Energy Alert – Mexico Energy Reform
CFE’s Release of Specifications for Yautepec – Ixtepec HVDC Transmission Line Project
October 14, 2016
Page 2
Executive Summary1 3
Tender specifications2 5
Assessment of Project Development Risks5 10
Guaranteed Net Transmission Capacity7 12
Table of Contents
Real Estate – Rights of Way4 9
Payments made by the CFE8 13
Observations6 11
Payments in Mexican Pesos3 8
EY Professionals9 14
CFE Transmission Line Solicitation Yautepec – Ixtepec HVDC in Mexico
Page 3
► Mexico’s Federal Electricity Commission (Comision Federal de Electricidad or ¨CFE¨) released its
specification of requirements for the construction of a new high voltage direct current (HVDC)
transmission line project.
► The project is consistent with the National Electric System Development Program (PRODESEN),
a 15-year strategic development plan that was released by the Mexican Energy Minister (SENER)
in June, 2016.
► The solicitation invites tenders from companies or duly constituted consortiums for the
construction and operation of a ±500 kV HVDC line running 1,260 kilometers through the Oaxaca
region in southern Mexico. The Project consists of 15 works:
► 2 (two) converter work stations with ±500 kV of voltage – Bipolo, 3000 MW and 5 feaders of Alternating
Current in 400 kV;
► 7 (seven) substation Works with 400 kV of voltage with 1550 MVA of capacity, 150 MVAr and 11 feeders;
► 5 (five) transmission lines Works of Alternating Current with 400 kV of voltage and a total of 438.1 km-C;
and
► 1 (one) transmission line of Direct Current with 500 kV of voltage and a total of 1221.2 km-C.
Executive Summary(1/2)
Source: CFE & PRODESEN
CFE Transmission Line Solicitation Yautepec – Ixtepec HVDC in Mexico
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► The project will provide access to abundant wind resources in southern Mexico, and also satisfy
increasing electricity demand in Mexico City and the surrounding areas.
► The transmission line will connect the Yautepec substation, situated 50 km away from the Mexico
City substation, to the Ixtepec substation, situated approximately 30 km away from the
Tehuantepec substation. The 1,260 km line requires two circuits, with a current rating of 3,000
MVA and a capacity of 3,000MW.
► The CFE tender document describes the requirements and specifications for the construction,
operation, maintenance and transfer (to CFE) of the transmission facilities.
Executive Summary(2/2)
CFE Transmission Line Solicitation Yautepec – Ixtepec HVDC in Mexico
Source: CFE & PRODESEN
Page 5
► For Converter Stations: 2 Stations ±500 kV – Bipolo – 3000 MW – 500kV/400kV, 5 feeders CA in
400 kV.
► For SS: 11 feeders , 1550 MVA and 150 MVAr.
► For transmission lines in Direct Current : 610.6 km-Line and 1221.2 km-Circuit
► For transmission lines in Alternating Current : 294.6 km-Line and 438.1 km-Circuit
CFE Transmission Line Solicitation Yautepec – Ixtepec HVDC in Mexico
Tender specifications(1/3)
Page 6
► Real Estate Rights
► Real Estate Rights A: real, possessory or use rights, including those for the Dominant Property, Servant
Property and Other Properties: a part must be sold and transferred by CFE to the Trust, the remaining must be
procured and transferred by Contractor to the Trust.
► Real Estate Rights B, any real, possessory or use rights to be obtained and contributed to the Trust
Transmission System, including: a) Any additional area needed for the construction of the Transmission
System; and b) Any other rights for the contractor regarding any land or property necessary to build, operate,
upgrade or maintain the Transmission System. Real Estate Rights must be procured and transferred by
Contractor to the Trust.
► Warranties
► Value of $5,000,000.00 USD for a period of 180 days counted from the date of filing of the Economic Offer.
► Irrevocable letter of credit in favor of the Commission, issued in Mexico by a Mexican Development Banking
institution or by a bank authorized by the National Banking and Securities Commission (CNBV per its acronym
in Spanish).
► Submission of Offers and Opening of Technical Bids
► The purpose of the Technical Evaluation Offer of each Contestant is to qualify under the statement of
“Technically Fulfill” or “Technically Do Not Fulfill”
► Characteristics and Technical Information of the Equipment and Materials
► Transformers and/or Reactors losses, Static Compensators of Reactive Power and Converter Stations
► Operation and Maintenance experience
► Professional staff of the Contractor for the execution of the Project
CFE Transmission Line Solicitation Yautepec – Ixtepec HVDC in Mexico
Tender specifications(2/3)
Source: CFE
Page 7
Publication of the specification of requirements calendar of events for the competition and project implementation
EVENT DATE HOUR
Publication of the specification of requirements November 03, 2016
Site visits November 14, 2016 09:00
Start of the first Session of clarification December 05, 2016 10:00
Closing of the first Session of clarification December 15, 2016 12:00
Start of the second Session of clarification January 09, 2017 10:00
Closing of the second Session of clarification January 19, 2017 12:00
Submission of Offers and Opening of Technical Bids February 27, 2017 10:00
Opening of Economic Tenders March 29, 2017 10:00
Award April 14, 2017 13:00
Signature of Contract May 12, 2017 13:00
Date to Initiate Work September 12, 2017
Date of notification to issue the Certificate Start September 12, 2017
Scheduled date of Commercial Operation May 12, 2020
Period of Project implementation in calendar days 974
CFE Transmission Line Solicitation Yautepec – Ixtepec HVDC in Mexico
Source: CFE
Tender specifications(3/3)
Page 8
Payments in Mexican Pesos
Source: CFE & EY analysis
• CFE Transmission is willing to
hedge the incomes it would
receive from CENACE; in this
sense, they may offer indexation
to USD options.
Reasons
• Financing institutions may not
have enough time to provide to
respond with satisfactory financing
conditions.
• Possibility exists that bidders will
not find enough liquidity for MXN
debt for their offers and bidding
full equity would imply strong
exposure to MXN.
• Contacting SWAP for foreign
investors would imply less
competitive bids and may exceed
CFE cap Price.
Issues
CFE Transmission Line Solicitation Yautepec – Ixtepec HVDC in Mexico
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Methodology
► Real Estate Rights A: CFE will transfer (the ones CFE has; not all) to the Contractor and then to the
Trust. The Contractor is obliged to obtain the missing land rights and transfer them to the Trust.
Contractor must pay a set amount for such rights (not yet defined), it is not clear how such amount is
going to be offset by the rights CFE fails to transfer,
► Real Estate Rights B: the Contractor is obliged to obtain all of these Rights at its cost and transfer
them to the Trust.
Methodology and Findings on Real Estate Rights
Source: CFE & EY analysis
The transfer value of the Real Estate Rights CFE possesses is not established.
Transfer Value
Even CFE is flexible in case CFE does not comply with timeframe for transferring Real Estate Rights A, the Contractor would automatically fail to meet critical milestones of the Project timeline.
Calendar
FINDINGS/CONCERNS
CFE Transmission Line Solicitation Yautepec – Ixtepec HVDC in Mexico
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► Real Estate Rights from CFE: CFE obligated to provide easements. Delays attributable to CFE
provide justification for extending/suspending critical milestone dates. Any delay by the CFE in
transferring the Real State Rights A will only result in an adjustment of the Critical Events Dates, but
in no case will the CFE pay any penalty or adjust the applicable tariff or pay for any costs associated
with such delay.
► Delays associated with securing Real Estate Rights from 3rd parties (not within control of CFE) due
to no fault of Contractor may provide basis for extending critical milestone dates.
► Execution of agreement with CFE means Contractor accepts responsibility for all risks that might
influence construction and achievement of commercial operation date.
► Climatic and hydrological conditions
► Soil characteristics
► Subsoil conditions
► Applicable laws
► Reconfiguration or change in route:
► Contractor must confirm that technical specifications are suitable for construction and implementation of Project
► Contractor can propose adjustments to transmission route to resolve technical or real estate acquisition
problems; however, any adjustments do not permit adjustment to economic offer set forth in the Contract with
CFE.
► Contractor must obtain at its cost, all the Real State Rights arising from any change in the path of the
transmission lines proposed by the Contractor.
► Archeological impacts: any finds must be reported to CFE and appropriate governmental
authorities; any cost impacts or delays are the responsibility of the Contractor.
Assessment of Project Development Risks
CFE Transmission Line Solicitation Yautepec – Ixtepec HVDC in Mexico
Page 11 CFE Transmission Line Solicitation Yautepec – Ixtepec HVDC in Mexico
Observations
No prequalification process
but 5 million USD to ensure
the seriousness of the offer.
Fix transmission payments:
Capacity and Operation and
Maintenance (O&M).
Limited or no room for
technological innovation or
proposed changes to
requirements.
Limitations
on
technology
“Low
demand
risk”
Initial warranty
1 4
2
CONCEPTS TO CONSIDER
Unclear National Content
requirements.
No minimum equity; only in
case the Contractor uses the
auto financing scheme, which
might be at least the same
amount as the Economic
Proposal.
Uncertainty5
It has operated, preserved,
modernized and maintained within 5
(five) years prior to the filing of the
Offer, Converter Stations , with a
voltage equal to or greater than ±500
kV, for three years or more.
Having managed the O&M within 5
(five) years prior to
the filing of the Offer, made by
another company, Converter Stations
with a voltage equal to or greater than
±500 kV; or
The Contractor can credit such
experience based on a company that
intends to be the Operator for O&M,
who has to show that within five years
prior to the submission of the offer,
has been the primarily responsible for
the O&M of at least one Converter
Station with a voltage equal to or
greater than ±500 kV.
Experience
on O&M6
Source: CFE & EY analysis
Whenever the Contractor
subcontracts with SUTERM,
the latter will sign a contract
with the Subcontractor. Once
this happens, the Contractor
will be held fully responsible
as substitute employer.
Labor relations3
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Guaranteed Net Transmission Capacity
*You can have up to 10 events of temporary overload and/or transitory year.
CFE Transmission Line Solicitation Yautepec – Ixtepec HVDC in Mexico
Modes of operation, capabilities and operational conditions required of the HVDC link.
OPERATING MODETRANSMISSION CAPACITY
(%)OPERATIVE CONDITION
Bipolo with balanced current, max. room temperature, 3000 MW
Any load of continuous range of 10% to 105%
Permanent
Any load of continuous range of 10% to 130%
Temporary overload: for periods of 15 minutes, spaced every 8 hours*
A pole with metallic return, due to unavailability of a Converter Station, 1500 MW
Any load of continuous range of 10% to 105%
Permanent
Any load of continuous range of 10% to 130%
Temporary overload: for periods of 15 minutes, spaced every 8 hours*
A pole with ground return, due to unavailability of a pole line HVDC 1500 MW
Any load of continuous range of 10% to 105%
Permanent
Any load of continuous range of 10% to 130%
Temporary overload: for periods of 15 minutes, spaced every 8 hours*
Source: CFE
Page 13
► Monthly Payments made by the CFE are based the charges proposed by the Contractor in its bid
and in accordance with the provisions of the Contract:
*Fees can be adjusted in a monthly and annual basis, depending on the costs incurred by the Contractor.
CFE Transmission Line Solicitation Yautepec – Ixtepec HVDC in Mexico
Payments made by the CFE to the Contractor
Source: CFE
Fix Charge for Capacity Fix Charge for O&M
• PCFCm = capacity fixed fee charge for Month
"m“ (MXP).
• CFCm = capacity fixed charge for Month "m“
(MXP/m), according the Offer
• FADDm = see subsection 3.1 in Annex 4 of the
Contract
• PCFOMm = O&M fixed fee charge for Month
"m“ (MXP).
• CFOm = operating fixed charge for Month "m“
(MXP/m), according the Offer
• FAIm = inflation adjustment factor determined
by the Index of Producer Prices ratio (PPI)
without Crude Export plus Monthly
Services at the date of Submission of
Offers and Opening of Technical Bids
• CFOm = maintenance fixed charge for Month "m“
(MXP/m), according the Offer
• FADDm = see subsection 3.1 in Annex 4 of the
Contract
Page 14
José Salas
Partner - Advisory
EY Mexico
Tel: +52 (55) 1101 7329
Email: [email protected]
Rafael Aguirre
Partner - Transaction Advisory Services
EY Mexico
Tel: +52 (55) 5283 8650
Email: [email protected]
Alfredo Álvarez
Partner - Energy Segment Leader
EY Mexico
Tel: +52 (55) 5283 1179
Email: [email protected]
Rodrigo Fernández
Partner - Transaction Tax
EY Mexico
Tel: +52 (55) 5283 8666
E-mail: [email protected]
EY Professionals
Paul Roberti
Executive Director - Power & Utilities
EY Mexico
Tel: +52 (55) 5283 8666
E-mail: [email protected]
Loic LeGall
Executive Director - Power & Utilities
EY Mexico
Tel: +52 (55) 4094 6488
E-mail: [email protected]
CFE Transmission Line Solicitation Yautepec – Ixtepec HVDC in Mexico
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