Introduction
The case studies in this Chapter and Chapters 8 and 9 examine five power projects in Mexico.
Samalayuca II was Mexico’s first quasi-IPP, and the project sponsors and the Mexican
government had to resolve many legal issues related to the contract structure and project
financing never previously raised in Mexico. Merida III, discussed in Chapter 8, was
Mexico’s first true IPP; it is the first build-own-operate (BOO) power plant and has a con-
ventional 25-year power purchase agreement (PPA) to sell power to the Comision Federal de
Electricidad (CFE) and a 25-year fuel supply contract to purchase natural gas from Pemex
through the CFE. In the past, the CFE provided virtually all the specifications for a power
project and the developer bid a price as well as qualifications to do the job. More recently,
IPPs negotiated with the CFE have allowed their sponsors increasing flexibility with regard
to site selection, fuel supply, and sale of excess power. InterGen’s Bajio and La Rosita plants,
discussed in Chapter 9, were deliberately oversized so as to be able to offer a lower price to
the CFE and to export power to the United States. One of the most important trends with
recent IPPs in Mexico has been delinking PPAs and fuel supply agreements. With
Samalayuca II and Merida III, the CFE not only bought the plant’s electricity under the PPA,
but also acted as the intermediary for the purchase of fuel from Pemex. Now developers are
concluding PPAs and fuel supply agreements separately, thereby assuming both fuel-supply
and fuel-price risk. As IPPs take on more of those risks, lenders tend to require lower project
leverage and more sponsor support. A long-standing question has been whether the CFE may
be privatised some day, an event that would put IPP loans into default, but that is unlikely to
occur in the near future. The Fox Administration has concentrated on efforts to make the IPP
programme more attractive to developers. Recent initiatives have included efforts to develop
a private bilateral contract market and a methodology for private plants to place excess power
on the national grid at prices that are competitive with the CFE’s power plants.
Project summary^1
Samalayuca II is a 700-MW power plant just south of Ciudad Juarez in the state of Chihuahua,
directly across the border from El Paso, Texas. Construction of the plant was completed in the
autumn of 1998. Samalayuca II was structured as a BLT project because, until December 1992,
build-own-operate (BOO) projects were not permitted under Mexican law. The plant will be
leased for 20 years and then owned by the CFE. It is adjacent to Samalayuca I, a 320-MW
plant. (Samalayuca I used both oil and natural gas until the new Samalayuca gas pipeline was
completed in early 1998, and is now expected to use mostly gas.) The new plant employs three
state-of-the-art GE Frame 7FA gas turbine/steam turbine, combined-cycle machines and is
equipped with state-of-the-art environmental equipment to meet current Texas air-quality stan-
dards. The shortage of water in the area is reflected in the plant’s design. Although the plant
was designed to run on natural gas, it is also capable of running on diesel oil.
The plant supplies power not only for Ciudad Juarez, a city of 1 million residents and
more than 300 factories, but also for US customers under US-Mexican electricity interchange
agreements. The project has brought benefits to the local economy through the local purchase
of goods and services, and through the creation, at the plant site, of 1,800 jobs at the peak of
construction and 100 permanent jobs.
The 45-mile Samalayuca pipeline carries natural gas from El Paso Energy’s Hueco com-
POWER PLANT