Directory of Innovative Financing: Honduras

Honduras

Project Title: Electricidad de Cortes S.R.L. de C.V. (ELCOSA)

Issue Amount: US$70.3 million

Sector: Power generation

Status: Closed in December, 1994; operational at full capacity since May of 1995.

Sponsor: ELCOSA, a project enterprise whose equity investors are the Scudder Latin America Trust for Independent Power (31%), Illinova Generating Co. (20%), Honduran Electric Corp. (HECO, 25%), IFC (9%) Warstila Diesel Development Corp. (10%), and Hong Kong-based investor James Poon (5%).

Purchaser: 15-year power purchase agreement that has 85-90% of the plant's electricity being purchased by the Honduran national utility ENEE and 10-15% by HECO.

Financing Package: $20 million in sponsor equity; $4.5 in subordinated debt from the IFC ($3.5 million) and Dutch quasi governmental lending agency FMO ($1.0 million); and $45.8 million in senior debt broken down as follows - a) $10.5 million for 12 years at 375 bp over LIBOR from IFC, b) $10.3 million under identical terms from FMO, c) $10 million each at eight years and narrower spreads under an IFC B loan syndication from two Dutch banks, ING and Mees Pierson with partial MIGA political risk cover; and d) $5 million for eight years and similar terms from the Finnish bank known at the time as Kansallis-Osake-Pankii, which has since merged with Union Bank of Finland to form Merita Bank.

Innovation: This is the first IPP to be financed in Honduras, one of the highest-risk environments ever to see such a project come to closure. The lead developer is a subsidiary of Wartsila Diesel International, a multinational with Finnish origins that is now headquartered in Stasbourg, France. It financed one of the largest private investments in Honduran history and mobilized the first new commercial lending for the country in 12 years. The private money was raised even though Honduras had no World Bank or IMF lending program at the time of closure. The financing was finalized only one year after signing the PPA.

One of the keys to success was the political risk coverage Wartsila negotiated with the World Bank's insurance arm, MIGA. With that cover in place on the equity side, Wartsila was quickly able to reduce its ownership to the desired 10% level during operations after having had a controlling interest in the development stage.

The MIGA insurance meant the two U.S. equity partners who came in, Scudder and Illinova, did not need to take the additional time needed to apply for OPIC insurance. After it extended cover on the equity side, MIGA provided support on the commercial debt side that became essential when the Dutch export credit agency, NCM, decided not to take on Honduran country risk to cover equipment being sourced from Wartsila's Dutch affiliate. MIGA gave 75% cover of the Dutch bank debt on expropriation and civil disturbance and 50% on convertibility, enough to bring in those lenders and allow Wartsila to finance the project on a limited recourse basis.

Brief: This 60MW diesel electric power plant is based in Honduras' Atlantic coast port of Puerto Cortes. It was developed by Annapolis, Md.-based Wartsila Diesel Development. The government is guaranteeing the national electrical utility's power purchases, and a long-term contract from Texaco covers fuel supply risk.

ELCOSA was first private infrastructure project to be insured by MIGA, whose coverage coupled with additional support from IFC and FMO to bring in the remaining commercial debt and equity needed to bring the project to closure as planned despite the high risk profile of Honduras.

Subsequently, the sponsors are financing a $23 million expansion of ELCOSA's generating capacity to the 80MW level, investing $6.9 million of new equity, and borrowing $10.5 million at 11-year maturities from the IDB's private sector unit and the remainder in DM from the German bilateral development bank DEG.

Infrastructure and Financial Markets Division
Private Enterprise and Financial Markets Subdepartment
Sustainable Development Department
Inter-American Development Bank

Last updated: 02/26/07