ities to supply fuel to four older plants on the site. There was a technical risk in making this
concession, because liquid fuels, if not properly treated, can cause gas turbines to deteriorate.
Financial structure
The project is financed 25 per cent with equity and 75 per cent with debt. The Japanese
Export-Import Bank provided 40 per cent of the debt financing, and the IFC’s A and B loans
provided the remaining 60 per cent. IFC loans are not subject to local withholding taxes. This
gives the IFC and the commercial banks that participate in its loans a competitive advantage.
How the financing was arranged
The IFC can foresee being a leading lender to merchant power plants where commercial
lenders are not yet ready to go independently. The IFC and the Inter-American Development
Bank (IDB) competed with each other to undertake the financing. The IFC was aware that the
IDB was well-established in its territory. The IFC also realised that it had a reputation for
stringent enforcement of technical and environmental requirements, and that it could drive
away potential project sponsors if its standards seemed unreasonable. In meetings with AES,
the IFC sought to demonstrate the institution’s competence. The IFC was awarded the man-
date in April 1997. The project appraisal took about five months and the IFC’s board of direc-
tors approved the project financing in October. Financial closing, which took longer than
expected, occurred in June 1998.
Sanwa Bank, which worked with AES on the bid for the contract, had the largest single
commercial bank stake in the financing, but because the financing was already thinly priced
there were no bank underwriters and no agents’ fees. The IFC had the freedom to choose the
other commercial banks apart from Sanwa. The opportunity to work with AES and the IFC
on a Mexican deal attracted a large number of prominent international banks, despite the
record-setting sixteen-and-a-half-year maturity and a spread over Libor that was considered
aggressive at that time.
The Asian financial crisis that began in the spring of 1997 had a somewhat positive effect
on the syndication of the loan. Lenders were looking for opportunities outside Asia but anx-
iety had not yet spread to markets such as Latin America.
IFC due diligence
The IFC’s objective when working with AES was to ensure that sound project contracts were
executed and that Mexico’s first IPP venture was financed in a way that could easily be repli-
cated with other developers and financial institutions. There were no precedents for IPP ven-
tures. (The IFC does not consider a build-lease-transfer (BLT) arrangement such as that for
Samalayuca II, discussed in the previous chapter, to be an IPP venture.) Finding the right
audience in the government and sorting through the issues was time-consuming for the IFC
and AES, but ultimately resulted in a deal satisfactory to both organisations.
The IFC performed due diligence on Pemex’s ability to deliver fuel and the CFE’s abil-
ity to offtake electricity and make payments. It also performed due diligence with the IDB to
assess the likelihood that the pipeline would be constructed and ready to deliver fuel by the
time that the power plant was completed.
POWER PLANT