Aguaytía's lead developer, U.S.-based Maple Gas Corp., needed $254 million to get the venture up and running. But the proposal they began shopping around five years ago lacked some of the most basic safeguards demanded by investors in long-term, high-risk infrastructure projects.

First, it was a "nonrecourse" project, meaning that the Peruvian government did not offer any financial guarantees or protections in the event of trouble. Second, electricity projects typically entice investors by securing "future purchase agreements" from governments or local companies that guarantee a predictable revenue stream. Aguaytía had no such agreements. Instead, the company intended to sell electricity through the national grid on the basis of competitive pricing. "Most lenders won't touch a power project that doesn't have a guaranteed revenue stream," said John Binkley, IDB official currently administering the Aguaytía project. "It's just too much of a risk."

So how did the project get financed? First, Maple turned to other experienced natural gas companies interested in diversifying overseas and showed them that Aguaytía would have tremendous cost advantages in producing electricity, making it very competitive in the Peruvian energy market. Maple ultimately persuaded four U.S. energy companies and an investment fund to join Maple in putting up $92.8 million in equity capital.

Maple wanted to raise the remaining $160 million as debt financing, and that proved to be trickier. Banco Wiese, a Peruvian lender, offered a $22 million loan. The Trust Company of the West (TCW), a U.S. bank, was also interested, but it wanted to divide the loan burden with a prestigious counterpart lender to add value and experience.

That's where the IDB came in. After it was approached by Maple, the Bank performed a careful evaluation and concluded that the project fit within the IDB's lending priorities for Peru. Ultimately, the Bank agreed to provide a $60 million loan over 12 years, a decision that helped cement TCW's commitment of a $77.5 million loan on similar terms.

"The IDB's role was critical," says Rex Canon, executive vice president of Maple Gas and general manager of Aguaytía Energy del Perú. "I'm not sure there was anyone else we could have brought in who could have leveraged [the rest] of the financing to where we needed to be."

In the end, the financing package was considered so innovative that two European finance publications each named Aguaytía the "1996 Deal of the Year."

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