Don Pedro Hydroelectric Plant
by Prof. Ian H. Giddy, New York University
Don Pedro Hydroelectric
Sarapiqui Province, Costa Rica
The Don Pedro Hydroelectric Plant, which began operation in November 1996, is located on the Caribbean coast of Costa Rica in the town of San Miguel de Sarapiqui. This high-head facility produces 14 megawatts of electricity by dropping a small volume of water 1,400 feet. Because there is no large dam required for this type of facility, and thus no flooding of the river valley, the Don Pedro facility has minimal impact on the environment. Indeed the hydroelectric company, Energía Global de Costa Rica S.A., pays upstream landowners to protect the rainforest and watershed. A subsidiary of Covanta, an American company, operates the facility.
Cost: $25.3 million
Sector: Power generation
Status: Closed June 1995; went on-line in late 1996
Sponsors/Lead Manager: PH Don Pedro SA, a Costa Rican special purpose corporation; the US firm Energia Global Inc. (EGI) is the lead equity investor in PH Don Pedro along with Energy Investors Funds and Energia Global de Costa Rica.
Purchaser: ICE, the national electrical utility of Costa Rica, under a 15-year power purchase agreement.
Financing Package: This project is structured as a B00 with no government guarantee and an 81/19 debt-equity ratio. It carries about $4.7 million in sponsor equity and $20.6 million in 12-year hard currency debt from GE Capital, of which $17.3 million is senior, and $3.3 million is subordinated. GE Capital is financing both construction and the take-out facility to replace it. OPIC insurance covers political violence, expropriation on total project costs and foreign exchange availability on the cash flow.
Innovation: This is
the first foreign-financed independent power project in Costa Rica, yet was
closed without multilateral support. It is also the first closed by lead
sponsor EGI, a firm incorporated in Massachusetts in 1991 solely to pursue
independent power development opportunities in Latin America at a time when
few, if any, had been successfully done. Despite its lack of track record
as a corporation, EGI was able to attract several million dollars of equity
from both major US corporations (Ogden Corp. and Thermal Electron Co.) and
The project is incurring hard currency obligations during construction, but has local currency revenue streams. The sponsors were able to convince near-investment grade ICE to assume currency risk by indexing local tariffs 85% to the dollar to keep up with possible exchange rate fluctuations.Brief: Independent power projects became possible in Costa Rica in 1990 with the passage of Law 7200, which set aside 160MW of generation capacity to be developed by private investors at published tariffs. Contracts for that full amount have now been awarded, primarily to local developers and in some cases with support of the IFC or Inter-American Investment Corp. Because of the precedent set in this transaction, EGI now expects to close financing for a second similarly sized power plant in Costa Rica by the end of the year under a signed power purchase agreement which it obtained under the first 160MW set-aside.
Explain how it is possible for a project such as this to be financed
81/19 debt-equity ratio
, even though the debt is in dollars and the revenues are in local