Inter-American Development Bank gives Costa Rica dam project a boost

October 22, 2012

The Inter-American Development Bank (IDB), which approved $670 million in loans to finance the Reventazón Hydroelectric Dam in June, will now add another $200 million in guaranteed financing to help support Central America’s largest renewable energy project.

More than 90 percent of Costa Rica’s electricity is currently generated from renewable resources.

The Costa Rican Electricity Institute (ICE) and the International Finance Corporation, a private arm of the World Bank, will sponsor the project, which includes the construction of a dam 130 meters tall that will divert water from the Reventazón River near the Caribbean slope town of Siquirres.

When finished, the dam will generate an average of 1,407 gigawatt hours of electricity per year – approximately 10 percent of Costa Rica’s total capacity for electricity generation and enough to power more than half a million homes.

In a press release, Jean-Marc Aboussouan, head of infrastructure financing at the IDB’s Structured Corporate Finance Department noted, “the successful implementation of the environmental and social elements in this project will provide an important model for hydroelectric projects in Latin America.”

The loan will help finance the design, construction and maintenance of the plant and associated facilities.

In the project’s early stages in June, the loan was managed by a trust facilitated by ICE, which is now “part A” of an “A/B loan.” This portion of the trust will be handled by a trustee chosen by ICE, probably within the Costa Rican banking system, said Gian Franco, project co-leader at the IDB.

Franco said that during initial stages one option was to channel financing through ICE. However, the new A/B structure has replaced that option. Within the new loan structure, all loans going forward will be paid out directly to the project through a new trust, or part B of the A/B loan.

“The reason for this,” Franco said, “it that this trust allows lenders to lend at longer terms than if it were a corporate loan.”

The $200 million approved last week was financed completely by the IDB. Future loans will continue to use this same structure to allow for wider lending options. The trustee will retain limited responsibilities and simultaneously will play the role of borrower, again providing for more flexibility in future lending opportunities, according to Franco.

The International Finance Corporation, together with the IDB and local banks including Banco Popular, Banco Nacional and Banco de Costa Rica, will lend directly to this newly created trust.

Franco estimated that $900 million will be made available to the project by the end of November, pending the approval of both the International Finance Corporation and local banks.

The IDB is targeting a financial closing by the end of December.

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