Board approves operations for US$180 million

(Caracas, November 30, 1993).-- Various operations totaling US$180 million were approved at the 80th meeting of the CAF Board held in Arequipa, Peru, on November 29.

CAF is a strong Latin American financial institution whose member countries are Bolivia, Colombia, Ecuador, Peru and Venezuela, and shareholders Mexico and Chile and 24 private banks from the Andean subregion.

The agenda approved by the Board -- which on this occasion was held in Arequipa by invitation of Peruvian Prime Minister Alfonso Bustamente -- included long-term loans for the energy, road and manufacturing sectors; equity participation to contribute to the development of small- and medium-sized industry, and technical cooperation operations to back privatization processes.

Additionally, CAF President & CEO Enrique García spoke on important aspects of his administration during the current year.

He emphasized the quality and volume of the operations approved in 1993 -- which exceeded US$2 billion and were mainly oriented to the private sector – and the incorporation of new and attractive financial services for clients.

He added that the Inter-American Development Bank (IDB) had just granted a US$200 million credit to CAF to finance operations in areas of complementary action. These funds were granted on long terms which is excellent backing for the Corporation’s operating programs.

Placement of bonds on the international market García made a special mention of the most recent placement of CAF bonds on the Japanese Samurai market, along with two previous issues on the world market for an approximate amount of US$300 million.

The public issue of instruments on the domestic Japanese market (¥10 billion) is very important since it is the first time that a South America institution or country has had access to the Samurai market. The placement was led by one of the largest investment banks of that country -- Nikko Securities -- and supported by a syndicate of prestigious financial institutions.

The CAF bonds were issued on very attractive conditions for investors, and very competitive conditions for the institution, with the decisive backing of the three investment grades granted this year to the Corporation by the most prestigious risk rating agencies in Europe and the United States: IBCA, Moody's and Standard & Poor's.

OPERATIONS APPROVED The operations approved in the meeting were as follows: BOLIVIA Equity participation in development bank The new services that CAF is offering to companies and financial institutions in the Andean region include equity participation in sound projects which generally involve the private sector.

In this respect, the Board Meeting approved a US$100,000 equity participation in the Banco De Desarrollo SA (BANCO-PRO), which in turn will offer credit facilities to small- and medium-sized enterprises on long and medium terms, liberalizing the requirements and guarantees which back the loan operations.

The body promoting this initiative is the Foundation for Production (FUNDA-PRO), private social utility institution which has been managing funds for development of small productive activities, but which now needs a private development bank to facilitate its operations.

BANCO-PRO will grant loans for projects and activities in the private sector, facilitating access to credit and other bank services by urban and rural sectors which are not adequately served by conventional banks.

PERU Ilo-Desaguadero Highway Studies As part of an extensive program to develop physical infrastructure and border integration projects implemented by CAF, it is planned to stimulate the cofinancing -- with other international organizations -- of a series of road programs with a high integrationist content.

These include construction of the Ilo-Desaguadero highway which will open up the central area of South America (Bolivia, Brazil, Paraguay and Peru), and the dynamic markets of the Pacific Basin, especially Asia, to where the epicenter of the world economy is gradually shifting.

The Board granted the Republic of Peru a US$1 million pre-investment loan to prepare feasibility studies for this highway.

The studies cover the technical-economic, environmental and engineering aspects necessary for obtaining finance for the route which is part of the Ilo-Desaguadero-La Paz International Corridor. The route is considered crucial for the subregional integration process because it is one of the trunk routes of the Andean Highway System, established by Andean Pact Decision 271.

With a length of 438 km, the highway, which crosses the Moquegua and Puno departments in the south region of the country, consists of of seven sections: Ilo, Moquegua, Torata, Laguna Suches, Mazocruz, Pichupichuni and Desaguadero, on the border with Bolivia. The project requires an approximate investment of US$70 million.

Sugar refinery A technical cooperation operation for US$360 million will be granted to the Peruvian Ministry of Agriculture to prepare feasibility studies for the privatization process of Empresa Agropecuaria Chiclin SA by means of installation of a sugar cane refinery.

Located in the Valley of Chicama, La Libertador department, this company is one of the largest government cooperatives of its type, now a corporation and interested in attracting shareholders from the private sector.

With the objective of interesting these investors, the plan is to install a modern refinery for crushing sugarcane which processes 3,000 tons a day.

More than a 1,000 private growers currently process this raw material in disadvantageous conditions of both cost and quality; consequently a project of this type will help recover the national sugar industry by facilitating the technological improvement and modernization of the existing infrastructure, and attracting private capital.

The CAF funds will cover the costs of international consulting to be contracted by the Ministry of Agriculture.

COLOMBIA Cooperation with the energy sector A US$300,000 technical cooperation grant was approved for the Republic of Colombia to cooperate with a plan to restructure and expand the electric sector, which the government is implementing.

CAF will provide support for the Ministry of Finance and Public Credit in the privatization process of the Cartagena Thermoelectric Plant, specifically to contract the services of an international investment bank to analyze alternatives for concluding the process.

The possibilities include direct sale plan, conversion or long-term lease.

With these actions, CAF continues its backing for the privatization and restructuring processes which member countries consider of high priority for their economic and social development.

MULTINATIONAL: Contribution to Energy Fund CAF will make a US$25 million contribution to the Scudder Fund for Private Electric Energy in Latin America, destined to identify financially viable investments in the regional independent electricity sector.

The basic objective is to develop and strengthen private electricity generating utilities. The Fund will invest in private-sector power projects which sell electricity through long-term contracts to industrial users and transmission and distribution utilities.

Most of the investments will be in the form of equity participation, although other financing facilities can be used to promote development of the capital market.

In addition to CAF, two important US electricity utilities (CMS Energy Co. and NRG Energy Inc) participate in the Scudder Fund, together with the International Financial Corporation, of the World Bank group, which serves the private sector.

VENEZUELA: LOANS FOR US$152 MILLION Caruachi and Macagua II Hydroelectric Plants Two loans for the Venezuelan energy sector totaling US$62 million were approved in the 80th meeting of the CAF Board for the utility CVG Electrificación del Caroní (EDELCA).

One of them, for US$50 million, will finance construction of the Caruachi Hydroelectric Plant, to be located 22 km from Puerto Ordaz, Bolívar state.

Caruachi will have installed power of 2,160 MW and produce average annual power of 13,300 GW/hour for the national interconnected system.

The second loan, for US$12 million, will cofinance construction and start up of another plant, Macagua II, a project which began in 1987 and is now making rapid progress.

In 1992, CAF granted US$33 million for this plant, which is a continuation of Macagua I, and consists of works to control the Caroní River, form the reservoir and expand the generating capacity in line with regulation of the flow achieved in the final stage of Guri.

With nominal power of 2,548 MW, the first generating units of this plant are scheduled to come online next year, and the final ones in 1997.

These projects are included in CAF’s priority areas because they will contribute to meeting the growing need for national need for electric power, especially the Venezuelan industrial exporting sector.

The two plants are will be located on the Caroní River, whose enormous hydroelectric potential EDELCA has been developing for three decades in an effort to meet the country needs in sufficient quantities at competitive prices.

EDELCA currently owns and operates two hydroelectric facilities in the Caroní: Macagua I and the Raúl Leoni Plant (Guri), the second largest in the world.

These plants have made possible development of the heavy industry complex in the Guayana region and now supply over 70% of the country's electricity demand for electric power.

The projects will have little effect on the environment because EDELCA has structured an interdisciplinary group dedicated to reducing to the minimum the environmental impact which this type of works generates, especially protection of wildlife. Construction of Macagua II also includes the works needed to preserve the scenic beauty of the Cachamay and La Llovizna waterfalls.

Road improvements A US$70 million loan was approved for the Republic of Venezuela to cofinance a program to manage and conserve the main road network. The project will be executed by the Ministry of Transport and Communications (MTC).

This “Vial III” program has high priority for the country because an important part of the 36,000 km of Venezuela’s main road network is in a deteriorated state, basically surface (pavement layers, drainage structure, bridges and tunnels) and signposting and safety.

The project -- whose total cost is US$852 million -- consists of a multiple investment plan to be implemented from 1994 to 1998, based on three main components: institutional strengthening, maintenance and investment.

Financing will be come from the Inter-American Development Bank (US$200 million), World Bank (US$150 million), the Ministry of Transport (US$432 million), and CAF.

The program covers rehabilitation of over 2,000 km of roads, 730 bridges and 150 km of tunnels; major maintenance of 3,200 km of roads, and acquisition of equipment for supervision of the works and signposting.

The Ministry will execute the program through the Highway Department. Some projects, however, can be managed by state governments after the decentralization agreement between the central government and the states is signed.

Loan to MANPA to increase tissue paper production Another loan approved by the CAF Board, for US$20 million, will go to the private company Manufacturas de Papel CA (MANPA) for design and start up of a machine (Machine 8 Project) to produce various types of toilet paper.

This project is being executed in the facilities of the company Fábrica de Papel in Maracay, Aragua state, owned by the Delfino Group, which has been leader in paper manufacture since 1912. Its production capacity of tissue paper is 50,000 metric tons annually, which meets about 40% of the needs of the domestic market. Surplus production is exported.

This factory produces toilet paper, napkins, facials, paper towels and sulfite-type MG. It also has its own pulp producing plant extracted from Caribbean pine, and holds the NORVEN seal of quality for toilet paper given its high level of quality control.

This project will raise production by around 27,000 metric tons annually, which will enable MANPA to meet growing domestic and international demand, especially in the Latin American and Caribbean area.