Market Assessment of Chile

2. Financing Options

There are a variety of options for financing energy-efficiency projects in Chile. International sources of financing include the Inter-American Development Bank and the International Finance Corporation. US government sources of financing include the Export-Import Bank and the Overseas Private Investment Corporation. Finally, local financing is available in Chile from banks and leasing companies.

International Financing Institutions

The Inter-American Development Bank

Latin America's economic success has resulted in new interest in financing private sector development in the region. For example, the Inter-American Development Bank (IDB), the multilateral development bank responsible for lending in Latin America and the Caribbean, has made it easier for private Latin American companies to get loans. US companies need a Latin American partner to access IDB funds.

There are a number of ways that the IDB has made financial assistance available. It has earmarked US$17.5 million for loans to the private sector. It has also established the Inter-American Investment Corporation to manage a US$4 million fund to support export-oriented Latin American industries. Also, the IDB recently created the Multilateral Investment Fund (MIF). The MIF is a US$1.3 billion fund designed to ease the transition of Latin American countries to full market economies. It aims to accelerate sustainable economic and social development in the region by boosting private sector activity, streamlining public sector institutions and assisting companies in entering the global marketplace. The fund will be dispersed in the form of grants, contingency loans and commercial loans, depending on the funding applicant. Although the terms of lending are not yet clear, it is likely that borrowers will require links to a Latin American company in order to qualify for funding.

The International Finance Corporation

The International Finance Corporation (IFC) is currently developing a renewable energy and energy efficiency fund. This fund is being established to address the unique financing needs of international energy-efficiency projects. Energy efficiency projects are usually too small to be able to access IFC funding through its current mechanisms. The IFC is also able to access Global Environment Facility (GEF) funds for projects which reduce global greenhouse gas emissions. GEF funds can be used to finance the incremental cost of a project associated with its greenhouse gas mitigation component. Energy-efficiency projects usually contribute to the reduction of greenhouse gas emissions by reducing the demand for fossil-fuel energy.

US Financing Institutions

The Export-Import Bank

The Export-Import Bank (ExIm) is actively pursuing business in the field of environmental services and exports. ExIm recently hired an environmental liaison officer who has established several new financing and insurance products targeted at the U.S. energy-efficiency and environmental industry. The most recent service is the Medium-term Export Credit Insurance Policy for Environmental Services. This mechanism provides the following advantages to the U.S. energy-efficiency industry:

Maximum allowable repayment terms permissible under the OECD guidelines.
Extension of more attractive financing to help win foreign service contracts.
Protection for foreign contract receivables from specified political and commercial risks of non-payment.

This financing is available for services such as:

feasibility studies
energy service contracts
environmental remediation, monitoring and assessment

ExIm will support services performed by personnel headquartered in the United States or by U.S.-based personnel temporarily assigned to a buyer's country, as well as charges for materials and equipment of U.S. origin necessary to render the services.

The Overseas Private Investment Corporation

OPIC's mandate is to assist the US private sector in contributing to economic and social development of developing countries. OPIC provides preinvestment assistance, political risk insurance, direct loans, and loan guarantees to US businesses. It also conducts a contractors and exporters program to improve the competitive position of US contractors and exporters through specialized financing and insurance services. OPIC's Energy Program provides risk insurance coverage for currency exchange, expropriation, and political violence.

Local Financing Institutions

Chilean Banks

Local financing for energy efficiency projects is also available. There are several conditions to receiving local financing.

US companies need to be partnered with a Chilean firm in order to receive local financing.
Chilean banks provide lines of credit to Chilean companies involved in projects with foreign companies, something that is not always the case in developing countries.
Chilean banks deal with US currency which is also rare.
Chilean banks will provides letters of credit for Chilean partners, another rare activity.

Leasing Companies

Leasing companies in Chile have some experience with financing energy efficiency projects. A description of the case of Chile's highly successful efficient street lighting project follows.

Energy Efficient Street Lighting Project

Chile's most successful energy-efficiency project to date used leasing companies as a financing mechanism. The pilot for the project was implemented in the northern city of Antofagasta. The following is a description of the pilot project's financing. Similar projects have now been implemented in over 150 municipalities throughout the country.

The municipality petitioned the Treasury Ministry for permission to finance the lighting project using a leasing company. In this case, the leasing company would purchase the equipment and lease to the municipality in exchange for monthly payments. Eventually, the equipment would revert to the municipality. (This type of arrangement is not unusual when a project exceeds the annual budget of municipalities. Municipal budgets are provided annually by the Treasury Ministry.) The Ministry approved the proposal, but did not guarantee payment on the project. Nevertheless, the Treasury Ministry's participation reduced the leasing companies' project risk.
The municipality released two public bids, one for installation and maintenance of energy-efficient public lighting and the other to secure project financing from leasing companies.
The energy-efficient lights were installed by the winning installation bidder and verified by a technical team. The winning leasing company then paid the installer for its work.
Upon completion of the installation, the municipality began to repay the leasing company, plus interest, in monthly installments using revenue from the energy savings. Repayment of the full cost took 17 months. The average interest rate charged by leasing companies for public street lighting projects is 12 percent.