CONIPSA: A start

Although small, the Ps730 million ($67 million) financing for the Irapuato-La Piedad concession was Mexico's first Proyectos para Prestación de Servicios (PPS) deal and demonstrates how availability-based concessions might be financed – albeit more quickly in the future.

Mexico's PPS scheme is an attempt at a social infrastructure PFI/PPP scheme. The mechanism is key to financing schools, hospitals, and less high-profile transport projects at federal and state level in the coming years. Irapuato-La Piedad is the first concession to reach financial close under the scheme (it is effectively a shadow toll). Awarded to ICA, structuring financing for the concession took mandated lead arranger Santander over a year.

Irapuato-La Piedad is a 75km stretch of road located within the states of Guanajuato and Michoacan, in the centre of the country. It runs east-west, and is presently single-track in many places. At one end lies the Queretaro-Irapuato highway, also slated to be a PPS project. The SCT put out a tender for the road in December 2004, and ICA won the concession in the third quarter of 2005.

The private sector developers had to submit a bid that featured a term sheet from a lender, as well as the minimum yearly payment that the bidder would require and the shadow payment that the concessionaire would require for traffic levels between two predetermined bands.

The bid structure included an attempt to limit the potential for escalating shadow toll payments, as well as to ensure the cheapest construction bids possible. But there was also a confusing mix of inputs that created uncertainty over the SCT's payment obligations under the concession.

Construction work, by ICA's construction subsidiary and guaranteed by ICA, is due to complete in 2008 and takes place over 16 sections. To encourage the operator to bring the project into operation as quickly as possible, the concessionaire receives 70% of the amount due on each section, rising to 100% when the whole road is complete. These revenues should total Ps40 million, and are considered as equity in the project company.

The deal is backed by a Ps580 million 14-year loan from Santander and a Ps130.5 million partial guarantee from the IFC. The product is part of a push by the IFC and its peers to expand the use of such guarantees, which rests on the logic that it is better to put a little balance sheet at work to promote the growth of domestic funding capability than provide B loan cover, albeit implied, to international commercial banks.

CONIPSA
Status: Closed 21 September 2006
Size: Ps730 million ($67 million)
Location: Guanajuato, Mexico
Description: 75km PPP road concession
Sponsor: ICA
Debt: Ps580 million
Lead arranger: Banco Santander
Partial debt guarantor: IFC
Maturity: 14 years
Lender legal counsel: Ritch Mueller
Sponsor counsel: White & Case
Independent engineer: Aries