA
will be the adoption of two laws which will reflect the provisions of the HIA – the Law on
Giurgiulesti International Free Port and a Law on Amendments to existing Legislation – as well
as the enactment of various normative acts necessary for the implementation of these laws and
the HIA. Part of the HIA also regulates the appointment of a government appointed
administrator of Giurgiulesti International Free Port who will support the implementation of the
HIA and co-ordinate the interaction with Government authorities.

Azertrans activities will include the provision of transportation, storage and other logistic
services for all kinds of petroleum products, other cargo, and transportation services related to
passengers as well as the lease of land within Giurgiulesti International Free Port to third
parties, which is offered with readily available infrastructure and lucrative framework
conditions for investments.

AZTRAN will be managed by secondees from Azertrans (Azerbaijan) who have with wide-
ranging experience in the construction and operation of ports jointly with a team of Moldovan
professionals. In total AZTRAN expects to employ 75 persons for the operation of the
Petroleum Terminal.
4. SHAREHOLDERS

AZTRAN is a wholly-owned subsidiary of Azeri Oil Services Group BV (AOSG).

AOSG is a limited liability company incorporated in the Netherlands, and is wholly
owned by Allied Meridian Oil and Gas Group B.V. (AMOGG). AOSG is a holding
company for investments in companies providing services to the oil and gas sector and
has apart from AZTRAN the following subsidiaries:

 AMTS (100%): Arguably the leading forwarder of oil and oil products in the
Caspian Sea region.

 Azertrans LLC (Azerbaijan) (100%): The owner and operator of the Baku and
Sangachal terminals, a fleet of rail tank cars and the leading transportation
service provider for oil and oil products in Azerbaijan.

 EUPEC JV (50%): A joint venture with Eupec of Germany owning and

operating the only modern pipe-coating plant in the Caspian Sea region.

 SOPS JV (51%): A joint venture with the Singaporean company Semblog

providing logistical services to the oil industry in Azerbaijan.

Allied Meridian Oil and Gas Group, the holding company owning Azeri Oil Services
Group BV, is ultimately, wholly owned by Rafig Aliyev, one of Azerbaijan’s most
successful entrepreneurs. Rafig Aliyev built a successful trading business operating in
Azerbaijan, Romania and Moldova following the break-up of the Soviet Union. In the
mid 1990s, once political stability had been re-established in Azerbaijan, Rafig Aliyev
decided to concentrate his business activities on his home country Azerbaijan. In 1997
Rafig Aliyev started to operate in the oil sector with the establishment of Azpetrol Oil
Company and the construction of five modern petrol stations in Baku. Due to the sale of
consistently high-quality petrol, first-class service and strategic locations of its petrol
stations, Azpetrol Oil Company has enjoyed rapid growth with average annuals sales
growth of 65% over the last 4 years. Although having today with 54 petrol stations only
15% of the total number of petrol stations in Azerbaijan, Azpetrol Oil Company has due
to its high quality products and services a market share in excess of 50%. The success of
the petrol station business has allowed the Azpetrol Group to expand its activities into
the provision of services to the rapidly growing oil and gas sector in the Caspian Sea
region. Against this background the Azpetrol Group has emerged as one of the leading
private companies in Azerbaijan. For more information see also www.azpetrol.com.

5. THE INVESTMENT PROJECTS

AZTRAN intends to construct Giurgiulesti International Free Port consisting of a Petroleum
Terminal, a Cargo Terminal, a Passenger Terminal and an area earmarked for industrial
activities on a 150ha territory in Giurgiulesti in the south of the Republic of Moldova.
Giurgiulesti International Free Port will be Moldova’s first port with access to international
waterways and hence provide importers and exporters goods access the most economic
transportation route to international markets and thereby facilitate Moldova’s continuously
growing trade with the rest of Europe and other parts of the world.

AZTRAN plans to realize its investments in two phases. During the first phase, AZTRAN plans
to complete the Petroleum Terminal. Terminal S.A. with the support of Ceproserving Institute
of Moldova and the Greek Company TRITON CONSULTING INGINEERS Ltd started to
construct the petroleum terminal on a 22 hectare site on the river Danube until construction was
halted in 2000. The terminal includes a jetty, partially constructed storage tank and unfinished
installations for loading petroleum onto tanker trucks and rail tank cars (RTCs). The terminal
was initially designed for an annual throughput capacity of up to 2.1 million metric tons of
petroleum, including diesel oil, mazut and two categories of gasoline.

The basic design parameters took into account the local temperature conditions, water level
fluctuation in the rivers, geodynamic characteristics with the increased seismic level in the
region, conditions of environment protection in the littoral zone, international and national
norms and standards of construction and exploitation of the terminal and the existing
agreements between the Danube countries. Furthermore the design parameters took into account
the Moldovan and international environmental and health regulations in order to minimize the
risk of accidents during the construction and operation of the terminal.

The jetty is located in safe distance from the fairway of Danube and is capable to receive 10,000
DWT tanker vessels, the largest vessels capable of sailing on the Danube from the Black Sea
given its draft limitations. In general tanker vessels of up to 10,000 tons can sail from the Black
Sea on the Danube up to Braila in Romania. The following 2,600 km on the Danube up to the
German town of Ulm as well as on connecting rivers and canals, petroleum products or other
goods have to be shipped by fluvial vessels and barges.

Based on AZTRAN’s draft design, the Petroleum Terminal will have an annual throughput
capacity in excess of 2 million tons. The Petroleum Terminal’s tank farm will consist initially of
eight separate storage tanks with a total storage capacity of 58,000 m3 and will be located 300m
from the shore, at an altitude of 22m. The petroleum will be pumped from the vessels into the
tanks using the pumps on the vessels. There will be two railway gantries for the loading of
RTCs - one for gasoline and one for mazut. Furthermore there will be a loading station for
tanker-trucks. In addition, the terminal will have an administrative building, warehouse, boiler
house, emergency generators, pumps, waste-water treatment facility, a guard’s house, an
emergency response center and other auxiliary facilities.
 Petroleum Terminal USD ‘000 %
Purchase of existing assets 12,650 61
Completion Costs 7,000 34
Working Capital & Other Costs 1,000 5
Total 20,650 100

AZTRAN plans to complete the Petroleum Terminal within 18 months from start of
construction. The procurement strategy for the completion of the terminal is in the process of
being finalized. Wherever possible AZTRAN will procure goods and services in Moldova,
many goods and steel will most likely be procured from Azertrans (Azerbaijan)’s existing
suppliers.

Following the successful completion of the Petroleum Terminal, AZTRAN plans to invest into a
multi-purpose cargo terminal, a passenger terminal as well as the creation of the infrastructure
within Giurgiulesti International Free Port enabling additional investments by affiliated and
non-affiliated companies. A feasibility study for the investment into the multi-purpose cargo
port and passenger terminal is currently under preparation. The detailed design and project cost
estimates as well as the financing of this second phase will be determined following the
completion of the feasibility study.

6. THE FINANCING PLAN

AZTRAN plans to finance the above-mentioned Petroleum Terminal as follows:

USD %
Equity contribution of AOSG 5,500 27
Internally Generated Cash Flow 7,150 35
Debt (bank debt or shareholder loan) 8,000 38
Total 20,650 100

The detailed parameters for the investments into the multipurpose cargo terminal, the passenger
terminal and the infrastructure within Giurgiulesti International Free Port will be determined at
a later stage. Once these parameters have been determined the project costs related to Phase II
will be financed through additional equity contributions and shareholder and/or third party
loans.
7. FINANCIAL PROJECTIONS

Please see enclosed Annex 1 for a summary of AZTRAN’s cash flow projections, which
are based on the successful completion of the Petroleum Terminal.

8. RISK AND MITIGATION MEASURES

Risk Mitigation
Completion Risk The completion risk for the envisaged investment projects is
considered to be moderate. The engineering of the Petroleum
Terminal will be undertaken by Azertrans (Azerbaijan)’s
technical department with the assistance of an international
engineering firm. The construction of the facilities will be
undertaken in co-operation with local and international
contractors. Most of the supplied equipment and material will
 be imported from the Azpetrol Group’s established suppliers.
The project costs were estimated conservatively and a 10%
contingency has been added to the cost estimates. Generous
assumptions have also been made in terms of timing for the
construction, financing and the receipt of necessary
permits/approvals.
Market & Price Risk AZTRAN’s market risk will be considerably mitigated by
AZMO’s guaranteed throughput volumes. AZMO intends to
import all of the petroleum products it is planning to sell via
AZTRAN’s Petroleum Terminal. Other clients are expected to
include third-party traders and importers of petroleum products.
Technological Risks Technology risk is minimal, as only well-tested technologies
will be applied.
Financing Risk The construction of the Petroleum Terminal will be financed by
equity, shareholder loans and/or third party loans.
Environmental Risk The environmental impacts of the Petroleum Terminal have
already been assessed in detail by Terminal S.A. and necessary
environmental permits have been granted. AZTRAN will
review the previous impact assessment and complement them
with additional work, if so required. AZTRAN will apply
international HSE standards during the design, construction and
operation of the facilities.
LOCATION OF GIURGIULESTI INTERNATIONAL FREE PORT
PETROLEUM TERMINAL STRUCTURE

1. Berth facilities
2. Oil tanks
3. Oil pipelines
4. Railway platform for light oil products
5. Railway platform for mazut
6. Station for pouring in light oil products in tank trucks
7. Cleaning structures of oil drains
8. Administrative office
9. Fire fighting station
10. Auxiliary buildings
11. Water tank
12. Central electric substation
13. Boiler house
14. Oil pumping stations
 PORT STRUCTURE

1 Oil Terminal
2 Cargo Terminal
3 Passenger Terminal