MIGA Bolsters Efforts to Increase Mexico’s Hydropower Capacity
WASHINGTON, September 14, 2023 — The Multilateral Investment Guarantee Agency of the World Bank (MIGA) has issued a guarantee to JPMorgan Chase Bank, N.A. and the Hongkong and Shanghai Banking Corporation Limited (HSBC) covering the risk of Non-Honoring of Financial Obligations by a State-Owned Enterprise (NHFO-SOE), with respect to Comisión Federal de Electricidad (CFE), Mexico's state-owned integrated electric utility, under a guarantee that CFE is providing with respect to a loan to Fideicomiso de Energías Limpias Número 10670 (FIEL).
MIGA’s guarantee is for $536 million for a period of 15 years, and it constitutes the first guarantee issued by MIGA to cover the obligations of a State-Owned Enterprise, CFE, acting as guarantor in relation to the loan payment obligations of another entity. FIEL was created by CFE in August 2021 as a financing vehicle for capital expenditures related to its renewable energy investment program.
MIGA’s guarantee supports repowering and major upgrade works of seven aged hydroelectric plants owned and operated by CFE in Mexico. These plant upgrades are expected to increase capacity by approximately 113 megawatts and produce close to 1500 gigawatt hours of electricity per annum while extending the assets’ useful life and without altering reservoirs and other dam infrastructure. The investments in hydroelectric generation are a part of Mexico’s pledge to reduce its carbon footprint, decrease its dependency on natural gas imports, and increase its renewable energy production.
At the COP27 meetings in November 2022, the government committed to achieving 35% clean energy generation by 2024, almost entirely through CFE initiatives, including investments in the hydroelectric sector, energy efficiency measures, facilitation to transition to electric vehicles, support to existing geothermal and new installations of solar PV. This transaction contributes to meeting this objective.
“MIGA is delighted to support investments in Mexico’s hydropower sector, which will increase renewable energy generation and reduce the country’s carbon footprint,” said Hiroshi Matano, MIGA Executive Vice President. “MIGA’s guarantee is enabling CFE to secure long-term U.S. dollar-denominated financing at a more attractive price, facilitating investments in renewable energy infrastructure.”
As Mexico’s vertically integrated electric utility, CFE plays a central role in the country’s energy sector, providing electricity to 99% of the Mexican population, generating a significant proportion of Mexico’s electricity, and acting as the sole provider of energy transmission and distribution services in the country. With demand for electricity projected to rise 2.5% per annum on average for the period 2023-2037, CFE has developed an investment program geared toward expanding generation capacity as well as maintaining and improving its current power sector infrastructure. One key component of this investment program is the rehabilitation and modernization of electricity generation components within existing hydroelectric power plants.
“By contracting long-term financing in favorable conditions through the MIGA guarantee, CFE will be able to extend the useful life of its hydroelectric plants and increase its renewable generation capacity. With this, CFE will contribute significantly to reduce greenhouse gas emissions and to accelerate Mexico's energy transition,” said Manuel Bartlett, CEO of Comisión Federal de Electricidad. “At the same time, CFE, as a socially responsible company, will contribute to improving the welfare of Mexican society, guaranteeing the supply of electricity in timely, safe, reliable, efficient, and sustainable conditions.”
Given Mexico’s heavy reliance on fossil fuels for generation, the project plays an important role in the execution of the country’s sustainability agenda. While solar PV and wind play an increasingly important role in Mexico’s energy matrix and Nationally Determined Contribution commitments, hydropower remains Mexico’s largest source of renewable energy. The country’s 12.6 GW of installed hydropower capacity, which is primarily owned and operated by the CFE, generated approximately 10.5% of the country's electricity in 2022.
John Meakin, Global Head of Export & Agency Finance at J.P. Morgan, said “J.P. Morgan is delighted to have worked closely with CFE and MIGA in closing MIGA’s first-ever financing for a power utility company in Latin America under the Non Honoring of a State-Owned Enterprise’s Financial Obligation program, and the first time ever that MIGA is providing coverage for an SOE as a guarantor. The financing will support CFE rehabilitating and modernizing seven existing hydropower plants, contributing to lower cost of energy in Mexico by extending the plants’ useful life and improving efficiency.”
“This project is an important milestone for Mexico’s transition to sustainable energy, and the team at HSBC is very excited to have supported CFE in their transition journey” , said Sam Lippitt, HSBC’s Head of Export and Asset Finance for the Americas. “Mexico is a core geography for the bank in our Latin American franchise, and we are pleased to work with MIGA to deliver best-in-class financing solutions to clients in the region.”
MIGA was created in 1988 as a member of the World Bank to promote foreign direct investment in emerging economies by helping to mitigate the risks of restrictions on currency conversion and transfer, breach of contract by governments, expropriation, and war and civil disturbance; and offering credit enhancement to private investors and lenders. Since its creation, MIGA has issued over US$76 billion in guarantees across 123 developing countries, supporting more than 1,000 projects. Over the past decade, MIGA’s guarantees have generated more than 156,000 jobs in developing countries.
Comisión Federal de Electricidad (CFE) is the largest electrical utility in Mexico and Latam, and is vertically integrated from generation to commercialization of electric energy. In transmission and distribution processes, it is the unique operator. CFE is fully owned by the federal government, with legal personality, own assets and technical, operational and management autonomy.
CFE provides electricity to 47.8 million customers, covering 99.3% of the population of Mexico. Its generation park is integrated by 191 generation plants. CFE’s total installed capacity is 69,149 MW, of which clean energy technologies represents almost a third. CFE provides 73% of the total electricity demand in Mexico.
CFE faces the challenge to satisfy the growing electricity demand expected for the coming years and to contribute accelerating the energy transition in Mexico. For that reason, CFE is investing in infrastructure projects based on renewable and clean technologies that will allow the company to increase its generation capacity and to contribute to the reduction of greenhouse gas emissions. CFE has also important social goals, such as providing rural electricity and access to internet services in remote communities in Mexico.
About J.P. Morgan’s Corporate & Investment Bank
J.P. Morgan’s Corporate & Investment Bank is a global leader across banking, markets and securities services. The world’s most important corporations, governments and institutions entrust us with their business in more than 100 countries. With $30.4 trillion of assets under custody and $647.5 billion in deposits, the Corporate & Investment Bank provides strategic advice, raises capital, manages risk and extends liquidity in markets around the world. Further information about J.P. Morgan is available at www.jpmorgan.com.
HSBC serves customers worldwide from offices in 62 countries and territories. With assets of $3,041 billion, HSBC is one of the world’s largest banking and financial services organizations.
Elizabeth Howton (202) 458-5922, email@example.com
For more information, please visit: https://www.miga.org