Estreito Hydroelectric Power Plant

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In June 2002, a consortium led by Tractabel Energia won a 35 year contract for the rights to build, own and operate 1,087 MW hydroelectric power plant on the Tocantis river between the municipalities of Estreito, Palmeiras do Tocantins and Aguiarnopolis. The power plant comprised 8 units of 136 MW each. The consortium was responsible for selling the electricity to electricty utilities and in the wholesale market at its own risk. The Estreito Hydroelectric Power Plant project also included the construction of an associated transmission system for connecting the power plant to the interconnected system. The contract was the largest of its kind awarded under the Program for Accelerated Growth (PAC), a Brazilian federal initiative which cut interest rates for selected infrastructure projects. The contract was awarded through an international competitive tender launched in May 2002. Three consortia submitted final bids: Queiroz Galvao; Consorcio Estreito Energia and Cemig. The winning consortium was selected based on the highest amount of fixed government payments. Consorcio Estreito Energia (Ceste) was awarded the contract in July 2002 because it submitted the highest bid, approximately 4 million real per year of operation. The government payments had a present value of approximately $US 12.9 million in 2002. Ceste was comprised of: Alcoa [United States, 25.5%], Camargo Correa Energia [Brazil, 4.4%], Companhia Vale do Rio Doce SA [Brazil, 30%] and Tractabel Energia, subsidiary of SUEZ [France, 40%]. The total cost of the project was estimated at US $1.846 billion (BRL 3.6 billion). Financial closure was reached in December 2007, when the board of director of BNDES, the Brazilian federal development bank, approved syndicated 22 year loan of US $1.333 billion (BRL 2.6 billion) in financing. BNDES provided half of this sum in direct loans to the project. A group of four banks, Unibanco, Bradesco, ItauBBA and Votorantim, provided the remaining Rs1.3billion in repasse co-financing, each taking a quarter. The loans account for approximately 80% of the project's capital costs. The financing also features approximately 20% in equity, proportionate to each of the sponsor's share in the project. The sponsors have not provided a guarantee on the equity drawings during construction, but intend to inject equity into the project as per the forecasted budget in the financing contract. The Brazilian government obliged the concessionaire to contract 100% of its output. At an auction in October 2007, Suez contracted its 40.07% share of the plant's output (265 MW) through 30-year PPAs with several distribution companies. These PPAs, worth roughly EUR 3.3 billion (US$5 billion) in total, were due to begin in 2012. However, the plant was expected to become operational in 2010. During the 2010-2012 period, Suez intended to sell its share of the plant's output on the spot market under 6-month of 1-year contracts. The output shares of Alcoa (25.5%) and Camargo Correa (4.4%) were for captive use. It was not known what Vale intended to do with its 30% share of the plant's output. The first unit started commercial operations in April 2011, and the second unit in July 2011. A present value of US $12.93 was calculated at 4mn real per year converted to USD in 2002 with a 10% discount rate for 27 years