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Brazil’s national development bank BNDES is preparing to participate in a R1.2bn (US$300mn) investment fund and to disburse at least R5.5bn to finance Brazil’s power sector in 2004, the head of the bank’s electricity department, Nelson Siffert, says.
The fund will finance projects in the government’s Proinfa alternative power programme and transmission lines, he says.
The bank will also lend R4.5bn – and possibly 10% over that – for generation and transmission projects and R1bn to distributors through the CVA programme which aims to compensate distributors for withheld foreign exchange variations in rates adjustments in 2002 and 2003.
“We need to disburse another R1.6bn by the end of the year to reach our target, but I expect the target will be exceeded because of the demand for funding,” Siffert adds.
In 2003, the bank disbursed R7.6bn reais to the power sector to finance 24 projects with total estimated investment of R10bn. The projects include 13 generation projects totalling 7,450MW capacity.
BNDES will have a 20% stake in the 13-year fund, in which other investors are pension funds Petros, Funcef, Real Grandeza and Fapes, as well as local bank Pactual, the fund manager.
The fund still needs approval from the BNDES board and the securities commission, and should be operational by September. It aims to give project developers an option to reduce the amount of own equity required for financing projects.
The bank has said it will finance up to 70% of the R8bn investment estimated to finance the 113 projects under the Proinfa program in the next two years. The remaining 30% needs to be financed by the developers’ own equity.
Although the fund was created mainly to finance the Proinfa program, it may offer financing for the transmission lines the government plans to auction in September.
BNDES will likely be one of the first financial institutions to offer financing for the power sector after the implementation of the country’s new power sector model, and in contrast to many sector players, it considers that the new power sector model reduces risk for investments, Siffert says.
“The long-term planning and the decision to sell all the power through auctions reduces the risk of default,” he adds. “We consider that this is positive and moves away from the high-risk environment of the previous model which looked at the short-term indicators such as power rates, an indicator relying too much on annual rainfall.”
In the fourth quarter, the bank is expected to conclude its 2005-07 plan for several sectors, including power. Among issues being discussed are the new power sector model and the equipment industry, Siffert says.
The plan will determine priorities and identify specific projects the bank could finance. Among the projects the bank is looking at are the large hydroelectric dams of Rio Madeira and Belo Monte in the Amazon region.
“These projects depend upon political decision from the government but we have talked to several investors interested in investing and I consider them feasible from a financing perspective,” he adds.