Latin American countries working to attract private firms, funding

By Tim Hennagir

Contributing Editor

With electrical demand forecasted to grow by as much as 6 percent in several Latin American countries, energy ministers and secretaries in countries such as Colombia and Peru have redoubled their marketing efforts to attract prospective international investors and developers to their energy sector privatizations.

Colombia`s attempt to improve investor perceptions of domestic electricity market stability, transparency and regulatory regime robustness has created a market structure similar to England and Wales, with a competitive generating pool which determines the price daily.

In Peru, the Special Commission for Privatization (CEPRI) recently prequalified eight consortia in the bidding to own and expand the 200-MW Ventanilla power station. The selections are the second solicitation in the continuing privatization of Empressa Publica de Electricidad del Peru S.A. (ElectroPeru), the country`s largest utility.

As Latin American countries travel down the road toward a final privatization destination, at least two key themes are clear: Investors need to know they can compete for creditworthy customers and that new power stations can be built according to competitive tender.

Consortium for Colombia

Trade regulations in the Colombian energy sector changed substantially as 1995 drew to a close. Private-sector participation in generation, as well as distribution, became much easier for developers and investors working to close projects within the country. Government officials recently announced Colombia would sell off more than 3,000 MW of state-owned capacity to the private sector; participating investors could either undertake new construction projects or buy plants which are already in use. The latest announcement calls for a 10-plant sale of coal, gas-fired and hydropower assets.

Consortium activity within the country met a milestone last fall when the $750 million Termobarranquilla S.A. (TEBSA) project in northern Colombia reached financial closure after an 18-month development period. An international slate of companies led by ABB Energy Ventures of Princeton, N.J., USA; Energy Initiatives Inc., a US-based subsidiary of General Public Utilities Corp.; and Colombia-based Lancaster Distral Group completed financing Oct. 20, 1995, to fund acquisition of the existing 240-MW Termobarranquilla power station and begin construction of a new 750-MW gas-fired, combined-cycle facility next to the existing plant.

Electrical capacity generated by the joint facilities is scheduled for availability to part-owner Corporacion Electrica de la Costa Atlantica (CORELCA) in 1996 under a 20.5-year power purchase agreement. Full combined-cycle operation of the finished plant is expected within 36 months. ABB Power Generation Ltd.`s scope of supply for the project includes five GT11N2 gas turbines to be operated in base load, two steam units and associated electrical generator, control, transmission and distribution equipment. Two heat-recovery units for the new plant will be supplied locally by Lancaster Distral.

TEBSA is one of the largest such deals to date for private power in Colombia and Latin America; and the project will be executed according to a build-own-operate-maintain (BOOM) structure, according to Bruce Levy, Energy Initiatives president. “When this project was announced, there was a need for a consortium featuring players with construction, combined-cycle, operations and equipment supply experience,” Levy said.

“Since Colombia`s long-term plan is to remove itself from the generation business and have a free market, the BOOM structure made more sense for Termobarranquilla. Build-own-transfer does not get a country out of the electric business; it just temporarily provides financing.”

Putting together the complex financing package for TEBSA took more than seven months and involved six different sources of private financing and two sources of US government support. The project received loans from OPIC international commercial banks and the US Export-Import Bank. ABB Project and Trade Finance International is serving as financial advisor to the consortium; the (US)$750 million package for TEBSA was put together by raising nearly (US)$300 million in equity and financing about (US)$450 million in debt.

The (US)$130 million in project partner equity is split equally among Energy Initiatives and ABB Energy Ventures; additional equity comes from a (US)$96.9 million credit from CORELCA and an additional (US)$75.6 million from revenues generated by the existing power plant.

Colombia`s Reference Expansion Plan calls for a move from an almost 70-percent hydropower/30-percent thermal mix to 60-percent/40-percent mix. The Termobarranquilla project is expected to be a major participant for new thermal capacity and demand in the country, since its 90-percent load factor will be capable of supplying 10 percent of national demand.

Latin America continues to make progress in privatizing state-owned assets, while fostering a new round of independent power development. As countries around the region forge ahead in opening their power sectors to additional private participation, companies that offer a broad range of energy development and operational services will find steadily improving business opportunities.