Why development bank involvement increases allure of energy projects

Wednesday, March 8, 2017

The Inter-American Investment Corporation (IIC), the private lending lending arm of the IDB, has stepped up support for energy projects in Latin America and the Caribbean.

To learn more about this push, BNamericas spoke to IIC's lead investment officer, Margarita Raquel Garcia de Paredes.

BNamericas: There has been talk that energy developers have stepped up efforts to tap multilateral lenders because of reduced private-sector financing. What is IIC's role in this operating environment?

Garcia: The Inter-American Investment Corporation is a multilateral institution that seeks the economic development of its member countries through the provision of financing for the private sector.

Within the strategic sectors that IIC supports are renewable energy projects which seek to increase, in a sustainable way, the supply of clean energy to benefit both the environment and the country in general.

In all projects financed by IIC, funds are mobilized from financial institutions and private investors to complete the financial plan. The seal of quality that IIC stamps on its projects has permitted, in many cases, investors to feel more comfortable with the project in question.

In the particular case of Hidronormandia, for four of the financial institutions mobilized by IIC the project represents their first investment in Ecuador's power sector.

In the short and medium term, the role of IIC will be to continue to play its part as a catalyst to mobilize financing for energy projects, principally renewable energies, to help close the gap that in many countries exists.

Our multilateral bank typically goes to incipient markets where private financing still has not arrived due to issues of market or technology risk that have created low confidence among investors.

We are seeing that with the presence of multilateral development banks (MDB), such as us, in the transactions, the private financing comes. This we call crowding-in. It typically occurs in times of slow growth and will continue on the rise, because, after a year of contraction, growth of 1.6% is expected for 2017.

Taking advantage of our capital, technical knowledge and concessionary resources, MDBs tasted the risks and the financial viability and, that way, led the way for the private sector.



BNamericas: What is IIC's strategy/focus for the energy sector?

Garcia: The Inter-American Investment Corporation supports energy projects that are sustainable for the country and are environmentally friendly. In that regard, we have a particular focus on renewable energies, cogeneration projects, biofuel and energy efficiency, supporting also energy projects with natural gas with guidelines and social and environmental standards of the IIC.

BNamericas: Given the region's gas push, in particular in Central America and the Caribbean, could you expand on IIC's roles in this area?

Garcia: We support midstream gas operations such as liquefaction, transport and storage, and gas turbine combined-cycle power plants with the aim of replacing fossil fuels.

BNamericas: In the past few months, IIC has approved financing for a number of wind projects in Argentina and there are a few also under review at IIC. Is this due to the path the new government has taken with regard to renewable energies?

Garcia: It is due to the government's initiative to try to close its infrastructure gap. Argentina has just approved a framework for public-private partnerships in congress, there was the first RenovAR tender and there are advances in the legal and financial structures that facilitate the financing of projects, and they are promoting new investments.


Argentina's YPF secures US$200mn wind financing

Argentina's Pampa Energía requests US$50mn wind farm loan

Argentina's Central Puerto taps IIC for US$50mn wind farm loan

BNamericas: What would you tell a company thinking about approaching IIC for possible financing? What are some of the points that IIC evaluates?

Garcia: I would say we are open for business! We seek projects in new markets and with new technologies and evaluate their technical viability, the legal, social and environmental aspects and corporate governance. In addition, we have independent engineers who look at the technical aspects and consultants who study the market risks and the demand for approving funds.

For a look at other recent IIC-related content from BNamericas, check out the following briefs:

IIC mulls financing for Latin America's largest solar project

South America's largest thermo project taps regional lender

Brazil wind developer taps regional lender

Ecuador hydro developer secures financing

Caribbean, South America power roundup

Japan to expand LatAm energy footprint