Chile: Pioneering Financing Supports Sic-Singinterconnection

This long sought-after event will become a reality once Transmisora Eléctrica del Norte SA (TEN) completes the construction of its double-circuit, 500kV, 600km-long transmission line and associated substations extending from Mejillones to Copiapó. This article outlines how the many pieces of this ground-breaking project came together.

The SIC-SING interconnection has been a long-standing goal of multiple administrations of the Chilean government and one of the most significant infrastructure projects in Chile in the last several decades. It will permit the two major grids, the Sistema Interconectado del Norte Grande (SING) – which accounts for approximately 22.8% of Chile's power generation1 and is situated in a region with world-class conditions for an increasing generation of solar power and significant production of thermoelectric power intended primarily for mines – and the Sistema Interconectado Central (SIC), to constitute one unified grid.

The SIC accounts for approximately 76.5% of the Chilean power generation2 and supplies energy to the vast majority of Chilean households and businesses, mainly from hydro power, diesel, thermoelectric power and natural gas.

Once the SIC-SING interconnection is completed, it will allow the so-called Chilean electricity highway to become operative, which is expected to happen by late 2017. The unified grid will have an installed capacity of 24,000MW and supply approximately 99% of the Chilean population3 extending from Arica in the north to the Isla Grande of Chiloé in the south of the country – due to Chile's unique geographic conditions 3,100km away from each other4.

The long-awaited interconnection is expected to lead to increased efficiency, enhanced competitiveness of Chile's blooming renewable energy sector, and reduced energy prices, while also bringing significant stabilisation and security of supply and, overall, facilitating economic development of the country.

TEN is a joint-venture equally owned by subsidiaries of Engie and the Red Eléctrica group. Engie, the French-headquartered energy giant, is a long time investor in a number of major projects in Chile and Latin America, including energy production, renewable and non-renewable, energy distribution, and LNG regasification and trading.

Engie's participation in TEN is through its subsidiary Engie Energía Chile SA, a company publicly traded on the Santiago Stock Exchange, which is the main electricity generator in the SING with 38% of the system's installed capacity5.

Spain-based Red Eléctrica group is the sole transmission system operator in Spain, with more than 42,000km of transmission lines under operation. It began its Latin American experience in the late 1990s and has focused its activities in the region on the construction and operation of transmission lines in Peru. Since 2015, with the incorporation of Chilean subsidiary Red Eléctrica Chile SpA, through which it holds the group's stake in TEN, Red Eléctrica has sought to consolidate its presence in the region by pursuing further investment opportunities in Chile.

The Chilean Government kicked-off the interconnection initiative in early 2015, when the Ministry of Energy established that the TEN project would be part of the Trunk Transmission System and a key part of the much expected grid unification. The project's north end connection to the SING would be through the Changos–Kapatur transmission project (currently being developed by Chile-based Transelec) and the south end's connection to the SIC would be through the Polpaico–Cardones transmission project currently being developed by Colombia-based ISA.

The project and the adjacent transmission lines are all required to be operational by early 2018. TEN's major pre-financing milestones were: its environmental approval, obtained in June 2012; the execution of the EPC contracts in late 2014 and early 2015, with separate contractors engaged to work on the construction of the transmission lines and the substations; the issuance of the decree establishing the project as part of the SIC- SING interconnection and setting forth its general conditions in April 2015; the confirmation of the project as a trunk transmission project by the National Energy Commission and the launching of the financing process by mid-2015; the engagement by Engie of Red Eléctrica as strategic partner by January 2016; and the enactment of the new Chilean transmission law contemplating the unified grid in July 2016.

Financing of the project

Until recent years, Chilean transmission projects were traditionally financed by structures allowing for corporate recourse against the sponsors.

It was approximately five years ago when transmission projects in Chile began evolving to structures that came closer to a true limited recourse financing.

In this context, TEN completes the transition, as it is developing its major transmission project with a US$850m-plus true limited recourse financing. In addition to this significant achievement, the project is also pioneering in featuring an innovative debt structure including multi-tranche, dual-currency with US dollar and Chilean peso denominated debt, both fixed and floating interest rates and a combination of multi-draw term loans, a value added tax facility, and a private placement.

The lender group was comprised five international banks: Instituto de Crédito Oficial, KfW IPEX-Bank, Mizuho Bank, Sumitomo Mitsui Banking Corporation, and the Bank of Tokyo- Mitsubishi UFJ, which provided an international US dollar senior loan facility; four local banks: Banco de Chile, Banco de Crédito e Inversiones, Banco del Estado de Chile, and Banco Santander- Chile, which provided a Chilean peso senior loan facility and three of which provided a value added tax facility; and a US-based insurance company, (Prudential Insurance Company of America), which purchased the US dollar fixed-rate notes issued under the private placement.

The total investment required for the project is approximately US$1bn, including financing costs and value added tax. The financing provides for a total loan amount of approximately US$804m6 and a bond amount of US$50m. The project reached financial closing on December 16 2016, when the initial drawdown under the loan facilities and the value added tax facility took place, and all the notes pursuant to the private placement were issued.

The financing of the project consists of four tranches, featuring dual-currency and floating and fixed rates, with tenors ranging from 3.5 years to 26 years.

The tranches were structured as follows:

  1. a US dollar-denominated floating-rate term loan for a total amount of US$460.4m, payable semi-annually after a specified grace period, with a final maturity in 2034 documented in an International Senior Loan Facility Agreement under New York law;
  2. a peso-denominated floating-rate term loan for a total amount of the peso equivalent of US$232.9m, payable semi-annually after a specified grace period, with a final maturity in 2034 documented in a Local Senior Loan Facility Agreement under New York law;
  3. a US dollar-denominated private placement of fixed-rate notes for a total amount of US$50m, payable semi-annually after a specified grace period, with a final maturity in 2042 documented in a Fixed Rate Note Purchase Agreement under New York law; and
  4. a peso-denominated value added tax facility for the financing of the value added tax to be borne by TEN in connection with the assets and services needed for the construction and operation of the project, for a total amount of the pesos equivalent of US$110.7m with a one-time bullet payment in 2020 documented in a value added tax facility agreement under Chilean law.

The financial debt was divided between US dollars and pesos to match the expected currency breakdown of cashflows and provide a natural hedge to the project. Certain foreign exchange hedging agreements in connection with TEN's capex currency commitments under the existing EPC contracts and other costs were entered into to match the US dollar and peso proceeds of the financing.

Other relevant agreements

In addition to the agreements mentioned above, other key financing documents include (i) a Common Terms Agreement, including representations and warranties, covenants, events of default, and other provisions that are customary for this type of transaction and some additional unique features some of which are described below, (ii) Equity Contribution and Share Retention Agreements, pursuant to which the sponsors agreed to provide base and contingent funding to TEN in the form of capital contributions or affiliate subordinated loans and agreed to certain share retention obligations, (iii) a Common Agency Agreement, which sets forth the appointment of certain financing party representatives and their respective rights and obligations in respect of the financing documents, and (iv) various security documents under New York, English, and Chilean law to provide security to the lenders for the repayment of the amounts owed to them. Other than certain security documents and the value added tax facility agreement, all of the financing agreements are governed by New York law.

Since most project collateral including notably most accounts is located in Chile, significant coordination was required between New York and Chilean counsel to come up with a security documentation proposal satisfactory to all the various parties involved.

The collateral package includes: an Intercreditor Agreement and a Master Collateral and Accounts Agreement – under which a depositary agent was appointed and the transfers and related mechanics between several offshore and onshore collateral accounts were set out – governed by New York law; subordination agreements under New York and Chilean law; direct agreements under English and Chilean law with respect to the existing EPC contracts and other relevant project agreements; and several security documents under Chilean law providing for the creation of first and second- priority liens over the project's assets in favour of the lenders, with the lenders under the value added tax facility benefiting from a first-priority lien over the value added tax recovery account and a second-priority lien over the remainder of the project's assets.

Additional special features

In addition to the general challenges posed by the implementation of the financing structure, additional innovative features of the transaction and issues dealt with during the structuring process include the following:

  • Combination of term loans, involving international and local banks, with a private placement – The project featured an innovative combination of financing sourced from international banks, Chilean banks, and a private placement. This unique multi-tranche structure required addressing intercreditor issues on a diverse range of underlying debt conditions, which was novel for various of the parties involved.
  • Changing regulatory background – During the negotiation of the financing documents, Chilean lawmakers were discussing the final form of the new transmission law, which would determine how energy transmission in the country would be planned and compensated. These circumstances demanded considerable flexibility from the parties and creativity from their advisers to adapt to new scenarios, until the law was finally enacted in July 2016.
  • Overlap of mining and power sector regulatory frameworks – The financing documents account for the relationship under Chilean law between electricity concessions and mining concessions. To address the peculiarities of that interaction, the financing documents contemplate a variety of mechanisms, including provisions regarding the allocation of borrowings, contingent equity requirements, and specific reserve accounts.
  • Conditions precedent for the incurrence of required modifications debt – The financing documents had to address the ability of the Chilean government, through the National Energy Commission, to decide if and when any expansion, extension, upgrade or other modification to the project was needed. The government would also control the related construction services tender process for the relevant works, although TEN would be required to fund the modifications. To navigate these potential scenarios, the financing documents set out certain conditions precedent that must be satisfied for TEN to incur debt to fund any such required modifications.
  • Project-related hedging requirements – Due to the nature of the project and the revenue structure associated with the project's operation, the financing documents set forth in detail the nature and scope of the hedging agreements to be entered into and maintained by TEN throughout the life of the debt documents. TEN not only implemented customary interest rate and cross- currency swaps, but also entered into hedges against foreign exchange risks in connection with payments under the EPC contracts and trunk revenues (Valor Anual de Transmisión por Tramo, as defined under Chilean law).
  • Permitting related to the Changos–Kapatur transmission line – Since permits required in connection with the construction of the 3km-long Changos–Kapatur transmission line (which is being developed by a third party) had previously been obtained by TEN, ancillary documents and special provisions addressing the issues that can arise from a split holding structure for the project permits had to be put in place.


1  Comisión Nacional de Energía, 2016. Available in

2 Ibídem

3  Generadoras de Chile, 2016. Available in

4 Coordinador Eléctrico Nacional, 2016. Available in sistema-electrico-nacional/introduccion.html

5 Engie Energía Chile SA, 2016. Presentation to Investors. 4Q 2016 Results. Available in http:// asocfile/20160126181724/4q16_presentation_ eecl__1_.pdf

6 All US$/Ps conversions have been made considering the Dólar Observado, as published by the Central Bank of Chile on December 16, 2016(Ps 663.68)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions