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Showdown in Latin America
end. Nevertheless, our new plant in Salta will produce electricity for 9 to 10 mills per kilowatt, so we will be the lowest-cost producer in the zone (em that's what we tell our investors."
There is no regulation of gas pipeline rates, giving markets a strong say in exactly what the rate of return will be.
If the Chilgener project is more of a sure bet because of its lower capital cost, then the intense focus of the SING race is on the two pipelines. Outside financing (em and assumption of risk (em sometimes decides such contests. The key to third-party support is power purchase agreements that permit international project finance.
The NorAndino project claims to be holding the best cards when it comes to power purchase agreements. It has long had contracts for 550 MW, says Yves Jourdain, vice president for Latin America at Tractebel's holding company in the region, Inversora Eletrica Andina S.A. Moving up fast, however, is CMS, which announced in late January that GasAtacama secured 150 MW worth of power purchase agreements through competitive bidding against NorAndino. Analysts suggest that CMS hopes to sway current NorAndino signers over to GasAtacama. Chilgener trails with 110 MW in agreements from mining companies. It expects to sell the remaining power at local spot prices, Poblete says.
This situation might suggest GasAtacama and InterAndes developers have few financing options other than their corporate balance sheets.
"If Tractebel decides to proceed with NorAndino, then Endesa-CMS would have to finance GasAtacama from its own balance sheet," says David Hurd, a Merrill Lynch equity analyst in Santiago.
Should sufficient financing keyed on power purchase agreements fail to show, would CMS be willing to open its corporate coffers to finance a lion's share of GasAtacama?
"Yes, we would," says Farr, the CMS spokesman. "Our power purchase agreement is another nail in the coffin of the NorAndino project."
Holden, the Southern vice president for Latin America, says his company will complete NorAndino for strategic reasons. "For Edelnor, we believe it is vital that we continue to maintain a position as the current low-cost [electricity] producer in northern Chile," he says. "In the long run¼we are convinced it's the right thing to do for the shareholders."
Demand growth for power in the SING is strong. But it's unpredictable, given the large size and global copper pricing exposure of the mining customers that define most of the consumption base.
"Over the past five years, the demand growth rate has been 16 percent to 17 percent per year," says Poblete. "So we think the growth rate for the next few years should be between 15 percent to 17 percent. But it depends on the copper mines¼ it's not a stable rate."
Lower Prices, Paper Tricks
Contract power prices in the SING were in the $30-per-megawatt-hour range not long ago, one Wall Street wag says. Now Merrill Lynch projects that the spot price for power in the SING will drop to less than $19 per MW by 1999, when planned new capacity comes on stream. Furthermore, "due to excess capacity, we