KMR Power Corporation announced in mid-June 1999 that it has achieved financial close for its latest venture in Colombia, the 314 MW gas-fired TermoCandelaria Project. The $175 million project, operating as a merchant plant, will sell its electricity into the Bolsa, or spot market. The simple-cycle plant is located in Cartagena, near KMR’s existing Mamonal Plant and represents the firm’s largest undertaking in Colombia to date. Construction is nearly complete (as of June 2000) and the facility will soon enter commercial operation.

TermoCandelaria, which is 100% owned by KMR, is being financed under a unique two-tranche bank facility structure created for this project by the company. It consists of a US$90 million senior loan and a US$85 million subordinated loan.
Not only is the project financing pioneering in that an insurance company is guaranteeing a large portion of the debt, it represents the first true flow of commercially underwritten project finance debt for an infrastructure project in Latin America since the economic crisis spread throughout the region.
Banc of America Securities, a subsidiary of Bank of America, served as Financial Advisor to KMR and Arranger of the senior loan. In this capacity, the bank underwrote US$40 million of the senior debt and funded the US$85 million subordinated debt.

Centre Solutions of Hamilton, Bermuda, a wholly-owned subsidiary of the Zurich Financial Services Group of Switzerland, is providing a full guarantee of the US$85 million subordinated debt, and is also taking a US$35 million participation in the senior loan.

Instituto de Fomento Industrial (IFI) and Banco de Bogotá (Nassau) Ltd., both Colombian institutions, are providing the balance of the financing. IFI was the Arranger of the local debt, utilizing both dollar and peso financing.

This creative financing package was jointly developed and structured by KMR Power, Banc of America Securities and Centre Solutions. Successfully bringing in Centre Solutions as the guarantor of nearly 50% of the project’s debt financing provided KMR a viable platform to attract commercial banks to step up for the rest of the financing.

“Since banks have significantly reduced lending capacity for project finance in Latin America, and because the capital markets and other financial guarantors are not currently supporting Latin American high-yield offerings for non-recourse projects, it is difficult to raise capital for ventures, even those with tremendous profit potential,” said David Wasserman, CEO of the Centre group of companies. “By using insurance capital in innovative ways such as absorbing power price volatility risks associated with merchant power, we were able to help KMR secure banks’ lending commitments, and complete the development of their TermoCandelaria project.”
Centre Solutions vice president Stephan Marti added, “We found the project attractive because it made sense in the overall nature of Colombia’s electricity market. Hydropower still accounts for 75% of generation, which meant the risk under consideration was hydro risk and how it filtered through to thermally generated power. We looked at where it would come in at a favorable price. The fuel supply contracts were also attractive.”
“Given the lack of capacity for subordinated debt right now, it is a very efficient and effective way to solve that particular need,” observed Centre’s chief underwriting officer, Tom Dixon.
Colombia currently has 11 GW of electric generating capacity consisting of nearly 73% hydro and 7% coal. It will add another 3 GW by 2000, and an additional 6 GW by 2010. The Government of Colombia is encouraging the trend toward gas-fired plants to reduce outages caused by drought. Approximately 56% of generation capacity, and 41% of distribution assets are now privately held.

“The closing of the Termo-Candelaria Project demonstrates that a well-structured project can be successfully financed under even the most challenging circumstances,” according to Alan R. Rosenberg, Managing Director and Global Head of Power Project Finance at Bank of America. “KMR persevered in overcoming obstacles that would have caused other power developers to walk away on multiple occasions. Bank of America is very pleased to be a part of the team,” he continued.

“Not only does TermoCandelaria underscore our unwavering commitment to, and belief in, the country’s energy sector; it also reinforces our ability to devise creative financing strategies to get projects closed, even under difficult market conditions,” commented George Kappaz, President and Chief Executive Officer of KMR.

He continued, “In this case, together with Bank of America and Centre Solutions, we developed a highly innovative capital structure for the project. Given the recent and current market conditions, getting a deal closed in Latin America did not prove to be an easy task. However, we believed that the strength of the project and our structure would speak for itself. As our third project in Colombia, TermoCandelaria now gives KMR a diversified and very strong strategic position in that country.”
Ralph Fairbanks, KMR Power vice president—project development, added “As I survey the past several years, the impression that has lasted with me the most is a statement made by Michael Kappaz at the 1993 Mamonal closing. He characterized the effort as bigger than any individual and bigger than that of any individual company—but not bigger than that of the collective effort of all the parties. This was especially true for TermoCandelaria. The ability of each individual on this project to keep his or her ‘eyes on the prize’ resulted in the closing of a landmark deal.”

The Legal Advisor team for the TermoCandelaria financial close consisted of K&M corporate counsel Cindy Shepard, Orrick, Herrington & Sutcliffe (sponsors), White & Case (senior lenders) and Latham & Watkins (sub-lenders).
TermoCandelaria consists of two 160 MW gas-turbine units (314 MW net), a 220 kV switchyard, 8 kms of 220 kV transmission line to connect the plant to the national grid, water and wastewater treatment systems, and miscellaneous support facilities.

The plant will employ two highly efficient Siemens-Westinghouse 501F gas turbines operating in simple-cycle. The 501F gas-turbine, with dry low NOx combustors, is one of the most advanced machines in the industry with an efficiency of 56% in combined cycle and 36.5% in simple cycle operation.

The turnkey engineering, procurement and construction (EPC) contract is being performed by a consortium consisting of K&M Engineering and Siemens-Westinghouse. Siemens-Westinghouse will provide the power island equipment, while K&M will provide the balance of the plant equipment and materials, perform the civil works and complete the plant erection. This is a precedent-setting project for K&M as it represents the first true turnkey EPC contract the firm has entered into to date.

North American Energy Services of Bellevue, Washington will provide operations and maintenance services. Fuel will be supplied by Texaco-Colombia, a subsidiary of Texaco, Inc. and transported under a long-term contract by Promigas S.A., a private gas transporter.

Construction commenced in June 1999, with the first unit expected to come on line within ten months, and the second following two months later.

Upon completion, Termo-Candelaria will join KMR’s two operating plants in Colombia— Termovalle and Mamonal. It is expected to become one of the lowest cost thermal electric generation facilities in the country.

Headquartered in Arlington, Virginia, KMR Power Corporation develops, owns and operates private power projects throughout the world.