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January 2006

Ashdod Refinery Presentation Company and transaction overview. January 2006. Disclaimer.

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January 2006

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  1. Ashdod Refinery Presentation Company and transaction overview January 2006

  2. Disclaimer This Document (the “Document”) has been prepared by HSBC Bank plc ("HSBC"). HSBC is acting as financial advisor to the Government Companies Authority of Israel (the "GCA") and no one else in connection with the proposed privatisation of Oil Refineries – Ashdod Limited (“ORA”, or the “Company”). This Document contains forward-looking statements, sourced exclusively from publicly available information, the GCA or Oil Refineries Limited (“ORL”). These statements are based on certain assumptions, which include a number of known and unknown risks and uncertainties that may lead to the non-occurrence of these statements. The information contained in this Document has been provided by the GCA, ORL, or from publicly available information and has not been independently verified by HSBC. None of GCA, ORL, ORA, HSBC nor any other person makes any representations or warranties as to the accuracy, completeness or fairness of this Document and, no responsibility or liability is accepted for its accuracy or sufficiency. No representations or warranties are given as to the achievement or reasonableness of, and no reliance should be placed on, any projections, forward-looking statements, estimates, forecasts or targets contained herein. None of the GCA, ORL, ORA nor HSBC undertakes to provide any additional information, to update the information included herein or to remedy any omissions in this Document. This Document does not constitute an offer or invitation for the sale or purchase of securities or of any of the assets, business or undertaking described herein. Nor does this Document constitute an obligation or undertaking to conduct a future sale of securities or of any of the assets, business or undertaking described herein. This Document is not intended to form the basis of any investment decision to purchase ORA. The selection of a buyer for all of the ORA shares, as a single stake, will be conducted according to the sale procedure of the shares of ORA (the “Sale Procedure”) to be published by the State of Israel. This Document and its contents are based on the assumption that at the time of the sale of the Shares, the shares of ORL will be owned 100% by the State of Israel. The assumed shareholder structure is subject to completion of arrangements between the current shareholders of ORL (The State of Israel, 74%, and Israel Corporation, 26%). The information relating to the sale process, structure and timetable is purely indicative and may be altered, modified or cancelled at any time by the GCA. Details of the sale process and sale structure of the Shares, if applicable, are officially announced in the Sale Procedure. By accepting this Document, the recipient agrees to be bound by the foregoing limitations.

  3. Notice to Reader This Document and its contents are based on the assumption that at the time of the sale of the Shares, the shares of ORL will be owned 100% by the State of Israel. The assumed shareholder structure is subject to completion of arrangements between the current shareholders of ORL (The State of Israel, 74%, and Israel Corporation, 26%). Information in this Overview has been prepared as at 9 January 2006.

  4. Transaction background Overview of the Ashdod Refinery Overview of Israel’s oil market Contents Section 1 Section 2 Section 3

  5. Transaction background

  6. Transaction overview • The State of Israel, through the Government Companies Authority (“GCA”), has initiated the process of privatising Oil Refineries Limited (“ORL”) • The process involves the restructuring of ORL, whereby the Ashdod Refinery will be carved out of ORL, transferred into a newly established subsidiary company and sold in a private sale process (the “Transaction”) • The Company, called Oil Refinery – Ashdod Limited (“ORA”), was incorporated in January 2006 • The Ashdod Refinery and other associated assets and liabilities are to be transferred into ORA simultaneously with the completion of the Transaction • The GCA is managing the Transaction in collaboration with ORL’s management • HSBC Bank plc is advising the GCA in relation to the sale process • ORL, which will continue to own the Haifa Refinery, will subsequently be privatised through an Initial Public Offering

  7. State of Israel1 NewInvestor State of Israel 1 100% 100% ORL2 ORA ORL1 Ashdod Refinery Haifa Refinery Ashdod Refinery Haifa Refinery 100% 50% 50% 100% 50% 50% Gadiv3 Carmel Olefins3 Haifa Basic Oil4 Gadiv3 Carmel Olefins3 Haifa Basic Oil4 ORA transaction overview ORL situation before ORA sale ORL situation after ORA sale • Israel’s only refining player • Ownership in several petrochemical subsidiaries • Operates in regulated environment • Price controls • Vertical integration prohibited • ORA is sold to an investor through a private sale process • ORA becomes active independent company upon completion of the Transaction • Competition between ORL and ORA • Industry liberalisation 1. This document and its contents are based on the assumption that at the time of the sale of the ORA shares, the shares of ORL will be owned 100% by the State of Israel. The above shareholder structure is subject to completion of arrangements between the current shareholders of ORL (The State of Israel, 74%, and Israel Corporation, 26%). 2. Includes major subsidiaries only 3. Petrochemical subsidiaries 4. Lubricants oil subsidiary

  8. Overview of ORL refinery operations Ashdod Refinery Haifa Refinery Source: ORL Source: ORL • Commissioned in 1973 • 90,000bbls/d crude refining capacity • 7.5 Nelson Complexity Index • Storage capacity of 700,000m3 • Private sale process initiated • Commissioned in 1938 • 180,000bbls/d crude refining capacity • 7.2 Nelson Complexity Index • To be privatised through Initial Public Offering Source: ORL, industry research Source: ORL, industry research

  9. ORL financial summary 000’s NIS2002 2003 2004 1st 9 months 20051 P&L (financial year) Turnover 11,513,780 14,072,744 18,862,798 20,187,228 Total operating costs 11,643,373 13,821,979 17,767,377 18,519,289 EBITDA 166,364 574,130 1,435,702 1,932,866 DD&A 295,957 323,365 340,281 264,927 EBIT (129,593) 250,765 1,095,421 1,667,939 Interest expenses (78,187) 82,896 (176,882) (133,713) Other expenses - (17,400) (2,200) - Profit before tax (207,780) 316,261 916,319 1,534,226 Net income (109,498) 220,404 773,292 1,168,300 Current assets 2,731,486 3,719,481 5,122,480 7,065,997 Long term investments and loans 74,556 84,590 113,818 116,223 Fixed assets 3,649,425 3,598,898 3,623,807 3,879,446 Other assets and deferred expenses 180,979 222,072 339,442 445,162 Total assets 6,636,446 7,625,041 9,199,547 11,506,828 Current liabilities 2,444,364 3,260,647 3,476,412 4,755,417 Long term liabilities 2,287,529 2,272,436 2,890,954 2,768,072 Total liabilities 4,731,893 5,533,083 6,367,366 7,523,489 Shareholders’ equity 1,904,553 2,091,958 2,832,181 3,983,339 Total liabilities and shareholders’ equity 6,636,446 7,625,041 9,199,547 11,506,828 Balance sheet (at end of period) Source: ORL (1) Balance sheet as at 30 September 2005

  10. Changing Israeli regulatory environment Current situation Post-ORA sale Industry structure • No vertical integration permitted across the downstream value chain • Increased liberalisation • Vertical integration allowed between refiners and retailers • Entry into other businesses such as power generation and water desalination allowed Price controls • Price controls in effect • For all products at refinery gate • For gasoline at the pump • Removal of price controls at the refinery gate • However, competition monitored to avoid market failure

  11. Legal framework of privatisation and liberalisation Main documents: • State of Israel’s Resolution on Privatisation of 26 December 2004 • National Interest Order • Interested parties should inform themselves of all other relevant laws, regulations and Government resolutions

  12. Key milestones of ORA sale process 1 Transaction announcement 2 Submission of Expressions of Interest to GCA 3 Initial screening of participants 4 Due diligence and review 5 Final screening of participants 6 Sign-off of Sale and Purchase Agreement 7 Submission of proposals 8 Selection of preferred offeror 9 Completion and closing

  13. Overview of the Ashdod Refinery

  14. Background and history Ashdod Refinery • Located 4km north of Ashdod city • Considerable population growth in Ashdod in last 30 years • Refinery construction started in 1970 • Completed in 1973 Rationale for construction at location: • Services high oil products demand area in the centre of Israel • Benefits from close proximity to an existing crude oil terminal and the coastal power plant, and access to main product pipelines • Provides employment for immigrant population • Enhances Israel’s diversity and security of energy supply Haifa Refinery Ashdod Refinery

  15. Transportation • Ashdod Refinery connected to • Ashdod, Ashkelon and Eilat ports and terminals • Haifa Refinery • Own storage capacity of ~700,000 cubic metres • ~200,000m3 for crude oil and feedstock • ~500,000m3 for intermediates and products • Other transport infrastructure • Modern truck loading rack • Connected to two sea-lines • Product shipments • Directly by pipeline or truck • Indirectly by sea • Pipeline shipping accounts for approximately 60% of product transport Midstream and downstream infrastructure Haifa Refinery Crude oil Haifa port Pipeline1 Pipeline Trucks Ships Import / export of intermediates & products IEC sea-lines National pipeline grid Ashdod Refinery Crude oil Ashkelon port and terminal Third party terminal Pipeline Truck load rack for Fuel oil LPG Distillates Crude oil Eilat port Source: ORL (1) The pipeline does not cross the sea-line and is thus represented differently

  16. Plant capacity • Crude 90,000bbls/d • Vacuum 46,000bbls/d • Visbreaking 26,000bbls/d • Fluid catalytic cracking 29,000bbls/d • Catalytic reforming1 12,000bbls/d • Catalytic hydrotreating • Naphtha 22,000bbls/d • Kerosene 14,000bbls/d • Gasoil 17,500bbls/d • FCC gasoline 18,500bbls/d • Oxygenates 900bbls/d Source: ORL Source: ORL (1) Semi-regeneration

  17. Upgrade and new builds Upgrades and new builds (1973-2005) • 1984 – Vacuum tower modernised • 1987 – Visbreaker overhaul • 1990/1992 – Major expansion programme with addition of FCC1 unit, SRU2 and MTBE3 plant • 2003 • New FCC gasoline HDS4 introduced • Debottlenecking of naphtha and distillate hydrotreaters • New truck loading terminal • FCC reactor replacement and modernised • 2005 - Piped natural gas from offshore field Ongoing and future projects • 43MW natural gas-powered co-generation plant • New SRU2 plant • Safety, environmental and reliability projects Source: ORL (1) Fluid catalytic cracker (2) Sulphur recovery unit (3) Methyl tertiary butyl ether (4) Hydro desulphurisation

  18. Health, safety and environment • Good safety record • All projects meet current Israeli HSE specifications • Capable of producing EURO IV1 compliant products • ISO certification: • 9000 – quality • 14000 – environment • 18000 – safety • Efficient ongoing co-operation with local authorities Source: ORL (1) European Regulatory Standard for Transportation Fuels effective 2005

  19. ~200 permanent operating staff Highly skilled workforce High proportion of engineers ~30 additional temporary employees Limited management staff Many functions provided/controlled centrally by ORL Ashdod Refinery Manager Maintenance Health Safety Environment Quality Production Planning and Supervision of Maintenance Work Central & Regional Maintenance Instrumentation Electricity and Control Safety and Risk Ecology Quality Laboratory Plant Inspection Process Management Process Units Products and Loading Manpower and Organisational Extension 1 Projects Extension 1 Security and Administration Employees and management Source: ORL (1) This unit is based in Asdod Refinery, but is under the control of and reports to ORL’s management in Haifa

  20. Essential feedstocks and blendstocks transferred between the Haifa and Ashdod Refineries Approximately 7-10% of throughput of each refinery transferred from one site to the other Currently treated as internal transfers Formal procedures established and agreements drafted between ORL and ORA to maintain these important relationships One-year agreements will be effective at the time of the Transaction Renewable by mutual consent after 12 months Inter-refinery relationships Product flows from Haifa to Ashdod Product Quantity (tons per annum) HVGO 500,000 High octane components 49,000 Propane Variable Product flows from Ashdod to Haifa Product Quantity (tons per annum) Heavy/light naphtha 188,000 Propylene 50,000 Blending components Variable Source: ORL

  21. Current situation Ashdod Refinery managed and operated as an integral part of ORL Approximately 200 operating staff, with limited management / supporting functions Ashdod Refinery dependent on ORL at the time of Transaction Additional employees required to manage Ashdod Refinery as a stand-alone operation Commercial and financial functions HR, legal, technical, comptroller, IT Transition period Effective upon closing of Transaction Purpose is to transfer all relevant responsibilities and management to ORA’s new owner ORL will offer specific services to ORA upon request in specific areas of operation, until functions can be operated by new owner Transition Period may last between 3 to 12 months depending on the nature of service(s) provided Will enable seamless transition of Ashdod Refinery management Transitional arrangements

  22. ORA pro-forma balance sheet Balance sheet1 as of 31 December 2004 (000’s NIS) Assets Liabilities and shareholders’ equity Receivables and debit balances 453 Inventory 1,230,494 1,230,947 Long-term investments and loans Loans 1,359 1,359 Fixed assets Property, plant and equipment 640,775 Materials and spare parts 34,935 675,710 Other assets and deferred expenses 91,846 Total assets 1,999,862 Current maturities of long term loans 123,560 Payables and credit balances 15,636 139,196 Long-term liabilities Debentures 455,308 Bank loans 219,993 Deferred taxes 148,897 Liabilities for severance pay, net 11,619 835,817 Total liabilities 975,013 Contingent liabilities and commitments Shareholders’ equity 1,024,849 Total liabilities and shareholders’ equity 1,999,862 Source: ORL (1) The pro-forma balance sheet is subject to amendments and will be finalised at a later stage in the sale process

  23. Overview of Israel’s oil market

  24. ORL product flows Crude oil • Approximately 8.9million tons of crude processed in the 9 months to September 2005 • 100% of crude oil needs imported, mostly from Russia, FSU1 and the Caspian Sea • Historically imports from Egypt, Norway, West Africa and Mexico also featured • ORL currently imports crude oil for both refineries Refined products split – Ashdod Refinery 4 Refined products • 9 months to end of September 20052,3 • 9.2 million tons sold • Export sales account for ~25% of total product sales (1) Former Soviet Union (2) Includes both Ashdod and Haifa refineries product sales (3) Source: ORL (4) YTD 2005 Source: ORL

  25. Stable motor gasoline demand due to increased efficiency of vehicle fleet Diesel demand growth in line with economic growth Gasoil growth driven by electricity demand Gradual decline in heavy fuel oil due to natural gas substitution Increasing naphtha demand supported by growing petrochemical industry Modest increases in kerosene demand LPG use in line with economic growth LPG Gasoline Kerosene Diesel Gasoil Bitumen Fuel Oil Petrochemical feedstock Israel oil product demand Israel oil product domestic consumption (000’s tons)1 Israel oil product imports (000’s tons) Source: ORL estimates (1) Data does not include ORL’s own consumption and military use

  26. Ashdod Refinery Haifa Refinery ORL Current oil market structure Crude import(ORL) Midstream Storage and transportation of crude(PEI – Tashan)(EAPC – Katza) Crude Import of distillates(Fuel companies) Import, heavy oils and coal(Israel Electric Co.) Storage and supply(PEI, EAPC and Pi-Gliloth) Refined products Downstream Fuel companies(Paz, Delek, Sonol, Dor Alon) UNEX Tradeand Services Airports Fuel Stations Agriculture Industry Power Stations Ports (Bunkering) Source: ORL, industry research

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