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Canadian Money Targets Power Generation Overseas

Fortnightly Magazine - September 1 1998

Kabirwala gas-fired combined-cycle facility (151 MW) in Pakistan, developed by Westinghouse Electric Corp., El Paso Electric Co., and the Bounty Foundation. The project cost $170 million and saw the EDC working with the Asian Development Bank for the first time. "This was a situation in which EDC was able to come to the table fairly early to commit $35 million," Robinson says. "Often a commitment that is also a hold position is critical in some markets, like Pakistan."

The second defining deal was a $450 million Pangue hydro project in Chile (450 MW) owned by GE Hydro, in which the International Finance Corp., affiliated with the World Bank, participated as lead lender.

"It was a limited recourse hydro deal, which makes it unique in itself," says Robinson. But there was no purchase power agreement, making it more of a merchant-type deal with pricing and commodity risk. "We also demonstrated that we can work with the IFC," says Robinson, "which is one of the most active lenders on the international scene."

The third defining deal was an MTBE/methanol project in Qatar sponsored by China Petroleum WGPC, Methane Octane Ltd., and Lee Chang Yung Chemical. The project is worth about $670 million. "Early on, we were able to give an indication of the level of support we could offer before Canadian benefits were nailed down," Robinson says. "This is important for Canadian suppliers because EDC can have a material impact on Canadian procurement. That's particularly relevant in the tougher market deals." EDC also provided political risk insurance for the project, and coauthored the information memorandum as technical consultant.

"We're used to looking at demand-side risk," Robinson says. "This holds true for some of the commodity deals on the telecom side as well as power deals.

"It's not like a private power project. We don't flick on a switch and know exactly what the capacity payment will be within six months. There's additional capital expenditure, even as cash flows are being generated."

Other Lenders: Ready for Privatization

The EDC isn't the only source of money in Canada. The country's 59 domestic and international chartered banks boast assets of $816 billion. Six banks have been active in major Canadian project finance and structured finance deals, all rated "Schedule I" widely held banks: Canadian Imperial Bank of Commerce, Bank of Montreal, Royal Bank of Canada, Scotiabank, Toronto Dominion Bank and National Bank of Canada.

David Clee, managing director of CIBC World Markets, says his group reviews proposals for power plants of more than $1 billion. "When we're looking at a project, our goal is risk mitigation. We also look at the framework of the deal, knowing what our rights and remedies are, should something go wrong with the economics of the project."

Today, developers are hiring financial advisers and turning toward auction financing, bidding out loans to the lowest-cost money. "There may not be a conflict," says Clee. "We have found ways to work with developers. We will offer advice to provide a structure that we can finance, and then bid it to the market to provide