AES Andres

Distressed

Failure

AES Andres is a 300 MW combined cycle generation facility located on the eastern side of the Caucedo Peninsla in the Dominican Republic. Part of the energy produced was sold to EDE Este via a 15-year PPA, which was to expire in January 2019. EDE Este was one of the three privatized distribution companies in the Dominican Republic, and an affiliate of AES Andres. The rest of the electricity was to be sold on the newly created spot market. On December 20, 2002 AES Andres completed a $145 million non-recourse financing. The medium-term, non-recourse loan was a three-tranche facility in which Banco Popular Dominicano acted as a lead arranger. The project includes the construction and operation of a terminal for the import of liquefied natural gas, which will be the primary fuel for the power plant, as well as the construction of a tanker berth and jetty storage and handling facilities. Although not part of the project, LNG in excess of the quantity consumed by the power plant will be sold by the project company to other generators and industrial users. By mid 2003, the Dominican Republic was facing a power shortage. Distributors were not making power purchase payments because of the depreciation of the Dominican peso against the US dollar and the high price of oil. By December 2003, AES Andres claimed that government distributors owed them 1 billion pesos (US$22.9 million), and as a result the generator was threatening to shut down production completely. During 2004, the electricity sector in the Dominican Republic entered in a financial crisis. Although it was vulnerable for years, the 2004 economic downturn, financial crisis and an increase in fuel prices that essentially caused the financial collapsed of the sector. Specifically, the inability to pass through higher fuel prices and the costs of devaluation led to a gap between collections at the distribution companies and the amounts required to pay generators for electricity generated. By December 2004, the company indicated that there were no assurances that those issues would be resolved in its favor. Negotiations to overcome the crisis were taking placing including the IMF and the World Bank and the private electricity sector. The key issues to negotiate included (i) the failure to provide for full pass through of the costs of electricity supply to consumers; (ii) the failure of the regulator to follow through on subsidy commitments, which had put the distribution companies in the position of effectively financing portions of the subsidy programs; and (iii) the fiscal deficit of the government to reconstitute the sector. In February 2004, the Court granted the Constitutional Injunction and ordered the immediate cessation of any effects of the “Formulation of Charges,” and the enactment by the Superintendence of Electricity of a special procedure to prosecute alleged antitrust complaints under the General Electricity Law. In March 2004, the Superintendence of Electricity appealed the Court’s decision. In July 2004, the Company divested any interest in Este. The Superintendence of Electricity’s appeal is pending as of December 31, 2009.

Energy

World Bank Group

Project

Commercial, Power Generation (CCGT), Government, Manufacturing (Industrial), LNG, Natural Gas, Oil and Gas