Termo Candelariaà‚–a Columbian first

TermoCandelaria à‚– Colombia’s latest power plant à‚– has started commercial operation. Billed as the country’s first 100 per cent merchant plant and underpinned by an innovative financing package, TermoCandelaria could set the trend for future Colombian power development.

The 320 MW natural gas-fired TermoCandelaria power project, located in an industrial zone on the outskirts of Cartagena, Colombia, began commercial operation in June 2000. Structured as the country’s first 100 per cent merchant plant, TermoCandelaria is now selling electricity into the Bolsa, which is Colombia’s largely unregulated wholesale spot market. Utilizing advanced gas turbine technology, it is one of the lowest-priced thermal generation facilities in the country.

Growth in maximum demand for capacity (source UPME)
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As the newest gas-fired plant in Colombia, TermoCandelaria sets the likely trend for Colombia’s power generation choice of the future and contributes significantly to the country’s strategic plan to realign its generation base, currently heavily dependent on hydro power.

Project owner, KMR Power Corporation of Arlington, Virginia, USA, achieved financial close in June 1999 by structuring an innovative financing package utilizing a first-ever insurance guarantee as a surrogate for capital. The company attracted $175 million in debt financing despite a sharp decline in the Colombian economy and Latin American lending in general.

In 1998, as KMR Power was in the process of launching a 144a bond offering, Brazil devalued its currency. This set off a regional recession that hit Colombia hard. By 1999, the country had sunk into its worst recession in 70 years. Alarmed at the unstable economic and political environment, most financial institutions pulled their money out of the country. Concurrently, heavy rainfall in 1998 and 1999 boosted hydro generation levels and spot power prices plunged.

With a history of highly-successful, pioneering projects in Colombia, KMR Power remained convinced that sound fundamentals for the proposed TermoCandelaria merchant plant were in place and determined to press forward. KMR Power looked at the solid long-term need for thermal generation to balance the country’s over-reliance on hydropower, increased demand for new energy (six per cent per year, 300 MW average) to promote economic development and competition in the sector, and predicted “average” long-term energy spot prices.

Colombia’s profile

The 320 MW TermoCandelaria project represents KMR Power’s largest undertaking in Colombia to date. It doubles the firm’s generation base in the country, making the company one of Colombia’s largest private power generators. KMR Power’s two previous projects include a 240 MW natural gas-fired combined cycle project (with oil-fired backup capability). In operation since 1998, it is widely recognized as the first major emerging markets, PPA-based independent power project to be implemented without any government guarantees. Its earlier project, a 100 MW natural gas-fired combined cycle facility in operation since 1993, is hailed as Latin America’s first non-recourse project financed greenfield power project. These three natural gas-fired projects are part of the country’s strategic plan to expand its portfolio of thermal assets. They contribute significantly to meeting Colombia’s rapidly growing energy needs.

Because two-thirds of Colombia’s generating capacity comes from hydropower, available generation capacity and electricity prices are influenced by the availability of water. This has led Colombia to limit future expansion of hydro facilities, and look towards gas-fired plants for their generating capacity. The 320 MW TermoCandelaria facility joins a series of large thermal facilities currently in operation.

New hydro plants have a high capital cost relative to simple cycle and combined cycle gas plants ($1200 per kW for hydro, not including interest during construction (IDC). Current construction costs typically run to $500 per kW.

Colombia currently has 11.2 GW of electric generating capacity consisting of nearly 67 per cent hydro and 33 per cent thermal. The majority of this capacity (59 per cent generation and 41 per cent distribution) is now privately owned. Colombia’s central, departmental, and municipal governments own the remainder.

The 320 MW TermoCandelaria facility is part of 3 GW entering commercial operation by the end of 2000. An additional 6 GW is planned by 2010, primarily developed by the private sector. Construction of new assets are scheduled at a rate of some 308 MW per year between 2000 and 2004, increasing to 468 MW per year from 2005 to 2010. Of the 1700 MW currently under development, 1108 MW (65 per cent) is hydro.

As Colombia’s economy has grown over the past 25 years, its electricity consumption has quadrupled, reaching just over 44 000 GWh by 1998.

Industrial consumption is projected to grow an average of 6.4 per cent annually through 2010, overtaking residential consumption, which should remain constant over the same period as a result of the penetration of natural gas into the sector. Commercial consumption has a projected growth rate of 4.4 per cent per year with government consumption increasing at a pace of 9.4 per cent per year over the period.

Insurance innovation

Knowing that an innovative financing structure was necessary to overcome short-term unfavourable conditions and hydro-related price volatility, KMR Power developed a deal that brought in participation by an insurance company as the guarantor of nearly 50 per cent of the project’s debt financing. This provided a viable platform to attract commercial banks to step up for the rest of the financing. Banc of America Securities (a subsidiary of Bank of America) served as Financial Advisor to KMR Power and Arranger of the senior loan.

The two-tranche bank facility consisted of a $90 million senior loan and a $85 million subordinated loan. The presence of a guarantee allowed Bank of America to underwrite $40 million of the senior loan. Centre of Hamilton, Bermuda (an AA-rated wholly-owned subsidiary of Zurich Financial Group of Switzerland) provided the guarantee on the $85 million subordinated loan. Centre also took a $35 million participation in the senior loan. Instituto de Fomento Industrial (IFI) and Banco de Bogot

Turnkey development

The TermoCandelaria plant is located in the department of Bolàƒ­var in Northern Colombia. The project is part of the electric power generation capacity expansion plan for the Caribbean coast of the country, and contributes to the economic growth and development of the region. The presence of TermoCandelaria fosters competition in the country’s energy sector and will assist in attracting new industries to what is one of the country’s principal economic centres. Furthermore, the new facility provides jobs to nearby communities with the added benefit of improving local sanitation services.

The $100 million EPC contract was implemented on a turnkey basis by a consortium consisting of Siemens Westinghouse of Orlando, Florida and K&M Global Construction of Washington, D.C. (a subsidiary of K&M Engineering and Consulting Corporation). While Siemens Westinghouse provided the combustion turbine generators, K&M procured the balance of the plant’s equipment and materials. In addition, K&M was responsible for a complete range of engineering, procurement and construction services as well as plant erection and final balance of plant testing and commissioning. Unit 1 entered commercial operation on June 1, 2000, followed by full operation of Unit 2 at the end of the month.

North American Energy Services of Bellevue, Washington provides operations and maintenance services. The natural gas is supplied by Texaco-Colombia, a subsidiary of Texaco, Inc., and transported through the Ballenas-Cartagena pipeline under a long-term contract by Promigas S.A., a private gas transporter.

TermoCandelaria consists of 2 x 160 MW (320 MW nominal) gas turbine generation units utilizing Siemens Westinghouse 50lF advanced technology operating in simple cycle. The generators are hydrogen-cooled (Unit 1) and air-cooled (Unit 2), with dry low NOx combustors. The 501F is one of the most advanced machines in the industry with an efficiency of 36.5 per cent in simple cycle operation. It consumes natural gas at approximately 2.43 million m3/day (86 million ft3/day) under full load at normal site conditions of 27.5

Transmission and distribution facilities consist of one 220 kV air-insulated switchyard and 0.6 km of new double-circuit 220 kV transmission lines. The switchyard and transmission line between the substations includes complete protection and control systems. In addition, a metering system was provided to measure electric energy transfers.

The air-insulated 220 kV switchyard, designed and procured from Alstom, is a breaker and a half design. It consists of four bays (two transmission circuits and two generators). Modifications were made to existing substations to include new protection panels, relay protection, and fiber optic telecommunication equipment and panels.

The water supply to cool various equipment is taken from the raw water pipeline of the local water system through the nearby pumping station. The water then goes through a primary treatment facility at the site to provide service and cooling water.

Privatization pace delayed

While the Colombian government continues to seek private sector investment to fund 9000 MW of new generation requirements over the next decade, privatization plans for existing assets have slipped in the wake of the recession. Driving the push for privatization, despite poor economic conditions, are market concentration rules requiring that no generation, distribution or power marketing company can hold more than 20 per cent of the national market by 2002.

Investors’ wariness, coupled with depreciation in the value of local assets, has forced the government to reschedule the sale of several high profile generation companies until later this year. First on the block is Isagen, Colombia’s second-largest generating company. Additionally, 14 regional electric companies clustered in the central areas, will be restructured and bundled for sale in 2001.

Completion of the privatization programme is an integral part of Colombia’s agreement with the IMF, which pledged a three-year $2.7 billion credit line in December 1999 to help stimulate the economy. Government officials are holding back sales, partly due to political pressure by labour unions and activist groups demanding that state-owned assets not be ‘given away’, in the hope that recovery will bring higher prices. However, the privatization scheme should build up steam again once the government emphasizes that the programme must move forward despite slow economic recovery.

TermoCandelaria-Columbia’s first 100 per cent merchant plant

  • Location: Cartagena, Colombia.
  • Operating start date: June 2000.
  • Sponsor: KMR Power Corporation (100 per cent).
  • Description: 320 MW natural gas-fired, simple cycle combustion turbine plant; 220 kV double-circuit transmission line.
  • Contractors: Siemens Westinghouse (2 x 160 MW nominal 501F turbines), K&M Global Construction (engineering, procurement and construction), North American Energy Services (operations and maintenance), Texaco-Colombia, a subsidiary of Texaco, Inc. (fuel supply) and Promigas (gas transport).
  • Total debt: $175 million.
  • Arrangers: Bank of America (senior loan), Centre (subordinated loan/insurance guarantee) and Instituto de Fomento Industrial (local debt).
  • Participant: Banco de Bogota (local debt).
  • Financial adviser to sponsor: Bank of America Securities.
  • Financing: Two-tranche bank facility, $90 million senior loan and $85 million subordinated loan.
  • Legal advisers: Orrick, Herrington & Sutcliffe (sponsors), White & Case (senior lenders) and Latham & Watkins (sub-lenders).

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