Mexican power projects following Samalayuca II and Merida III
After AES was awarded the mandate for Merida III in March 1997 (see Chapter 8), three
power project concession awards followed the build-lease-transfer (BLT) model of
Samalayuca II (see Chapter 7): the 450 MW Rosarito III project, the 100 MW Cerro Preto
project and the 435 MW Encino project. Subsequently, budget cuts made the Comision
Federal de Electricidad (CFE) more receptive to the private sector and several more inde-
pendent power producer (IPP) ventures were approved. The structure for the Merida III loan
from the International Finance Corporation (IFC) was sufficiently sound to be essentially
replicated in two recent loans from the IFC to Mexican IPP ventures, the Rio Bravo and
Saltillo projects, and a loan from the Inter-American Development Bank (IDB) to another
such venture, the Hermesillo project.
In all these power projects the CFE provided virtually all the specifications and the
developer bid a price as well as qualifications to do the job. More recently, as Jonathan
Lindenberg, Managing Director of Citibank, observes, IPP ventures negotiated with the
CFE have allowed their sponsors increasing flexibility with regard to site selection, fuel
supply and the sale of excess power. For example, when InterGen, a Shell/Bechtel venture,
submitted bids to the CFE for the Bajio and La Rosita projects, described below, it delib-
erately specified larger plants than were necessary to satisfy the CFE’s needs so as to be
able to offer a lower price to the CFE, to start exporting power to the United States and to
develop a bilateral market for power sales to Mexican industrial customers. In the bankers’
view, the ability of border-region plants to sell power in either country enhances their cred-
itworthiness. Mexico now has investment-grade ratings from Moody’s, Standard & Poor’s
and other agencies. As a result, there should be less requirement than before for support
from the multilateral and bilateral agencies, such as export credit agencies, whose country
capacities are strained.
Lindenberg of Citibank observes that project oversizing adds a new credit wrinkle from
the CFE’s perspective. The CFE has always agreed that if it defaults, or following certain
events of force majeure,it would have to buy out the project, and make debt and equity hold-
ers whole. That is reasonable when the size of the power purchase agreement (PPA) and the
project size are the same, but different issues arise when the project is bigger than the PPA
because it is selling additional power to industrial or export customers. Recently, the CFE has
indicated that, in the event of default, it might be willing to bear the risk of having to buy out
projects larger than the related PPAs just so that it can stay in control of the situation.
The following sections describe the financing of the Bajio and La Rosita projects, and of
Termoelectrico del Golfo I and II, two ‘inside the fence’ power projects financed under
Mexican self-supply energy legislation. A power project ‘inside the fence’ is located within
a company’s industrial plant or complex, is owned by the company and is intended to serve
mainly the needs of that plant or complex. Sometimes excess power is sold to other users.
Bajio
InterGen’s 600 MW Bajio project in San Luis de la Paz, 160 miles northwest of Mexico City,
shows some new directions for IPPs in Mexico. The project sponsors are InterGen and AEP
Resources, a subsidiary of American Electric Power. The project will use 495 MW of its
capacity for sale of electricity to CFE under a 25-year PPA and the remaining 105 MW for
sales to third-party industrial customers. A Mexican IPP with a ‘self-supply permit’ is
BAJIO, LA ROSITA AND TEG, MEXICO