TBY talks to Alonso Quintana, CEO of ICA, on infrastructure development, international expansion, and cooperation with the Secretariat of Communications and Transport.
TBY How has ICA evolved since it was established in 1947?
ALONSO QUINTANA ICA is a public company originally founded by my grandfather, and there has always been a family influence. There is a strong tradition in our family of promoting infrastructure projects, which my grandfather was very skilled at. He was the first Mexican civil engineer that was able to build and create a team large enough to take on huge infrastructure projects for the country. Before his time, foreign companies tended to lead these projects. With a team of young engineers, he was able to build a group based on partnerships. Many of the engineers would become partners and hold stock in the company. That was a way to ensure that their incentives were aligned with the prosperity of the company. Our company has never been a one-man show; in order to build these huge projects, we have needed many engineers. My grandfather was able to establish and lead this group, making it the most important infrastructure company in the country. Since its inception, ICA has been a very important tool for the government to develop and promote the infrastructure Mexico has needed.
Part of our curriculum is the construction of most of the subway system in Mexico City. For 20 years, there had been no investments in the subway. In this new era, my generation is taking on renovation projects. For example, we were in charge of building the drainage system in the 1970s in Mexico City, and now we are extending the system to double its capacity. We have been able to maintain this reputation and image of a capable engineering firm by delivering complex projects that Mexico has benefitted from.
However, there have been some changes. At the beginning of ICA’s activities, these projects were carried out through a government “pay-as-you-go” plan. Now, ICA is truly an integrator of projects; we build, but we also structure financing and innovate new ways of contracting, to put less stress on government resources. A company like ours is not only a builder, but is also a large sponsor. There has been huge progress in this sense, and much of the infrastructure is now private. For example, we own and operate 13 airports, a number of road concessions, and many water projects over the long term. We built these projects, but we also committed to operating the infrastructure, for periods of 20, 25, or 50 years, in the case of airports. Very recently, a law covering public-private partnerships (PPPs) was approved. This law is working toward forming better partnerships between the private sector and the government. For a private player like ICA, the law means having a more transparent view of the long term and partnerships with the government, as well as incentives to bring together funds and invest our capital in long-term infrastructure projects.
Are there any particular areas that ICA would like to expand into?
This company is 65 years old, and we have worked in almost every sector, building roads, airports, tunnels, bridges, and even gas pipelines and oil platforms. We have an almost 18-year-old partnership with Fluor Corporation of the US, which helps us target projects from PEMEX, such as oil refineries, platforms, and combined-cycle power plants. This work is not simple civil construction, but engineering procurement and construction (EPC) work. We would like to expand through that into EPC work, for example, in the mining sector. We have just begun work with mining companies, and we expect future growth in that business. In addition, PEMEX has always been a large client, and is undergoing a transformation process. Even though the company is not fully open, which would make us more competitive as a country, it is changing. There are more gas pipeline concessions now, and we have the chance to evaluate how to get more involved in the business. We see a variety of work from PEMEX on the horizon, with more upstream projects such as on- and offshore oil pipeline work.
What projects do you think have had the most significant impact in Mexico?
La Yesca Dam is definitely one of the most important renewable energy projects. Another is the construction of one of the longest water tunnels, which will be part of the drainage system in Mexico City and stretches 60 kilometers across the region. We still face the challenge of floods, and the capacity of the drainage system we built in the city in the 1970s was appropriate for a population of 7 million or 8 million. With the population more than tripling since then, we realized the need for expansion.
To carry out the construction, we have acquired six tunnel-boring machines, which are approximately 100 meters long and 12 meters wide. This equipment is mainly used for drilling. The project will continue for six years, and we are two years into it already. We will probably finish the first 10 kilometers in 2012. Although it won’t be totally finished, we can expect to put a number of completed sections into use in late 2012.
At the end of the 60-kilometer tunnel, we are building the largest water treatment plant in Latin America—and one of the largest in the world—which is a long-term concession that will be able to treat all the water at the end of the tunnel, which is fairly emblematic. The project is being carried out in partnership with Impulsora del Desarrollo y el Empleo en America Latina (IDEAL), an investment agency focused on the development of the region and employment of Latin Americans.
Which countries is ICA considering for international expansion and why?
We are looking at Panama, Peru, and Costa Rica. These countries are all becoming more stable, with investment-grade companies, good economies, and no deficits, like Mexico seven or eight years ago. These countries are beginning to demand the kind of projects we have carried out in Mexico, such as hydropower dams, roads, water tunnels, and subway systems. We believe that we can bring experience to these countries that are drafting their infrastructure plans. These areas are a good place to find work, and we have developed a solid reputation in some of these countries, such as Panama, where we have built major roads. We are receiving new road projects in Panama, and mining projects in Peru. We also foresee the expansion of many ports, and we are involved in the expansion of the Panama Canal. As the canal receives larger boats, the widening of the canal has sparked the rebuilding of ports. In fact, much of our recent investments have been directed toward ports, both in Mexico and in Panama.
To what extent does ICA cooperate with the Secretariat of Communications and Transportation (SCT)?
We collaborate heavily on our airport projects, and the master plan for the airport business has to be approved by the SCT. Moreover, how much we can charge the airlines is regulated, and it depends on our investment plans. We also cooperate in terms of roads. ICA is building many roads that will become concessions, and our cooperation with the SCT does not end when the project is finished; we work together for the life of the concession. We do most of our work with the SCT solely due to the sheer size of the projects. Through our airport group, we own commercial spaces in Terminal 2 at Mexico City International Airport. There is an NH Hotel, which we are responsible for. The airport business is two fold; one is the regulating business, which is charged to the airlines, and the other is commercial, such as the way the airport interior is utilized.
What are Mexico’s infrastructure needs?
There has been very heavy investment in roads, but there remains room for growth. Very little has been done in terms of port connectivity. PEMEX has a long way to go. ICA is currently engineering a seventh refinery in Mexico, as well as expanding the existing six facilities. We are involved in the building of the new refinery, but we believe that PEMEX must go deeper in terms of offshore drilling. There has been increased activity, and we expect to see even more investments in the oil industry in the coming years. Renewable energy is another sector that needs diversification. We do have hydropower projects, but there are many opportunities in wind power. There are more renewable energy projects on the horizon. Mexico’s demographics are driving the country to increase development: more cities, airports, roads, and housing. We are awaiting new infrastructure plans from the government, which may choose to invest around $45 billion per year in infrastructure. This figure could increase to $60 billion or $70 billion as water drainage projects take priority throughout the country.
How was ICA’s financial performance in 2011 compared to the previous year?
We grew more than 15% in sales, and around 40% in earnings before depreciation and amortization (EBDA). ICA has a huge pipeline of projects in its backlog—the year 2011 was excellent for the company. We have been growing, and with our international expansion and the government’s infrastructure plans, we are anticipating very interesting years to come.
What is your vision for the future of ICA?
The ICA of the future will boast even better engineering in its projects. We hope to be leaner in assets and quicker on returns. The company will be younger and even more dynamic, with very motivated engineers and top project managers. Through the ICA Foundation, we will encourage more students to study engineering. Without a doubt, our international presence will increase.
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