A ground-breaking desalination project under construction in Chile was first conceived as an attempt to address two of the country’s most pressing challenges: water scarcity in the north and accelerating desertification in the south.
The Aconcagua desalination plant, and its associated San Isidro Quilapilun aqueduct, is the first desalination project that aims to deliver fresh water to multiple clients – specifically, to both local communities and industrial consumers, says Javier Moreno, CEO of Aguas Pacífico, the project’s sponsor, a holding of Brazilian investment firm Patria.
In the wake of new regulations to preserve existing water reserves, mining firms in Chile are seeking new sources of fresh water to meet their industrial needs. “Our project was designed in a way where our freshwater pipelines will go through inhabited regions,” Moreno says.
The plant will have a production capacity of more than 86,000 cubic meters of water per day. While multinational mining group Anglo American is the anchor off-taker – guaranteeing the purchase of the bulk of the fresh water – Aguas Pacifico will also be able to negotiate deals with utilities and other clients.
Under construction in Valparaíso in central Chile, the project was financed via two seven-year loans that are part of $833 million green financing package arranged with no less than 12 banks.
To finance the project, Aguas Pacifico created two separate special purpose vehicles (SPVs), since the risks vary significantly between the construction of a desalination plant and an aqueduct, notes Gonzalo Ruiz-Tagle, the firm’s head of financial planning.
Participating banks have similar stakes in each of the project financings, for $406 million and $477 million, respectively, both featuring floating-rate and fixed-rate tranches.
Ruiz-Tagle says that negotiations started at the end of 2022, but delays to the implementation of the project, often due to discussions with local communities and other stakeholders, meant that the talks took longer than initially expected.
Another difficulty that needed to be sorted out was currency risk. Aguas Pacifico ended up contracting derivatives to hedge up to 75% of the floating rate and to hedge 100% of the local currency costs during construction.
“It all happened in the context of the lingering effects of the Covid-19 pandemic, the Ukraine war, and then the Israel and Gaza crisis. We had to close the deal under difficult circumstances,” Ruiz-Tagle says.
Sponsors: Patria Investments
Joint Lead Arrangers and Joint Bookrunners and Green Finance Coordinators: BNP Paribas, DNB Bank, Natixis, SMBC
Mandated Lead Arrangers: BCI, Mizuho, Societe Generale
Lenders: Banco Bice, in association with CORFO, Bank of China, Mega, Siemens, Scotiabank
Financial Advisor: DNB Markets
Sponsor’s Counsel: Carey, Milbank
Lenders’ Counsel: Guerrero Olivos, Paul Hastings
Consultants: CDM Smith, SRK Consulting
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