The closing on February 2, 2000 of the Eu648.5 million refinancing for api Energia marks the first transaction to hit the headlines since Italy's CIP6 power tariff regulation was officially reinstated at the beginning of 2000.

More Italian power refinancing is already in the pipeline: the L520 billion ($276 million) refinancing of Centro Energia Teverola lead arranged by BNP Paribas is expected to close by the end of March 2000.

Financial close for api Energia was officially achieved in November 1999, but the CIP6 review left the deal open for four months. Final draw down was on 22 February 2000. The project's Eu577.558 million base facility is priced at a margin of 130bp during construction, at 115bp for years one to eight post-completion, at 125bp for years nine to 12 and at 140bp from year 13 through to maturity at 17 years.

In syndication, banks were offered three tickets: senior lead managers with Eu30 million takes for front end fees of 42.5bp, lead managers with takes of Eu22.5 million for front end fees of 32.5bp and managers with Eu15 million for fees of 25bp.

The deal refinances api Energia's gas-fired power plant located in Falconara, central Italy. The original transaction closed in 1997 sponsored by an international consortium made of ABB, api and Texaco. The project involved the construction of an integrated gasification and combined cycle power plant.

Construction, carried out by ABB Sadelmi, took three years before operations started in the third quarter of 1999. The plant is supplying steam to api's nearby refinery and will also generate 276MW worth of electricity to be sold to Enel.

Lead arrangers for the refinancing are ABN Amro, Banca Nazionale del Lavoro (BNL), Greenwich NatWest and Mediocredito Centrale. Co-arrangers were Banca Intesa, Dresdner Bank, Mediobanca, Paribas and Unicredito.

Stephen Crane, head of power at Greenwich NatWest's structured finance unit in London says: "Uncertainties on the future of CIP6 blocked the power sector in Italy for months. This sparked intensive lobbying by local and international developers involved in existing projects. The result has been a successful one and it is likely now that other power projects will follow api Energia and go into refinancing."

The nine lead and co-arrangers were joined by 26 other banks: Interbanca, Banca Commerciale Italiana, Bank of Tokyo-Mitsubishi, Bayerische Landesbank, Centrobanca, Credit Lyonnais and Rabobank International as senior lead managers. Banca Monte dei Paschi, CARIPLO, Fortis Bank and Mediocredito Lombardo joined as lead managers. Rolo Bank, Banco Ambrosiano Veneto, Banca di Brescia S. Paolo, Banco di Napoli, Banca di Roma, Banca di Sardegna, Banca Popolare di Novara, Bank Austria, BNP, Crediop, Meliorbank, Banca Popolare di Bergamo, Cassa di Risparmio di Parma e Piacenza. Banca Popolare di Ancona and Banca Popolare di Sondrio joined as managers.

Stephen Fortino, senior project coordinator at Texaco in White Plains says: "Despite the delays in the project due to changes in the regulatory framework, financing for the transaction has been a case of pretty plain sailing. Very little reconfiguration needed to be done between the time in which the authority announced its intention to review CIP6 and the rejection by the council of state. The Italian power market remains very attractive to foreign sponsors and the future acquisition of equity stakes in new Italian projects cannot be ruled out by Texaco."

PricewaterhouseCoopers was appointed financial adviser to the sponsors. Nicola Beretta Covacich, director in project finance and privatization in PricewaterhouseCoopers in London says: "Putting together the refinancing has been a lengthy exercise. The action taken by the independent authority was something that severely delayed the process of financing and proved to be legally unjustified."

Allen & Overy acted as legal adviser to the lender. Paolo Esposito, partner at Allen & Overy in Milan told Project Finance: "Refinancing of api is of particular importance. It shows the belief the international banking community has in Italian power transactions. This is despite the independent authority not officially announcing the reconfirmation of the CIP6."

The broader Italian project market is expected to kick-off this year given the Italian government's strong message to sponsors in the form of CIP6. Refinancing of other Italian power projects is unlikely to start before they become operational. Sarlux and ISAB are tipped to be among the first to go into refinancing option after api Energia.

International sponsors and financiers are keeping tabs on opportunities in the Italian market, given its potential to become the second largest market in Europe after the UK. The Italian government is intimating by its actions that project finance will be the means for funding a number of initiatives such as major infrastructure projects and the development of Italian PFI. The Italian Treasury will nominate an advisory taskforce for PFI at the beginning of March 2000.