:rI

t,;.

BOO
year 2O1O
build - own ....and .... OPERATE

Committee:Hernandez/Statius Eps/Camelia van May 2Ot0

Tableof Contents

A. The Comrnittee
!nstruct'on The CuraaoUtilitiesCompanyN.V. (hereafterreferredto as uclJc' or "BOo") has not been able to keep its power plant runningon an adequatelevel in order to supply the energy deliveries both Aqualectra to and the lsla Refinery(hereafterreferred to as ,,lsta,,). The main problem at this currentmoment is that a communityis sufferingdirectly and/or indirectlyfrom the continuous malfunctioning evencompleteshut downsof the Boo. and Nature and Scopeof Procedures Performed An independent committeehasbeen installed Commissioner by HumphreyDavelaar, consisting of expertsin the technical area(Javier Hernandez), financial area (ErickStatiusvan Eps)and the legalarea(GlennCamelia), with the instruction enter into and perform a ,,quick to scan,, within two daysof the company. Duringthis "quick scan"the Committeeshould concentrate the technical,organizationat, on financial, legaland the commercial aspects the compan% respectto the malfunctioning of in of the company. The Committee should presentpossible solutionswhich will enabtethe pfant to restart the delivery of products to lsla and to Aqualectra.Together with the solution the Committeeshouldindicateper activitythe actor, his direct action and the time frame for the executon eachspecific of action. The proceduresperformeddo not consttutea full due diligenceon the respectiveareas.As a consequence, report does not providea completecoverage the situationbut merelyan the of assessment situationbasedon a "quick scan'f.Had the Committee performed additional of procedures hadthe Committee or performeda full due diligence the respectve on areas, other mattersmight havecometo lghtwhich might havebeenof interestto you. Authority of the Committee All the companies involved private,so besides Commissioner are the some kind of authorization to execute "quickscan"had to be formalized the throughthe companies. Authorizationhas been granted during the first meeting by the director of one of the shareholders CUCH(luH N.v. / Aqualectra)and one of the directors of the preferred of shareholder CURefineria KorsouN.V.(hereafter in di referredto as 'RdK') to the Committee installed the Cornmissioner visit and performsomeresearch the lsla,CUC, by to at CUOC and all other relatedcompanies.

Activities The activities were the following: 29thof April: - meetingwith the Commissioner advisers discuss scope and to the of procedures meetingwith lsla/ meetingwith BOO(CUOC) and tsla - meetingwith technicalstaff 30th of May BOO - Plantwalk BOO(technical inspection) - Presentation l't of May lsla Within this limited time and with limited amount of information and documentation the Committeecameto some preliminaryconclusions. Committeerecommends The nevertheless for further and more detailedresearch and analyzes be conductedon this matter. to It is importantto note that thesepreliminary conclusions basedon the assumption are that the refinerywill be in operationat leastuntlthe year 2019.

B. Financial Aspects
This initial 'businesscase' of CUCwas to construct a plant with overcapacity loi electricity, steamand compressed and usethat overcapacity assist air) to Aqualectra its own production in and in that process makingutility cheaper the entirecommunityof Curaao for According the agreements to CUC obligated provide: is to o lslawith 48 MegaWatts of electricityfor its refineryand; o Aqualectra with 20 Mega Watts of electricityfor its plant. cuc alsoneedsapproximately Mega watts for its own operations. 15

ThecUCplantafterconstruction the capacity produce had to approximately lVlega 165 watts whichwasalmost twiceas muchthen whatwasneeded. Since CUC uses n its production tr, (cost:approxirnately 20 per barrel)it was able to produce usD electrcty cheaper then Aqualectra uses for its production that fuel (cost: approximately g0 per barrel). uSD ;;r"J ;; the abovetherewas a soundand encouraging business caseto engage and finance in this project.

'F ,

Thefo'owng s high rever overview

of how this project

was subsequentfyfinanced:

B H F & H
f, il

Financng the project of

fnvestee J-BIC(and a syndicate of comrnerciafbanks) Refeneria diKorsou Aqualectra49% cE( / 5L% (Mitsubishi corp & Marubeni)

cEC
Invested in or paid tu: Plantand equipments legal fees Arrangement and upfront

fees

SeniorDebt loan

o a

lff H.,",,,"Jf :,],jfl *;ii,.Jii:i:::::j;,i5,fr i.,,,

is approximately years, -'r-v^""qrctv 9 v ffs, which millonperyear; amountsto alrnost USD13 atso charged arrangement Ll" ?af and

rate lnterest per annurn interesr.r-r,soR 2.37;nd ..i" prus this !l;:.1ffff1"'ri,i'"," % The repayment period

Thisroanconssts a Tanche of A of usD

7g. mirfion with a s.!.!\

 '

il
Per below a scheduleof the annualinterest paid and the developmentof the interest rate of the seniordebt throughoutthe years:
Outstanding Book year 2003 200,4 2005 006 2OO7 2008 principle of loan 723,732 7t0,L70 97,209 84,248 7L,288 58,325 lnterest paid 4,030 6,881 7,947 6,6!7 5,576 4,532 lnterest % 3.27% 6.25% 7.56% 7.85ys 7.82% 7.77%

2009

45,3

4,!73

g.2o%

The loanwas highlycollateralized: of cuc's assets(ncluding rights, all afl title and interest of cuc in any real and personalproperty,all contractsto which cuc is a party, alt rights of cuc to receivemonies,and all bank accounts and all stock in CUChave been pledgedas security. All cuC's monies and amounts receivedon any agreementsare to be deposited in accounts maintainedby a security Deposit Agent for the benefit of the collateral Agen! and all disbursementof funds can only be done.if financing requirements are met and if the disbursements in compliance are with terms of the Security DepositAgreement. in essence, so the financialobligations would always paid beforeany other obligation. be Preferred Stock The followingis an overviewof the annualand total interestpaid to RdKfor its participation through preferredStockin CUC.
Capital Bookyear 2OO3 2OO4 2005 2006 2007 2008 2009 preferredstock 34,17L 34,177 34,77t 34,771, 34,77t 34,77L 34,771" lnterestpaid 278 4,3U 4,672 4,624 4,679 4,562 4,429 27 lnterest% 0.8% !2.8% L3.7% 73.5To tgJ% !3.4/o .0%

Cashflow Based the financing on arrangements that were agreed-upon and the other signedagreements, we constructed cashflow that shouldhavebeen known from the start of CUC,s a operations:

FORECASTED FIOW CASH

CASH Inflow
Revenue 4L,600

CASHOutflow

- Fndnce reloted pyments Interest Senor debt Preferred stock

Letter of credit principleof senior debt Repayment

5,600 4,600 2,1.00 13,000 25,300

- Other lixed cshoutflows

Management Servce Agreement Oper Maintenance & Agreement Labor Insurance Operation expenses Housing administration & r,200 700 4,600 1,100 2,200 1,000 10,800 Thearnount that remains investments malntenance for and

_____l,5gg_

Basedon the Utility ServiceAgreement(USA)with lsla, CUCwas guaranteeda minimum of USD37,5 million per year from lsla. Throughthe yearsthis amount becameapproximately 40,5 millionbasedon lsla'sconsumption. USD The remaining amount of revenuecame from Aqualectra residue or soldfrom CUC's own production. Based on the agreed financing arrangements(see above), CUC had to pay approximately USD25,3 million per year for interest,financingfees and loan repayment. This meant that USD16,3 mllionwas left to coverthe remaining expenditures. Based on contractualobligations,CUC has to pay USD 1,2 million per year to CECfor a ManagementService Agreement.In additin,CUChasto pay approxmatelyUSD7O0K per year to COUC an Operations for and Maintenance Agreemententered into. The amounts presented above in the forecasted cash flow for Labor, Insurance,operation expenses and housing & administrationare basedon the averageamount paid in the last 7 years. The total ,other fixed cash outflou/ amounts to USD 10,8 million. As presentedin the schedulethis would leave approximatelyUSD 5,5 million per year for maintenanceand investments.Based on the technicalassessment can concludethat such an amount was not sufficientfor a plant of one this size. Given such a tight cash budget,the incentiveto use the plant at its full capacity (reachingthe overcapacity that eventually would flow backto the community) was not presen! as this would probablygo coincidewith perhapsadditionalmaintenance expenses. a devationof the So originalplan and the intentionswith this plant was alreadyin effect, even before the start of the operations.
I

Basedon forecasted cashflow presented above,the companywas not n a positionto absorb (i.e. expenses) any unforeseen events from a cash perspective. And in casesuch unforeseen event would occur,the corresponding expenditure would go at the expenseof or replacing another cost category(e.g.maintenance). is fair to say that planningto have a breakeven lt cashflow scenariofor so many years is perceivedto be risky and perhaps even irresponsible, considering type of business the CUC was conducting and its importance the Communityof for Curaao.

Cashflow and ProfitabilityStrategry Cash flow strotegy From a cashflow perspective indicated as aboveCUC was planning breakeven the first 9 to for years of operations(loan repayment period). This would have been possible under the assumptionthat maintenance and investments combinedwould not exceed approximately usD 5,5 millionper yearand no unforeseen eventswouldoccur.

g '

Theschedule below presents cashbarances year-end: the per

Cash year Book 2003 2004 2005 2006 2007 2008 2009 balance 13,75t 27,208 26,510 32,577 20,444 ,535

underthe termsof the loanagreement, must maintain least cuc at the short-term obligation with regardto the seniorloan namely usD 13 millionat ail times in a bank account. The increase the bankbalances the years2oo4,2005 2006 primarily of in and is attributed the to fact that the interest the preferred on stock(usD 46 millionper year)and other payables to partes refated were not beingpaidand investments were keptat a minimum.In 2oo7 and further,theserelatedpartybalances werebeingsettledand alsomoreinves;;;;;'*;;ffi; madeandas a result, cash the balances eventually backto the minimum got required position of USD millionperyear-end 13 2009. Howeverbecauseof non-compliance with the lsla agreement(attributedto lack of mantenance), company the per-end 2008became of liablefor 'lquidaied damages, lslafor to usD 3,3 million(perend of 2009this amountis probably more)and was alsofacingurgent maintenance requirements. underthe currentcircumstances company no the is longerin a position fulfillitsshort-term to obligaton withoutadditional borrowings. Profta Ity strate gy bi Based the initialprojection assumptions company on and the maybe breaking evenfrom a cash flow perspective, however from a profitability perspective wouldbe making satisfactory cuc a returnon its investment. reason thisis that the usD 13 The for million loanrepayment amount is a "cash outflow", however isnot an expense asa result doesnot have it and t anyimpact on the profit and lossaccount. what doeshavean impacton the profit and lossaccount (but whichis not a "cashoutflows") 'depreciation' fixed are on assets and ,amortization, the on financecosts,which amounted approximately to usD 6 million and usD 0.62 million respectively year.By adjusting forecasted per the cashflow with the annual loanrepayment arnountand the depreciation/amortization would arrive you at the approximate expected resultfor the first 9 years, namely 6,4million(usD13 - usD 6 - USD usD 0.6). Assuming once againthat all assumptions according the initialbusiness to case/model couid/would remain consistent.

fl
Bookyear 2003 2004 2005 2006 2007 2008 Equity 55,906 63,8 70,430 73,483 80,106 77,760 profit (loss) 8,870 7,958 6,566 3,0s3 6,624 (2,3461 profitability !670 72% g% 4% 8% _s%

2009

6j,9

(72,1261

_18%

Per above scheduleone could see that from 2003 through 2007 (with the exception of 2006), the resultswere indeed in the vicinityof what was probbly expected.In 2006 more than the usualcostswere incurredfor maintenance operatingexpenses and causing the resultto drop to usD 3 rnillion'ln 2008 the companyincurredusD 6,54Kin legalfees (fr an abritationcase) causing resultto go from positiveusD 4196K to negative its usD 2,346K. In 2009the initial business model (of maintenance and investmentof approximatelyusD 5,5 millionper year)resultedto be unsustainable the lack and of sufficientmaintenance caughtup with the organization. great amount of backlogmaintenance A had to be incurred at once, includingfor exarnplethe lease of a water distiller, because the original one was no longer functionngfor an additonal costof approximately usD 4 million p", y.r. Inventory schedule belowshowsthe inventorybarances year-end. per
Inventory Bookyear 2003 2004 2005 2006 2007 2008 2009 balance . 380 913 L,776 3,724 4,115 6,517

In anytypical plantyou expect find -fromday one of operationto a levelof inventory (i.e. parts) support operation alltimes. to the at oncethe optimal fevel inu"ntory determined of is it should thenbe rnaintained consistently possible. upward as as The trendthat we notedat cuc isveryunusual warrants and therefore further investigation.

70

Duringour plant visit employeesatsocompfained us to about rackof spare parts.According to some employees the current inventorylevelscould not exceed usD 45 ,ilon. Accordingto the financialrecordsper 2009 year-endthe inventory was usD g,4 million. This matter also warrantsfurther investigation.

Allocation of the Initial Invested Funds As presentedin the caption 'financingof the projecf, usD 2og million was receivedfrom the investees, from which approximatelyusD 200 million was invested in plant and equipments and us I million was paid on legal and financingfees. The engine"ring procurementand construction the plant {EPC of contract)was grantedto Mtsubishicorporation for an amount of usD 147 million'Mitsubishiis alsoa sharehlder through cEC(curaaoEnergy companyLtd) in the Company. For the rernaining usD 53 million (usD 2oo - usD 147 million) we need to get some further clarification how this moneywas spend. on Schedule belowshowsthe capitalized fixedassets (usD 201,032K) subsequent and movements in this balance (through investments and depreciations):
FixedAssets
Bookyear Bookvalue

lnvestment

Depreciation 3,397

Bookvalue 19535 193,024 rgo,7g7 L85,O52 L79,L 180,199 176,7go

2003 20M 2005 2006 2007 2008 2009

207,032 r97,635 r93,024 190,797 L85,052 779,764 180,199 1.,222 3,675 459 357 7,4t2 3,360

5,833 5,902 6,204 6,245 6,377 7,369

77

il fl

The followingis the profit and lossaccounts the years2003through for

cuRAAOUTttrTtES CoMPANY N.V. {ln USD'0001 2003 OPERATING REVENUE - lslarevenue 23,105 39,756 40,728 40,648 2004
Audted

2oo9:

Unaudited

2005

2006

2007

2008

2009

40,98r

47,583

- Aqualectra fuel revenue & charges - Ful exoenseJ

L,748

1,260

4,6

5,002

7,573

387

(1)

479

443

- Otherncome
23,!24

40 39,960 ,978

207 47,334 42,O34 42,U2 43,069

OPERANON MAII{TEIIANCE AND - Labor expenses - Mantenanc expenses - Operaton expenses - Admnstraton expenses - Homeofficeexpenses - Legal costsrelated rbrtaton to 3,524

4,O52 2,275 7,487 913 361

4,557 3,881 2,742 s52 527

4838 5,019 4,326 608 7

4,909 6,76L 1,402 281

4,6 6,506 962 L,O27 389

9,O28

L2,259

74,798

72,753

20,7

33,546

DEPRECIATTON EXPENSES I]TSURANCE EXPEISES OTHER OPERATING EXPENSES

3,397 739 951

s,833 1,067 2,W

17,932

5,902 960 r,775

20,896

6,2U 996 t,773

6,24s 985 2,468

6,377 949 5,700

7,369 967 1,979

TOTAL OPERATING PE{SES

8,611

23,771

22,4s7

33,726

43,801

FINANC (PEI{SES - Interest Senor debt - Interest preferred stock - Letterof credit,frontlngfees - Amortisatlon closing fee - Othernterest 5,643 4,030 278 t,026 359 6,881 4,3U 2,028 619 158 7,347 4,672 2,144 619 f1.2651 6,6t7 4,624 2,736 619 5,576 4,679 2,498 619 4,532 4,562 2,708 582 4,773 4,429 2,270 582

t4,070

13,s16

t4,5L0

72,959

77,562

1I,394

NETRESULTS

8,870

7,958

6,566

3,053

6,624

L2

C. Technical Problems
lslahascontracted deliveryof the followingindustrialservices the from BOO: (560Nm3/min.) L. Compressed Air (60 Mw) 2. Electricity (380t/h) 3. Steam (26m3/h) 4. Distillated water The Integrated Utilty Company(Aqualectra) has contracted the delivery of the following industrial from BOO: service 1. lectricity(20 MW) 2. Electricity(22 MW) The basicequipments neededto performthese services are: Air Compressors (AC),Boilers(B), (GT), GasTurbines (TA)andsea water Distillers steamTurbines (swD). problems Thetechnical can be described follows; as

Air Compressor Situation There were three old air compressors (AC-3/5/6)and a new one (AC-7)was added. AC-3 got catastrophc failurein 2OO7 was dismantled. and The plant needsto havetwo air compressors operation.For sucha vital serviceBOOwould in need4 air compressors, runningand one for spare.The fourth one is to cover the schedule 2 maintenance eachof the compressors. of AC-6hashad a catastrophic failurein 2009,and no actionwas taken either to buy a new one or to repairit. Thisshouldbe considered a bad practicebecause as having2 compressors running without anyspareis highlyriskyas it mayresultin a total shutdownof the CUC and the refinery if anything happens. To obtaina reliableair system, new AC-8hasto be installed. a Concerning AC-6the decision has to be takento eitherrepairor buy a newone. These decisionshas to be taken very soon because it is very risky to run with only 2 compressors.

13

SteamSituation ln the beginningthe installed capacitywas more or tess the double of what was neecjed. Nevertheless situationright now is verytight for the foltowingreasons. the The 3 new boilersU2/3 hascombustion problems (burners), from the beginning. as 81 is in maintenance untilJune. hasa hot spotand hasto be repairbeforestarting 82 -provided the Governmentinspectorgivesthe permission do as the mandatory maintenance to of the boiler is overdue.83 is running,B-75 is out as from August 2009 and without neutralization / protection probablysufferinginternalcorrosion. needsto go into maintenance. is lt B-74 needs some repair (Costingapproximately USD 4O,OOO). to the 29th of April, this Up arnount was not approvedyet. WHB:77gt a catastrophicfailure.WHB-gneeds maintenance (newsuperheater). At this moment even if B-L/2/3 will be readyfor start-up, people wilt not be allowed to start up because there are only 3 boilerswater feed pumps.The other two pumps havegot catastrophic faifure. New boilers t/2/3 has presentedseveral "hot spots". This could be an indication of some designshortcoming. CUChas approached 'combustioncompany' to try to solve the a problem.In our opinion this has to be solvedas soon as possibleto make the boilersmore reliable. Eventhe fuel pumps are in trouble. Of the 3 pumps,only one is ready. A new one has been purchased will be installed and soon.

Electricity The capacityinstalled was double the one needed. Nevertheless the current situation is precarious. TA-7hasgot a catastrophic failure. GT-8hasgot a catastrophic failure. GT-9needsmajormaintenance monthsandthe costis almost55 million) (6 GT-10 needsan electrical revision and wilr be readyby the lgth of May.

Water Situation The originalcapacityinstalledis much higher than the actual one due probably to lack of maintenance' new SWD8 is designed 250 Tn/hrand is delivering The for 1g5Tn/hr. SWD5 is delivering Tn/hr while the designis 250Tn/hr.Both SWD,sneed 25 maintenance soonas possible.

L4

D. LegalAspects
!-egalStructure The total legal structure is quite compricated and the question arises whether sorne simplification can be achievedin order to have the responsibirities and riabirities a more in transparent manner. The main companycuc N.v. (cuc/Boo) is owned ror Looo/o curaao utlites company by Hofding N'v'cuc Holding N'v' (cucH). cucH is owned for 49%byIntegrated urttyHoldingN.V. (Aqualectra/tuH N'v') and for 5t% bv curaaoEnergycompany N.v. (cEc).Aqualectraon his term is owned for too% by the lslandGovernmenileil"nagebied curaao).This explainsthe legaland financial involvementof the local governr"nt. ce s so%by Mitsubishi corporationand lor so%by Maru Energy ";;;; curaaoLtd.(Marubeni). The main company cu thi'ough several agreements, delivers a vital produc! namely electricity, Aqualectra to (the community)and lsla,which on his term delivervital products (gasoline,gasoil, gas, kerosene;jet fuel) to the community. This explains the generaf responsibility the localgovernment this matter. of in Besides participationof Aqualectrafor 49%in the the total sharesof cucH, there is Refineriadi Korsou N'v' (RdK) that haspurchased preferredequitycapitar(usD a 34 milon) drectlyin cuc. The RdKis completelyowned by the localgovernr"nt (Eilandgebied curaao).This explains furthermorethe financial involvement the localgou"rn"na. of Thereis a legalbut alsoa moral obligation deliver. to Besides the strctfylegalaspectsof this issue'the role of the cu because their delivering of of vital productsto thlecommunity is a very important one' one can concludethat there aie far more responsibilities and possible liabilities then onlythosein the written agreements. The local law gives the possibilityfor this specific aspect to be judged by a local court, regardless applicable of the contracts. the law Thisis the so called,,oniectmatige daad,,. The fackof maintenance regular/routine (no maintenance), lackof needorepairs the in time, the lack of neededc:ipitalinvestmen and possiblemsanagement generaf, 'r in e" 'r' can ptay an importantrole in the judgmentof thspoint. A contractshould be executedin good faith. In this case there is an additionalburden on partiesbecause the subjectof the contract of namelythe direct supptyof electricity to the communityand the indirectsuppry gas,gasorine gasoir of and to the .orrnrntv. Possible conflict of interestof partiei involved(shareholder receivr- shareholder supplier), analvzed

iljlflf"ie

bv a curt order estabtsh not the so caled,,onrechtmatig in to or

Given importance electricity fuelsuppfy the of and to the community and the threatof shortage of both products, the government cannotmaintaindistanceon this subject, because their of higher responsibility the (welfare the)community. for of 15

On the other hand,within the differentagreements between parties,the local law, good faith practice, and good busness the severalresponsibilities, liabilities, accountabilities and roles of "partiet'and "persons" involvedshouldbe analyzed and determined. It shouldbe taken into accountfor this matter,that besides the tegalcompaniesinvolved, there are directors and supervisory-directors their own responsibility with involved. Additionally would lke to emphasize we that Government RdK should be involvedin a / possible (conditional solution loan).The acceptance nor of a reasonable or solutiondetermines the chances partiesin e.g.a short procedure of (KortGeding) case.

The Agreements and Responsibilities The commitmentfor constantdeliveryby CUC(and indirectlyby lsta),besides the importance for the community is also part of the agreementsbetween parties.Some relevant agreements are the following: A. Power PurchaseAgreement between: Curaao Utilties Company N.V. and Kompania di Distribushon Elektrisidat di iAwa di Korsou N.v. (localGovernment) In article 8 of the agreement, the DamageCompensaton becauseof the failure to deliver electricity limitedto certainamount,regardless damage. is the ln caseof falureto deliverthe AnnualDelivery Amoun! CUCN.V.shallpay an arnountequalto USD0.02for eachkWh of suchdeficiency to a limit in any Operating up year of USD500,000. B. UtltiesService Agreement(USA) Thereare separate agreements betweenRefineria lS[A and the CUC; the USA,the FuelSupply Agreement andthe CommonFacilities agreement. The liabilityrelationbetweenthesepartieshasnot yet come into force due to the fact that the so called"Commercial Operating Date" (COD) has not yet been established. Thereseemsto be a disputeon whether the reparationof certainequipment(turbo alternatorTA-6) properly is done or not. RefinerialS[A will have to give chargeto their lawyersto do further research on this matter.Government no directinvolvement has what so ever here. C- Agreement between: The Netherlands Antilles, The lsland Territory of Curaao and Petrof de Venezuela eos S.A.(Septembe t4, Lg94l r This is an agreementwhere the local governmentsgrant facilities, tax exemption and exempton validlocallaws,in exchange the lease the installation the Refinery. on for of of Sucha special treatmentto a foreignstatecompany(PDvSA) demands certainbehaviorof the a other party. This goes beyond the written agreement.pDvSAsuppliesvital products (gas, gasoline, and other products) the community. to They on their term receivebasicproduction goodsfrom CUC.

t6

D' lease Agreementbetween: Petroleosde venezuela s.A. and Refineria di Korsou N.v. Thisis an agreement without a direct involvement cuc N.v. (Boo). of Nevertheless shouldbe it taken in accountin caseof any eventuatity. contrary to the sHELL perod,PDVSA during the negotiation the lease agreement of expressed their desirenot to operatethe existingPower plant.Article g.5 of this leaJeagreementstates the followingon thistopic. The needsfor steam,electricity, water and air shall be satisfiedby an Independent utlties Producer Scheme. Thisbecame BOO{CUC). the lf the necessityis expressedby the government (the commissioner)the lawyer in the committeewill givea separate adviceon this article8.5 and the correspo;ng .t achment.

t7

A. Conclusions
Financial The cucs busness model,includingthe agreedfinancialarrangements-in particularly the repaymentterm of the loan- resultedin a (too) heavy cash flow burden on the company' As a consequence insufficientamount an was ailocated to the annual 'maintenance and investments'. The fact that the company'sbusinessmodel was not sustainable should have been known at a much earlierstage and action should have beentakenaccordingly' lgnoring,neglecting not takingany visible or action to this issue while knowingits potentialconsequences be considred can a complete disregard and disrespect the communityof curaao.To remainwithin to the tight cash ftow budget (and financing requirements),managementhave opted too often not to execute the necessary(i'e' mandatory) mantenance and/or investment. After seven years, the maintenance backlog caughtup with the organization subsequentlrplacig and them in an insolventpositionwhere additional financialinjection is the onry wy to re]start trre operation.

Technical

Thereis a lackof training the people. of There no identification the people is of with their units,their plantsand their equipment. our In opiniontoo many catastrophic failures haveoccurred' other words manyfailures In haveoccurred that has led to complete shutdown the plant.somespecific of failures were:Air compressor AC-3, Air compressor AC-6, wHB-77, steamTurbine TA-7, Turbine Gas GT-g,p-4/sof Boirer Feed I/213,P 31415, Boilers and75Feed. 74 Thiscouldbe an indication there wasno care-feeling that for the company and its equipment. Themaintenance been has somekindof "breakdown" maintenance one canafso or call it maintenance failure.lt's very importantto know by the date of preventive/routine maintenance versus dateof realmaintenance to the equipment. the done

ilff
Legal

ffi::

failures occur these of units, in type manag"r"nt shourd herd be rargery

There a legalbut also moral is a obligation deliver to electricity gasproducts and to comrnunity, whichgoes furtherthan the writtencontracts. concentration the The in the totalBoo project clearly on Builtandown was set andless ,,operate,,. on There a clearlackof awareness parties is of involved the importance the delivery of of of gasoline, andelectricity the community. fuel to

L8

The role and responsibility the governmentthough not party in the contractsis a of higherone.The government correctly assuming is and shouldcontinueassuming their responsibility. The start-up of the power plant at this moment has priority, but at the same time accountability possible and liabilities thoseinvolvedshouldbe analyzed. of The so calted CODbetweenRefineria |SLA and CUC alsohashigh priority.

79

' "' i,'

B
t
IE

F. Short-termRecommendations
Financial An amountof usD 7 millionshouldbe transferred Refineria by Korsou immediately the cuc. to Thiswill enablethe cuc to purchase and executesornedirect short-termnecessities. Basedon the total fist (Annex an additional A), amount of usD 20 million is necessary zo1o-2011. for The list attachedconsists mainlyof repairs, partsand labor cost,dividedin usD 10.25million for the first 4 months and usD L6.75million for until the end of ZorL for a total amount of usD 27 million. Subsequently approximately 20 millionwill be neededuntil 2015. USD In additionto the abovethe following5 items needto get immediate attention: 1' Re-financing the seniorloanfor lower the % and extentionof of the repaymentperod 2' combinethe preferredstockwith the additionalfunding and reducethe current nterestrate 3. Establish strictmantenance investment a and plan 4' Negotiate with Aqualectra a compensation for package the overcapacity for that eventualty will be producedand delivered Aqualectra to when the plant is once againat it, rrll capacity. 5. lmmediateimplementaton an inventorymanagement of system Technical Givetrainingto operators and maintenance people.changethe maintenance philosophy one to of preventive maintenance.Buy a new AC compressorand repair or buy Ac- 6. Give maintenance boilerswhich are due for maintenance, to some of them need mayor repairsas 875/74 and wHB-80.Repair the one with catastrophic failureas 877. RepairGT -g and give maintenance GT-9and wHB g0. providemaintenance swD-g to to and swD_s Legal Governmenton one hand being the 7oo%shareholder of luH N.V. and ndirectlya 4g% shareholder cECN.v., but on the other handhavingthe ultimate in responsibitity the energy for supplyin this comrnunity, shoulddeal with the accountability possible and fiabilityof those involved. As alreadystated a total amount of usD 27 miltionthrough two loans,a first one of usD 7 milfon and a secondone of usD 20 million should be put avaifable RdK. The !ao% by shareholder RdK(the localGovernment) already of has giventheir approval the first one in to the agreement the 3'dof March,togetherwith the tuitr of r" ro t;;;.,, whife tuH N.v., "t beinglor 49%shareholder cucH was co-signer the agreement. in of These loansshruld havea subordi natedcharacrer.

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The secondloan shouldbe negotiatedand an agreement should be reachedwithin a month. RdK might want to ask for some guaranteefrom luH N.v., being a 4g%shareholder,which shouldbe considered reasonable a demand. The paymentsin this first week shouldbe basedon prepayments (voorschotten) and should be executed good faith. in once RdKmakesa certainamount available, should always it be basedon the loan agreement. These arnounts, within 3 months,shouldbe convertedin preferred equity. sincethe purposeof these loansis; to sustain and facilitatethe fast start-upof the cu Y' v' during this perioda coordinator RDK of shouldbe apointed. within a month allfinal loanagreements shouldbe signedby parties. Theseloan agreements will at leastcontainthe following aspects: 1. The loansshouldbe subordinated (achtergesterde) roans. 2 . A coordinatorshould be appointedby RdKto give support to the cuoc personnetfor the period (t 2 years) that the requiredprocedures takingprace. are 3 . Payments suppriers contractors be done to and wiil directryby RdK. 4_ Payback period won't exceedZOI1. 5 . Interestwill be charged accordingly the current market value. to 6. Parties will negotiate the conversion ths amount into preferred of shares, basedon the currentmarketvalueof the shares.

lf these financing conditions bearranged, guarantees and can cuc the functioning somevitaf of equipment the production for process. Thisshortterm solution enables cuc to restarttheir activities the the by 12th this month. of Thisstart up will represent 3o%of the normalcapacityof cuc. r irre attalne schedule is foffowed, the 20th this month 6o%ofthe .rpr.ity *iu by of , u" in prace. Refineria hasexpressed approval thisstartup scheme, lsla their to thoughacknowledging that therewill besom.g. involved. risk
Action Actors Lawyers cuc-RdK

Timeto perform nextweek t weekfrom now

l. month from now t week orders- 4 monthsrepair (list)

Remarks

tl]eq! agreement Formalize of repair list

2no Loan agreement 1ttRepairs oers n epatrs orders and Conversion loan into share

cuc
Lawvers CUC-Rdt(

cuoc
RdK coordinator

cuoc
RdK coordinator RdK_ CUC

2 years
3 months

2t

r ' > q " 7

G. Medium-termRecommendations
on a medium terrn, a changein ownershipis highly recommendable. Either by achievingthe 5r% or shares owned by cEC or by achievingall the shares by a government agent. The importanceof this company for the community brings along a strong need of cntrol by government agents any moment. at

JavierHernandez MSc

ErickR.Statius van EpsCPA

GlennH.E. Camelia ILM

May7,2O7O

22

6fl

ANNEXA

F'irst 4 Months

Short Term - 2010

OrderAC-B(300nm3) OrderSPrHtrsvpB74/75/77 s Order DrumsBT4/75 OrderEconomizer B74/i 5/77 s OrderTubes874/75/77 Order BFW,s(t-2) Flppp I Order40 StBIwrs874/75/77 OrderControls 4/7S lg0 B7 /77 prde ID/FD andSwgr 874/75 lnstallDeminpump Rebuild AC-6 Rebuild AC-5+

Long Term 20I1-201s

$ 4,500,000 :,OO,OO 'zo,oo 1,200;000 300,000 f ,!0,O 1,000;000 Redundant BargHdr Hppp2 85 Redundanr BargHdr Hppp2 lB 85 BargTie-InHpppt to Hppp2 IIPPP2to TA CoolingWarer MajorRebuild 874 HPPPZ TA CoolingWarer to TA l-4 Major Inspectlons WaterIn-Take/RoiaryScreens

1,000,000 500,000 2,000,000 300,000 1,300,000 750,000 200,000 300,000 500,000 100,000 1,300,000 2,000,000

Major Overhaul+ *GT9 BoilerWorkB75l77*

(300 fey B.oSystem TpH)

BFW,sMppp I
10,250,000

Rebuild Conrrols SeruMococo !.emote Install AC-B

e*e HdrB74/75 !5Maint fjo lnruu g{ M_ajor lue sysrem

rA-6 an"* Lto*n

SWD-8Major Maint C-ooling WarerTie In NewDeminTrain+Tie Hpppl New l5KV XFMR/Swgr TA-4 OEM parts

hsgfl BW's(2)Hpppl

t333;333
200,000 o,oo
500;000 oo,o

7,000,000 650,000 700,000 400,000 200,000 3,000,000 200,000 7,000,000 650,000

s7!3i333
$ l9,8oo,ooo, v
_ / u,.'

$ tuJto,too