Merida III project in Yucatan drew six qualified world-class bidders. Additional power and
pipeline projects were begun shortly afterwards. Even though the project structure moved
from build-lease-transfer (BLT), as used with Samalayuca II, to build-operate-transfer (BOT),
as used with Merida III, and build-own-operate-transfer (BOOT), Samalayuca was the first
quasi-IPP venture in Mexico and blazed the trail for future IPP ventures.
Award of the project
The Mexican government issued tender documents to the bidders for the Samalayuca II pro-
ject in May 1991. Bids were submitted in March 1992 by three groups, one led by General
Electric (GE), another by ABB and the third by Westinghouse. GE was joined in the winning
consortium by Bechtel, El Paso Natural Gas, Grupo ICA and Coastal Corporation, a pipeline
company. Later, Bechtel established its InterGen subsidiary and participated through it, while
El Paso Natural Gas participated through El Paso Energy International.
Grupo ICA was an investor and ICA Fluor Daniel was a contractor with Bechtel and GE
Power Systems. The publicly traded Grupo ICA is the largest construction company in
Mexico and one of the largest in Latin America. It sold a 50 per cent interest in ICA
Industrial, a subsidiary that constructs power plants and similar projects, to Fluor Daniel.
Coastal was the fifth partner at the time that the contract was awarded. Coastal had intend-
ed to build a pipeline to supply natural gas to the project, but this plan was modified to a joint
venture with El Paso Energy and Pemex Gas y Petroquimica Basica (Pemex), the Mexican
state-owned energy company, to accommodate the Pemex monopoly on pipelines in Mexico.
Structure of financing
The project financing for the Samalayuca II power plant was a BLT arrangement under a
Mexican business trust. Commercial banks provided funds and assumed construction risk
during the construction period. US Eximbank provided political risk coverage to the com-
mercial banks during the construction period and replaced the commercial banks with a term
loan for the 20-year lease period. The IDB provided a loan throughout the construction and
lease periods, but is covered for construction risk by a letter of credit from the commercial
banks. The lessee is the CFE, the state-owned electricity utility. A Mexican business trust was
used because, under Mexican law, a lessee cannot undertake an unconditional lease-payment
obligation.
Citibank was retained as financial adviser before the project was awarded to the spon-
sors and stayed on as lead manager of the syndicated commercial-bank term loan.
Additional funding and political risk coverage were provided by US Eximbank and the
IDB. This was the IDB’s first private-sector deal, helped by the experience and guidance of
US Eximbank.
The equity investors made a US$132 million investment, representing 20 per cent of the
project’s capital structure. The remaining 80 per cent of the financing was provided by a con-
sortium of commercial banks, US Eximbank and the IDB. Citibank was the lead manager in
the US$442 million construction loan, joined by ABN AMRO, Dresdner and Union Bank of
Switzerland as co-managers. The loan was syndicated to 38 banks. US Eximbank provided
US$410 million of political risk coverage to the construction lenders for the term of their loan
in the event of political violence, expropriation or currency inconvertibility, and took out the
POWER PLANT