D Levy Transp

MERCO-FLUVIAL S.A. : 

MERCO-FLUVIAL S.A. Country: Paraguay IIC Financing: US$3.0 million Borrower: Merco-Fluvial S.A. and Hidrogas S.A. Project Description: Merco-Fluvial is Paraguayan company dedicated to the transportation of liquid fuels from Argentina to Paraguay. The project consisted of the expansion of Merco-Fluvial activities through the acquisition of barges for river transportation of liquefied petroleum gas (LPG). The project was developed in tandem with the construction by Petroleos Paraguayos (Petropar) LPG storage plant. The plant was built to increase the overall efficiency in the transportation of LPG from Argentina to Paraguay with the use of the Parana-Paraguay waterway. The use of the waterway for transportation is expanding rapidly with an important impact on regional integration. Transportation of LPG by barge will allow for substantial savings in transportation costs, which would eventually result in a reduction of LPG’s final price to end consumers.

TERMS OF FINANCING: 

TERMS OF FINANCING IIC’s US$3 million loan consisted of two components: Loan I and Loan II. Loan I: Amount: US$2.5 million Term: 4 ½ years, including a 9 month grace period, with quarterly installments. Interest rate: LIBOR + 4.0% p.a., quarterly installments Security: i) Mortgage of the project companies’ assets; ii) Project completion agreement; iii) Escrow account.

TERMS OF FINANCING (Cont.): 

TERMS OF FINANCING (Cont.) Loan II: Amount: US$0.5 million Term: 5 years, with bullet principal repayment. Interest Rate: fixed interest rate of 14% p.a. Security: i) unsecured

IIC’s ROLE: 

IIC’s ROLE Technology Transfer: IIC financed the acquisition of barges with modern technology for the transportation of LPG along the Parana-Paraguay waterway. This type of barge, although currently being used in the United States and Europe was an innovation in the region. Long-Term Financing: IIC provided the borrowers with long-term financing which was not available in Paraguay, in particular for small and medium size companies. Benefits for Final Consumer: It was anticipated that the change to barge transportation would result in a significant reduction in transportation costs of LPG, with part of the cost savings reflected on the final LPG price to consumers. Promotion of River Transportation: The project encouraged river transportation, which was considered the most suitable means of transportation of fuels for costs and environmental reasons.

RISK AND ISSUES: 

RISK AND ISSUES Operating Risk: The company innovated in river transportation of LPG in the region, which at the time was considered a performance risk. However, this risk was mitigated since the sponsors had an extensive experience in river transportation of other types of liquid fuels along the waterway Parana-Paraguay. Non-renewal of Petropar’s Contract: The project was approved prior to the company obtaining a long-term contract. However, the risk of not obtaining the contract was mitigated by the fact that in order to qualify, the company had to be a Paraguayan firm with experience in river transportation of LPG along the waterway Parana-Paraguay, and Hidro-Gas was the only firm satisfying both conditions. In addition, Merco-Fluvial S.A. and Hidro Gas, through transportation of a lower margin product generated enough funds to repay the debt.