LatinFinance - January/February 2015 - 34

Opening up
Some exceptional deals aside, raising
funds for electricity generation in Central
America through the international capital
markets remains tough.
Central American infrastructure projects
often require relatively small financings.
Moreover, getting a rating that is strong
enough for the bonds to be sold at affordable rates is difficult. The IDB-backed Reventazón project bond pays an 8% coupon
- even with ratings that were investment
grade and higher than the sovereign itself.
In Central American countries where the
capital markets are more developed, some
sponsors have issued local bonds to finance
infrastructure. Four years before the Reventazón bond, for example, the same sponsor - Costa Rican state electricity utility
Instituto Costarricense de Electricidad (ICE)
- financed part of its $285 million Garabito
plant with locally issued bonds.
"[Bond sales] in Costa Rica are principally bought by pension funds and sophisticated private and individual investors, and
companies of both the public and private
sectors," says Mario Rivera, chief executive
of Banco de Costa Rica.
Now, sponsors are hopeful that local
institutional investors may further develop
as funding sources for power projects in
Central America. In Costa Rica, regulations took effect in October that allow local
pension funds to invest in special purpose
vehicles to fund infrastructure projects.
Meanwhile, as local banks gain strength
in countries like Costa Rica and Panama,
their role in financing infrastructure is
growing too. Locals Banco de Costa Rica,
Banco Nacional de Costa Rica, Banco Popular y de Desarrollo Comunal and Banco
Crédito Agrícola de Cartago provided the
biggest chunk to the Reventazón project's
$904 million financing package.
Nevertheless, as the Penonome and
Reventazón projects show, support from
multilateral lenders is still vital to kick-start
private investment in Central American
infrastructure projects.
Participation of multilaterals and foreign

34 L ATINFINA NCE.COM - January/February 2015

export credit agencies in A/B loan structures, where the B portion comes from
the private sector, is "the bread and butter" of infrastructure financing in Central
America, says Gabriel Goldschmidt, head
for infrastructure in Latin American and
the Caribbean at the IFC.
The good news is that international
development banks are increasingly active
in Central America's infrastructure sector,
including the sub-region's own institution,
the Central American Bank for Integration
(Cabei). Cabei set aside $360 million - 25%
of total lending for the year - for energy
projects last year.

The push for renewables
As these projects suggest, multilateral lenders are particularly keen to support renewable power in Central America.
The IFC, Cabei and Opec's Fund for International Development lent $146 million
to a project finance deal to build three solar
plants in Honduras. The SunEdison-sponsored plants are part of a 600 megawatttender the Honduran government offered
at the beginning of the year.
In March, the IDB and the Japan International Cooperation Agency ( JICA), an
overseas development arm of the Japanese
government, increased a renewables and
energy-efficiency financing program for Central
America and the Caribbean from $300 million to
$1 billion.
Dependence on fossil
fuels, especially oil, to
generate power subjects
local economies to volatile and unpredictable
petroleum prices. This is
particularly worrying as
lower oil prices last year
have increased the danger
of the demise of Venezuelan PetroCaribe subsidies for the oil imports of
some Central American
countries, particularly Nicaragua, according to a September report by Scotiabank.
"If you fix the investment costs for renewables, you know what you'll pay for
years to come," says the IDB's Schulz.
Concessional financing could also be
available for renewable energy projects in
Central America from funds dedicated to
mitigating climate change. The IDB blends
its lending in some cases with funds from
the Canadian Climate Fund, which gained
$250 million in capital from the Canadian
government in 2012. The fund offers belowmarket rates, tolerating a higher level of
risk than conventional funders, and helps
"push climate change innovation over the
economic viability threshold", according
to Schulz. He says the fund could be part of
how Central America finances electricity
projects in future.
Panama's Banco General has financed 14
projects worth $75 million thanks to a 2009
IDB A loan awarded to the bank for clean
energy schemes. With commercial banks
cautious, and institutional investors scarce,
multilateral guarantees and co-investment
like this are important. LF
Source: istockphoto

November, the Central American Electricity Interconnection System completed
a transmission link between six Central
American nations, forming an unbroken
power link from Canada to Panama. The
Central American grid "forms the backbone
of the regional market," Roberta Jacobson,
US assistant secretary of state for Western
Hemisphere affairs, said in a statement.

NEW DAWN: Multilaterals are bringing
in private funding for renewable energy
including the Penonome wind farm

Cabei also offers partial guarantees in
clean energy. In July, Banco BAC San José
gained a $135,000 partial guarantee from
Cabei to fund a 63.37-kilowatt solar project
at the Spanish Equestrian Club in San Antonio de Belén, Costa Rica. The same month,
Guatemalan investment bank Financiera de
Occidente (Fidosa) tapped a Cabei partial
guarantee of $669,000 to support its funding for a hydroelectric plant in Guatemala.
HANS SCHULZ, IDB

"IF YOU FIX THE
INVESTMENT COSTS
FOR RENEWABLES, YOU
KNOW WHAT YOU'LL
PAY FOR YEARS TO
COME"

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LatinFinance - January/February 2015

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