Case Studies
PHOTO 4.1
Termo Mechero Morro
Source: © Mechero Energy. Used with the permission of Mechero Energy. Further permission required for reuse.
The funding was 45 percent equity and 55 percent debt. Equity was provided by Mechero and Ashmore Group, a fund manager based in the United Kingdom. Bancolombia and Davivienda, two Colombian financial institutions, provided project finance debt to complete the capex funding. Capex was about US$1.2 million per MW, which is a good price when compared to similar projects. The total investment of US$72 million includes power generators, frontend capex (pipeline from flare site to the power generation site), and back-end capex (16.5 km of transmission line and substations). The project faced hurdles in securing capex financing in both equity and debt dimensions, as well as structuring the gas supply agreement. A private equity investor does not typically assume development risk, but Ashmore did in this case even though the project was not EPC-ready at the time of investment. It is otherwise a high bar to achieve to secure private equity financing for projects like TMM. On the debt side, the banks are lending only until 2024, because the gas supply agreement expires in 2025. Mechero had to secure a deliver-or-pay clause in the gas supply agreement to secure the banks’ loans. Because the power market in Colombia is open and competitive, it was also important to the banks that, in order to ensure reliability, the off-taker was a large state-owned power generation company. Finally, in the gas supply agreement, Mechero had to accept a high associated gas price8 because of the country’s gas supply dynamics: Colombia is short of gas and is in a position that it must import LNG (until further discoveries relieve the supply situation). The project achieved a good power purchase agreement price, but currency fluctuations and project delays are headwinds to achieving internal rate of return and net present value expectations on time. However, the gas supply agreement will need to be extended to achieve internal rate of return and net present value expectations, which are not achievable at the current rate because of the depreciation of the Colombian peso and project-related delays. To achieve that target, including a small residual value for the equipment at the end of the project,
|
89
