Dino Barajas Quoted by Bloomberg BNA on Mexico’s Wholesale Power Market
Bloomberg BNA’s International Environment Reporter has quoted Akin Gump cross-border transactions partner Dino Barajas in its article “Mexico’s Wholesale Power Market Sets 15-Year Contracts,” pertaining to a decision by Mexico’s Energy Ministry to grant a 15-year time period for new power generation projects.
The decade and a half time period, according to the article, alleviates pressure on developers to ensure that the capital investment in a project would be covered by subsequent income flows. While longer than what was seen in earlier draft rules, the time span still falls short of what many in international finance are accustomed to.
Barajas said the issue that generation developers now face is that “they will need to secure finance and repay it in a much shorter period of time. Lenders will not be willing to go naked in those final years with no purchase agreement in place, and be exposed to merchant market forces. In turn, developers will not be able to receive any return on their investment and will not be able to be as aggressive on pricing as they would have been otherwise.”
That said, having the new rules finalized will provide certainty to the market, since it has been in a “holding pattern,” said Barajas. He added, “The recently announced regulatory backdrop will go a long way in helping the industry evaluate the risk/reward structure that Mexican technocrats are trying to establish.”