The recent $104 million loan supporting the Aratinga
wood-to-energy greenfield project on Brazil's east coast
signals the beginning of a new era for project finance,
according to local lawyers. Here's why.
The project, being built by renewable energy start-up Energias
Renováveis do Brasil (ERB), is thought to be the
worlds first petrochemical plant powered by
It is the first time Brazil's development bank, Banco Nacional
de Desenvolvimento Econômico e Social (BNDES), has
directly financed a wood-to-energy project. It approved the ERB
loan on June 28.
"BNDES has been broadening its scope of action, acting on all
sectors and providing equity to very high-profile deals," said
Paulo Padis, a partner at Stocche Forbes in Sao Paulo.
The Aratinga project is a novel co-generation facility that
will, over a phasing in period, replace the natural gas-fired
steam supply in the city of Candeias, Bahia. It is a
revolutionary power model, and its financing reflects the
banking sectors willingness to fund endeavors far beyond
the familiar infrastructural and energy industries.
Wood-to-energy is not the type of project that would have won
lenders over even 10 years ago, observers say.
Padis described how BNDES's financing of projects has developed
sector by sector in recent years. The bank has gone through a
process of focusing on a particular industry, achieving
substantial success, encouraging investors and welcoming new
market participants, and then moving onto a new sector.
BNDES used to intensely focus on the development of small
hydroelectric plants. It then achieved phenomenal victories
with wind projects and infrastructure development, bringing
many startups, alternative energy vehicles, and international
lenders into the market.
Encouraged by these successes, BNDES has forged ahead into
other alternate sources such as biomass.
"It's good to see that they are supporting the development of
new areas, and biomass electricity generation is one that will
not flourish without BNDES support," Padis said. It is tough
for biomass to compete with a more established and more
traditional fully hydroelectric base. It needs government
participation," he added.
The significance of this deal goes far beyond Brazil.
Wood-to-energy projects are relatively inexpensive,
environmentally friendly, and feasible in other parts of Latin
America. But more importantly, BNDES is increasingly looking to
lend beyond its traditional pool of locally-owned project
For example, Carlos José Gómez of Lloreda Camacho
& Co in Bogota has advised on a number of BNDES project
financings, including its 2010 funding of a subsidiary of ISA,
Colombia's state-owned power company.
BNDES has proven itself willing to provide financial support to
non-Brazilian-owned projects. For projects in Colombia, they
have the added incentive of a new private-public-partnership
(PPP) law that provides many guarantees to financial
institutions that are considering becoming lenders in such
"Under the new PPP law, lenders can take control of a project
in case of default. In the past, we had these projects, but we
didn't have this provision of the new law," Gómez
"We have a lot of expectations with these new laws, providing a
legal framework [favorable to] possible lenders. I think you
are going to see projects like [Aratinga] here in the next few
years," he said.
The Aratinga project involves a debt contract between ERB and a
trio of local banks. The lead arranger is Banco Votorantim,
which provides 34% of the debt, followed by Banco Itau and
Banco Bradesco with 33% each.
See also Brazils
private loan first to prompt project finance