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Power to Peru

Following its successful financial
close, the Chaglla hydropower
project won the Power Deal
of the Year 2013 Award at the
Infrastructure Journal Awards
in London, along with the Latin
American Power Deal of the Year
2013 Award at the Project Finance Magazine Awards in New York City.

Opportunity

An enormous new dam has been constructed in Peru, where the Huallaga River flows through a narrow, V-shaped gorge. At a height of 676 feet (206 meters), this is one of the largest concrete-faced rockfill dams in the world. The 456 megawatts of generating capacity comprises approximately 13% of the country’s total installed hydro capacity and will contribute around 6% of the total energy produced in Peru once the main plant is commissioned.

The $1.2 billion project includes 21 miles (34 kilometers) of access roads, a reservoir 11 miles (17.3 kilometers) long and more than 14 miles (23 kilometers) of tunnels up to 39 feet (12 meters) in diameter. A 450-megawatt main powerhouse contains two generating units, and a separate powerhouse contains a single 6-megawatt unit for passing the environmental flow.

The project’s sheer size and complexity, along with the dam type and topography, posed significant potential risks that needed clear identification and management to reassure lenders.

Solution

Mott MacDonald reviewed technical, contractual and financial components to achieve successful financial close. We played a key role in assessing and mitigating project risks to ensure the project could progress through measures including modification of the spillway design to pass the probable maximum flood, undertaking a maximum probable loss analysis to inform project insurances, amending the engineering, procurement, and construction (EPC) contract to address bankability issues, and agreeing on a land acquisition plan to mitigate risks related to the transmission line.

A panel of experts, appointed at our recommendation, scrutinized each stage of detailed design to identify risks, and an owner’s engineer was appointed at our behest. We have performed routine (quarterly) site visits with an expert team of tunnel, dam and power plant specialists to review construction status and progress, identify and discuss risks, and review the implementation of risk mitigation activities. We also supported the lenders during the project’s operations and maintenance phase.

Outcome

Construction of the facility at Chaglla is substantially complete. While the plant is yet to enter commercial service, evidence of the project’s positive impacts is already being seen.

Chaglla is bringing positive social impacts to the area. A training program called "CREER" was established to develop local skills capacity for the project. More than 1,500 local people have acquired masonry, carpentry, and driving skills at no cost to them. Overall, the project has created 2,500 direct jobs and 10,000 indirect jobs in the local town.

The Chaglla access road has also had a major impact, improving local residents’ access to health services, education, and trade. Travellng to the nearest main town previously took six hours on a substandard road, with no reliable public transport available. Now the journey takes one hour, and two local transport companies provide a public service on the new road.

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