Mexico’s Yucatán peninsula won’t be facing an energy crunch for the foreseeable future once a new pipeline project undertaken by Energía Mayakan, a subsidiary of France’s Engie, comes on stream.
The project involves extending an existing pipeline and increasing the volume of natural gas for thermal energy production in a region that faces a deficit of up to 1 gigawatt of energy at peak periods, and which still partially relies on power generated by expensive and polluting fuel oil.
“This project will provide cheaper and cleaner energy, making the system more reliable and helping grow the region’s economy,” says Makhiban Gengadharan, head of business development networks Latin America at Engie, who led the deal on the sponsor’s side as deputy CFO for the region.
The construction of nearly 700 km of pipeline and related infrastructure makes the project, also known as Cuxtal II, one of the most important greenfield energy projects in Mexico in recent years. The $2.47 billion, 7-year financing, which wins the award for Infrastructure Financing of the Year – Mexico, is also one of the largest this decade.
“We executed this deal in record time, starting in November 2023 and closing in April 2024. It is never easy to close a deal, and even more complicated when there are so many banks involved, but we were able to do it quickly thanks to our core relationship with the banks,” says Gengadharan.
Lead arranging the deal were BBVA, Citibank, Crédit Agricole, Intesa Sanpaolo, Mizuho, MUFG, Natixis, Santander, Scotiabank, SMBC, Société Générale and Standard Chartered.
The Mayakan system currently spans 798 kilometers through the peninsula, with a capacity to move 250 million cubic feet/day of natural gas. The expansion will increase capacity to 567 million cubic feet/day through an additional 694 kilometers, from the Macuspana municipality in Tabasco state to Valladolid in Yucatán state. In addition to these two states, the Mayakan system also provides natural gas in the Campeche and Chiapas states.
The new pipeline will allow Mayakan to transport natural gas from the US through the new marine pipeline under construction.
A critical component for the project is a long-term deal with Mexico’s state-owned Federal Electricity Commission (CFE) to acquire 96% of the gas it transports.
On the environmental side, Mayakan’s expansion will help Mexico with its energy transition and meet its commitment to reduce greenhouse gas emissions under the Paris Agreement.
According to Engie, the Cuxtal II project will eliminate 7.4 million tons of C02 equivalent annually.
Mayakan has started preliminary work on the build-out, including access permissions and other permits. It is waiting for final regulatory approval to start physical construction, which should happen by the end of the year.
“This project is key for the energy matrix in Yucatán and for accelerating the decarbonization process,” says Gengadharan.
While Mayakan will still be in charge of the project, it should have a new partner in place before construction starts. Engie agreed to partner with Macquarie Asset Management, Sydney-headquartered global infrastructure investment firm, for the Cuxtal II project. Macquarie is expected to take a 50% stake once all the paperwork is done in the final quarter of this year.
In addition to Mayakan, Engie operates solar, wind and thermal generating plants, smaller pipeline systems and gas distribution. Excluding the Cuxtal II project, it has invested $3.42 billion in Mexico.
Cuxtal II
$2.5 billion Mayakan Pipeline Expansion
Sponsors: Engie S.A., Engie México S.A.
Joint Bookrunners & Joint Lead Arrangers: BBVA; Citibank; Crédit Agricole; Intesa Sanpaolo; Mizuho; MUFG; Natixis; Santander; Scotiabank; SMBC; Société Générale; Standard Chartered
Financial Advisor: SMBC
Borrower’s Counsel: Covington & Burling; Baker McKenzie
Lenders’ Counsel: Milbank; Nader Hayaux & Goebel
All supporting financial institutions and law firms were transmitted to LatinFinance by the award category winners. For updates please email awards@latinfinance.com