FDN hopes to attract new investors amidst renewables push

FDN hopes to attract new investors amidst renewables push

Asset Management Bonds Debt Capital Markets Corporate & Sovereign Strategy Debenture Economy & Policy Fixed Income Funds Structured Finance Project & Infrastructure Finance Regulation Colombia

FDN, a specialist infrastructure project finance firm, hopes a revised upcoming renewable auction scheme, to be held on October 22, will open up a door for new potential investors in Colombia, the firm's vice president for financing and investment, Carlo Bongianni, said at the LatinFinance Project & Infrastructure Summit in New York.

Following the postponement of Colombia’s inaugural long-term renewable power auction in February, Colombia’s Ministry of Energy and Mining revised certain auction rules, stretching out the power purchase agreement (PPA) term from 12 to 15 years, as well as instituting a “take-or-pay” structure for the contracts. Take-or-pay means the buyer has to pay for the contracted energy whether it is used or not.

The government, and market alike, are hoping the new terms will generate better participation in the upcoming auction. The contract incentives were not substantial enough to favor many bids from international investors when Colombia held its first auction in February, Bongianni said, during a discussion on Thursday in New York.

The initial auction, which was expected to offer 23 renewable energy contracts, was postponed as Italian power company Enel would have emerged as the main awardee, thereby violating anti-trust rules of the nation, industry sources told LatinFinance at the time.

As Colombia lags behind many regional peers in the development of renewable energy capacity, Bongianni said that “the sector took off much more rapidly than anticipated”.

Bongianni contends that incumbent politicians saw a lot of risk and a lack of political support in profoundly altering a power industry that is dominated by oligopolies.

Countering the perception of currency risk due to the PPAs being denominated in pesos, Bongianni said that Colombia’s banded peg to the US dollar, peso liquidity lines, and various debt and equity guarantees provided help to mitigate that risk.

Despite fiscal constraints impeding a high level of funding from FDN, the Colombian development bank is looking to capture value from alternative sources of payment, Bongianni said, such as incorporating land valorization payments.

“The land around infrastructure creates a lot of value for that project and for the pieces of activity generated by that project. We are looking at ways to tax surrounding areas more”, he said.

This, in theory, could be applied to any infrastructure asset class, but is particularly well-suited for Colombia's ambitious 4G toll road concessions program, in which 12 projects are still in need of securing financial close , Bongianni said.

So far this year, three 4G projects have reached a financial close. FDN expects two to three more projects to reach financial close by year end, in line with its typical average of 6 projects.

Some issues with a faster execution of 4G financings, according to Bongianni, involved the lack of thought given to the longer-term liquidity challenges some of these companies would face.

“Some of the projects were awarded very rapidly to the same subject for two to three projects at the time. After a couple of projects, their balance sheet would be substantially changed”, Bongianni.

A lot of winners were also construction companies, some of which did not appreciate the concept of being a developer and investor, he said. These latter have substantially difference balance sheet, with long-term liquidity needed, whereas construction companies will typically get by on short-term revolving credit facilities, Bongianni said.

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