Bajio: InterGen’s offtake gambit
The Bajio power project ? InterGen's third venture into the Mexican
energy market ? is the latest attempt in the country to structure a
project to minimise offtake risk. It is also one that can help
sponsors through the intensely competitive tender process for
Mexican deals. It has also set a new precedent for financing in the
US capital markets.
InterGen won the tender April 1999, and was joined some time later, having issued solicitations of interest, by AEP Resources. The Mexican power board, the Comision Federal de Electricidad (CFE), has issued bid guidelines that are essentially predicated upon the lowest price offered. The solution offered by the sponsors was to increase the size of the plant above the capacity required by the CFE.
The excess capacity, some 105MW out of the 600MW total, can be sold on to industrial customers in the area. These potential customers receive their power under a self-supply agreement, a fiction that is maintained by the offtakers taking nominal stakes in the project to comply with Mexican law. They include a number of large multinationals with operations in the region, that can take advantage of a market taking the first shaky steps towards deregulation, in that industrial customers can now deal with producers directly. The plant is located in the municipality of San Luis de Paz, in Guanajuato, roughly 160 miles north-west of Mexico City.
Bechtel will construct Bajio under a fixed-price turnkey contract, and therefore the financing benefits from US Ex-Im bank support. Ex-Im has been involved with the sponsors since before the bid was accepted, because of the detailed base case that was required by the CFE. For this reason, a capital markets financing, coming as the tender did during the Latin crisis, was felt to be impractical.
The eventual structure split down the requirement into three sections, two of them through the Inter-American Development Bank (IDB). The IDB took $22.5 million on its own account, and covered $113 million in loans under the B Loan programme. Paribas and Deutsche Bank came in as lead arrangers and Citibank and Dresdner Kleinwort Benson took the title of co-leads. Paribas had acted as a semi-official advisor during the bid process. The debt is scheduled to be syndicated from August and is meant to coincide with the first draw-down of funds for Bajio.
The Ex-Im covered tranche is more interesting, however, because of a new addition to its comprehensive guarantee programme. Ex-Im's guarantees do not normally cover the pre-completion period, but it has been examining methods to bring cover further back into the loan life and the Bajio project has been a testing ground for the new product. The facility agent on this piece, worth $215 million, is Citibank.
Citibank, however, has not kept the funding on its books and has instead shifted the financing onto the capital markets using its commercial paper conduit. Since the notes carry the backstop from Ex-Im they are rated highly enough to take them through the criteria for Citi's funding programme. A further issue, to a select group of US institutional investors, will be considered shortly. Both tranches carry a ten-year tenor.
The unprecedented offtake structure is one of a number of new models being tested in the Mexican market. Sithe Energies and ABB Alstom Power made the first attempt, with the Termoelectrico del Golfo plant. This was a pure inside-the-fence deal for cement producer Cemex, which takes all of the plant's output for 20 years. In this case credit perspectives were heavily focused on Cemex as a credit quality and its energy needs.
Bajio deals with a more diverse mix of purchasers, who will be tied into short term contracts to ensure maximum flexibility. Given the credit quality of many of the concerns located in the region, not to mention the enormous power requirements forecast for Mexico, the strategy seems a sensible one. The plant will become operational in November 2001.
Pemex supplies Bajio's fuel, although the bulk of the gas used will be purchased beforehand by the CFE, meaning that the arrangement for the plant essentially resembles a fuel conversion agreement. The impression is reinforced by the penalty schedule for the plant, with the main provisions dealing with availability and fuel efficiency levels.
Guillermo Espiga, InterGen's Mexico director, says that the benefits from the state/private offtake structure are considerable. ?The CFE does not need to be so concerned about plants being built with excess capacity. It drives down the energy costs for the CFE, and it's a plus for Mexico because it needs a lot of power?. The deal structures being used are a good way to bring sponsors quickly into the running, because there is little doubt that in a crowded marketplace future deals are going to find it harder to run smoothly through the market.
InterGen has gone one further on its next project, perhaps aware that bankers looking at the market will be looking for ever-greater upside potential. Its next deal, the 750MW Rosarito facility, uses another third party solution. Whilst the sponsor won the concession for the station on June 16, and signed the power purchase agreement with the CFE on July 18, this covers only 489 MW.
The remainder will be sold into the US, since Rosarito is located at Mexicali, in the state of Baja California Norte. The power will be supplied again under a series of short-term contracts, possibly to US businesses. Such structures will probably be the best way to meet Mexico's 13,000MW capacity target and keep the bankers happy over the next six years.
InterGen won the tender April 1999, and was joined some time later, having issued solicitations of interest, by AEP Resources. The Mexican power board, the Comision Federal de Electricidad (CFE), has issued bid guidelines that are essentially predicated upon the lowest price offered. The solution offered by the sponsors was to increase the size of the plant above the capacity required by the CFE.
The excess capacity, some 105MW out of the 600MW total, can be sold on to industrial customers in the area. These potential customers receive their power under a self-supply agreement, a fiction that is maintained by the offtakers taking nominal stakes in the project to comply with Mexican law. They include a number of large multinationals with operations in the region, that can take advantage of a market taking the first shaky steps towards deregulation, in that industrial customers can now deal with producers directly. The plant is located in the municipality of San Luis de Paz, in Guanajuato, roughly 160 miles north-west of Mexico City.
Bechtel will construct Bajio under a fixed-price turnkey contract, and therefore the financing benefits from US Ex-Im bank support. Ex-Im has been involved with the sponsors since before the bid was accepted, because of the detailed base case that was required by the CFE. For this reason, a capital markets financing, coming as the tender did during the Latin crisis, was felt to be impractical.
The eventual structure split down the requirement into three sections, two of them through the Inter-American Development Bank (IDB). The IDB took $22.5 million on its own account, and covered $113 million in loans under the B Loan programme. Paribas and Deutsche Bank came in as lead arrangers and Citibank and Dresdner Kleinwort Benson took the title of co-leads. Paribas had acted as a semi-official advisor during the bid process. The debt is scheduled to be syndicated from August and is meant to coincide with the first draw-down of funds for Bajio.
The Ex-Im covered tranche is more interesting, however, because of a new addition to its comprehensive guarantee programme. Ex-Im's guarantees do not normally cover the pre-completion period, but it has been examining methods to bring cover further back into the loan life and the Bajio project has been a testing ground for the new product. The facility agent on this piece, worth $215 million, is Citibank.
Citibank, however, has not kept the funding on its books and has instead shifted the financing onto the capital markets using its commercial paper conduit. Since the notes carry the backstop from Ex-Im they are rated highly enough to take them through the criteria for Citi's funding programme. A further issue, to a select group of US institutional investors, will be considered shortly. Both tranches carry a ten-year tenor.
The unprecedented offtake structure is one of a number of new models being tested in the Mexican market. Sithe Energies and ABB Alstom Power made the first attempt, with the Termoelectrico del Golfo plant. This was a pure inside-the-fence deal for cement producer Cemex, which takes all of the plant's output for 20 years. In this case credit perspectives were heavily focused on Cemex as a credit quality and its energy needs.
Bajio deals with a more diverse mix of purchasers, who will be tied into short term contracts to ensure maximum flexibility. Given the credit quality of many of the concerns located in the region, not to mention the enormous power requirements forecast for Mexico, the strategy seems a sensible one. The plant will become operational in November 2001.
Pemex supplies Bajio's fuel, although the bulk of the gas used will be purchased beforehand by the CFE, meaning that the arrangement for the plant essentially resembles a fuel conversion agreement. The impression is reinforced by the penalty schedule for the plant, with the main provisions dealing with availability and fuel efficiency levels.
Guillermo Espiga, InterGen's Mexico director, says that the benefits from the state/private offtake structure are considerable. ?The CFE does not need to be so concerned about plants being built with excess capacity. It drives down the energy costs for the CFE, and it's a plus for Mexico because it needs a lot of power?. The deal structures being used are a good way to bring sponsors quickly into the running, because there is little doubt that in a crowded marketplace future deals are going to find it harder to run smoothly through the market.
InterGen has gone one further on its next project, perhaps aware that bankers looking at the market will be looking for ever-greater upside potential. Its next deal, the 750MW Rosarito facility, uses another third party solution. Whilst the sponsor won the concession for the station on June 16, and signed the power purchase agreement with the CFE on July 18, this covers only 489 MW.
The remainder will be sold into the US, since Rosarito is located at Mexicali, in the state of Baja California Norte. The power will be supplied again under a series of short-term contracts, possibly to US businesses. Such structures will probably be the best way to meet Mexico's 13,000MW capacity target and keep the bankers happy over the next six years.
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