LatinFinance - January/February 2015 - 32

CENTRAL
AMERICA
POWER

Multilateral development institutions and governments
are finding new ways to attract private funding for power
infrastructure, particularly renewables. By Lucy Conger

New lines

entral America faces daunting challenges to keep energy flowing to its
43 million residents. If existing demand growth persists, generating capacity must increase
by 75% in the next 15 years, according to the Inter-American Development Bank (IDB).
The region needs to develop transmission infrastructure, embrace clean technology and
expand regional energy links that will allow connections to bigger markets to the north and
south.
The small economies of Central America are typically less of a draw than larger markets for
external financing. They also have thinner pools of domestic capital to offer the large, patient
money needed for infrastructure development.
Local commercial banks take an interest, but add special scrutiny to renewable energy
projects. "A priority is that the technology is proven and viable," says Federico Albert, Banco
General's executive vice president of international banking, "that the project has the required
technical feasibility studies regarding the technology, and that the contractors have a record,
a sponsor that backs the project, and a long-term contract to purchase the energy that guarantees repayment."
But some large power projects in Central America, especially in renewables, are getting financed with bonds and loans, from local and international sources. Among recent examples:
Costa Rica's Reventazón hydroelectric project was partly funded in 2014 with a $135 million
20-year project bond, backed by the IDB and sold to international institutional investors. That
was on top of a local currency equivalent of $470 million in loans from local banks and a $100
million loan from the World Bank's IFC.
Financing for the Penonome project in Panama, the largest wind farm in Central America,
was approved in December, with loans from local and international banks. The IFC is lending $80 million to the project and other lenders are contributing $144 million, including $34
million from Banco General and $10 million from Banco Nacional. The IFC is allocating an additional $60 million to Penonome from its Managed Co-Lending Portfolio Program, a scheme
launched in November 2013 to which banks allocate money globally, on a passive rather than
project-by-project basis.
And as the possibilities for financing Central American electricity generation broaden,
recent political developments could open the door to new projects and better distribution
and fuel links.

32 L ATINFINA NCE.COM - January/February 2015

FEDERICO ALBERT, BANCO GENERAL

"A PRIORITY IS THAT
THE TECHNOLOGY IS
PROVEN AND VIABLE"
Mexico's energy reform passed in 2014,
which invites private investors to participate
in natural gas and shale gas development,
could bring opportunities for cheaper fuel.
If expanded production allows Mexico to
export natural gas to Central America, the
region could step further away from expensive oil imports for power generation.
The introduction of Mexican gas to Central America would be a "game-changer"
for the region's energy infrastructure, says
Hans Schulz, vice president for the private
sector and non-sovereign guaranteed
operations at the IDB.
Meanwhile, in July, the presidents of
Panama and Colombia agreed to revive a
suspended project to link their electricity
grids with a transmission line, which they
hope will be completed in 2018.
Colombian sponsors are already becoming more active in Central America. Power
company Celsia agreed in April 2014 to
acquire generation assets in Panama and
Costa Rica from France's GDF Suez for $840
million. It said it was part of a strategy to expand in countries which could be linked to
the Colombian grid. Since 2010, Empresas
Públicas de Medellín, another Colombian
utility, has expanded in energy distribution
in Costa Rica, El Salvador and Panama.
Not long after the transmission agreement between Colombia and Panama, in

http://www.LATINFINANCE.COM

LatinFinance - January/February 2015

Table of Contents for the Digital Edition of LatinFinance - January/February 2015