China Development Bank contributes $356 million to syndicated buyer's credit loan for Phase C of 350 MW Candiota Thermoelectric Power Plant

In November 2004, China Development (CDB), Centrais Elétricas Brasileiras S.A. (Eletrobras), and CITIC Group Corporation Ltd. signed a framework agreement for Phase C of the 350 MW Candiota Power Plant. The agreement was signed in the presence of President of Brazil Luiz Inácio Lula da Silva and Chinese President Hu Jintao. At the time, the estimated investment into the project was $256 million, with CDB financing 90% and CGTEE covering the remaining 10%. On August 3, 2006, the Federal Senate of Brazil authorized CGTEE to take on $430 million of external debt, and the loan agreement was to be signed within 270 days of this authorization. On April 20, 2007, CDB, BNP Paribas S.A., and Companhia de Geração Térmica de Electric energy (CGTEE) -- a subsidiary of Eletrobras -- signed a $430 million syndicated buyer's credit loan agreement for Phase C of 350 MW Candiota Thermoelectric power plant. CDB contributed $356 million to the loan syndicate. The remaining funding was contributed by CGTEE. The loan was provided in two tranches: a $281 million tranche to finance an export contract and a $149 million tranche to finance a commercial contract. According to the 2007 Eletrobras Annual Report, the $281 million tranche, which was to be used for the acquisition of equipment and services, carried an interest rate of LIBOR plus a 0.75% margin and a maturity of 15 years, and the $149 million tranche, which was to be used for other project expenses, carried an interest rate of LIBOR plus a 1.30% margin and a maturity of 8 years. The interest and the principal payments of the loan were to be made semiannually in June and December. The funds from the financing agreement were fully drawn upon by May 2010. The loan's (principal) amount outstanding was BRL 682.4 million as of December 31, 2014 and BRL 182.6 million as of December 31, 2020. China Export & Credit Insurance Corporation (Sinosure) originally provided buyer's credit insurance for this debt. However, it was replaced as an insurer by CDB itself on May 8, 2008, at the demand of the Chinese Government. Sinosure's replacement was related to issues regarding the project's contracts and financing, which caused considerable delays. This project sought to construct and install a 350 MW subcritical condensing coal-fired unit in the Candiota plant. The Candiota plant was located in the Municipality of Candiota, located in the southern half of the state of Rio Grande do Sul, about 400 kilometers from Porto Alegre. In addition to CITIC, PowerChina SEPCO1 Electric Power Construction Co., Ltd. (SEPCO1) was a subcontractor responsible for project implementation. It signed an agreement with CITC to implement the project on August 19, 2006; it was responsible for the engineering design, supply of materials and equipment, construction (under an engineering, procurement, and construction (EPC) contract), installation, commissioning, testing, and trial operation and repair. The project's groundbreaking ceremony was held on September 25, 2006. The project was completed on December 29, 2010, after a successful 168-hour long full-load trial run. The Candiota plant’s Units A and B, which were in operation prior to SEPCO1's implementation the third phase of the project, have experienced serious issues. In 2016, the Brazilian Institute of Environment and Renewable Natural Resources (IBAMA) closed the plant because of its failure to meet pollutant emission control parameters; IBAMA suspended at Units A and B and fined the plant $23 million upon discovering violations in the maximum flow of effluents and the rates of grease and oil.

Additional details

1. This project is also known as the Presidente Médici Candiota Power Station Project. 2. Some sources identify CITIC as the financier. This issue warrants further investigation. 3. The total amount of foreign financing for this project was $430 million. Some sources ("Candiota 3 quer mudar a imagem das usinas térmicas a carvão no Brasil") indicate that CDB provided 75% of this amount (approximately $322.5 million). However, the China-Latin America Finance Database identifies the value of CDB's contributions as $356 million, which AidData believes to be accurate and has coded accordingly. A list of Chinese-financed projects compiled by the University of Tokyo reports the amount as $355.5 million, citing a Brazilian government document which is no longer accessible. 4. The breakdowns of CDB's contributions to the two loan tranches is unknown. As such, AidData has estimated the loan's interest rate by adding 1.025% (the midpoint of the 0.75% and 1.3% range) to average 6-month LIBOR in April 2007 (5.354%). Similarly, AidData has estimated the loan's maturity by taking the midpoint (11.5 years) between 8 years and 15 years.

Number of official sources

21

Number of total sources

35