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Mexico's power company set to bid out $900 million plant

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MEXICO CITY -- Mexico's state-run electricity company plans to begin accepting bids on a $900 million hydroelectric plant in the first quarter next year, said Alfredo Elias Ayub, the company's director.

The project, known as La Parota, will have capacity to generate 1,000 megawatts and take five years to build, Elias Ayub said in a breakfast with foreign journalists.

It will be financed by the winning bidder based on long-term contracts with Mexico's Federal Electricity Commission, or CFE, to purchase electricity, Elias said, a financing device the CFE has used for the past decade because it lacks the money to build its own power plants.

Many economists consider the financing mechanism, known by the acronym pidiregas, as government debt. Mexico's budget deficit widens to 2.5 percent of gross domestic product when pidiregas and other off-balance-sheet debt is included as spending, instead of the target of 0.3 percent for this year, said Suhas Ketkar, an economist with the Royal Bank of Scotland in New York.

The project will be larger than El Cajon, a $748 million hydroelectric dam in the western state of Nayarit that was awarded in 2003, Elias said.

Before calling for bids, the CFE only has to reach agreements to pay local residents in the southern state of Guerrero to relocate them from the area that will be flooded by the dam, Elias said. The company finished paying 60 million pesos ($5.3 million) to residents relocated from the El Cajon dam this week, which should help convince residents near La Parota they will be compensated for their property, Elias said.

"It was very important for people at La Parota to know that we'll pay them," Elias said.

Empresas ICA Sociedad Controladora SA will bid on the project, said Jose Luis Guerrero, the Mexico City-based company's chief financial officer, in an October interview. ICA and a Russian partner, Energomachexport-Power Machines, won a contract to build El Cajon.

Construction of 26 new power plants in the last four years and heavy rains that boosted capacity at hydroelectric plants have helped the CFE boost electricity supply to 10 percent more than demand, after it had dropped to 2 percent in 2002 because of drought, Elias said.

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