its manufacturing cost. The company wanted a secure, predictable and competitive source
of power.
For fuel, the TEG I plant uses petroleum coke, which costs less than natural gas.
Whereas the price of natural gas has doubled in the past two years and there is considerable
uncertainty as to where it will go in the future, the price of petroleum coke has been stable
over the past 20 years and recently has been dropping as Pemex produces it in increasing
volume. Pemex has converted its Cadareyta and Madero refineries and will soon convert
other refineries as well to produce lighter, lower-sulphur fuels. In producing those fuels,
Pemex also produces what Robert Kartheiser describes as ‘literally mountains’ of petroleum
coke as a byproduct.
TEG I is the first project financed under Mexico’s self-supply energy legislation. Current
law in Mexico permits three types of privately financed IPPs:
- CFE-sponsored projects;
- cogeneration facilities; and
- self-generating facilities.
TEG I fits into the last of these three categories. Under Mexican law Cemex cannot simply
take the initiative to build a plant to supply its own power, but must structure the offtake and
ownership of the generating plant to comply with Mexican self-generation regulations.
In addition to 25 per cent equity from the sponsors, financing for TEG I comes from a
US$75 million IDB A loan and a US$102 million, 14-year B loan priced at the following
spreads over Libor: 225 basis points (bps) for years one to three, 262.5 bps for years four to
six, 300 bps for years seven to 10, and 337.5 bps to maturity. ABN AMRO and Deutsche
Bank arranged and syndicated the B loan. TEG is the first ‘inside the fence’ project sup-
ported by the IDB. Half of the debt is covered by a comprehensive political and commer-
cial guarantee from Compagnie Française d’Assurance pour le Commerce Extérieur
(Coface).
Miguel Pachicano, Group Vice President of ABN AMRO in Chicago, reports that the
B loan was syndicated quickly and oversubscribed. Four of the issues that lenders focused
on were:
- the credit of Cemex, the offtaker;
- the technology;
- the project structure; and
•a default scenario.
As one of the fastest growing and most innovative cement companies in the world, Cemex
made a positive impression in a presentation to the lenders.
The lenders required a little extra time to understand the rather complicated legal struc-
ture of the project, in which the actual borrower and holder of the assets is a Mexican busi-
ness trust, supervised by a master trust. That structure is dictated by the Mexican self-supply
law and tax considerations.
Finally, the lenders were concerned about what would happen if Cemex defaulted and the
CFE at the same time was partially or fully privatised. They did a dispatch study and concluded
that the low fuel price would enable the plant to be competitive in a wholesale market.
POWER PLANT