Innovative Solutions to Support Large Financing NeedsWed, 02/19/2014 - 12:21
Q: What is Banobras’ role in promoting the development of clean energy infrastructure?
A: Banobras has a long history and significant experience in financing infrastructure projects. The main sector Banobras finances is the transportation sector, particularly highways, but energy related projects have become increasingly important to us over the past four years. These projects, which include renewables, as well as projects for PEMEX and CFE, currently amount to one fourth of our portfolio. Renewable energy projects are seeing an accelerated proliferation because of technological improvements. This is particularly true for solar power, which was not financially viable a few years ago. Efficient technologies have improved the bankability of these projects, and we can tell the sector is opening up because of the requests for financing we receive.
Banobras’s background with energy related projects is most evident in its financing of mini-hydroelectric plants. These are noble and viable projects from a banking perspective. Banobras has also financed many wind power developments, for which we have an interesting portfolio. Currently we are assessing solar power, and although we have not yet financed any projects, our portfolio includes solar projects that will soon be financed.
Q: What mechanisms does Banobras implement to facilitate the development of renewable energy projects?
A: The National Development Plan promotes renewable energy projects through its ambitious goals. Banobras, as a financing entity, prioritizes the facilitation of such projects. We have an area specialized in renewable energy developers, which identifies potential projects in solar and wind energy, cogeneration, and even gas pipelines. The gas sector has seen turbulent times of late; there have been cases in which the industry has been asked to cease activities because of insufficient gas supply. Gas pipeline projects involve significant amounts of financing that a single bank cannot always cover entirely, as these projects require between US$500 million and US$1 billion. However, the gas industry will benefit from impressive pipeline developments in which Banobras is involved as a financing institution. We assist promoters in securing funds, as opposed to financing the whole projects by ourselves. If promoters can get commercial banks interested in these ventures, we can adjust our schemes. The goal is to make sure a lack of financing does not hinder energy related projects.
Warrantees have become important in ensuring a project’s success and Banobras is aware of that. Some projects struggle during certain periods, particularly the initial operational stages. Banobras guarantees that loans will be paid during these difficult periods and we will recover the capital in subsequent years. We have promoted this scheme because it facilitates liquidity for project development. We have also created a scheme that banks have found attractive, particularly when financing in US dollars. It is called ‘sequential repayment’ and is designed for projects that require long-term financing, over 15 to 25 years. Commercial banks have restrictions for long-term projects. To overcome this obstacle, our sequential repayment scheme divides loans into two periods: a short period, usually ten years or less, and a longer one estimated at 18 years. Development banking covers the long-term loan while commercial banks cover the short-term financing. Solutions like this emphasize that development banks collaborate rather than compete with commercial banks.
Q: How does Banobras select which projects to finance?
A: We look for financial viability and well-structured project planning. Not only does it have to be a profitable project, it has to comply with legal requirements: permits, right of way, land rights, and environmental assessments. We also ask for technological evaluations from external consultants. It is important to note that the best projects are not necessarily the most expensive; we have financed 1MW mini-hydroelectric plants because they made sense. As far as resources are concerned, in 2013 we had a MX$19 billion (US$1.42 billion) budget for public-private partnerships. In the past six years, we went from having a resource pool of MX$12 billion (US$897 million) to just MX$92 billion (US$6.9 billion) in 2013. This makes us the sixth largest bank in terms of portfolios and the most important for the Mexican infrastructure industry. Our financial program assigns resources to each sector where private parties participate.