Polaris Infrastructure Inc. has signed a memorandum of understanding (MOU) to acquire 100% of the equity of the 10 MW run-of-river Chuspa hydro project in Panama from Navitas Holdings Inc.
The key terms of the MOU state that:
- Polaris — a Toronto-based company that operates, acquires and develops renewable energy projects in Latin America — has the option to acquire 100% of the equity for nominal up front consideration;
- Such option expires on Dec. 31, 2020.
- To the extent Polaris elects to exercise its option, Polaris will invest the required equity capital to complete the project, estimated to be US$15 million to $20 million.
- Current shareholders of Navitas will receive certain payments in the event that, after having achieved project completion, the cash flows generated by the project exceed certain minimum defined thresholds. Such thresholds are based on Polaris generating a minimum return of 15% of the equity committed to complete the project.
According to a press release, Chuspa is a construction-ready project with all licenses and permits in hand to both complete construction and operate the project. Minor construction work has already been completed, such as road access and foundation preparation for the powerhouse. Significant down payments have already been made on two turbines by the sellers. Contracts for about 40% to 50% of expected production are in hand at US$85 per Mwh.
The anticipated timeline to COD completion is 12 to 15 months once mobilization commences. Polaris Infrastructure plans to fund the construction with cash on hand.
“We are very pleased to have signed this MOU” stated Marc Murnaghan, chief executive officer of Polaris Infrastructure. “It is structured in a way that enables Polaris to ensure that we are confident that key risks associated with Covid-19 can be managed before we commence construction of the project and close the acquisition. We are optimistic this can be done in the coming months. The addition of a further run-of-river hydro project provide further geographic diversification by investing in Panama and is in keeping with the strategy of diversification and growth in the renewable sector within the region. We strongly believe that by adding a third country to the generation platform is beneficial to our shareholders. In addition, we believe that there are other opportunities to grow in Panama and partnering with Navitas on this project will provide a platform from which to grow.”
Polaris Infrastructure operates a 72-MW geothermal project in Nicaragua and three run-of-river hydroelectric projects in Peru: 5-MW Canchayllo, 8-MW El Carmen and 20-MW 8 de Agosto. The company recently closed on a US$27 million loan financing with the Brookfield Infrastructure Debt Fund.
The MOU is non-binding and there is no assurance that the transaction will be completed on the terms described above or at all.