Rio de Fogo: Reaffirmation

Sponsored by Iberdrola/Ibernova subsidiary Enerbrasil – and with a minority equity stake (20%) from the International Finance Corporation – the Rio de Fogo wind project in Brazil is a testament to the robustness of Brazil's Proinfa programme: Proinfa may not have met its targets but Brazil now has 200MW of project financed wind.

The project, located in the state of Rio Grande do Norte, is a 49.3MW wind farm powered by Wobben turbines – technology that is well-tested and manufactured in Brazil, was used on the 150MW Ventos do Sul deal in 2005, and which made the deal easier to finance.

The development is backed by a R$136 million ($63 million) debt financing lead arranged by BNDES and ABN Amro: BNDES is providing a R$68.5 million direct loan and ABN Amro is providing commercial debt of the same amount.

Lenders have the comfort of a 20-year full offtake agreement with Centrais Eletricas Brasileiras S.A. (Eletrobras), Brazil's state-controlled electricity utility. The project also required three independent wind evaluations, which although time consuming also lend comfort.

The deal would be considered a vanilla financing but for its location. Renewables – in particular the wind power market – is a growing sector in Brazil as the country attempts to diversify its power resources away from hydro, and Rio de Fogo is a key stage in the development to large capacity wind farms.

With the introduction of Proinfa in 2002 – a program designed to provide assistance and subsidies to encourage the development of non-traditional renewable energy resources such as wind, biomass, and small hydro generation projects – Brazil has seen a number of wind farm projects spring up over the past year.

As Brazil moves into Phase Two of the Proinfa program, market players expect even more development within this space. The program calls for 3,300MW of new capacity supported by PPAs with state energy firm Eletrobras.

Future deals however may prove more difficult – sponsors will have the choice of going the Proinfa route or bidding in Brazil's upcoming energy auction. Furthermore, deals are expected to be brought to market by domestic credits that lack the strength of a parent like Iberdrola, and will also feature new technology from new entrants on the equipment side.

Rio de Fogo
Status: Closed March 2006
Debt size: R$136 million
Location: Brazil
Description:
Financing for 49.3MW wind project under PROINFA scheme
Sponsors: Iberdrola/Iberenova/Enerbrasil; IFC
Mandated lead arrangers: ABN Amro; BNDES
Legal counsel to Iberdrola:
Dias Carneiro Advogados; Uria Menendez
Legal counsel to IFC: Veirano Advogados
Legal counsel to lenders: Souza Cescon, Barrieu e Flesch