Environmental licensing rules are turning energy companies away from project finance structures in Chile, according to the top executive of infrastructure investment company Aguas Pacífico.
The firm closed two project financing deals in September last year totaling $883 million to build a desalination plant and a 28km aqueduct in the Valparaíso region, in central Chile.
However, Javier Moreno, the CEO of Aguas Pacífico, a holding company owned by Brazilian asset manager Patria, said that, if he had a choice, he would prioritize corporate financing over project finance to fund investments in the country.
“Talking to big energy companies here in Chile, I have been told that they avoid project financing for water or even electricity projects they are building. They do not like it,” he told LatinFinance in an interview.
Infrastructure projects, by nature, have ample complexity and uncertainty in the construction side and Chile’s environmental legislation makes implementing them even more difficult, said Moreno.
“It is very hard to manage, at the same time, the provisions of project finance with the restrictions imposed by Chile’s environmental licensing rules,” he added.
Moreno noted that even small changes to construction plans require have to get through a lot of red tape and there is no guarantee that they will be approved by supervisory bodies. As a result, there is a risk that project costs will end up misaligned with what was agreed with the lenders.
“I am not sure that project finance is the best tool in such a complex licensing environment as Chile’s,” he said. “We do not have the financial scope to avoid it, but if I were a large company, I would do everything with general debt.”
When Aguas Pacífico’s project is ready, it will be the first desalination plant to provide fresh water for more than one single off-taker in the country.
The company has signed a deal to provide water to mining firm Anglo American and will also be able to sell its production to water utilities, electricity plants and other clients.