TBY talks to Luciano Cepeda, General Manager of Coca Codo Sinclair EP, on the evolution of the project, financing, and the negotiation process.

How has the Coca Codo Sinclair project evolved over the last five years?

The Ecuadorean Institute of Electrification (INECEL), which today does not exist, started developing this project back in the 1970s. The organization conducted studies on the Coca river valley, as well as a pre-feasibility study. Later on, in 1985, ELC Electroconsult of Italy, with several other consulting firms, carried out feasibility studies in order to develop a potential hydroelectric plant project. It took seven years for the companies to carry out their studies, which ended in 1992. In the late 1990s, INECEL disappeared, and the project fell by the wayside. It was of great satisfaction that President Correa decided to revive the Coca Codo Sinclair project. In 2008, the Coca Codo Sinclair EP enterprise was established as a joint stock company, and one year later it became a state-owned enterprise. In addition, the project got a boost; the same Italian company, ELC Electroconsult, updated all the studies that support the technical feasibility of the project, increasing the initial power of the plant to 1,500 MW, and a contract was signed with China's Sinohydro Corporation in October 2009. A year later a financing agreement with the Export-Import Bank of China was signed, which financed 85% of the entire project, or $1.68 billion. The government of Ecuador financed the remaining 15%, or some $300 million, which was disbursed between 2010 and 2011.

What is the current state of development?

In 2010 we started constructing the project, and over the last two years we have relocated a section of a heavy crude oil pipeline running through a vital area for our project, and in 2011 we began developing the engineering works, starting construction on the water intake area, powerhouse, and conveyance tunnel. As of today, around 20% of the initial works have been completed. The first tunneling machine is also on site, and we expect a second tunneling machine to arrive soon. Such equipment has an approximate cost of $70 million. The Export-Import Bank of China has already provided $110 million for the project, which is clear proof that it is gaining speed. In addition, all the machinery designs are being prepared right now, and as soon as they are completed, they will be sent to Europe and China, where the machinery for the project will be manufactured.

“We are developing a very attractive, sustainable, and economically profitable project for Ecuador."

What challenges did the company face when tendering the project to Sinohydro and negotiating the financial agreement with the Export-Import Bank of China?

The biggest challenge was to close the deal with Sinohydro from a technical point of view. The talks, which lasted for six months, were very tough due to the language barrier. In fact, communication difficulties are still an important barrier to overcome. The Ministry of Finance was in charge of coming to an agreement with the Export-Import Bank of China, and those were also very tough negotiations, especially regarding sovereignty and payment issues. Fortunately, we can say that, as of today, the project is fully financed, and it will be a reality very soon. One of our main duties is to check the strict compliance with technical specifications and deadlines agreed between all the parties in the contracts. Also, I would like to add that the project will have a payback period of 10 years after the plant starts operating.

What will Coca Codo Sinclair's grade of responsibility be once the plant becomes operative?

In the future, we will be integrated within CELEC EP's activities, and Sinohydro is obliged by contract to train our operators' employees, who in the future will be part of the company. This is part of the technical transference clauses agreed to in the contract. We are mostly talking about engineers in charge of operating and maintaining the plant.

What are your views on the criticism the project received?

When we updated the studies on the project's technical and economic feasibility back in 2008, we proved that we are developing a very attractive, sustainable, and economically profitable project for Ecuador. This is a so-called “run-of-river" project, and the environmental impact is minimal, for it is not a water impounding dam. Therefore, the project has been developed to generate electricity according to the flow of the river, so we can reach the 1,500 MW capacity when the river carries large flows, which are present for six months a year. During the other six months, the plant will not generate at maximum capacity. All the studies carried out over the years prove that regardless of the season and rain variation over the year, the average production of the plant will be around 8,600 GWh annually. Coca Codo Sinclair is the largest hydroelectric project in Ecuador, and will have one of the lowest levels of environmental impact in the entire country.

© The Business Year - October 2012