A key water supply project for the State of San Luis Potosi in Mexico, the $214.8 million Aqueduct El Realito project, a 25-year PPP concession sponsored by ICA and FCC-owned Aqualia, involves a complex payment structure between government, sponsors, trust and lenders backed by equally complex letters of credit. Furthermore, the deal closed despite a change of state government during financing and the large number of different parties CEA, Interapas, Conagua, FNI, Banobras, Banorte, Bajio, Santander, ICA and FCC involved in the project.

A consortium led by ICA subsidiary Controladora de Operaciones de Infraestructura (Conoisa) with FCC subsidiary Aqualia was awarded the 25-year service contract to build, operate, and maintain the El Realito aqueduct water supply and purification system by the State Water Commission of San Luis Potosi in mid-2009. The project will bring water 132km from the El Realito dam on the Rio Santa Maria to the city of San Luis Potosi. The scheme also includes provision of three pumping stations, a one cubic metre per second capacity water treatment plant and water storage tanks.

The project is being built through special purpose company Aquos El Realito, which will design, develop and operate the aqueduct. Construction is expected to take two years and the project is scheduled to begin operations in July 2013.

Sole lead arranged by Santander, the financing backing the project comprises a $73.85 million federal government subsidy from FONADIN backed by Banobras, $43.93 million of equity from the sponsors and $97.04 million of Peso-denominated debt from Santander, Banobras, Banorte and Bajio. The commercial bank debt therefore comes with a natural hedge.

Repayment involves the use of three trusts, and a cashflow waterfall ensures each cashflow item occurs at the correct seniority to other items during investment and operation through those trusts.

The El Realito Trust is the key administration trust. During the construction period this trust collects the cash provided by the three sources of funds: equity (25% from Aquos shareholders), debt (33,02% from bank loans) and federal subsidy (41.98% from BANOBRAS/FONADIN) based on a pass through disbursement mechanism for the payment of monthly work estimations validated by an independent engineer on behalf of the client and banks.

In the operating period the El Realito Trust performs a similar role, taking funds collected by the other two trusts for disbursement (as described in the diagram below).

The role of the San Luis Potosi State Trust is to collect 50% of San Luis Potosis payroll tax to cover the payment of the investment component of the tariff (repayment of debt and equity) during the operations period.

The Interapas Trust collects the funds to cover the operations component of the tariff (fixed operations costs and variable operations costs) from Interapas the inter-municipal water utility serving San Luis Potosi during the operating period. Interapas benefits from a letter of credit from Banobras.

Aquos El Realito
STATUS: Financial close July 2011
DESCRIPTION: Development water project in San Luis Potosi, Mexico
GRANTOR: San Luis Potosi State
SPONSORS: ICA (50.99%); FCC/Aqualia (49%); Mitsui (0.001%)
TOTAL PROJECT COST: $214.81 Million
TOTAL DEBT: $97.04 Million
TOTAL INFRASTRUCTURE NATIONAL FUND: $73.85 Million
SOLE ARRANGER AND JOINT BOOKRUNNER: Santander
PARTICIPANTS: Banobras, Banorte, Bajio
FINANCIAL ADVISOR GOVERNMENT: IPP
LENDER LEGAL COUNSEL: Galicia (Mexico)
INDEPENDENT ENGINEER AND ENVIRONMENTAL CONSULTANT: SIFRA / IAC INSURANCE CONSULTANT SESPEC EPC CONTRACTORS: ICA; Aqualia