Ecuador’s Hidroriente consortium plans to sign financing agreements for its US$480mn, 520MW El Reventador hydro project in August when congress is expected to pass a new electric sector law, Hidroriente financial manager José Davíd Villareal has said.
Hidroriente had planned to sign agreements by February 2004, but delayed doing so because it is waiting for the government to pass a new electric sector bill to guarantee payments from distributors to generators.
“We think it’s prudent to wait because we can’t structure our financing if there is no guarantee that investors will recoup their money,” Villareal says.
President Lucio Gutiérrez is expected to present the bill, known as the Organic Law for the Regulation of Guarantees for the Electric Sector, to congress imminently and then congress will take about 30 days to vote on the bill.
“As soon as it’s concluded, which we expect to be in August, we will move forward with our financing structuring,” he said.
The bill aims to solve Ecuador’s energy crisis, which stems from state-owned distributors not being able to pay their debts to generators due to inefficient management and billing.
The bill would create a US$500mn fund from monies raised through a 12-year sovereign bond issue to attract new investment in generation projects, such as El Reventador.
“The law gives state-owned distributors a government guarantee to be able to buy electricity, because right now they are buying electricity but their finances are not too good,” Villareal says.
Once congress passes the bill, potential investors in El Reventador will have better guarantees on their investments and would then be in a better position to sign financing agreements with Hidroriente, Villareal adds.
Hidroriente still plans to hire the investment bank of the Andean development corporation CAF to act as financial adviser in the process to select the best financing option from among a variety offered by international banks.
The consortium aims to obtain financing for US$360mn of the project’s total cost, part of which could come from a group of banks chosen by CAF’s investment bank and the construction consortium itself.
The Hidroriente consortium would finance the remaining US$120mn from its own capital.
Once the financing is in place, Hidroriente would then launch a tender for the construction of the 520MW plant in the fourth quarter of 2004, Villareal says, adding that construction could start in early 2005 and would take about three years to complete.
Chinese construction company China Machinery and Equipment Import and Export Corporation (CMEC), SinoHydro and China Exim Bank have formed a consortium to develop the project and CMEC signed a letter of intent last week to build the plant.
However, other companies can still participate in the tender, and the letter of intent is not a formal offer or a commitment to participate, Villareal explains.
Once construction is underway, Hidroriente would seek an operating permit from power regulator Conelec and call for bids on a separate contract to operate the plant when it starts operations in the first quarter of 2009.
Offtaker Empresa Electrica Quito (EEQ) will buy about 75% of the power generated by the plant and the remainder will be sold to other distributors or on the spot market.
Local engineering company Integral Ingenieros Consultores leads the Hidroriente consortium with a 60% stake, Electroimpianti has 30% and EEQ has 10%.
Hydro plants like El Reventador are needed to meet demand, which is growing at 200MW a year, and replace 900MW in power currently generated by antiquated diesel plants.
El Reventador will be located 150km east of Quito on the Quijos-Coca river.