One of the most important projects underway in Mexico is all but invisible, but it is benefitting 1.7 million people in the Puebla state.
Agua de Puebla, a private operator of the water and sanitation system in five municipalities that accounts for one-quarter of Puebla’s population, is investing to improve its system with new piping, potable water plant, wastewater plant and storage tanks.
The goal is the significantly increase the number of people using safely managed sanitation and drinking water services. The project also aims to improve wastewater flows, both domestic and industrial, while improving water quality, water-use efficiency and water resources management in the state.
“This is an integrated model not only to meet our obligation to provide water and sanitation, but also improve the infrastructure throughout the life of the concession,” says Héctor Durán, CEO of the operation. “This project will allow us to comply with commitment in the first 10 years of the concession, which concludes in December 2024.”
Agua de Puebla, which win the award for Water/Sanitation Financing of the Year, broke new ground in financing its project, taking out loans from public development bank, Banobras, and private bank, Banorte.
It is the first financing of its kind of the five private waterworks being developed in Mexico.
While projects in the Mexican water sector have traditionally been heavily subsidized by the government, the Agua de Puebla project has no subsidies or third-party guarantees. Instead, it assumes that the loan will be fully repaid from income generated by the water service.
This aspect made the financing especially challenging, Durán says, adding to the complexity inherent in the nature of the asset: improved water quality is intangible in a way that physical infrastructure is not. “The banks were not used to evaluating this kind of project,” he says. “Banks are used to financing projects, like roads and power plants, that are physical. This was new for them. It is about technology and quality.”
One of the major aspects of the project which puts it ahead of the curve in Mexico is its goal of improving wastewater disposal. According to the company, Mexico requires hundreds of millions of dollars to upgrade plants around the country to Mexico to comply with new wastewater norms. Agua de Puebla will be the first to comply with the standards.
Agua de Puebla needs to comply with key performance indicators (KPIs), which will be verified from an outside technical advisor. They include, among others, water quality and continuity, water pipe maintenance and volume of wastewater treated.
By 2024, water quality needs to be at 100% and coverage needs to be at 97%, up from 94.4% in 2022.
Durán says the company’s ESG standards have always been high, and the project is elevating them further. “The financing for the project has required us to guarantee environmental governance and we have a supervisor for environmental issues to make sure we comply with international standards,” he says.
While the loan ensured Agua de Puebla the financing it needs now, the process also helped the company explore future financing alternatives.
“We opted for a traditional project financing but we analyzed many different options and received financial and technical advice on placing a green bond, which is something that we have not excluded for the future,” says Durán.
Sponsor: Grupo Hermes
Lenders: Banorte, Banobras, Hermes Infraestructura
Law Firm: Kuri Breña
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