Calidda Peru

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	28031
Company name	Gas Natural de Lima y Callao S.A.
Country	Peru
Sector	Utilities
Environmental category	B
Department	Infrastructure
Status	Pend PDS-IR

Date SPI disclosed	November 2, 2009
Projected board date	December 7, 2009

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Gas Natural de Lima y Callao S.A. (“Calidda”, or “the Company”) is the holder of a 33 year concession (extendable to a maximum of 60 years) granted by the Government of Peru (“GOP”) to build and operate the gas distribution network in Lima and Callao (“the concession area”). The Company started operations in 2004.

The Project consists of phase I of the expansion of Calidda’s distribution network, designed to increase the distribution capacity of natural gas in the concession area from 255 to 420 million standard cubic feet per day. Total Project cost is calculated at $ 236 million, and will include: (i) the expansion and upgrades to the main grid, (ii) the expansion to the low pressure secondary grid, and (iii) refinancing of existing senior debt.

Project sponsor and major shareholders of project company

Cálidda is owned by AEI (60%) and Promigas (40%), sponsors with extensive experience in the natural gas industry. AEI is also the majority shareholder of Promigas.

AEI owns and operates energy infrastructure businesses in emerging markets worldwide. It manages interests in 39 companies with operations in 19 countries, more than $9.2 billion in revenues in 2008, more than $8.9 billion in assets as of December 31, 2008, and 14,200 employees. AEI is rated B+ by Standard and BB by Fitch Ratings.

Promigas is the leader in natural gas transport and distribution in Colombia, with over 30 years of experience. Promigas has had a successful experience in Colombia in constructing and operating large gas pipeline projects, and transporting and distributing natural gas to the full range of clients including low-income residential consumers. They also have investments in liquid fuels, compressed natural gas vehicle use, and telecommunications. Through its Terpel and Gazel brands, Promigas owns/controls gasoline stations in Mexico, Panama, Ecuador, Peru and Chile. As of December 31, 2008, the company holds total assets and net worth of $2.6 billion and $816 million respectively, and is rated AAA(Co) by Fitch Ratings.

Total project cost and amount and nature of IFC's investment

The total Project cost is estimated at about $236 million. The proposed IFC investment is a $40 million A Loan and a $10 million C loan for IFC’s own account.

Location of project and description of site

The project is expected to benefit industries, NGV stations and residential households of Lima and Callao. Between 2009 and 2013, Calidda is expected to add six new residential districts to its current network, including Villa Maria del Triunfo, San Juan de Miraflores, San Martin de Porres, Puente Piedra, San Vicente de Canete and Imperial (Canete). The total population of the affected districts amounts to approximately 1.8 million people.

Anticipated development impact of the project

By nature, city gas distribution projects have a high development impact due to their fundamental characteristics, including their benign impact on the environment, the low hazards of transporting gas through gas distribution networks, and the positive social and economic benefits it imparts to the local populations. Natural gas is one of the cleanest fossil fuels, and its widespread use is one of the most cost-effective ways of reducing harmful air pollution caused by the widespread use of less clean-burning fuels such as sulfur-containing fuel oil, coal, diesel and gasoline. In addition, natural gas produces lower GHG emissions than the alternative fuels. Calidda’s project is therefore consistent with IFC’s climate change agenda.

The project will have an important direct reach impact on the bottom of pyramid (“BOP”) of the Lima and Callao provinces. Calidda’s strategy is focused on connecting low income segments of the population to the gas network, while continuing to develop the industrial and NGV segments.

IFC's expected development contribution

IFC’s role and additionality for the project includes the following:

Long-term financing: this is a long term business typically requiring large upfront investments which are recovered by a stream of revenues generated through regulated systems of tariffs. Such financing, either in amounts or appropriate tenor, is not currently available in the commercial banking market.
Development of basic infrastructure: support the development of basic infrastructure services, joining forces with a strong sponsor with global and regional expertise in this business, supporting them at an early stage of their expansion plan.
Support to key strategic objective of GOP: IFC will be supporting a key energy objective of the GOP to provide rapidly growing urban populations in Peru with a clean and cost effective energy source.

Environmental and social issues - Category B

The project is a category B investment according to IFC’s Environmental and Social Review Procedure. A summary of IFC’s environmental and social review findings for the project including the rationale for the B categorization is publicly available in the Environmental and Social Review Summary (ESRS) disclosed through IFC’s external website.

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