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Canadian Money Targets Power Generation Overseas

Fortnightly Magazine - September 1 1998

Canadian goods and services, and it pays the exporter directly as it performs under the contract, collecting repayment from the foreign borrower over the life of the loan. It is interested in making loans on projects in the U.S. and other developed nations, as well as places like Southeast Asia.

What do U.S. companies think about turning to Canada for project assistance?

Southern Energy Inc., for one, sees no reason not to look north. Southern, launched six years ago as a subsidiary of The Southern Company (which owns utilities Alabama Power, Georgia Power, Gulf Power, Mississippi Power and Savannah Electric & Power), is one of the largest power producers in the world, operating worldwide plants generating more than 10,000 MW, with another 8,000 MW under development. It sees itself as the largest independent power producer in Asia, and the largest foreign investor in the Philippines.

"We're like every other developer out there," says Thomas Boren, Southern's president and CEO. "We'd like to use equipment from whatever country we're from, but we're going to win, first and foremost." And if winning means buying equipment from Canada, then that's what Southern Energy will do. "[We] like to think of Canada as part of our family because it's so close," he adds.

The EDC can act as owner/lessor in cases where normal lease arrangements aren't practical, or where the buyer prefers a lease option. The company can make financing available directly to a Canadian company to cover pre-shipment costs, become the senior lender in structured project financing or take a minority equity position in a foreign project (25 percent or less of total equity). The EDC's financing participation is in line with the Canadian benefits expected to flow from the project.

Jonathan Robinson describes the growth at his EDC project finance team: In 1995, five deals closed worth $244.2 million. In 1996, 13 deals closed worth $626.5 million. In 1997, another 13 deals closed, worth more than $1.368 billion.

Although none of last year's deals involved the power sector, EDC is reviewing generation projects. In the deals it did close, (most in telecommunications) EDC took commercial and political risk. Adds Robinson: "There are very few ECAs out there who will do that in a developing market."

His group usually starts with a preliminary due diligence, which might take a week. Then EDC requires formalizing a transaction team of two senior staffers who may call on 10 more professionals to conduct intensive due diligence. The full due diligence process can take from a few weeks to a year before the deal closes.

"We start with the host country and the regulatory issues there, then look through power purchase agreements and other documents," Robinson says.

An added benefit comes with the EDC seal of approval: it often acts as an incentive for other lending institutions to provide more support. Either EDC introduces new lenders, or it is introduced by another financial institution. Either way, "we are strong advocates of sharing counsel, engineers and advisers," says Robinson. He points to three "defining deals."

The first was the Fauki