ERSA Energias

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	27870
Company name	Empresa de Investimentos em Energias Renovaveis S.A.
Country	Brazil
Sector	Electric Power
Environmental category	B
Department	Infrastructure
Status	Pending Signing

Date SPI disclosed	July 31, 2009
Projected board date	September 3, 2009
Previous Events	Approved: September 10, 2009

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

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The Project consists of an equity investment in Empresa de Investimento em Energias Renovaveis S.A. (“ERSA” or the “company”), a company established in 2006 to explore renewable power generation opportunities by developing, building and operating a portfolio of small hydropower plants (“SHPs”, defined by Brazilian regulation as those with less than 30MW of installed capacity) and wind farms and biomass-fired plants. ERSA has a portfolio of 512.5MW of installed capacity with plants located in the states of Minas Gerais, Sao Paulo, Santa Catarina and Rio Grande do Norte (in Brazil’s Northeast). The current portfolio is comprised of: three SHPs in operation (47MW); nine SHPs under construction (125.5MW); eight SHPs (128.5MW) under development; and nine wind farm projects (211.5MW) under development.

Project sponsor and major shareholders of project company

ERSA’s shareholders consist of:

Patria Energia Fundo de Investimento em Participações (or “Patria Energia FIP”), a private equity investment fund managed by Patria Investimentos S.A., or Patria Investimentos, a leading alternative investment house in Brazil with business in private equity, real estate, capital management, corporate consulting and infrastructure. Patria Investimentos was incorporated in 1994 and has developed extensive experience in both local and international financial markets. Currently, Patria Investimentos is one of the major private equity firms in Brazil with approximately $2.5 billion in assets under management.

Eton Park Capital Management LP (“Eton Park”), a global investment firm, which currently manages approximately US$13 billion in public and private equity, fixed income and alternative investment markets across the globe. On the private equity side, Eton Park is particularly focused on emerging markets, mainly Latin America;
Fundo de Investimento em Participações Multisetorial Plus (or “BBI”), a private equity fund and fully-owned subsidiary of Banco Bradesco S.A., the second-largest Brazilian privately-owned bank with assets of approximately $250 billion and more than 40 million individual clients as of December 2008;
Deutsche Investitions – und Entwicklungsgesellschaft mbH (“DEG”), a member of KfW Bankengruppe, which in turn is controlled by the Federal Republic of Germany and the Federated States of Germany. DEG finances investments of private companies in developing and transition countries;
GMR Empreendimentos Energeticos Ltda., a Brazilian family-owned company, with experience in developing and constructing small hydropower plants in the State of Santa Catarina, in Brazil.

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

ERSA plans to invest over $1.0 billion over the next four years to develop, acquire and operate its pipeline of renewable power projects. The proposed IFC equity investment in ERSA is for an amount of up to $45 million for IFC’s own account.

Location of project and description of site

ERSA is headquartered in São Paulo, Brazil. The Company’s small hydropower plants, including those in operation, construction and in preparation, are located mainly in the States of Santa Catarina and Minas Gerais, in Brazil. ERSA’s wind projects, all under preparation, are located in the State of Rio Grande do Norte, also in Brazil.

Anticipated development impact of the project

The project is expected to deliver significant development impact by:

- providing long-term (equity) financing to help support investments in the Brazilian power sector;
- helping meet medium- and long-term electricity demand in Brazil, thus contributing to sustainable economic growth and improved living standards by supporting the provision of additional power;
- increasing renewable energy supply, with significant environmental benefits compared to alternative thermal power options in terms of avoiding greenhouse gas emissions;
- assisting a new private-sector entrant to the Brazilian power sector, positioned to promote the much needed consolidation of the market segment related to small- and medium-sized renewable energy projects;
- promoting access to capital markets and implementation of high corporate governance standards; and
- helping create jobs during construction and operation.

IFC's expected development contribution

Provide counter-cyclical financing. Private sector access to finance has been severely limited by the on-going global financial and economic crisis. Investments in power generation - a priority sector for the Brazilian Government - rely substantially on private-sector investors’ financial strength. IFC will support the continuity of investments in renewable energy power generation, at a moment when both commercial banks and capital markets are facing severe challenges to provide competitive long-term funding.
Contribute to the efforts against climate change. With the proposed investment, IFC will help expand the role of clean energy through hydropower and other renewable sources with a view to harnessing the country’s significant hydro and wind potential, while reducing emissions and mitigating climate change.

Support a new private sector power developer with a primary focus on power generation from renewable sources. With the proposed investment, IFC will support a new entrant, ERSA, to establish its business in a market segment that requires significant levels of private investments in the medium- and long-term.

Leverage IFC industry experience and network. IFC will seek to leverage its knowledge and experience in the power sector to support the company as it consolidates its business, particularly its participation in market segments subject to an incipient regulatory framework, such as wind power generation in Brazil.

Stamp of approval. As ERSA is still an early stage venture, ERSA’s management sees particular value in IFC’s participation, which will enhance credibility in its dealings with various counterparties, including new equity investors, lenders, potential off-takers, and other industry participants. ERSA’s management also sees significant value added from IFC, as a pre-IPO equity investor, which will help the company to resume its efforts to approach the capital markets in the medium-term, while promoting high corporate governance standards.

Help achieve high environmental & social (E&S) standards. IFC’s presence in the company as a shareholder will allow ERSA to enhance its environmental and social management system (ESMS), supporting the Company in the implementation of IFC’s Performance Standards on environmental and social aspects at the project level.

Environmental and social issues - Category B

The project is categorized B according to IFC’s Environmental and Social categorization process as it consists of an equity investment in a company focused on the development of small hydroelectric power as well as wind power projects. Key environmental and social issues are mostly centered about the construction phase of the hydroelectric projects and include: (i) potential social and health impacts on small rural communities arising from the temporary influx of construction labor during the construction phase; (ii) potential, but very limited, involuntary physical or economic displacement arising from the creation of reservoirs in some of the projects; (iii) occupational health and safety issues during construction phase; and (iv) potential impacts on biodiversity from land clearing and inundation activities.

For further detail please refer to the project’s Environmental and Social Review Summary (ESRS).

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