How has the firm developed in Peru?
OHL came to Peru some years ago for a specific project, but the real story of its involvement in this market starts in 2008. In 2002, OHL decided to branch out and become an international company, seeking projects beyond Spain, which accounts for 92% of its business, and Europe. OHL has focused on Peru for the past six years, having entered the Peruvian market through the acquisition of Peruvian company Constructura TP. In our first year, we were granted a major concession to build a road to Trujillo, and that project whetted our appetite sufficiently to remain in the country. We now have three major business areas here; construction, concessions, and industrial, which is the APC component. The industrial component is our smallest branch, having been in operation for just a few years. In terms of construction, we have more than a decade of experience in Peru, making it our largest branch, along with concessions. We operate as independent units under one roof, but our construction and concessions departments work hand in hand, and we never undertake concessions that we are not going to provide the construction for.
Tell us about the state of progress regarding the Trujillo highway, and the concession process regarding that project?
There are four stages, the third of which has been finalized and delivered. The fourth stage will be completed before the end of the year, and work continues on the first and second stages. We started with the third and fourth stages heading from north to south because of the low availability of free land in stages one and two. It made the most sense to begin work at the stages allowing rapid progress, as negotiations continued with the government concerning the availability of free land in stages one and two. We were also awaiting the introduction of new legislation regarding the expropriation of land on which to build the highway and lay the necessary infrastructure, which includes fiber-optic cables, towers, and toll stations. That said, we expect to finish the main project by December 2015, with the ancillary projects to be completed the following year.
How competitive is the construction sector and concessions? What are the challenges in obtaining them, and how free and fair are the concessions and competition overall?
Competition in Peru is tough, although it is a thoroughly open market, which is encouraging. When I was a politician in the Peruvian senate, I worked hard to ensure that this was the case. The Senate has of course since been abolished, under the presidency of Alberto Fujimori, following his coup d'état, and today there is only Congress. But we were the group that struggled to open up the Peruvian economy. Mario Vargas Llosa lost the election, and Fujimori won, but thankfully the free market spirit won out in the end, and we have an open economy, while the country has been opened to foreign capital and investment. Today Peru has no restrictions other than a somewhat slow-working bureaucracy. Peru is an attractive investment prospect for multinationals, and in terms of transparency I see little evidence of wrongdoing in private initiatives. In the public sphere, they talk of corruption in the private sector, but I don't know of many cases, and those I do know of have been exposed and dealt with. This suggests that the image of corruption is overblown and outdated.
What is it that distinguishes OHL, enabling it to win large concessions?
The difficult projects set us apart; we specialize in them, and realize them effectively. We compete in public tenders, and invest our own money in the projects. Our profits are then reinvested in company growth. Our highly skilled engineers add value to our construction projects by providing effective solutions for every eventuality. When mineral prices are low, clients make expenditure cuts, and we often have to match those cuts, but there is a point past which we cannot go. Many companies think that making cuts is the solution, but they fail to realize that cutting costs can be more costly in the long run. In companies I have worked with before, I never sourced the cheapest suppliers, but always the best ones. After all, one weak link in the chain can bring a whole operation to a halt.
OHL wants to double the size of its global operations over the next five years. What will Peru's role be in this growth?
The new CEO of OHL, Josep Pique, has declared this to be the target for the next five years. Peru is the first branch of OHL to have already doubled the size of its business. 2013 was spectacular for us, and we more than doubled sales over the course of the year through various projects, mostly in the mining sector.
What performance do you foresee for 2015?
By the end of 2015 or early 2016 in the construction sector we will have reached similar growth levels as 2013. These will be the result of the concessions won today, which are due to be completed by around the end of 2015 or the beginning of 2016. In the second trimester of 2015, we will assume new mining sector projects. Overall, I think we will be much stronger in 2016 or 2017, when the mining sector will have gotten through this tough period. I expect growth in private initiatives (IP's) and public-private partnerships (APP's), mainly in the mining sector, and we also want to enter the energy sector, mainly through hydroelectric projects.
© The Business Year - March 2015