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Mexico, Cuba: Next Hot Spots for Energy?

Fortnightly Magazine - July 15 2000

have been difficult to finance," says Rocio Calzada, director of finances at AES Mexico, a unit of the U.S. power producer AES Corp. According to Calzada, the deals have required the participation of multilateral banks like the Inter-American Development Bank and the use of suppliers' credits. And she sees other difficulties.

"There are obstacles to private sector investment in Mexican power because domestic bank credit is very costly, and trade finance is more costly than [foreign] government credits, which some competitors have access to," says Calzada. "Nonetheless, since Standard & Poors increased Mexico's [sovereign debt] rating, costs have been reduced a bit," she says. "We are a constant bidder in new projects, but at times the interest rates are so high that we can't offer a competitive bid."

AES won the first independent power project bid circulated by the federal regulatory agency, Comision Reguladora de Energia, or CRE, in February 1997, with an associated investment of $213 million. That project involved the construction of the 532-MW AES Merida III project, located at Merida, the capital of Yucatan state. CRE has granted seven other IPP permits since then, with a cumulative investment expectation of $1.8 billion for the addition of 3,528 MW of new generating capacity. Among other developers are Spain's Union Fenosa and Iberdrola, France's EDF, Japan's Mitsubishi, Canada's TransAlta, and InterGen, from the United States.

The most recent of these awards was the 28-Year build-own-operate award of the 275-MW Campeche unit, worth some $200 million, to TransAlta, of Calgary, in Alberta province. The combined-cycle Campeche unit will be located in the city of Palizada, and begin operation in 2003. CFE will purchase the power generated by the plant for 25 years, while state-owned oil company Petroleos Mexicanos, or Pemex, will supply natural gas under a long-term contract.

The CRE called for bids by June 15 for the first two of five remaining power plant projects open to independent power producers and scheduled for the concession process this year, with a cumulative capacity of 2,925 MW. The projects will involve 25-year build-own-operate schemes. The first is for a 900-MW electricity generating project composed of two 450-MW units, called the 19 CC Tuxpan III and IV, in Veracruz State. The second is also a 900-MW project composed of two 450-MW units, called the 15 CC Altamira III and IV, in Tamaulipas State. Both projects are scheduled to be online during the second quarter of 2003.

Other projects also were expected to be opened up for bidding this year for a 225-MW plant at Chihuahua; a 450-MW plant in Laguna; a 450-MW plant in Rio Bravo; and two 450 MW plants in Altamira.

North American companies are among those who will be pursuing these next few projects. "We're going to continue to be involved in Mexico and look at opportunities as they come up," says Dawn Farrell, the executive vice president of independent power projects for TransAlta, in Calgary. "We'll probably look at investing between $500 million and $750 million by the time it's over," she says. "We'd like to have two or three