What makes Chilean desalination projects bankable?

Investors interested in desalination projects in Chile will assess their bankability by looking at whether the projects have defined revenues through water supply contracts and if the costs are clearly outlined, according to an expert.

“Revenue is the starting point for a project of this nature,” Christian Rudloff, a project development and finance lawyer at attorneys Hunton Andrews Kurth, said during a financing panel at the 2024 conference of Chilean desalination and wastewater reuse association Acades.

In terms of revenue, Rudloff said that offtake or water supply contracts are key, since they are the main sources to pay off debts to lenders or sponsors, as well as to shoulder operating costs. 

Contracts must specify the frequency of payments, what will happen during emergency situations that interrupt operations or affect the water buyer’s purchasing capacity and, in general terms, offer price certainty to all parties.

Other considerations include termination payments or whether rates can be altered under certain circumstances.

Regarding costs, Rudloff said that project owners must assess issues such as potential technological risks that might affect performance to achieve bankability, especially in the case of newer or unproven technologies, and facility sizing.

Regulatory risks and cost variables include archeological finds, compliance with standards and environmental laws, and potential delays due to public opposition, Rudloff said. 

When asked by BNamericas if any of the 50 desalination projects under development in Chile are bankable, Rudloff said that depended on the financing model for each of them. 

“There are lots of financing models. In the case of the project finance model, structuring is key to being ahead of these types of risks and reallocating risks to better-positioned parties,” he said.

He also said that rates and risks will be key issues for the desalination plants the public works ministry is planning tenders for, although the bidding terms are still being drafted. 

“Concepts such as termination payments are issues that, if not covered [in the bidding rules], will make financing difficult,” he said. 

The tender for the first desalination concession, a US$300mn plant in Coquimbo region, is expected to take place later this year.