Port Said MEG Facility Summary of Financial Model &

Findings
Financial Advice Corporate Transactions - FACT

Egyptian Petrochemicals Holding Company

December 2010

STRICTLY CONFIDENTIAL December 2010

ECHEM Port Said MEG Complex – Final Report

DISCLAIMER

THIS DOCUMENT WAS PREPARED BY FINANCIAL ADVICE CORPORATE TRANSACTIONS –

FACT FOR EGYPTIAN PETROCHEMICALS HOLDING COMPANY (“ECHEM”) BASED ON
INFORMATION MADE AVAILABLE BY ECHEM AND OTHER SOURCES NAMED IN THE
DOCUMENT. ANY OTHER PERSON SHOULD INDEPENDTLY VERIFY ANY INFORMATION
CONTAINED HEREIN FOR THEIR OWN PURPOSES BEFORE RELYING ON IT.

THIS DOCUMENT IS FURNISHED SUBJECT TO ITS BEING TREATED AS STRICTLY

CONFIDENTIAL. NEITHER THIS PRESENTATION, NOR THE INFORMATION CONTAINED
HEREIN, MAY BE REPRODUCED OR PASSED TO ANY OTHER PERSON OR ENTITY OR USED
FOR ANY OTHER PURPOSE OTHER THAN THE CONSIDERATION OF BIDDING FOR THE
PLANNED MEG COMPLEX IN PORT SAID.

FINANCIAL PROJECTIONS ARE BASED ON ESTIMATED DATA THAT MAYBE INFLUENCED DUE
TO UNFORESEEN CONDITIONS AND/OR CIRCUMSTANCES.

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ECHEM Port Said MEG Complex – Final Report

TABLE OF CONTENTS

BASIC PROJECT PARAMETERS ................................................................................................... 4

ETHANE SUPPLY FINANCE FOR FIRST WORKING CYCLE ............................................................ 4
Investment Costs ................................................................................................................... 4
Sources and Uses of funds..................................................................................................... 5
Revenue Assumptions ........................................................................................................... 6
OPEX Assumptions ................................................................................................................ 6
Balance Sheet Assumptions .................................................................................................. 7
Discounted Cash Flow Assumptions ...................................................................................... 8
Long-term Debt Assumptions................................................................................................ 8
Model Simulation Scenarios .................................................................................................. 9
Model Sensitivities .............................................................................................................. 10
MEG Price Sensitivities ........................................................................................................ 10
ECHEM Break-even Case ..................................................................................................... 11
ECHEM Threshold Case ....................................................................................................... 12
Current Case ........................................................................................................................ 13
Medium Case ....................................................................................................................... 14
High Case ............................................................................................................................. 15
Investor Cost-Sharing Case .................................................................................................. 16
ETHANE SUPPLY FINANCE FOR FIRST YEAR ............................................................................. 17
Investment Costs ................................................................................................................. 17
Sources & Uses of Funds ..................................................................................................... 18
Model Sensitivities .............................................................................................................. 19
ECHEM Break-even Case ..................................................................................................... 20
ECHEM Threshold Case ....................................................................................................... 21
Current Case ........................................................................................................................ 22
Medium Case ....................................................................................................................... 23
High Case ............................................................................................................................. 24
Investor Cost-Sharing Case .................................................................................................. 25
CONLUSION ............................................................................................................................. 26
SOURCES OF INFORMATION ................................................................................................... 27

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ECHEM Port Said MEG Complex – Final Report

BASIC PROJECT PARAMETERS

Project : Ethylene/MEG Complex
Location : Port Said – 3 KM West of UGDC
Construction : Q1 2012
Commissioning : Q1 2015
Project Life : 23 Years ( 3 years of construction + 20 years of operation)
MEG Capacity : 485,000 tons
Ethylene .. : 285,000 tons
Ethane .. : 360,000 tons
Feedstock Source: New facility at UGDC’s existing premises

ETHANE SUPPLY FINANCE FOR FIRST WORKING CYCLE

Investment Costs
The Project’s investment costs are estimated to be as follows:
CAPEX (in USD Million)
Item Total
Ethane Cracker 460.0
MEG Unit 430.0
Utilities & Off-sites 460.0
C02 Removal Unit 75.0
EPC Subtotal 1,425.0
Customs Duty (2% of EPC) 28.5
EPC Subtotal + Customs Duty 1,453.5
Contingency (10% of EPC + Customs) 145.4
Total EPC 1,598.9
Buildings 6.0
Computers & IT 3.0
Vehicles 1.5
Furniture & Fixtures 2.0
Total CAPEX 1,611.4

Intangibles & Ethane Supply Finance (in USD Million)

Item Total
License (2% of MEG EPC) 8.6
FEED (2% of EPC) 28.5
Ethane Supply Finance (3 Months) 18.0
Total Intangibles 55.1

Project Management Expenses (in USD Million)

Item Total
Owners Costs (1.5% of EPC) 21.4
Salaries 1.65
Usufruct 6.0
Total PM Expenses 29.0

Total Investment Costs: USD 1,695.5 Million

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ECHEM Port Said MEG Complex – Final Report

Sources and Uses of funds

The Company’s capital structure is estimated to be as follows:

Capital Structure (in USD Million)

60% Debt 1,017.3
40% Equity 678.2
Total 1,695.5

The funds are assumed to be allocated according to the following schedule:

Allocation of Funds (in USD Million)

Item 2012 2013 2014 Total
Ethane Cracker 138.0 207.0 115.0 460.0
MEG Unit 129.0 193.5 107.5 430.0
Utilities & Off-sites 138.0 207.0 115.0 460.0
C02 Removal Unit 22.50 33.75 18.75 75.0
EPC Subtotal 427.5 641.3 356.3 1,425.0
Customs Duty (2% of EPC) 8.6 12.8 7.1 28.5
EPC Subtotal + Customs Duty 436.1 654.1 363.4 1,453.5
Contingency (10% of EPC + Customs) 43.6 65.4 36.3 145.4
Total EPC 479.7 719.5 399.7 1,598.9
Buildings 2.0 2.0 2.0 6.0
Computers & IT - - 3.0 3.0
Vehicles - - 1.50 1.5
Furniture & Fixtures - - 2.0 2.0
Total CAPEX 481.7 721.5 408.2 1,611.4
License (2% of MEG EPC) 8.6 8.6
FEED (2% of EPC) 28.5 28.5
Ethane Supply Finance 18.0 18.0
Total 37.1 - 18.0 55.1
Owners Costs (1.5% of EPC) 6.4 9.6 5.3 21.4
Salaries - - 1.7 1.65
Usufruct 2.0 2.0 2.0 6.0
Total PM Expenses 8.4 11.6 9.0 29.0
Total Investment Costs 527.2 733.1 435.2 1,695.5

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ECHEM Port Said MEG Complex – Final Report

Revenue Assumptions
 Cash flow projections: 23 years (Construction period + 20 years of operation).
 Utilization Rates:
a. 80% in 2015
b. 90% in 2016
c. 100% from 2017 to 2034
 Company retains Total MEG Production Less Echem in-kind share (the higher of 100,000
tons or 20% of the annual production).
 MEG price projections from 2015 to 2030 were sourced from Chemical Market
Associates (CMAI):

MEG
2,000

1,500 1,440
1,058
1,000

500

-
2015 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

 MEG price projections from 2031 to 2034 were estimated to be growing at 2% from
2030 (the last CMAI price projection year).
 MEG sales are the only source of revenue for the Company.

OPEX Assumptions
Fixed Costs
 Maintenance expenses are 2% of Total EPC cost (EPC + Customs Duty +
Contingencies).
 Insurance expenses are 1.5% of Total EPC cost (EPC + Customs Duty +
Contingencies).
 Usufruct expenses are estimated at $4 per square meter, fixed during the
construction period, and escalating at 2.5% annually during operation.
 Salaries and wages are estimated at an annual figure of $22,000 per worker on
average, increasing by 5% annually. Total number of workers at peak is 800.
 The Project Management Expenses part of the total investment cost quoted earlier
are occurring during the construction period and were assumed to be expensed
when incurred.
 Assumptions of depreciation expenses will follow in the Balance Sheet section of the
report.

Variable Costs
 Methane cost is fixed at $120 per ton throughout the projection period.
 Utilities costs increase by 5% every 5 years.
 Logistics and transportation costs were estimated at 5% of net revenues.
 A further contingency of 1.2% of revenues was assumed.
 Ethane cost assumptions will follow later in the report.

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Balance Sheet Assumptions

General Assumptions
 Legal reserve: 10%
 Tax rate: 20%
 Dividends: Discretionary
 Long-term loan and repayment assumptions will follow later in the report.
 The Intangibles part of the Total Investment Cost is included in the first construction
year and amortized over 3 years.

Working Capital
Days Outstanding*
Item Days
Inventory 89
Accounts Receivable 33
Accounts Payable 127
Advance Payments 1.7
Accrued Expenses 3.7
* Assumed to be equal to the average days outstanding of SIDPEC

Depreciation
Depreciation Schedule*
Item Percentage Annual Additions
EPC (EPC + Duty + Contingency) 6.7% None
Buildings 2% None
Computers 20% 2%
Vehicles 20% 2%
Furniture & Fixtures 8% 2%
* When Net Item < 0, depreciation expense for the year is set to equal the addition in said year

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Discounted Cash Flow Assumptions

Company WACC Calculation

Tax rate 20.0%
Interest Rate on Dollar 5.0%

Risk Free Rate (yield) on US 30-year T-bonds 4.21%

Risk Premium 8.81%
Expected Return on EGX 30 15.88%
Beta of Egyptian Chemicals Sector 0.75

Debt/T.Int. Bearing Debt + Equity 60.0%

Equity/T.Int. Bearing Debt + Equity 40.0%

Cost Of Debt 4.0%

Cost of Equity 13.02%

Company WACC 7.61%

ECHEM WACC = 4.21% (risk-free rate on T-bonds)

Long-term Debt Assumptions

 Interest rate on dollar: 5%
 Debt term is based on Company’s available cash flows. In the base case, term is 13 years
(including a grace period of 3 years).
 Repayment is assumed to be on an annual basis.
 No debt repayments were assumed during the construction period.
 Interest expense during the construction period is capitalized.

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ECHEM Port Said MEG Complex – Final Report

Model Simulation Scenarios

All cases are based on the preceding assumptions, with various sensitivities.

1. ECHEM BREAK-EVEN CASE is the case that derives the ethane price to ECHEM at
which ECHEM’s NPV is zero and its IRR is equal to its discount rate.

2. ECHEM THRESHOLD CASE is the case that derives the optimum price that ECHEM
can incur while its IRR is greater than the proposed acceptable level (i.e. the
maximum price where the project would be still feasible from the perspectives of
both ECHEM and the Company).

3. CURRENT CASE is the case where the ethane price to ECHEM is fixed at $250 over
the life of the project.

4. MEDIUM CASE is the case where the ethane price to ECHEM is fixed at $250 for 10
years and $350 for 10 years.

5. HIGH CASE is the case where the ethane price to ECHEM is fixed at $250 for 5 years,
$300 for 5 years, $350 for 5 years and $400 for 5 years.

6. INVESTOR COST-SHARING CASE is a case where the investor pays a percentage or

the full amount of any extra cost above the ethane threshold price, based on the
following sensitivities
a. Investor incurs 100% of the extra cost
b. Investor incurs 75% of the extra cost and ECHEM incurs 25%
c. Investor incurs 50% of the extra cost and ECHEM incurs 50%
d. ECHEM incurs 100% of the extra cost

Note
Since the equity portion of the total capital is contributed over the first three years of the
project, the payback figure presented in the scenarios represents the last year that the
Company would recoup the remainder of its equity (i.e. equity would start to be paid back 3
years before the quoted payback period).

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ECHEM Port Said MEG Complex – Final Report

Model Sensitivities
For the Current, Medium, High, and Cost Sharing Cases:

Avg. MEG
Sensitivity Total CAPEX Total Inv. Cost
Price/ton
Base Case 1,611.4 1,695.5 1,257
CAPEX Down 10% 1,450.2 1,528.5 1,257
CAPEX Down 20% 1,289.1 1,361.5 1,257
CAPEX Up 10% 1,772.5 1,862.5 1,257
MEG Down 10% 1,611.4 1,695.5 1,132
MEG Down 20% 1,611.4 1,695.5 1,006
MEG Up 10% 1,611.4 1,695.5 1,383
MEG Up 20% 1,611.4 1,695.5 1,509

For the Break-even Case:

Avg. MEG
Sensitivity Total CAPEX Total Inv. Cost*
Price/ton
Base Case 1,611.4 1,712.0 1,257
CAPEX Down 10% 1,450.2 1,545.7 1,257
CAPEX Down 20% 1,289.1 1,379.3 1,257
CAPEX Up 10% 1,772.5 1,878.4 1,257
MEG Down 10% 1,611.4 1,708.1 1,132
MEG Down 20% 1,611.4 1,704.5 1,006
MEG Up 10% 1,611.4 1,715.9 1,383
MEG Up 20% 1,611.4 1,719.8 1,509
* The total investment cost for each sensitivity increases/decreases based on the initial finance
needed for ethane (which changes according to the break-even price and threshold price

For the Threshold Case:

Avg. MEG
Sensitivity Total CAPEX Total Inv. Cost*
Price/ton
Base Case 1,611.4 1,700.5 1,257
* The total investment cost for each sensitivity increases/decreases based on the initial finance
needed for ethane (which changes according to the break-even price and threshold price

MEG Price Sensitivities

The following figure illustrates the MEG price sensitivities presented in the above table:

2000
1800 1870
1714
1600 1,559
1400 1270 1403
1200 1164 1,247
1000 1,058
952
800 847 CMAI Case
600 Prices Up 10%
400 Price Up 20%
200
0 Prices Down 10%
Prices Down 20%
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034

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ECHEM Break-even Case

Assumptions
 Ethane price to Company is fixed at $80 (i.e. ECHEM bears the difference between
the quoted break-even price and the $80 over 20 years)
 ECHEM in-kind share fixed at 100,000 tons
 ECHEM share in dividends is 20%
 Company WACC = 7.61%
 ECHEM WACC = 4.21% (risk-free rate)

Important Note
 The break-even case is when ECHEM’s NPV is equal to zero and its IRR is equal to its
discount rate.
 ECHEM’s subsidies throughout the project life were discounted at the risk-free rate
to arrive at the absolute value of subsidies today.
 This figure theoretically equates the investment costs (subsidies) that ECHEM would
be committing to the project under the various scenarios/cost assumptions.
 The absolute value of subsidies discounted at the risk-free rate resulting from the
above step was compared against the total cash inflows to ECHEM to arrive at the
appropriate NPV and IRR to ECHEM.

The following table illustrates the economics of the break-even model, together with various
variable sensitivities:

Ethane
Initial Total
Break- Project Project Project Equity Equity Equity
Sensitivity Ethane Inv. Cost
Even NPV IRR Payback NPV IRR Payback
Finance (Million)
Price
Base case 479.1 34,495 1,712.0 234,608 9.15% 12.25 383,277 11.99% 14.04
CAPEX Down 10% 488.3 35,158 1,545.7 401,275 10.44% 11.40 530,143 14.07% 13.01
CAPEX Down 20% 497.7 35,834 1,379.3 567,938 11.95% 10.54 677,075 16.47% 11.84
CAPEX Up 10% 470.9 33,905 1,878.4 67,926 8.03% 13.09 238,582 10.20% 15.09
MEG Down 10% 425.3 30,622 1,708.1 (45,857) 7.29% 13.71 111,740 8.97% 15.82
MEG Down 20% 375.0 27,000 1,704.5 (329,574) 5.18% 15.73 (147,999) 5.56% 18.42
MEG Up 10% 533.4 38,405 1,715.9 515,066 10.86% 11.14 673,634 15.29% 10.56
MEG Up 20% 588.5 42,372 1,719.8 795,512 12.43% 10.27 954,510 18.19% 8.67

The above assumptions are theoretical and hold true only if the quoted break-even prices
were fixed for the life of the project (2015 through 2034).

The initial ethane finance column represents the financing that ECHEM needs before the
first working cycle to be able to cover the feedstock supply costs (i.e. the quoted break-even
price multiplied by three months’ supply). The total investment costs thereby increase by
the initial ethane finance amount.

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ECHEM Port Said MEG Complex – Final Report

ECHEM Threshold Case

Assumptions
 Ethane price to Company is fixed at $80 (i.e. ECHEM bears the difference between
the quoted threshold price and the $80 over 20 years)
 ECHEM in-kind share is fixed at 100,000 tons
 ECHEM share in dividends is 20%
 Company WACC = 7.61%
 ECHEM WACC = 4.21% (risk-free rate)
Important Note
 ECHEM’s subsidies throughout the project life were discounted at the risk-free rate
to arrive at the absolute value of subsidies today.
 This figure theoretically equates the investment costs that ECHEM would be
committing to the project under the various scenarios/cost assumptions.
 The absolute figure of subsidies discounted at the risk-free rate above was
compared against the total cash inflows to ECHEM to arrive at the appropriate NPV
and IRR to ECHEM.
 The threshold case is when ECHEM’s IRR is equal to a theoretical minimum
acceptable rate of return of 10% (which is more than double the risk-free rate).

The following table illustrates the economics of the ECHEM threshold model, together with
various variable sensitivities:
Optimal Initial Total Inv.
Project Project Project Equity Equity Equity ECHEM ECHEM
Sensitivity Ethane Ethane Cost
NPV IRR Payback NPV IRR Payback NPV IRR
Price Finance (Million)
Base Case 320 23,040 1,700.5 237,096 9.17% 12.24 384,758 12.00% 14.02 718,023 10.01%

The maximum price ECHEM can incur, and would be still encouraged to undertake the
project is $320. ECHEM’s IRR is equal to 10.01%, which is more than double the risk-free rate
(i.e. a percentage that encourages and induces ECHEM to proceed with the project).

Initial ethane finance required in this case is USD 23 Million and total investment cost is USD
1.7 Billion.
Any price lower than $320, ECHEM’s NPV grows further, the net cash flow to ECHEM over
the life of the project grows, and its IRR grows above 10%.

The subsidy per ton in this case is $320 – $80 = $240 (i.e. If the market price to ECHEM over
the life of the project is theoretically fixed at $320, ECHEM is still encouraged to undertake
the project).

As the price grows above $320, ECHEM’s NPV and net cash flows decrease gradually until
the price reaches $479.1, where ECHEM breaks-even.
Note
From a theoretical point of view, any IRR to ECHEM that is greater than the risk-free rate
(4.21%) makes the project still feasible for ECHEM. However, we advise that a minimum
acceptable IRR be 10%, in order to account for any unforeseen risks on behalf of ECHEM.

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Current Case
Assumptions
 Ethane price to ECHEM is fixed at $250 over 20 years
 Ethane subsidy is fixed at $170
 ECHEM in-kind share is fixed at 100,000 tons
 ECHEM share in dividends is 20%
 ECHEM receives a cash inflow of $18 Million at the end of 2014 (to finance ethane
supply for the first three months – with a 5% interest to be refunded after the first
three months)
 Company WACC = 7.61%
 ECHEM WACC = 4.21% (risk-free rate)

Important Note
 ECHEM’s subsidies throughout the project life were discounted at the risk-free rate
to arrive at the absolute value of subsidies today.
 This figure theoretically equates the investment costs (subsidies) that ECHEM would
be committing to the project under the various scenarios/cost assumptions.
 The absolute figure of subsidies discounted at the risk-free rate above was
compared against the total cash inflows to ECHEM to arrive at the appropriate NPV
and IRR to ECHEM.

The following table illustrates the economics of the base case model, together with various
variable sensitivities:
Project Project Project Equity Equity Equity ECHEM ECHEM
Sensitivity
NPV IRR Payback NPV IRR Payback NPV IRR

Base case 238,191 9.18% 12.24 385,346 12.01% 14.01 1,033,823 14.95%
CAPEX Down 10% 405,001 10.48% 11.39 532,145 14.07% 12.95 1,072,431 15.31%
CAPEX Down 20% 571,811 11.99% 10.52 679,312 16.47% 11.75 1,114,321 15.75%
CAPEX Up 10% 71,381 8.05% 13.07 240,049 10.21% 15.05 996,307 14.60%
MEG Down 10% (43,116) 7.31% 13.70 113,234 8.99% 15.80 790,209 12.75%
MEG Down 20% (328,974) 5.18% 15.73 (148,577) 5.56% 18.41 563,334 10.64%
MEG Up 10% 519,498 10.89% 11.13 675,848 15.28% 10.61 1,275,558 17.06%
MEG Up 20% 800,805 12.48% 10.25 957,155 18.17% 8.72 1,523,960 19.21%

At the current case where the ethane price to ECHEM is fixed at $250 over the life of the
project (with the sensitivities presented above), ECHEM is encouraged to undertake the
project at the base case, or whenever the CAPEX and investment costs decrease, or average
prices for MEG (over 20 years) increase.

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Medium Case
Assumptions
 Ethane price to ECHEM is fixed at $250 for 10 years and $350 for 10 years
 Ethane price to Company is fixed at $80
 Ethane subsidy is fixed at $170 for 10 years and $270 for 10 years
 ECHEM in-kind share fixed at 100,000 tons
 ECHEM share in dividends is 20%
 ECHEM receives a cash inflow of $18 Million at the end of 2014 (to finance ethane
supply for the first three months – with a 5% interest to be refunded after the first
three months)
 Company WACC = 7.61%
 ECHEM WACC = 4.21% (risk-free rate)

Important Note
 ECHEM’s subsidies throughout the project life were discounted at the risk-free rate
to arrive at the absolute value of subsidies today.
 This figure theoretically equates the investment costs that ECHEM would be
committing to the project under the various scenarios/cost assumptions.
 The absolute figure of subsidies discounted at the risk-free rate above was
compared against the total cash inflows to ECHEM to arrive at the appropriate NPV
and IRR to ECHEM.

The following table illustrates the economics of the base case model, together with various
variable sensitivities:
Project Project Project Equity Equity Equity ECHEM ECHEM
Sensitivity
NPV IRR Payback NPV IRR Payback NPV IRR
Base case 238,191 9.18% 12.24 385,346 12.01% 14.01 850,237 11.75%
CAPEX Down 10% 405,001 10.48% 11.39 532,145 14.07% 12.95 888,845 12.07%
CAPEX Down 20% 571,811 11.99% 10.52 679,312 16.47% 11.75 930,735 12.43%
CAPEX Up 10% 71,381 8.05% 13.07 240,049 10.21% 15.05 812,721 11.45%
MEG Down 10% (43,116) 7.31% 13.70 113,234 8.99% 15.80 606,623 9.82%
MEG Down 20% (328,974) 5.18% 15.73 (148,577) 5.56% 18.41 379,748 7.92%
MEG Up 10% 519,498 10.89% 11.13 675,848 15.28% 10.61 1,091,972 13.59%
MEG Up 20% 800,805 12.48% 10.25 957,155 18.17% 8.72 1,340,374 15.43%

At the medium case where the ethane price to ECHEM is fixed at $250 over 10 years and
then $350 over the remaining 10 years (with the sensitivities presented above), ECHEM is
encouraged to undertake the project at the base case, or whenever the CAPEX and
investment costs decrease, or average prices for MEG (over 20 years) increase.

If MEG prices fall by 10% and 20% (according to the price curve illustrated earlier), ECHEM’s
IRR falls below the minimum proposed acceptable rate of return (10%). Based on those
scenarios, the project is not economical both to the Investor and to ECHEM.

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High Case
Assumptions
 Ethane price to ECHEM is fixed at $250 for 5 years, $300 for 5 years, $350 for 5
years and $400 for 5 years
 Ethane price to Company is fixed at $80
 ECHEM in-kind share fixed at 100,000 tons
 ECHEM share in dividends is 20%
 ECHEM receives a cash inflow of $18 Million at the end of 2014 (to finance ethane
supply for the first three months – with a 5% interest to be refunded after the first
three months)
 Company WACC = 7.61%
 ECHEM WACC = 4.21% (risk-free rate)

Important Note
 ECHEM’s subsidies throughout the project life were discounted at the risk-free rate
to arrive at the absolute value of subsidies today.
 This figure theoretically equates the investment costs that ECHEM would be
committing to the project under the various scenarios/cost assumptions.
 The absolute figure of subsidies discounted at the risk-free rate above was
compared against the total cash inflows to ECHEM to arrive at the appropriate NPV
and IRR to ECHEM.

The following table illustrates the economics of the base case model, together with various
variable sensitivities:
Project Project Project Equity Equity Equity ECHEM ECHEM
Sensitivity
NPV IRR Payback NPV IRR Payback NPV IRR
Base case 238,191 9.18% 12.24 385,346 12.01% 14.01 746,854 10.36%
CAPEX Down 10% 405,001 10.48% 11.39 532,145 14.07% 12.95 785,463 10.66%
CAPEX Down 20% 571,811 11.99% 10.52 679,312 16.47% 11.75 827,352 10.99%
CAPEX Up 10% 71,381 8.05% 13.07 240,049 10.21% 15.05 709,339 10.08%
MEG Down 10% (43,116) 7.31% 13.70 113,234 8.99% 15.80 503,240 8.53%
MEG Down 20% (328,974) 5.18% 15.73 (148,577) 5.56% 18.41 276,366 6.72%
MEG Up 10% 519,498 10.89% 11.13 675,848 15.28% 10.61 988,590 12.09%
MEG Up 20% 800,805 12.48% 10.25 957,155 18.17% 8.72 1,236,991 13.80%

At the high case, ECHEM is encouraged to undertake the project at the base case, or
whenever the CAPEX and investment costs decrease, or average prices for MEG (over 20
years) increase.

If MEG prices fall by 10% and 20% (according to the price curve illustrated earlier), ECHEM’s
IRR falls below the minimum proposed acceptable rate of return (10%). Based on those
scenarios, the project is not economical both to the Investor and to ECHEM.

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ECHEM Port Said MEG Complex – Final Report

Investor Cost-Sharing Case

Reminder
The ethane threshold price to ECHEM is $320 (i.e. if the ethane price were to be fixed at
$320 for 20 years, ECHEM would yield an IRR of about 10% - equal to ECHEM’s proposed
minimum acceptable rate of return).

Assumptions
The following tables illustrate the effect of the extra ethane cost (over and above the
threshold price) both to the investor and ECHEM, at the medium and high cases presented
earlier.

At the medium case and with the base assumptions, the effect of cost sharing is as follows:

Project Project Project Equity Equity Equity ECHEM ECHEM

Sensitivity
NPV IRR Payback NPV IRR Payback NPV IRR
Investor
215,863 9.05% 12.24 363,018 11.81% 14.04 896,500 12.55%
Bears 100%
Investor
221,445 9.08% 12.24 368,600 11.86% 14.04 884,935 12.35%
Bears 75%
Investor
227,027 9.12% 12.24 374,182 11.91% 14.03 873,369 12.14%
Bears 50%
ECHEM
238,191 9.18% 12.24 385,346 12.01% 14.01 850,237 11.75%
Bears 100% *
* This case is equivalent to the results of the first row in the medium case table, titled “Base Case”

At the high case and with the base assumptions, the effect of cost sharing is as follows:

Project Project Project Equity Equity Equity ECHEM ECHEM

Sensitivity
NPV IRR Payback NPV IRR Payback NPV IRR
Investor
200,830 8.96% 12.24 347,985 11.70% 14.04 827,711 11.58%
Bears 100%
Investor
210,170 9.02% 12.24 357,326 11.78% 14.04 807,497 11.25%
Bears 75%
Investor
219,510 9.07% 12.24 366,666 11.85% 14.03 787,283 10.94%
Bears 50%
ECHEM
238,191 9.18% 12.24 385,346 12.01% 14.01 746,854 10.36%
Bears 100% *
* This case is equivalent to the results of the first row in the high case table, titled “Base Case”

Based on the above assumptions and scenarios, even if ECHEM bears 100% of the extra cost,
ECHEM’s IRR is slightly above 10%, which is still a feasible scenario. Economics improve as
CAPEX and total investment costs decrease, and as MEG prices increase above the
referenced CMAI projections.

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ECHEM Port Said MEG Complex – Final Report

ETHANE SUPPLY FINANCE FOR FIRST YEAR

Investment Costs
CAPEX (in USD
Million)
Item Total
Ethane Cracker 460.0
MEG Unit 430.0
Utilities & Off-sites 460.0
C02 Removal Unit 75.0
EPC Subtotal 1,425.0
Customs Duty (2% of EPC) 28.5
EPC Subtotal + Customs Duty 1,453.5
Contingency (10% of EPC + Customs) 145.4
Total EPC 1,598.9
Buildings 6.0
Computers & IT 3.0
Vehicles 1.5
Furniture & Fixtures 2.0
Total CAPEX 1,611.4

Intangibles & Ethane Supply Finance (in USD Million)

Item Total
License (2% of MEG EPC) 8.6
FEED (2% of EPC) 28.5
Ethane Supply Finance (1 year) 72.0
Total Intangibles 109.1

Project Management Expenses (in USD Million)

Item Total
Owners Costs (1.5% of EPC) 21.4
Salaries 1.65
Usufruct 6.0
Total PM Expenses 29.0

Total Investment Costs: USD 1,749.5 Million

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Sources & Uses of Funds

Capital Structure (in USD Million)
60% Debt 1,049.7
40% Equity 699.8
Total 1,749.5

Allocation of Funds (in USD Million)

Item 2012 2013 2014 Total
Ethane Cracker 138.0 207.0 115.0 460.0
MEG Unit 129.0 193.5 107.5 430.0
Utilities & Off-sites 138.0 207.0 115.0 460.0
C02 Removal Unit 22.50 33.75 18.75 75.0
EPC Subtotal 427.5 641.3 356.3 1,425.0
Customs Duty (2% of EPC) 8.6 12.8 7.1 28.5
EPC Subtotal + Customs Duty 436.1 654.1 363.4 1,453.5
Contingency (10% of EPC + Customs) 43.6 65.4 36.3 145.4
Total EPC 479.7 719.5 399.7 1,598.9
Buildings 2.0 2.0 2.0 6.0
Computers & IT - - 3.0 3.0
Vehicles - - 1.50 1.5
Furniture & Fixtures - - 2.0 2.0
Total CAPEX 481.7 721.5 408.2 1,611.4
License (2% of MEG EPC) 8.6 8.6
FEED (2% of EPC) 28.5 28.5
Ethane Supply Finance 72.0 72.0
Total 37.1 - 72.0 109.1
Owners Costs (1.5% of EPC) 6.4 9.6 5.3 21.4
Salaries - - 1.7 1.65
Usufruct 2.0 2.0 2.0 6.0
Total PM Expenses 8.4 11.6 9.0 29.0
Total Investment Costs 527.2 733.1 489.2 1,749.5

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Model Sensitivities

For the Current, Medium, High, and Cost Sharing Cases:

Avg. MEG
Sensitivity Total CAPEX Total Inv. Cost
Price/ton
Base Case 1,611.4 1,749.5 1,257
CAPEX Down 10% 1,450.2 1,582.5 1,257
CAPEX Down 20% 1,289.1 1,415.5 1,257
CAPEX Up 10% 1,772.5 1,916.5 1,257
MEG Down 10% 1,611.4 1,749.5 1,132
MEG Down 20% 1,611.4 1,749.5 1,006
MEG Up 10% 1,611.4 1,749.5 1,383
MEG Up 20% 1,611.4 1,749.5 1,509

For the Break-even Case:

Avg. MEG
Sensitivity Total CAPEX Total Inv. Cost*
Price/ton
Base Case 1,611.4 1,817.1 1,257
CAPEX Down 10% 1,450.2 1,652.8 1,257
CAPEX Down 20% 1,289.1 1,488.5 1,257
CAPEX Up 10% 1,772.5 1,981.4 1,257
MEG Down 10% 1,611.4 1,801.2 1,132
MEG Down 20% 1,611.4 1,786.4 1,006
MEG Up 10% 1,611.4 1,832.8 1,383
MEG Up 20% 1,611.4 1,848.8 1,509
* The total investment cost for each sensitivity increases/decreases based on the initial finance
needed for ethane (which changes according to the break-even price and threshold price

For the Threshold Case:

Avg. MEG
Sensitivity Total CAPEX Total Inv. Cost*
Price/ton
Base Case 1,611.4 1,771.1 1,257
* The total investment cost for each sensitivity increases/decreases based on the initial finance
needed for ethane (which changes according to the break-even price and threshold price

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ECHEM Break-even Case

Assumptions
 Ethane price to Company is fixed at $80 (i.e. ECHEM incurs bears the difference
between the quoted break-even price and the $80 over 20 years)
 ECHEM in-kind share fixed at 100,000 tons
 ECHEM share in dividends is 20%
 Company WACC = 7.61%
 ECHEM WACC = 4.21% (risk-free rate)

Important Note
 ECHEM’s break-even case is when ECHEM’s net present value is equal to zero and
ECHEM’s IRR is equal to its discount rate.
 ECHEM’s subsidies throughout the project life were discounted at the risk-free rate
to arrive at the absolute value of subsidies today.
 This figure theoretically equates the investment costs (subsidies) that ECHEM would
be committing to the project under the various scenarios/cost assumptions.
 The absolute value of subsidies discounted at the risk-free rate resulting from the
above step was compared against the total cash inflows to ECHEM to arrive at the
appropriate NPV and IRR to ECHEM.

The following table illustrates the economics of the break-even model, together with various
variable sensitivities:

Ethane
Initial Total Inv.
Break- Project Project Equity Equity Equity
Sensitivity Ethane Cost Project IRR
Even NPV Payback NPV IRR Payback
Finance (Million)
Price
Base case 484.8 139,622 1,817.1 214,232 9.00% 12.34 374,928 12.01% 14.26
CAPEX Down 10% 494.2 142,330 1,652.8 380,514 10.26% 11.49 520,154 14.10% 13.21
CAPEX Down 20% 503.5 145,008 1,488.5 546,802 11.72% 10.63 666,839 16.56% 11.55
CAPEX Up 10% 475.6 136,973 1,981.4 47,938 7.90% 13.17 229,533 10.15% 15.28
MEG Down 10% 429.5 123,696 1,801.2 (63,969) 7.17% 13.79 104,969 8.92% 16.05
MEG Down 20% 378.2 108,922 1,786.4 (342,921) 5.10% 15.80 (150,090) 5.48% 18.62
MEG Up 10% 539.2 155,290 1,832.8 492,483 10.67% 11.23 665,093 15.40% 10.27
MEG Up 20% 595.0 171,360 1,848.8 770,656 12.21% 10.35 944,893 18.39% 8.36

The above assumptions are theoretical and hold true only if the quoted break-even prices
were fixed for the life of the project (2015 through 2034).

The initial ethane finance column represents the financing that ECHEM needs before the
first year to be able to cover the feedstock supply costs (i.e. the quoted break-even price
multiplied by the first year’s supply). The total investment costs thereby increase by the
initial ethane finance amount.

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ECHEM Port Said MEG Complex – Final Report

ECHEM Threshold Case

Assumptions
 Ethane price to Company is fixed at $80 (i.e. ECHEM bears the difference between
the quoted threshold price and the $80 over 20 years)
 ECHEM in-kind share is fixed at 100,000 tons
 ECHEM share in dividends is 20%
 Company WACC = 7.61%
 ECHEM WACC = 4.21% (risk-free rate)
Important Note
 ECHEM’s subsidies throughout the project life were discounted at the risk-free rate
to arrive at the absolute value of subsidies today.
 This figure theoretically equates the investment costs that ECHEM would be
committing to the project under the various scenarios/cost assumptions.
 The absolute figure of subsidies discounted at the risk-free rate above was
compared against the total cash inflows to ECHEM to arrive at the appropriate NPV
and IRR to ECHEM.
 The threshold case is when ECHEM’s IRR is equal to a theoretical minimum
acceptable rate of return of 10% (which is more than double the risk-free rate).

The following table illustrates the economics of the ECHEM threshold model, together with
various variable sensitivities:
Total
Optimal Initial
Inv. Project Project Project Equity Equity Equity ECHEM ECHEM
Sensitivity Ethane Ethane
Cost NPV IRR Payback NPV IRR Payback NPV IRR
Price Finance
(Million)
Base Case 325 93,600 1,771.1 223,207 9.07% 12.30 368,902 11.91% 14.28 716,013 10%

The maximum price ECHEM can incur, and would be still encouraged to undertake the
project is $325. ECHEM’s IRR is equal to 10%, which is more than double the risk-free rate
(i.e. a percentage that encourages and induces ECHEM to proceed with the project).

At this price, the initial required ethane supply finance is USD 93.6 Million and the total
investment cost is USD 1.77 Billion.
Any price lower than $325, ECHEM’s NPV grows further, the net cash flow to ECHEM over
the life of the project grows, and its IRR grows above 10%.

The subsidy per ton in this case is $325 – $80 = $245 (i.e. If the market price to ECHEM over
the life of the project is theoretically fixed at $325, ECHEM is still encouraged to undertake
the project).
As the price grows above $325, ECHEM’s NPV and net cash flows decrease gradually until
the price reaches $484.8, where ECHEM breaks-even.
Note
From a theoretical point of view, any IRR to ECHEM that is greater than the risk-free rate
(4.21%) makes the project still feasible for ECHEM. However, we advise that a minimum
acceptable IRR be 10%, in order to account for any unforeseen risks on behalf of ECHEM.

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Current Case
Assumptions
 Ethane price to ECHEM is fixed at $250 over 20 years
 Ethane price to Company is fixed at $80
 Ethane subsidy is fixed at $170
 ECHEM in-kind share is fixed at 100,000 tons
 ECHEM share in dividends is 20%
 ECHEM receives a cash inflow of $72 Million at the end of 2014 (to finance ethane
supply for the first year – with a 5% interest)
 Company WACC = 7.61%
 ECHEM WACC = 4.21% (risk-free rate)

Important Note
 ECHEM’s subsidies throughout the project life were discounted at the risk-free rate
to arrive at the absolute value of subsidies today.
 This figure theoretically equates the investment costs (subsidies) that ECHEM would
be committing to the project under the various scenarios/cost assumptions.
 The absolute figure of subsidies discounted at the risk-free rate above was
compared against the total cash inflows to ECHEM to arrive at the appropriate NPV
and IRR to ECHEM.

The following table illustrates the economics of the base case model, together with various
variable sensitivities:
Project Project Project Equity Equity Equity ECHEM ECHEM
Sensitivity
NPV IRR Payback NPV IRR Payback NPV IRR

Base case 227,420 9.10% 12.28 380,123 11.99% 14.12 1,052,229 15.35%
CAPEX Down 10% 394,230 10.38% 11.43 526,801 14.08% 13.08 1,094,298 15.79%
CAPEX Down 20% 561,040 11.87% 10.57 673,739 16.50% 11.79 1,136,272 16.23%
CAPEX Up 10% 60,610 7.98% 13.12 235,146 10.18% 15.15 1,011,323 14.93%
MEG Down 10% (53,887) 7.24% 13.75 109,043 8.95% 15.93 804,271 13.04%
MEG Down 20% (335,710) 5.14% 15.76 (148,237) 5.53% 18.52 578,437 10.92%
MEG Up 10% 508,727 10.81% 11.17 671,417 15.32% 10.48 1,297,076 17.57%
MEG Up 20% 790,034 12.39% 10.28 952,660 18.24% 8.60 1,545,502 19.76%

At the current case where the ethane price to ECHEM is fixed at $250 over the life of the
project (with the sensitivities presented above), ECHEM is encouraged to undertake the
project at the base case, or whenever the CAPEX and investment costs decrease, or average
prices for MEG (over 20 years) increase.

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Medium Case
Assumptions
 Ethane price to ECHEM is fixed at $250 for 10 years and $350 for 10 years
 Ethane price to Company is fixed at $80
 Ethane subsidy is fixed at $170 for 10 years and $270 for 10 years
 ECHEM in-kind share fixed at 100,000 tons
 ECHEM share in dividends is 20%
 ECHEM receives a cash inflow of $72 Million at the end of 2014 (to finance ethane
supply for the first year – with a 5% interest)
 Company WACC = 7.61%
 ECHEM WACC = 4.21% (risk-free rate)

Important Note
 ECHEM’s subsidies throughout the project life were discounted at the risk-free rate
to arrive at the absolute value of subsidies today.
 This figure theoretically equates the investment costs that ECHEM would be
committing to the project under the various scenarios/cost assumptions.
 The absolute figure of subsidies discounted at the risk-free rate above was
compared against the total cash inflows to ECHEM to arrive at the appropriate NPV
and IRR to ECHEM.

The following table illustrates the economics of the base case model, together with various
variable sensitivities:
Project Project Project Equity Equity Equity ECHEM ECHEM
Sensitivity
NPV IRR Payback NPV IRR Payback NPV IRR
Base case 227,420 9.10% 12.28 380,123 11.99% 14.12 868,522 12.03%
CAPEX Down 10% 394,230 10.38% 11.43 526,801 14.08% 13.08 910,712 12.40%
CAPEX Down 20% 561,040 11.87% 10.57 673,739 16.50% 11.79 952,602 12.77%
CAPEX Up 10% 60,610 7.98% 13.12 235,146 10.18% 15.15 827,640 11.68%
MEG Down 10% (53,887) 7.24% 13.75 109,043 8.95% 15.93 621,011 10.02%
MEG Down 20% (335,710) 5.14% 15.76 (148,237) 5.53% 18.52 394,851 8.11%
MEG Up 10% 508,727 10.81% 11.17 671,417 15.32% 10.48 1,113,723 13.95%
MEG Up 20% 790,034 12.39% 10.28 952,660 18.24% 8.60 1,361,798 15.81%

At the medium case where the ethane price to ECHEM is fixed at $250 over 10 years and
then $350 over the remaining 10 years (with the sensitivities presented above), ECHEM is
encouraged to undertake the project at the base case, or whenever the CAPEX and
investment costs decrease, or average prices for MEG (over 20 years) increase.

In the medium case, If MEG prices fall by 20% (based on the price curve illustrated earlier),
ECHEM’s IRR falls below the proposed minimum acceptable rate of return of 10%.

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High Case
Assumptions
 Ethane price to ECHEM is fixed at $250 for 5 years, $300 for 5 years, $350 for 5
years and $400 for 5 years
 Ethane price to Company is fixed at $80
 ECHEM in-kind share fixed at 100,000 tons
 ECHEM share in dividends is 20%
 ECHEM receives a cash inflow of $72 Million at the end of 2014 (to finance ethane
supply for the first year – with a 5% interest)
 Company WACC = 7.61%
 ECHEM WACC = 4.21% (risk-free rate)

Important Note
 ECHEM’s subsidies throughout the project life were discounted at the risk-free rate
to arrive at the absolute value of subsidies today.
 This figure theoretically equates the investment costs that ECHEM would be
committing to the project under the various scenarios/cost assumptions.
 The absolute figure of subsidies discounted at the risk-free rate above was
compared against the total cash inflows to ECHEM to arrive at the appropriate NPV
and IRR to ECHEM.

The following table illustrates the economics of the base case model, together with various
variable sensitivities:
Project Project Project Equity Equity Equity ECHEM ECHEM
Sensitivity
NPV IRR Payback NPV IRR Payback NPV IRR
Base case 227,420 9.10% 12.28 380,123 11.99% 14.12 765,140 10.60%
CAPEX Down 10% 394,230 10.38% 11.43 526,801 14.08% 13.08 807,330 10.94%
CAPEX Down 20% 561,040 11.87% 10.57 673,739 16.50% 11.79 849,220 11.28%
CAPEX Up 10% 60,610 7.98% 13.12 235,146 10.18% 15.15 724,355 10.27%
MEG Down 10% (53,887) 7.24% 13.75 109,043 8.95% 15.93 517,580 8.70%
MEG Down 20% (335,710) 5.14% 15.76 (148,237) 5.53% 18.52 291,468 6.88%
MEG Up 10% 508,727 10.81% 11.17 671,417 15.32% 10.48 1,010,291 12.39%
MEG Up 20% 790,034 12.39% 10.28 952,660 18.24% 8.60 1,258,693 14.13%

At the high case, ECHEM is encouraged to undertake the project at the base case, or
whenever the CAPEX and investment costs decrease, or average prices for MEG (over 20
years) increase.

If MEG prices fall by 10% and 20% (based on the price curve illustrated earlier), ECHEM’s IRR
falls below the proposed minimum acceptable rate of return of 10%.

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Investor Cost-Sharing Case

Reminder
The ethane threshold price to ECHEM is $325 (i.e. if the ethane price were to be fixed at
$325 for 20 years, ECHEM would yield an IRR of about 10% - equal to ECHEM’s proposed
minimum acceptable rate of return).

Assumptions
The following tables illustrate the effect of the extra ethane cost (over and above the
threshold price) both to the investor and ECHEM, at the medium and high cases presented
earlier.

At the medium case and with the base assumptions, the effect of cost sharing is as follows:

Project Project Project Equity Equity Equity ECHEM ECHEM

Sensitivity
NPV IRR Payback NPV IRR Payback NPV IRR
Investor
208,813 8.99% 12.28 362,163 11.85% 14.15 906,952 12.72%
Bears 100%
Investor
213,465 9.02% 12.28 366,814 11.89% 14.15 897,313 12.54%
Bears 75%
Investor
218,117 9.05% 12.28 371,466 11.93% 14.14 887,675 12.37%
Bears 50%
ECHEM
227,420 9.10% 12.28 380,123 11.99% 14.12 868,522 12.03%
Bears 100% *
* This case is equivalent to the results of the first row in the medium case table, titled “Base Case

At the high case and with the base assumptions, the effect of cost sharing is as follows:

Project Project Project Equity Equity Equity ECHEM ECHEM

Sensitivity
NPV IRR Payback NPV IRR Payback NPV IRR
Investor
193,780 8.91% 12.28 346,803 11.72% 14.15 838,285 11.72%
Bears 100%
Investor
202,190 8.95% 12.28 355,213 11.79% 14.14 819,999 11.43%
Bears 75%
Investor
210,600 9.00% 12.28 363,623 11.86% 14.13 801,712 11.14%
Bears 50%
ECHEM
227,420 9.10% 12.28 380,123 11.99% 14.12 765,140 10.60%
Bears 100% *
* This case is equivalent to the results of the first row in the high case table, titled “Base Case”

Based on the above assumptions and scenarios, even if ECHEM bears 100% of the extra cost,
ECHEM’s IRR is slightly above 10%, which is still a feasible scenario. Economics improve as
CAPEX and total investment costs decrease, and as MEG prices increase above the
referenced CMAI projections.

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CONLUSION
If ECHEM manages to conclude an agreement with the feedstock provider, to fix ethane
pricing at $250/ton for 20 years, or according to any of the assumptions presented in this
report, the project would become feasible both to ECHEM and the Investor.

However, if the ethane prices are floated based on the actual market prices (for example:
CMAI’s projections), the project may prove unfeasible for both the Investor and ECHEM.

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SOURCES OF INFORMATION
 Egyptian Petrochemicals Holding Company (ECHEM)
 US Department of Energy
 Chemical Market Associates, INC (CMAI)
 Platts – McGraw Hill
 Saudi Petrochemicals April 2010 – NCB Capital
 Saudi Petrochemicals Tracker November 2010 – NCB Capital
 Egypt Petrochemicals Report Q1 2010 – Business Monitor International
 MENA Petrochemicals – Al Masah Capital
 SIDPEC Initiation of Coverage – HC Research
 SIDPEC Research Coverage – Kuwait Financial Centre “Markaz”
 Alaska Petrochemical Development Study – CMAI
 Science Application International Corporations (SAIC)
 US Ethane Outlook – En*Vantage, INC
 Bloomberg
 Egyptian Stock Exchange

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