Language
29 March 2010
The following is a translation of the Executive President's report from the Accounts for the year to 31 December 2009 for Guaracachi, which was released to the Stock Exchange in La Paz on Monday 29 March 2010:
The last year has been a time of significant challenge for Empresa Guaracachi. As Bolivia's largest power generator, the Company has been a leader and an innovator in many ways in the past but none so much as it has been in 2009. The results for the year to 31st December which we are pleased to announce come against a background of a worldwide banking collapse with European and North American lending institutions pulling out of all forms of project lending just at the time when Guaracachi was constructing the single largest thermal power project ever undertaken in Bolivia.
In 2009 Guaracachi completed its financing of the Santa Cruz combined cycle gas turbine (CCGT) project, an increase of some 96 MW of nominal capacity which will give Guaracachi an impressive 238 MW of nominally rated CCGT capacity when the new plant enters into commercial service in May 2010. Mechanical completion has now already occurred removing the principal project risk. Guaracachi is proud to announce that it has finished the installation of the steam turbine and generator in the new turbine hall and is now commissioning electrical systems and controls.
The project has been completed without a single dollar of debt from any European or United States bank. Instead funding has come from the Andean Development Corporation (CAF), the German Government's KfW development finance arm and from domestic Bolivian financial institutions. These include the two main pension funds, Prevision and Futuro de Bolivia, who bought a large portion of Guaracachi's successful 2009 US $24 million of unsecured bond offerings which were all domestically placed. The A+ debt rating of these bonds was a milestone in the history of the company, especially as Bolivia's own sovereign risk was upgraded by Moody's during 2009. However of equal importance were the corporate loans for the CCGT project provided by Banco BISA, Banco Ganadero, Banco Mercantil Santa Cruz and Banco Economico and Banco Union. At a time when the world's largest banks were pulling out of structured finance and emerging market debt, these local banks completed the funding of Guaracachi's pioneering work in building Bolivia's first low carbon emission, highly complex waste heat recovery power plant. This Clean Tech generation unit will account for around a quarter of Bolivia's peak demand for power from 2010 onwards.
The Board of Guaracachi realised at the start of last year that completing the CCGT project would be a difficult task and that bank lending worldwide was contracting. It therefore took the decision to delay cash disbursement of the 2009 dividend - which was declared in September 2009 at US $7 million - until the combined cycle capacity was fully funded and it was clear that no major delays or cost overruns could occur. I am delighted to report that this position has now been achieved and Guaracachi expects to pay its declared dividend in the very near future.
Other important innovations occurred in 2009.
Guaracachi completed the transfer and commissioning of the new Santa Cruz Cogeneration project at the parque industrial. This involved the relocation and re-engineering of two Frame 5 gas turbines to the Santa Cruz Industrial Park. In addition to installing a new SCADA digital control system, the turbines were configured to be able to use their waste heat in future to provide industrial steam to corporate clients. This will be Guaracachi's first combined heat and power (CHP) plant. A memorandum of understanding has already been reached to sell industrial steam to a new soy crushing plant to be built at the park. Indeed, during 2009 Guaracachi sold its surplus land at the parque industrial in order to help create a new steam client on land adjacent to the gas turbines. Santa Cruz Cogeneration is expected to be eligible in future for carbon credits under the Clean Development Mechanism of the United Nations.
Carbon credits provided another important milestone for the Company during the year with the signature of a contract with CAF and KfW for the sale of the certified emission reductions (CERs) arising from the CCGT project. Approximately 335,000 CERs per annum are anticipated to be sold under this contract, though actual numbers will depend on a number of factors, principally operational output. The sale of the CERs allows Guaracachi to fix the price in Euros which it will receive for its carbon credits during the life of the Kyoto Protocol and it could generate up to around US $5 million per annum of additional cashflow, depending on the number of CERs and the prevailing exchange rate when funds are received. It will also be accompanied by a cash injection from an agreed pre-payment of US $5 million following final registration of the CERs at the United Nations. Registration is due to be announced shortly.
For many years Guaracachi has been looking to export electricity generated on Bolivian soil to Bolivia's neighbours. In 2009 Guaracachi came to an outline agreement to export electricity to Brazil from the Bolivian border town of San Matias. At the request of the Government of Bolivia, Guaracachi took over the management of the San Matias distribution system and immediately began negotiations to supply power across the border to Brazil. San Matias is one of the main customs posts supervising imports and exports between Bolivia and Brazil. Guaracachi is currently completing the installation of 2.7 MW of Deutz gas engines half of which capacity is to supply electricity at 60 Hz frequency to Brazil. This is expected to be the fore-runner of a far larger Bolivian power plant selling power to Brazil's Mato Groso State.
The focus on financial security to complete the CCGT expansion has come at a cost to Guaracachi. This is because borrowings have risen to finish the installation works and yet not only has this resulted in a higher debt service cost without any increase in revenues to cover those costs until the second half of 2010 but, in addition, the process of physically attaching the new heat recovery steam generators to GCH 9 and GCH 10 lost us capacity and energy revenues. So too, the downtime in generating from the two Frame 5 machines transferred to the parque industrial resulted in lost revenues and lost income. These one-time reductions in revenue and net income cannot be capitalised and have resulted in a drag on 2009 earnings. Equally, the prudent engineering decision to bring forward planned maintenance of GCH 9 and GCH 10 so as to allow continued and uninterrupted CCGT operation in 2010 has had a negative effect on earnings. The management of Guaracachi believes, however, that this will pay rewards in the future.
The reduction in revenues associated with our expansion and associated write offs of deferred tax for 2009 have resulted in net profits below those originally budgeted for the year, with reported net income of US $3.1 million (Bolivian GAAP). However, as a measure of the confidence the Board of Guaracachi has in the positive overall effect on the Company of the prudent decisions taken in 2009, a dividend of US $4.5 million is being recommended to shareholders for payment in 2010 (approximately US $2 million to Rurelec, net of Bolivian withholding tax), with Guaracachi using its retained earnings to sustain a continuous dividend pay-out. The CCGT project will result in a step change in earnings in future as Guaracachi produces 40 per cent. more electricity on nearly half of its installed capacity for the same fuel burn and cash is also generated from the sale of CERs.
Few power companies have transformed the majority of their installed capacity to newer, more efficient output in so short a time. Since 2006, with the installation of seven GE Jenbacher 616 engines, a new General Electric F technology 6 FA and the 96 MW steam turbine as part of the 238 MW of CCGT capacity, Guaracachi has added 182 MW new thermal capacity to the 360 MW it owned prior to the acquisition of a controlling stake by Rurelec PLC of the United Kingdom. 50 per cent. organic growth in installed capacity is a record of which to be proud at a time when no other private sector power company in Bolivia had the vision to expand to meet the country's demand for power.
Guaracachi's continued investment programme has been of huge significance for Bolivia. In October 2009, the International Monetary Fund reported that Bolivia had the highest economic growth rate of any country in the whole of North America and of South America. With GDP growth of 3.2 per cent., exceeding even that of Brazil, the IMF called Bolivia a case study for sound economic management. That growth rate would not have been possible without Guaracachi's new capacity since Bolivia was the only country in Latin America not to have suffered power shortages over the last three years as a result of unavailability of power generation.
In spite of Guaracachi's critical position as Bolivia's largest power company, newspapers overseas have continued to speculate on the forced nationalisation of Guaracachi against the wishes of Rurelec PLC. This is not how I see the future. Guaracachi has enjoyed strong relations with the Government of Bolivia, and Rurelec continues to see its role in the Bolivian economy as a public-private partnership between state interests and those of the London Stock Exchange quoted foreign partner. These ties have been strengthened by the transfer of 49 per cent of the shares in Guaracachi from state pension funds to the newly reorganised ENDE, the state power company. Rurelec and Guaracachi anticipate being able to take on new generation projects in partnership with ENDE including major export projects. Guaracachi is already assisting in sponsoring a new thermal plant which will serve La Paz in association with Rurelec shareholders. I see this as the key to helping the Bolivian Government achieve its ambitious plans for making the country the engine for regional energy integration in the future.
None of these developments could have been possible without the hard work of everyone at Guaracachi. In a difficult year of disruptions and challenges, the Guaracachi team has performed superbly and I thank them all. I hope that the next five years together will be as successful as the first five years under the stewardship of Rurelec.
For further information, please contact:
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Company: |
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Peter Earl, Managing Director, Rurelec PLC |
Tel: +44 (0)20 7793 5610 |
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Nominated Adviser: |
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Paul Shackleton/Tessa Smith, Daniel Stewart & Company PLC |
Tel: +44 (0)20 7776 6550 |
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Brokers: |
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Daniel Briggs, Religare Capital Markets PLC |
Tel: +44 (0)20 7382 7776 |
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Richard Swindells/Andrew Craig, Ambrian Partners Limited |
Tel: +44 (0)20 7634 4700 |
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PR: |
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Ana Ribeiro,Tim Blythe, Blythe Weigh Communications Ltd |
Tel: +44 (0)20 7138 3206 |