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Canadian Money Targets Power Generation Overseas

Fortnightly Magazine - September 1 1998

a floor price. If it's beaten by some competitor, the developer gets a lower cost of capital."

There are other ways to gain access to Canadian capital, including nonbank lending institutions.

The recently formed Borealis Infrastructure Fund, for example, boasts that its sponsor, the Municipal Employees Retirement Fund in Ontario, raised $350 million this year for independent power or other infrastructure projects.

Another nonbank lender, Newcourt Capital, recently established a project finance fund with $500 million from large institutional investors, which included Canadian investors like Sun Life, Mutual Life, Caisse de Depot et Placements and the Ontario Teachers Pension.

According to managing director Daniel Morash, the company has assets of $4.5 billion, with $18.3 billion in owned and managed loans operating in 24 countries. Newcourt's first transaction was a 32-year leveraged lease agreement for a natural gas storage facility in Michigan developed by MCN Investment Corp., a subsidiary of MCN Energy Group Inc., which owns Michigan Consolidated Gas Co., a local distribution company. Projects don't have to be on Canadian soil, or use Canadian-manufactured equipment to qualify for Newcourt's business. But its ongoing relationship with Canadian agencies helps those projects that do.

Morash favors leveraged leasing arrangements, which can provide up to 97 percent of the capital needed to complete a project with fewer lending costs. In this scenario, Newcourt Credit is established as a passive funding partner to a sponsor corporation, a limited liability company, which serves as a vehicle for the financing and operation of generating capacity. During construction, the financing typically would be 3 percent equity, 97 percent debt, where the debt would be provided by the Newcourt fund or in consortia with other funding institutions.

Manufacturers:

An Expanded Role

As the sixth-largest generator of electric power (116,000 MW) and the largest producer of hydroelectric power, Canada stands third in the world in per capita consumption of electricity. Its equipment manufacturers appear only too willing to join hands with financiers on overseas projects.

H. William Pearson, president of Agra Development Inc., believes that Canada is positioned to be a player in the 60 gigawatts of worldwide privatization projected by 2000.

"The end result is that we produced world-class utility operators, manufacturers, engineers and contractors to build those plants," Pearson says. "We have tremendous strengths in our own land in doing those things. Canada is an export-oriented country. We survive by exports. It's built into the culture of our industry, our manufacturers, our engineering and construction contractors."

Paul Koenderman, president of Babcock & Wilcox Canada, believes there are other reasons to buy from his country: an attractive exchange rate, proven international savvy and strong affiliations with major U.S. parents.

On the hydro side, Canada is the world leader, having built 40 percent of the world market, more than 46,000 MW, according to Haresh Ramchandani, marketing director in India, Nepal and Sri Lanka for GE Hydro. Some key projects under way are Sanxia (Three Gorges) in China (4,260 MW when complete), the Pangue hydro project in Chile (450 MW when complete) and Chamera in India (600 MW when complete). Worldwide, hydro