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IDB approves $240 million financing plan for Central American electric interconnection system

The Inter-American Development Bank today announced the approval of a $240 million financing plan to support the Central American Electric Interconnection System (SIEPAC), a keystone project for regional energy integration under the Puebla-Panama Plan.

At an estimated total cost of $320.3 million, the SIEPAC project will develop Central America’s first regional power grid and establish a regional wholesale electricity market including Costa Rica, El Salvador, Honduras, Guatemala, Nicaragua and Panama.

The project seeks to bring the benefits of integration to those countries’ efforts to improve their national power systems. The regional market will gradually allow qualified agents to buy or sell electricity no matter where they are located in the Central American isthmus.

In turn, the creation of a regional market with clear and uniform rules is expected to offer incentives for building larger and more efficient power plants, sparking investments that would help reduce the cost of electricity in the region and strengthen the reliability of their electricity systems.

"This project, which has roots that can be traced back to proposals floated nearly three decades ago, will become a milestone in the region’s quest for integration and will establish a firm base to build on other initiatives under the Puebla-Panama Plan," said IDB President Enrique V. Iglesias.

Under the approved plan, the IDB will provide $170 million in ordinary and soft loans to power utilities in Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama. It will also grant the same firms $70 million more in concesional financing from a special fund established by Spain and administered by the IDB.

One of the main elements in the SIEPAC project will be the construction of a 1,830 km (1,144-mile), 230-kilovolt power transmission line from Guatemala to Panama, with connections to substations and the national power grids of the six participating countries.

The new line will overcome the poor quality of the existing bilateral interconnections, which curtail the possibility of making firm transactions at a regional level.

The project will also help establish two regional institutions: the Regional Electric Interconnection Commission (CRIE) and the Regional Operating Agency (EOR). CRIE will serve as regulator for the new regional wholesale market while EOR will act as the system’s operator and administrator of regional power transactions.

Under the financing plan, the six Central American utilities will transfer loan resources to Empresa Propietaria de la Línea (ELP), a company that will own the SIEPAC transmission line. Under its charter, ELP will be able to open its capital to private sector investors.

As well, the IDB will provide a total $9.9 million in technical cooperation resources to support Central American countries’ efforts to establish the legal, regulatory and technical rules needed to consolidate the regional electricity market.

Under the Puebla-Panama Plan, future interconnections are planned to link the SIEPAC with the electricity grids of southern Mexico and Belize. The Puebla-Panama Plan was launched earlier this year to promote economic and social development and foster integration among Central American countries and the southern states of Mexico.

The financing plan approved by the IDB includes four $30 million, 25-year, variable interest rate loans for electricity companies in Costa Rica, El Salvador, Guatemala and Panama; and two $25 million, 40-year, low-interest rate loans for power concerns in Honduras and Nicaragua.

The loans made with concesional resources provided by the Spanish government were granted in euros with a 35-year amortization period and at a variable interest rate. The utilities from Costa Rica, El Salvador, Guatemala and Panama received loans worth $10 million each while the Honduran and Nicaraguan firms were given loans worth $15 million each.

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1The participating Central American utilities are Costa Rica's Instituto Costarricense de Electricidad (ICE), El Salvador's Comisión Ejecutiva Hidroeléctrica del Río Lempa (CEL), Guatemala's Instituto Nacional de Electrificación (INDE), Honduras' Empresa Nacional de Energía Eléctrica (ENEE), Nicaragua's Empresa Nicaragüense de Electricidad (ENEL) and Panama's Empresa de Transmisión Eléctrica S.A. (ETESA).

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