The project sponsors are Pacific Hydro Pty Limited, and Statkraft Norfund Power Invest AS (50% ownership each).

- Pacific Hydro Pty Limited:

Pacific Hydro Pty Limited (PHL), founded in 1992, is an Australian renewable energy company, wholly owned by Industry Funds Management (IFM). PHL currently has 260 MW of operating wind and hydro projects, and over 400 MW of wind and 500 MW of hydro projects in development or construction in Australia, Asia Pacific, North America and South America. PHL was listed on the Australian Stock Exchange until mid-2005 when IFM, an existing strategic shareholder, purchased the remaining shares of the company. IFM has total funds under management of approximately $8.4 billion. IFM was PHL''s major shareholder for 9 years and in that time has been involved with the development and direction of the company. IFM acquired 100% of PHL in July 2005. PHL''s Revenues and Net Income for the year ended June 30, 2006 were $46.7 million and $19.6 million, respectively. Total Assets and Shareholders'' Equity at June 30, 2006 were $489.8 million and $259.8 million, respectively.

- Statkraft Norfund Power Invest AS:

Statkraft Norfund Power Invest AS (SNPI) was established in 2002 as a joint venture between Statkraft SF (50%) and Norfund (50%). The objective of SNPI, through participation in or cooperation with other companies, is to plan, design, construct, operate and own hydroelectric generation facilities in Latin America, Asia and Africa. SNPI’s consolidated revenues and net income for 2006 were $52.6 million and $10.3 million, respectively. Total assets and shareholders’ equity at end of 2006 were $417.9 million and $302.6 million, respectively. Statkraft SF is a Norwegian state-owned power company wholly owned by the Ministry of Trade and Industry, and is Norway’s largest producer of electricity. Norfund was established by the Norwegian Parliament in 1997, and is engaged in several business areas, including investments in local funds and strategic joint ventures, and direct investments in private companies.

Total project cost is estimated at $334 million, of which IFC is expected to contribute $208 million through a combination of:

- an IFC A Loan of up to $83 million for IFC’s own account, and
- an IFC B Loan of up to $125 million for the account of participants.

83.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	83.0
Equity

* These investment figures are indicative

The project will be located on the Tinguiririca, Portillo and Azufre Rivers in the VIth region of Chile. The project area is located in the foot hills of the Andes Mountains, approximately 75km south east of the city of San Fernando. The project is upstream of the La Higuera Project (#21315), which is another IFC-financed hydropower plant on the Tinguiririca river, currently under construction and is being developed by the same sponsors as La Confluencia’s.

In light of the recent gas disruptions from Argentina to Chile (gas curtailments from Argentina were about 6.2 million m3/day on average in 2006 out of a total average daily demand of 22 million m3/day), the Chilean Government is emphasizing the diversification of the energy matrix and the successful implementation of hydropower projects such as La Confluencia, in order to mitigate the impact of similar gas disruptions in the future. Following the gas disruption crisis from Argentina, a number of investment decisions to build new thermal plants in Chile have been postponed due to uncertainty in gas availability and pricing. Further, the gas crisis has lead to an increase in the cost of electricity supply in Chile as it was necessary at times for thermal units to burn diesel oil instead of gas.

The project is a low cost producer of renewable energy and will contribute to the expansion of hydroelectric generation capacity in the Central Interconnected System of Chile (SIC) which supplies the central zone of the country. The primary objective of the project is to help meet electricity demand growth in the SIC, which averaged about 6% per year from 2003 to 2006. As the project’s water inflows are primarily determined by snow and glacier melting, the project’s hydrology is not closely correlated with that of the system. Hence, it is expected that the project will be available to dispatch at full load from November through March during the dry season, when the hydrology in the system is below average and the SIC has a higher dependency on more expensive thermal generation. The project will therefore provide important climate change mitigation through displacement of thermal generation.

Given that hydropower projects are generally capital intensive and as a consequence are in need of long-term debt financing, IFC has a key role to play in this transaction in providing an A loan for up to 20 years of total maturity, and mobilizing a B Loan with up to 15 years in total maturity. IFC’s presence will be key to giving comfort to the commercial market in providing such maturities to a greenfield hydropower project with quasi-merchant risk (i.e., a partial Power Purchase Agreement, while the balance of the power will be sold to the spot market) and sub-surface tunneling risk. Further, IFC, by supporting the La Confluencia project, is playing a key role in ensuring that additional power capacity is built in Chile that will help meet the country’s future power demand growth, without being affected by external events such as the Argentinean gas disruption issue.

Moreover, IFC will be supporting a relatively small player in the Chilean power generation market, thereby encouraging competition. In addition, other lenders and the sponsors will benefit from IFC’s environmental and social due diligence.

The sponsors of La Higuera and La Confluencia have an ongoing process to evaluate the environmental and social impacts of these projects. An Environmental and Social Impact Assessment (ESIA) for both La Higuera and La Confluencia was prepared by the sponsors and approved by the Chilean environmental agency CONAMA in August 2004. The ESIA was reviewed and disclosed by IFC in December 2004. The sponsors also completed a cumulative impacts analysis of the Rio Tinguiririca as part of IFC’s investment in La Higuera. The project sponsors consulted with CONAMA regarding the changes to La Confluencia since 2004, and were directed to prepare an Environmental Impact Statement (Declaración de Impacto Ambiental—DIA) given the relatively modest changes that have occurred. The sponsors recently submitted the DIA to the Chilean environmental agency CONAMA with updated analysis to reflect the evolution of La Confluencia since 2004.

IFC is reviewing La Confluencia against IFC’s new Sustainability Policy and Performance Standards. IFC''s review has identified the following potential environmental, social, health and safety issues:

- upstream and downstream impacts of river diversion;
- dam safety;
- construction of access roads and induced impacts of such roads;
- tunnel spoil disposal;
- land acquisition and economic displacement;
- impacts on tourism and recreational activities;
- vulnerability of the project facilities to natural hazards;
- cultural property;
- local employment and in-migration;
- labor and working conditions;
- worker health and safety;
- public health, and community relations and benefits.