LIQ talks to Gian Franco Carassale, Project Team Leader in the Infrastructure Division of the Structured and Corporate Finance Department of the Inter-American Development Bank
1. What is the infrastructure-related portfolio of the Inter-American Development Bank (IADB) in Costa Rica?
The IDB plays a critical role in supporting the country in developing its infrastructure. We are very active in the sector, providing sovereign guaranteed loans to the Government of Costa Rica and at the same time supporting private and state-owned companies with non-sovereign guaranteed financing. In the last few years we have approved loans for the Juan Santamaria International Airport (US$ 45 million), water and sanitation investments (US$73 million), education infrastructure (US$167 million) and during this year the second phase of the power sector investment program for US$250 million plus the financing for US$200 million for the Reventazón Hydropower Project and we continue to look to projects in the transport sector.
2. What is the energy matrix of this country?
Costa Rica has a very clean energy matrix. Hydro represents 72% of total installed capacity, geothermal 14% and wind 4%. The remaining 10% is thermo. The country has the ambitious goal of becoming carbon neutral by 2021, thus they work towards maintaining an energy matrix heavily based on renewables. Reventazón is a key part of that goal.
3. Please describe the main characteristics of the 305.5MW Reventazón hydroelectric project?
The Reventazón project consists of the design, construction, operation and maintenance of a 305.5 MW hydroelectric plant and its associated facilities including transmission lines, substations and access roads. The Project is located in the Province of Limon, located eight kilometers southeast of the city of Siquirres in Costa Rica. The Reventazón Project includes the construction of a 130 meter high dam, flooding of a 6.9 km2 reservoir and a 4.2 km river diversion between the dam and powerhouse and will use the waters of the Reventazón River to generate an average of 1,407 gigawatt-hours (GWh) of electricity per year.
4. Why is it so important for this country?
Costa Rica’s economy has grown steadily over the last few decades, and this has driven an increase in electricity demand. The economy is estimated to continue its sustained growth from 2012 onwards, producing rapid growth in energy demand. The Electricity Generation Expansion Plan 2012-2024 proposes the addition of net electricity generating capacity of 1,714 MW between 2012 and 2024, 98% from renewable sources.
The Reventazón Project is a key component of the expansion plan and once completed it will represent approximately 10% of total installed capacity of Costa Rica, generate an average of 1,407 gigawatt-hour (GWh) of electricity per year and become the largest renewable energy project in Central America.
ICE started construction of the Project in September 2009 and, as of December 2012, it is approximately 41% complete. The Project is expected to finalize construction and start operations in August 2016.
5. Who is the sponsor of this project and what is its track record?
The Project will be developed through a special purpose trust established by the Instituto Costarricense de Electricidad (ICE). ICE is a vertically integrated state-owned company vested with the responsibility to provide electricity services including generation, transmission and distribution of electricity throughout Costa Rica.
Together with its subsidiaries, it is one of the largest corporations in Central America with US$9.9 billion in assets, equity of US$5.9 billion, sales of US$2.3 billion and an EBITDA of US$0.6 billion in 2011. ICE is rated BB+ by Fitch and Baa3 by Moody’s.
ICE’s electricity generation assets represent 77% of the total national installed capacity; it owns 100% of the transmission system and together with its subsidiary CNFL, it distributes energy to 78% of the population.
ICE has designed, built and currently operates almost all hydropower facilities in Costa Rica. It will act as an EPC Contractor for the special purpose trust and later the operator of the plant.
6. Please describe the financing package for this project? Who are the other players participating?
The trust is expected to receive loans totaling up to US$900 million. The facility will have a maturity of 20 years with 4 years of grace. The IFC will prove a US$100 million loan, a consortium of local banks will provide US$200 million in colones-denominated financing, while the rest will be lent by an IBD A/B Loan of up to US$600 million, of which US$200 million will come from the IDB´s own resources and the B-Loan is expected to be funded through a private placement (Reg D format) in the US market. It will be the first time that an MDB has attempted this innovative structure, opening the door for potential replication and bringing the benefit of institutional investors attracted by long tenors to address infrastructure needs in Latin America and the Caribbean.
In addition to the US$900 million facility to the trust, ICE is expected to mobilize financing to fund their equity contribution into the trust for up to US$300 million including a US$200 million CABEI/EIB facility with a tenor of 20 years and a US$100 million loan from the IDB sovereign guaranteed window.
Martín G. Vázquez Acuña of Marval, O´Farrell & Mairal
I. Introduction – The Argentine Energy Market
After a decade of robust economic growth Argentine energy market is facing unprecedented challenges. Energy consumption has significantly increased since 2003 driven not only by the positive performance of the economy but by price regulations that have kept Argentine energy prices below international prices. Nevertheless growth production of energy has slowed and, and in the case of crude oil production has recently declined, due to Argentina maturing oil and gas fields and pricing policies taken by the Argentine government to prioritize domestic supply. As a result of that, Argentina has increased the import of hydrocarbon, especially natural gas in the form of liquefied natural gas and natural gas imported from Bolivia. Imports of hydrocarbons have had a significant impact in the process of deterioration of the foreign trade surplus and in the reduction of the reserves held by the Argentine Central Bank.
All these factors have resulted in insufficient investments in energy infrastructure which may in turn trigger a damaging shortage of energy supply which may limit the ability of the Argentine economy to maintain a sustainable path of growth.
This complex environment presents particular challenges in the case of the electricity generation market. Argentine electricity generation market is highly dependant on the supply of hydrocarbons due to the fact that a significant portion of the power generation is produced by thermal power generation plants fired by natural gas, diesel, fuel oil and coal. Consequently, all future investments in power generation infrastructure will be constrained by the perspective of a reduction in the availability of hydrocarbons resources, especially natural gas. Renewable energy generation projects are called to play a significant role in the search of alternative sources of electricity generation.
II. Argentine Renewable Energy Generation Market – Regulatory Framework
Argentina has an extraordinary potential to produce electricity from renewable sources, especially wind, solar and biofuels. Nevertheless, investments in this type of infrastructure projects have not been significant until recently and, consequently, the contribution of renewable energy sources to the total energy generation supply has been marginal. In order to promote the development of renewable power generation market, Argentine Congress passed on December 6, 2006 Law 26,190 which approved the “National Regime of Incentives of the Use of Renewable Sources Directed to Power Generation” (the “GENREN Program”).
Renewable energy sources included in the GENREN Program are: (i) wind, (ii) solar, (iii) geothermal, (iv) tidal, (v) small hydro (plants up to 30MW), (vi) biomass, exhaust gases and biogas.
The aim of the GENREN Program is to achieve in the year 2016 a contribution form the renewable energy sources equal to 8% of the total consumed energy in the country. To that end the Regime has adopted an incentive program for investments for new power generation facilities from renewable sources. This program will be in force for ten years and has the following characteristics:
(i) Tax benefits.
(a) An alternative between:
(x) Anticipated refund of the VAT of the new amortizable goods used in the project. The VAT charged to the beneficiaries in concept of purchase, manufacturing or definitive import of goods, or in concept of infrastructure works, will be credited against other taxes that should be collected by the National Tax Authority (“AFIP”) after, at least, 3 fiscal years since the investments had been made. Otherwise, the VAT will be refunded within the lapse set in the project’s approval, in the terms and with the guarantees foreseen therein.
(y) Accelerated amortization of the goods in relation with the Income Tax. The beneficiaries will be entitled to amortize the investments made after the project’s approval and pursuant to the terms provided therein.
(b) The goods related to the projects will not be considered for the Minimum Supposed Income Tax.
(ii) Additional payment: The projects will receive the additional benefit which consists on the payment of an amount equals to A$ 0.015 per KWh to the generators of energy from renewable sources. Solar energy projects will receive A$ 0.9 per KWh.
III. GENEIA: A Key Player in the Argentine Renewable Energy Generation Market
Geneia S.A. (formerly Emgasud S.A.) (“Geneia”) is an Argentine energy company primarily engaged in the power generation business and Argentine´s largest electricity generation company based on installed capacity for wind power generation. Geneia is directly engaged in the power generation business through its ownership and operation of various thermal power generation plants fired by natural gas and diesel fuel located in the provinces of Buenos Aires, Entre Ríos and Chubut with a combined installed capacity of approximately 280 MW, and the wind farm located in the province of Chubut with an install capacity of 77.4 MW, which comprises the Rawson Wind Project.
In addition, through its subsidiaries Emgasud Renovables and Patagonia Wind, Geneia is currently constructing five additional wind farms located in Puerto Madryn, Chubut with an expected combined installed capacity of 220 MW. Through its subsidiaries Emgasud Renovables, Nor Bragado and Aldyl San Lorenzo, Geneia is also developing three thermal power generation plants fired by biofuel and natural gas located in the provinces of Entre Ríos, Buenos Aires and Santa Fe with an expected combined installed capacity of 102 MW.
IV. Rawson Wind Project
IV.1. Overview of the Project
In 2009 Geneia participated in an international bidding process (Bidding Process No. 1/09) conducted by Energía Argentina Sociedad Anónima -a corporation controlled and managed by the Argentine government for the exploration, exploitation and commercialization of petroleum and natural gas, as well as the generation, transmission and commercialization of electricity- (“Enarsa”) in accordance wit the GENREN Program to develop and operate 895 MW in new renewable energy installed capacity.
In 2010 Geneia was awarded the right to develop and operate the Rawson Wind Project, which comprises two wind farms located in Rawson in the province of Chubut.
The Rawson Wind Project is a wind power generation project comprised of two wind farms with a combined installed capacity of 77.4 MW provided by 43 Vestas wind turbines (model V90 1.8 MW, class IEC IIA) purchased from Vestas pursuant to a turbine supply and installation agreement signed with them in October 2010.
Under this agreement, Vestas has issued a manufacturer’s warranty for the turbines, towers and other equipment to be supplied for an amount not to exceed the purchase price paid by us for such equipment for a term of 2 years and one additional year in case of any repairs during the warranty period.
In addition, in October 2010 Geneia entered into a services and availability agreement with Vestas pursuant to which Vestas provides technical assistance, training and maintenance services to us with respect to the turbines comprising the Rawson Wind Project, and has guaranteed that the wind farms achieve a minimum average availability factor for a five year term.
The commercial operation date of the Rawson I wind farm was January 1, 2012, and the commercial operation date of the Rawson II wind farm was January 20, 2012.
Gianluca G. Bacchiocchi, Esq.
Infrastructure financing in Latin America has developed rapidly over the last 6 years. What was generally limited to syndicated bank and multi- and bilateral lending, government funding and insured project bonds, infrastructure financing has evolved to rely on the capital markets like never before, even without the support of traditional credit enhancers. In the past, especially before the 2008 market meltdown, when the capital markets were accessed to finance Greenfield and Brownfield projects, internationally placed bonds were either wrapped by credit enhancers, or involved the securitization of payments coming from a central government that were not tied to the completion of the project or operating risk. Only once the project was completed could a project bond that relied on the cash flows of the particular project be issued without credit enhancement in the capital markets. In the latter case, the original debt that was incurred for the construction of the project was refinanced with bonds that a provided longer tenor with fixed interest rates (if US dollar based) and perhaps even lower interest rates.
Just recently, however, on April 18, 2012, the first Rule 144A/Reg S project bond was issued for a Latin American Brownfield project before construction and without credit enhancement. This landmark project bond was issued by Terminales Portuarios Euroandinos Paita S.A. (the “Issuer”) for the expansion of the Paita Terminal Port in the region of Piura, Peru (the “Port”). The notes (the “Notes”), which are due in 2037, raised $110,025,000, carry a fixed interest rate of 8.125%, and were rated “BB-” by Fitch and “BB” by Standard & Poor’s. This article provides an overview of the transaction, and explores some of the key structuring issues that had to be overcome in order to complete the first successful Rule 144A/Reg S project bond with full demand, operating and construction risk for a Latin American project.
The Issuer operates, maintains and develops the Port, which is the second largest coastal port in Peru based on twenty-foot equivalent units (“TEUs”), and the largest coastal port in the northern region of Peru in terms of container volume. Its operations are carried out pursuant to a 30 year design, build, finance, operate and transfer concession granted by the Government of Peru (the “Concession”) in September 2009. The Issuer derives its revenues from tariffs charged for the provision of certain standard services to users of the Port which are required under the Concession, including, among others, the loading and unloading of cargo, cargo movement and weighing, and from fees charged for the provision of any special services to users of the Port not required under the Concession, including, among others, stevedoring, reefers, shiftings and late arrivals.
The Issuer is 50% owned by Cosmos Agencia Marítima S.A.C. (“Cosmos”), a subsidiary of Andino Investment Holding S.A. (“AIH”), 40% owned by Tertir – Terminais de Portugal S.A. (“Tertir”), a subsidiary of Mota-Engil, SPGS, S.A. (“Mota-Engil”), and 10% owned by Mota-Engil Peru S.A., a subsidiary of Mota-Engil and formerly known as Translei S.A. (“Mota-Engil Peru” and together with Cosmos and Tertir, the “Sponsors”).
The Port was built in 1966 and renovated in 1999. The Port was managed by Empresa Nacional de Puertos, S.A. (“ENAPU”), an entity owned and controlled by the Government of Peru, from its construction until October 7, 2009, when the Issuer took over operations in accordance with the Concession. The Port’s operations are focused on exports, which represented approximately 71% of its total activity in 2011, 99% of which consisted of container shipments. The main exports shipped through the Port are fish, fishmeal, fish oil, mangos, coffee and bananas. The main imports shipped through the Port are solid bulk products, such as fertilizers and grains, and liquids, such as soy oil.
Pursuant to the Concession, the Issuer has the right to operate and maintain the Port’s existing facilities and is required to design, construct, operate and maintain a new container pier and, depending on the level of utilization of the Port, make certain other improvements, including the installation of additional port equipment and reinforcement of the existing jetty pier. The Issuer is also required to provide the standard services, but is entitled to collect fees for any other services that are provided to users of the Port.
Pursuant to the Concession, the Ministry of Transport and Communications of the Republic of Peru (Ministerio de Transportes y Comunicaciones de la República del Perú) (the “Grantor”) provides the Issuer with a minimum annual income guarantee (“IMAG”) pursuant to which the Grantor will pay the Issuer the shortfall between the revenues collected by the Issuer for a particular calendar year and the minimum annual guaranteed income for that year (which amount increases each year that it is available). An IMAG can be an important consideration for a financing, especially if it is sized to cover debt service during the life of the debt service and is paid quickly once a shortfall determination has been made. However, in this transaction it was not given any consideration by the rating agencies because it was not sized to cover the debt service on the notes according to their model, and because the bulk of the IMAG was only available for a period of 15 years, beginning one year after the completion of Stage 1 (described below), whereas the Notes would be outstanding for approximately 7 additional years. One final consideration regarding the IMAG for this transaction was relevant: it is paid 12 to 13 months after the fiscal year in which a shortfall determination has been made, and not on a month-by-month basis, meaning that it does not cover demand volatility during a year, but rather such volatility had to be mitigated by a debt service reserve.
The Concession may be terminated prior to its original expiration date for the following reasons, among others: (a) mutual agreement of the parties, (b) unilaterally by the Grantor for reasons related to public interest, (c) by the non-breaching party upon a breach of the other party’s material obligations, or (d) at the Issuer’s option in case of force majeure or acts of God that affect the completion of the Issuer’s contractual obligations under the Concession for a period of 6 months and produce losses of over 60% of the Port’s operational capacity.
The Issuer is required to invest approximately $293 million in the Port (the “Works”) in four stages, so long as certain demand levels are reached at the Port. Stage 1 of the Works, with an estimated total cost of $130 million, is required to begin immediately and consists of the construction of a new terminal, which will have a 300 meter berth and 13 meter depth and a container yard of 12 hectares, and the installation of three gantry cranes at the Port (“Stage 1”). Stage 2 of the Works is required to be completed within 18 months of the Port achieving container volume of 180,000 TEUs per year, and involves the purchase of additional port equipment with an estimated cost of approximately $19.3 million (“Stage 2”). Stage 3 of the Works is required to be completed within 18 months of the Port achieving container volume of 300,000 TEUs per year, and involves the reinforcement of the existing jetty pier, its support area and the purchase of additional port equipment, with an estimated cost of approximately $19.8 million (“Stage 3”). The remaining investment of approximately $123,000,000 (“Stage 4”) is at the Issuer’s discretion for the operation of the Port, but must be completed according to the following schedule: by the 5th year of the Concession $5,000,000 of Works are to be completed, by the 10th year an additional $10,000,000 of Works are to be completed, by the 15th year an additional $10,000,000 of Works are to be completed and by the 20th year the remainder of the additional Works are to be completed. The Concession requires the Issuer to set aside and transfer to a special trust (the “Additional Investments Trust”) each year, for the first 20 years of the Concession, amounts required to complete the Stage 4 Works according to a schedule that ensures that adequate funds will be available to complete these Works in accordance with the above timing.
As compensation for the Concession, the Issuer is required to pay two fees on a monthly basis. The first fee is paid to the the Grantor, and is equal to 2% of the net monthly income of the Issuer from providing standard and special services at the Port. The second fee is paid to the regulator of the Port, the Peruvian Public Transport Infrastructure Regulatory Agency (Organismo Supervisor de la Inversión en Infraestructura del Transporte de Uso Público) (the “Regulator”), which is currently equal to 1% of net annual income received from standard and special services at the Port. In addition, the Issuer must make a contribution every year to the Port of Paita Social Fund in the amount of U.S.$195,858, which funds are intended to promote sustainable development in the Paita Province.
Construction and Equipment Works
All the construction Works that are intended to be completed with the proceeds of the financing (the “Construction Works”) include the construction for the Stage 1 Works and certain Stage 4 Works. These Construction Works are to be completed by Mota-Engil Peru, with the support of Mota-Engil, Engenharia e Construção S.A. (collectively, the “Contractors”), pursuant to a fixed price engineering, procurement and construction services contract (the “EPC Contract”). The Contractors, pursuant to the EPC Contract, are required to provide a performance guaranty in an amount equal to 10% of the total compensation to be paid under the EPC Contract and a quality guarantee in an amount equal to 1.5% of the total compensation to be paid under the EPC Contract. Other than these guarantees provided by the Contractors, no other guarantees are provided to the Issuer for the Construction Works.
The equipment Works that are to be completed with the proceeds of the financing (the “Equipment Works”) include all of the cranes required for the Stage 1 Works and two additional mobile cranes that qualify as Stage 4 Works. The Equipment Works will be completed under two separate sale and installation contracts. The Stage 1 Equipment Works will be completed by Liebherr Container Cranes Ltd. and the Stage 4 Equipment Works will be completed by Liebherr Werk Nenzing GMBH. Both supply contracts require the suppliers to provide the Issuer with letters of credit to support the completion of their obligations under the supply contracts and to support the advance payments required to be made by the Issuer under them.
Raúl Ortiz Morales, Manager of Infrastructure Financing and PPP, Deloitte
The first phase of the Zaragoza LRT has been operating since April 2011, although project structuring process began in 2004. Within a legal and financial scheme which incorporates the advantages of private management, the City Council has an active presence in the control and the management of the Concessionaire’s activity. In the first eight months of operations, 7 million passengers have already used this infrastructure.
Ofilio Mayorga, Associate - Arias & Muñoz
The BRITO Hydroelectric Project contemplates the construction of two dams located on the San Juan River, the natural border between Nicaragua and Costa Rica. The San Isidro Dam will be built near the Spanish fortress La Inmaculada Concepcion and consists of a concrete dam 10 meters high. Its primary function will be to regulate the level of Lake Nicaragua. The Miramar Dam, on the other hand, consists of a rock-filled dam 735 meters long at 37 meters above sea level. This dam will create a regulating reservoir of 16 km2 with a volume of 160 Hm3.
Eduardo Zuñiga, Associate, Arias & Muñoz
Continuing a tradition of clean energy, Costa Rica is set to build the largest hydro-electric project in Central America by 2018. Costa Rica currently produces 93% of its energy from renewable sources, 82% of which comes from hydro-electric plants. Costa Rican electricity consumers also pay the lowest tariffs in the region.
Ana Fernández, Ingeniera Caminos Canales y Puertos - CINTRA & Ignacio Gálvez, Ingeniero de Caminos - INECO-TIFSA
In order to attain its 2030 goal of being ranked in the top 30 of the World Economic Forum’ s Infrastructure Competitive Index, Mexico has developed a new strategic plan that will steer the country into raising the coverage and quality of its infrastructure net by 2012. The aim of the plan is to increase economic growth as well as permanent job creation by developing transportation, communications, water and energy to make Mexico one of the main logistic platforms and promote regional development and tourism.
Luis Pedro Del Valle, Associate - F.A. Arias & Muñoz
In January 2011, Guatemala’s National Electric Energy Commission (in Spanish, Comisión Nacional de Energía Eléctrica) (“Commission”) – a technical organ of the Ministry of Energy and Mines – approved the terms of reference (“Terms of Reference”) for the open bidding process (“Bid”) called by Distribuidora de Electricidad de Occidente, Sociedad Anónima; Distribuidora de Electricidad de Oriente, Sociedad Anónima and Empresa Eléctrica de Guatemala, Sociedad Anónima (“Distributors”),2 in their capacity of authorized entities for the [electric energy] distribution service.
LIQ speaks to Miguel Ronceros, Partner - Delmar Ugarte Abogados
The bidding for the 30-year contract to upgrade and expand the Terminal Muelle Norte must have been quite competitive, why was APM finally awarded with said contract?
Indeed it was a very competitive bid, probably the most important project granted in concession in the last five (5) years, involving Peru´s most valuable port and an initial investment commitment for 5 stages of US$ 750 million. Technical operation requirements criteria was well above the standard, as desired by the Peruvian government in the quest for only well recognized port operators worldwide to participate in the bidding process. As such, important experience in port operation was to be met, either as a direct bidder or through a Consortium, crediting annual movement equal to or larger than 10,000,000 TEU, with port managing effective control of at least one terminal with an annual movement equal to or larger than 1,000,000 TEU. APM Terminals, being the second largest port operator in the world with 61 ports and terminals in 33 countries, covering all continents, had the sufficient strength and experience to be declared a successful prequalified bidder.