The deal includes an IADB partial risk guarantee

With an average economic growth rate of 7% a year in the past five years, with only 45% of the population paying their electricty bills and constant electricity blackouts, you can see why companies such as Cogentrix, Enron, Coastal, Union Fenosa and AES have been flocking to invest in the Dominican Republic.

In the next few months, financing for the $280 million San Pedro de Macoris power plant will sign. The 300MW oil-fired combined-cycle plant is just one of a series of independent power concessions to be offered in the country since the Dominican government made the bold step to privatize its power sector. But this deal differs from its competitors in the type of support it has from the Inter-American Development Bank (IADB) and the government.

Cogentrix pre-qualified for the San Pedro deal in 1995 with 16 other companies, but the deal was put on hold while the government focused on the privatization of the electricity sector. It has since separated the state utility into three with Union Fenosa taking two-thirds of the distribution business and AES taking a third. Generation assets have in turn been offered to private consortia.

When the government decided to resurrect the San Pedro deal in April 1997, Cogentrix was still interested in the deal. At that stage the IADB and the World Bank had got involved in the deal and the bid was done on a very transparent basis, in contrast with the negotiated bid price contracts that had previously been awarded.

Steve Doyon, vice-president of business development at Cogentrix in Charlotte says that the IADB has been involved in the project from the beginning and has helped shape the deal. Not only is the bank providing much needed comfort for lenders coming into the deal ? many of which have been sceptical of the Dominican Republic's chequered economic and political history ? but the bank ensured a clean and transparent bidding process.

In addition the IADB will provide financing under its partial risk programme. Says Doyon: ?This is a fairly new product. We originally started working with the bank's A-B loan structure. But in recent months, the ability of the bank ? and other multilateral banks ? to get the B loan financed has been thrown into question.? Some commercial bankers involved in the syndicated B loan no longer feel that the structure carries the same implicit guarantees.

Some $130 million of the $210 million debt financing will be covered by the partial risk guarantee. WestLB is involved in the deal and is looking for export credit agencies and multilaterals to support the remaining $80 million of debt.

Initially Cogentrix bid for the plant with Scotia Energy and Siemens as the turnkey contractor. The group won but Scotia Energy's 35% stake was subsequently sold to the UK's Commonwealth Development Corporation (CDC) in mid 1998. By 1998 the group had secured a 20-year power-purchase agreement with the state electricity company, Corporación Dominicana de Electricidad. This was followed several months later by the implementation agreement which has just gone through the upper and lower houses of the Dominican government. More importantly the government has also provided a sovereign guarantee which supports the power offtake agreement.

The pick of the bunch
For Cogentrix the reasons to invest in San Pedro are compelling. Says Doyon: ?Cogentrix has an international strategy but we tend to look at smaller niche markets. We started looking at the deal in 1995 and we are pleased by the way the privatization of the power sector has been handled. The country also has one of the highest growth rates of any country in the western hemisphere.?

San Pedro could be the last of a series of power projects on the island. CDC has already invested $25 million in two private power producers in the country. CDC has a stake in a project being developed together with Enron and Seeboard and a local partner. It is also involved in a joint venture with Coastal Power. ?But San Pedro has the first congressionally-ratified state guarantee for the power-purchase agreement,? says Andrew Aldridge, investment manager for the power sector at CDC in London. He adds that getting this guarantee ratified has been one of the biggest challenges for the project so far. The next challenge will be to draw in other lenders for the $80 million debt portion.

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San Pedro de Macoris power
Cost: $280 million

Sponsors: Cogentrix (65%) and Commonwealth Development Corporation (35%)

Debt: $210 million, of which $130 million will be covered by the Inter-American Development Bank under the bank's partial risk guarantee programme. Under the scheme, a series of notes will be issued under the cover. This is only the second project in which the bank has used a partial risk guarantee ? it has previously been used in a Colombian water project. The World Bank also has a similar programme.

WestLB is co-ordinating the financing. Further support for the $80 million debt tranche is expected. Opic, the World Bank and other export credit agencies and bilaterals are being approached.

Oil supplier: Exxon, under a 12-year contract

Offtaker: Corporación Dominicana de Electricidad

Turnkey contractor: Siemens

Lawyers: Reid & Priest and Simpson & Bartlett