New Brazilian fund invests in alternative energy projects
- 08/03/2004



Multi Bank DTVM, the Brazilian subsidiary of Banque Safdié SA, Boa Esperança Management, DZ Negócios com Energia, and Ecoinvest are launching a private equity fund that will invest in projects to generate energy from alternative sources such as biomass, small hydropower plants (SHPs) and wind. Promon Engenharia will provide technical assistance to the fund, which will be called EcoEnergia Fundo de Investimentos. Its articles and bylaws will be filed this week with CVM, Brazil’s securities and exchange regulator. EcoEnergia will be available to both institutional and qualified individual investors.
The Fund expects to raise R$120 million by the end of the year. Given the typical leverage capacity of projects in the sector, that amount should be sufficient to make feasible some R$300 million worth of investment, which would correspond to generating capacity of between 100 and 150 megawatts (MW) according to the fund managers’ estimates. The investment and disinvestment periods will both be five years. At the end of the five-year disinvestment period, a project or the entire portfolio will be sold to strategic investors or institutional investors interested in projects with a risk profile associated with the operating regime.
EcoEnergia plans to participate as an investor in alternative energy generation projects that comply with technical and economic feasibility and governance criteria established by the fund managers. For example, a number of projects are under analysis after qualifying within the scope of PROINFA (see below). This accreditation means they are licensed to sell power to Eletrobrás in accordance with long-term contracts for prices fixed in advance. “PROINFA projects certainly come with attractions such as guaranteed revenue and contract quality, but that is only one of the variables used to calculated the profitability of a project,” says David Zylbersztajn, founder and president of DZ Negócios com Energia. “There are several sound projects that are not linked to PROINFA and would be worthwhile investments for the Fund.”
In addition to raising revenue from project energy sales, the Fund also aims to sell the carbon credits associated with these projects in the framework of the Kyoto Protocol’s Clean Development Mechanism (CDM) and the European Union Emissions Trading Scheme (ETS).

PROINFA

PROINFA, the renewable energy incentives program of the Brazilian Mining & Energy Ministry, was implemented in 2002 (Law 10.438) with the aim of increasing the volume of independently produced electricity as a share of total power generation. The program prioritizes wind, biomass and small hydropower plants as alternative sources of electricity for supply to the national grid. On June 23, 2004, Eletrobras (Brazil's federal power holding company) received qualifying documents for 115 selected projects. These projects will sign 20-year power purchase agreements with Eletrobrás, and will be offered financing below local market rates from BNDES, the national development bank, to cover up to 70% of their needs. PROINFA is expected to cover 27% of the projected rise in demand for electricity over the next three years.

Brazil’s new private equity funds (FIPs)

On July 16, 2004, CVM Instruction 391 introduced new rules for private equity funds, Fundos de Investimento em Participações (FIPs), that may invest in stocks, bonds, debentures and other securities convertible into or exchangeable for stock issued by listed or unlisted companies. FIPs may participate in the decision-making processes of the companies in which they invest, helping to define strategic policy and playing a managerial role. They may offer shares only to certain qualified investors and only in minimum denominations of R$100,000 (about US$34,000). As closed-end funds with a fixed holding period to redemption, their bylaws must set time limits and other rules for subscription, duration and disinvestment.

Fund Managers

Multi Commercial Bank Distribuidora de Títulos e Valores Mobiliários Ltda (Multi Bank DTVM) is a Brazilian subsidiary of Banque Safdié S.A., a Swiss bank founded in 1965 and controlled by the Safdié family, former owners of Banco Cidade. Set up in 2002, Multi Bank DTVM is registered as a financial institution under Brazilian law and staffed by professionals with substantial experience in the local financial market. Its core business is wealth and investment management.

Boa Esperança Management (BEM) is an independent fund manager that structures and manages funds in a wide range of different formats, with special emphasis on securitization and start-ups. BEM is in the vanguard of the fund industry, utilizing the expertise and experience of its professionals to create and manage innovative funds that invest in sustainable projects aiming to enhance the quality of life and implement best practice in corporate governance and ethics. It constantly pursues opportunities in newly regulated sectors such as alternative energy, telecommunications, water and sanitation, and logistics. BEM regularly partners with Multi Bank DTVM.

Technical Advisors

DZ Negócios com Energia specializes in creating and developing business ventures in the energy sector. It was founded in early 2002 by David Zylbersztajn, a former director general of ANP, the Brazilian petroleum industry regulator and former energy secretary of São Paulo State. It aims to provide technical advice to investors in the Brazilian oil, natural gas and electricity industries. In little more than two years of existence, DZ has worked with major local and foreign companies on the financial and strategic analysis of energy projects, bringing to bear its highly qualified team of professionals and extensive network of collaborators in universities, research centers and consulting firms. www.dz-ne.com.br

Promon

Founded in 1960, Promon designs, integrates and implements infrastructure solutions for key sectors of the economy, especially power, oil & gas, process industries, mining, metallurgy, civil works, telecommunications, and information technology. Its numerous assignments in the electricity sector range from feasibility studies and concept designs to turnkey project implementation for hydroelectric, thermal and nuclear power plants and transmission systems in Brazil and elsewhere. Promon also has a rich history of developing its own projects in real estate, telecommunications and energy. In the latter area, for example, it is the majority shareholder in UTE Bahia, a thermal power plant affiliated to the Brazilian Government’s Emergency Electric Power Plan and implemented by Promon in a record four months. All equity in Promon is owned by its employees. Its highly qualified professionals, equipped with cutting-edge technology, are the linchpin of its work in engineering and project management. www.promon.com.br

Ecoinvest

Ecoinvest is a sustainable development-focused advisory firm providing a broad range of financial services that meet the needs of environmentally and socially conscious investors, helping them manage their money ethically and wisely. It is a pioneer in prospecting and negotiating renewable energy projects in Brazil with potential participation in the emerging carbon trading market. Since the start of 2000 Ecoinvest has been involved in identifying and financially structuring projects to generate some 600 MW, equivalent to investment of more than US$260 million in wind power, small hydropower plants and biomass-fired thermal plants. Ecoinvest acted as financial advisor to Usina Piratini in what can be considered the first Brazilian deal involving carbon credits and renewable energy. Usina Piratini is a 10 MW biomass-fired independent power producer that generates electricity from residues supplied by wood processing plants in the region of Piratini, a town in the southern state of Rio Grande do Sul. The deal was announced in April 2002 by Canada’s environment minister on behalf of the Canadian Government, which bought the carbon credits. In the sugar and alcohol industry Ecoinvest is advising Usina Catanduva, a sugarcane mill in São Paulo State, on the negotiation of a US$1 million agreement with the Government of the Netherlands. The CDM project will use sugarcane bagasse to generate 20 MW and was selected by the Dutch Government in an international Certified Emission Reduction Unit Procurement Tender (CERUPT) in March 2003. In October 2002 Ecoinvest acquired SeaWest do Brasil, a unit of San Diego-based SeaWest Windpower with projects in Rio de Janeiro and Piauí. www.ecoinv.com