to grow at 5 per cent per year over the following decade, requiring 17,000 MW of new capac-
ity by the year 2000. An estimated US$11 billion of investment over the following six years
would be required to keep up with growing national demands for energy. The energy ministry
had a list of 21 power plants that needed to be built to satisfy this growing electricity demand.
Merida III was the first of these projects to be put to tender.
Concession award
The Comision Federal de Electricidad (CFE) originally asked for bids in 1994. Plans to go
ahead with the project were delayed because of uncertainty over arrangements to supply nat-
ural gas to the project. The concession was awarded in January 1997 to a consortium com-
prising AES of Arlington, Virginia (55 per cent); Nichimen of Japan (25 per cent); and Grupo
Hermes, a Mexican industrial company (20 per cent). Competing groups were led by, among
others, Mitsubishi, Enron, General Electric, Siemens and Westinghouse. AES bid the lowest
KW hour price for selling power to the CFE. As of 1997 AES had assets of US$3.5 billion
and more than US$5 billion of projects in construction or late stages of development. The
company owned or had an interest in 33 power facilities totalling over 11,000 MW, in
Argentina, Brazil, China, Hungary, Kazakhstan, Pakistan, the United Kingdom and the
United States.
AES had a right to negotiate to keep the assets at the end of the 30-year concession. This
was, however, a minor financial consideration, taken on a present-value basis, because the gas
turbines were not expected to have much useful life remaining at that time and the power
plant technology would probably have made significant advances.
Contractual relationships
IPP ventures in developing countries are often, in effect, caught between two government
utilities, having to buy fuel from a hydrocarbon utility and sell electricity to a power utility.
In this case the project company has a 25-year power purchase agreement (PPA) to sell elec-
tricity to the CFE and a 25-year fuel supply contract to purchase natural gas from Pemex Gas
y Petroquimica Basica (Pemex), the Mexican state-owned energy company, through the CFE.
At the time that Merida III was financed there were no plans to create a free electricity mar-
ket in Mexico. Subsidiaries of Westinghouse Power Generation, then a division of CBS
Corporation and now part of Siemens, were the engineering, procurement and construction
(EPC) contractors, and a subsidiary of AES and Nichimen operates the plant.
Natural gas pipeline
To supply fuel to the plant a 700-kilometre natural gas pipeline, to carry 370 million cubic
feet per day, was built from Ciudad Pemex in the state of Tabasco to the Yucatan peninsula.
A US$250 million, 26-year contract to build, own and operate the pipeline was awarded in
1997 to a consortium consisting of InterGen, TransCanada and Gutsa Construcciones, a
Mexican construction company. The pipeline was completed in early 2000, about the same
time as the power plant was finished.
The project contracts allowed AES to run the plant on distillate fuel for up to two years
in the event of construction of the pipeline being delayed. Pemex had plenty of storage facil-
MERIDA III, MEXICO