Press Releases 2012

Hydropower Expansion Into Peru

Details

Published: Monday, 12 December 2011 10:10

Rurelec PLC (AIM:RUR), the electricity utility which owns and operates power generation capacity in Latin America, announces a new project in Peru.

Foreign investment is actively encouraged in Peru, as the country is experiencing high demand growth for power.

Rurelec has agreed, as anchor investor alongside Peruvian and other international partners, to acquire a 50 per cent interest in Cascade Hydro Limited ("Cascade"), a newly formed hydroelectric power development company focused on run-of-river projects.

Rurelec has secured an option over a 32 MW pipeline of prospective developments, which it proposes to inject into Cascade on completion of successful final due diligence.  The initial package includes Canchayllo, a 4 MW project located in the Junín Province to the east of Lima, which was awarded a power purchase agreement (PPA) in the latest round of renewable energy tenders in Peru.

With a planned construction period of about18 months post financing, the US$8m project is expected to enter commercial operations in 2013.  The Board has approved initial funding of US$600k to cover operating expenses and development costs which should bring the Canchayllo project to financial close as well as substantially fund the  development of the other run of river hydro projects now under option in Peru

The hydroelectric power generation business is highly capital intensive and requires a flexible investment structure with ready access to development capital.  However, once constructed, the strong cash flow and low operating cost of typical run-of-river hydros make them potentially suitable for refinancing by local bond issues.  The local management of Cascade have a close working relationship with  Peruvian banks and insurance companies, which currently have an appetite to provide long term finance for contracted Peruvian hydros.  In addition, Rurelec's own established banking links and proven project management capabilities in the region can assist Cascade in its programme of construction and finance of new mini hydros.

Commenting on the expansion, Peter Earl, Chief Executive of Rurelec said:

"I am delighted to announce our expansion into Peru, which has been a long term strategy for the Company.

"Our investment in Cascade is the first small step in the process of replacing Rurelec's 538 MW of installed capacity at Guaracachi which was lost as a result of the Bolivian Government's nationalisation of the electricity generation sector on 1^st May 2010.  After three years of retrenchment, we are finally moving ahead again in Latin America with excellent new partners and with only limited exposure for Rurelec's hard won cash resources."

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