case studies
energy & utilities
efficiency optimization

Master cash-flow trust guarantees payment for water projects

Solution improves confidence in Peruvian water project and facilitates essential new infrastructure

The challenge

Sedapal is the state-owned water utility of Peru, serving nearly 9 million people in the Lima/Callao metropolitan area. When Sedapal, Peru's government-owned water and waste water utility, engages in substantial construction projects, it forms public-private partnerships with private contractors and consortia.

That was the case recently when the company initiated three major projects. Sedapal was planning the construction of a causeway to channel water from the nearby Andes to the Lima/ Callao metro area, creating a steadier, more predictable water flow for the area's 9 million citizens. In addition, the utility had plans to build two new water treatment plants near Lima.

To attract independent contractors – and international lending sources – Sedapal required a finance structure to provide payment guarantees to these parties.

The solution

Citi facilitated a guarantee structure for Sedapal by creating a USD100 million Master Cash Flow Trust. Through this facility, Citi aggregates and collects funds from Sedapal's network of 10 Peruvian banks on an as needed basis. When contractors require payment, Citi activates the collection entities and channel the payments. This approach frees the banks' cash flows until collection entities are activated for payment.

Under the Trust's structure, Sedapal provides cash flows as guarantees on the basis of the level of commitments engaged and does not compromise its entire collections. The Trust can also be used to guarantee future construction projects.

An added benefit of the Master Cash Flow Trust solution is visibility. By accessing the CitiDirect® Online Banking platform from a web-enabled desktop, Sedapal and its construction partners can track and monitor payments as they move from banks to Citi to contractors.

The result

The Master Cash Flow Trust agreement took nearly a year to complete and approve. Now that it is in place and implemented, it is providing payment guarantees for the causeway project, with the two treatment plant projects to follow.

Local construction contractors and global financial institutions are confident that Sedapal's public-private partnerships are supported with payment guarantees. And Sedapal, in turn, has gained a close partner in Citi – a partner who has structured and designed a solution to handle payment flows in a secure and reliable manner.