The Company is owned by Adolfo Larach Foster and members of the Larach Family, together the “Sponsors”. The Sponsors are among the original developers of Elcosa, Honduras’ first IPP and a former IFC client (project # 4401). The Larach family has been active in Honduras since the early 1900’s through local retailer Commercial Larach and other business interests, which include real estate and industrial free zone development, hotel development and management, and a recently divested holding in local bank Banco del País. The Sponsors are seeking to diversify into renewable energy by investing in the La Vegona hydroelectric project. The Larach Family is already involved in two small hydro projects (8 and 11MW) and has an active pipeline of other renewable energy projects (hydro and geothermal) for future development.

The total cost of the project is estimated to be up to $126 million.

IFC’s proposed investment for its own account consists of a $20 million A loan, a $10 million C Loan. IFC is also expected to mobilize additional funds from other financial institutions to complete the financing.

30.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	30.0
Equity

* These investment figures are indicative

The Project is located between the Yoro and Cortes Departments on the Humuya or Comayagua River, approximately 8 km downstream from the 300 MW Francisco Morazan (El Cajon) hydroelectric project. The main structures of the project would be located about 20 km northeast of the town of Santa Cruz de Yojoa, in the Department of Cortes in northwestern Honduras.

The Project includes the construction of a concrete gravity dam 110 meters in length and a rockfill-clay core dam of 230 meters. The concrete structure will include the spillways and the powerhouse. A transmission line of 3.6 km will be constructed to the El Cajón-El Progreso (230 kV) line. The project requires no tunneling.

Help lower an IDA country’s dependence on thermal power: Currently, non-renewable sources account for over 60% of Honduras’ annual power generation. The successful completion of the Project will provide clean, low-cost power generated from a renewable resource to meet close to 2.6% of the country’s current power demand and allow for the possible retirement of old, inefficient and more expensive thermal capacity.

Development of Honduras’ hydroelectric resources: To address the country’s current energy challenges, the Government of Honduras ("GON") has put forth a strategy to develop its domestic renewable energy resources, including hydropower. Successful completion of the largest private sector-led hydroelectric project in Honduras to date would contribute directly, as well as indirectly through demonstration effect, to this objective.

Climate change: The Project is expected to displace thermal power generation, hence reducing the region’s carbon emissions by approximately 108 thousand tons of CO2 per year.

Supporting the financial sustainability of the power sector: The Project will reduce Honduras’wholesale energy prices and dependence on oil, supporting the power sector’s path towards financial sustainability.

Cost Efficiency: The Project will help lower the cost of electricity and therefore help support a lower cost structure for industries and consumers in Honduras.

Financial Additionality: In the current credit market conditions, IFC is expected to offer longer term debt than available from commercial banks, in addition to a quasi-equity tranche which will help create a bankable financial plan for the Project.

Catalytic/Mobilization Role: Political and regulatory uncertainties, and ongoing structural problems in the Honduran energy sector, have kept most international investors away. IFC is expected to play a role in encouraging other international financial institutions to enter the sector by showing its willingness to take risks the private sector is not yet willing to bear alone. In its role as lead arranger for this transaction, IFC has been instrumental in bringing together a consortium of lenders to provide adequate funding for the project.

Demonstration effect for private investment in renewable energy: The success of the Project, the largest private sector-led hydro project in Honduras to date, is expected to create a positive demonstration effect for other renewable energy projects in the country and the region. In addition, by participating in this transaction IFC will be supporting the transition of a private sector group, and former IFC client, previously involved only in non-renewable generation towards a strong focus on renewable energy.

Structuring/Technical Advice: IFC is expected to contribute to the commercial success of the Project through input into the contractual structure of the Project to help ensure bankability of the financing structure and appropriate risk allocation. In particular, through in-house and external technical and legal specialists, IFC has advised the Company through the negotiation of the Project’s construction and other key contracts, procuring a fair risk allocation among the parties, and aiming to ensure that the project’s construction and other key contracts (and therefore the Project) are bankable.

All the relevant environmental and social aspects have been appropriately treated in the ESIA or in subsequent studies. La Vegona is located downstream from El Cajón -an existing large dam and reservoir- and it involves a rather small daily regulation reservoir which is sited within a very modified agricultural landscape. Therefore, the expected incremental social and environmental impacts and risks are of limited significance and this project was categorized as a B operation. There are no impacts on critical habitats, no physical resettlement of people, nor the presence of IP or territories, cultural or historical sites or artifacts. The mitigation measures have mostly been identified, and an extensive environmental and social action plan (ESAP) has been agreed with the Company to strengthen mitigation and compensation measures in-line with best practices and IFC’s EHS Performance Standards.