CTSul to invest US$698mn in 650MW coal-fired plant

Tuesday, May 27, 2003

Brazilian investment group Central Termoeletrica Sul (CTSul) plans to invest US$698mn in a 650MW coal-fired power generation plant in Cachoeira do Sul, Rio Grande do Sul state, CTSul president Douglas Machado Carstens told BNamericas.

CTSul believes it could cut US$148mn from the total cost through tax breaks offered by the Rio Grande do Sul state government and other risk-mitigating options, Carstens said.

Two partners, DMC and Empresa Brasileira de Mineracao (EBM), first conceived the project in 1997. A third partner, local distributor Celetro, has subsequently joined in. DMC provides its project development experience while EBM owns the coal reserves; Celetro will receive part of the power produced at the plant.

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EBM will contribute coal reserves and take the profits from the sale of electric power, meaning cheaper coal for CTSul, he said, adding that US$50mn of the project costs have been set aside to carry out further coal exploration.

There is a whole team of partners behind the project, Carstens said. Swiss investment banks Eurobras and Multileader are helping with the financial structure; Germany's Arcadis produced a pre-feasibility study; Braspower, a unit of Parana state distributor Copel, is helping with technology; Geologica is providing advice on the coal mining aspects; Brazilian consulting firm Sulconsult contributed; and Brazil's Engevix is currently auditing the entire project.

CTSul is currently in the process of selecting a constructor for the project from four possible options, he said, without revealing details. The clean-fuel technology comes from the US, he said.

CTSul has hired Copel's power trading spin-off Tradener to place its power on the market, Carstens said. By mixing long and short-term contracts, CTSul expects to secure higher returns on its investments, he said, adding that Tradener will present the power purchase agreements in eight months' time.

The plan will be entirely financed by foreigners with guarantees from European banks, Carstens said, without revealing the names. The final documents should be signed in 2004, for the plant to begin operations by 2007, he said.

CTSul aims to produce power for less than US$32/MWh, as this is the upper limit that distributors in the region are likely to pay for power, he said. This production price makes CTSul competitive with brand new hydroelectric power plants, he added.

The company is not concerned about the changes in the Brazilian electric power sector rules, which should be unveiled soon by the mines and energy ministry. CTSul is well placed as a project to participate in any model - including the single buyer or pool suggestion, he said.

"I'm betting on good sense at the government level," Carstens said. "The new rules cannot work against the interests of Brazil."

The project is awaiting licensing from the state environment agency, Fepam, after which it would be presented to power regulator Aneel and the national system operator (ONS), Carstens said.