THE COMPETITIVE APPROACH

Mexico 2012 | ENERGY | VIP INTERVIEW

TBY talks to Germain Manchon, Country Manager of GDF SUEZ Mexico, on the significance on Mexico, the gas distribution market, and the private-public balance in the energy sector.

GDF SUEZ has a presence in 70 countries. How important is Mexico for the company?

It is very important. For us, Mexico is considered a part of the emerging markets, with attractive potential, and it is clearly a country where we want to consolidate and grow our position. As part of North America, Mexico offers the highest potential for growth in the energy sector compared to the US and Canada. In February 2012 the Federal Electricity Commission (CFE) announced its need to increase power capacity by 37,000 MW, which means 70% growth in the next 15 years. Natural gas will compose 60% of the fuel mix used in generation. As such, ensuring natural gas availability and sufficient gas infrastructure to transport this gas will be crucial for CFE in the years to come. For GDF SUEZ Mexico this represents both a big challenge and a big opportunity to add value to the market. Our group is currently the number one independent power produced in the world. Originally, we started operations in the Mexican market offering our services in natural gas distribution. Then we expanded our business to power cogeneration and natural gas transmission. Now we want to offer integrated energy solutions to our clients, and I believe we are in a truly unique position to do so. Mexico will definitely need to invest in its energy future, developing infrastructure that enables the kind of growth a country this size requires. The tenders we secure in power and gas pipelines in the coming years will provide GDF SUEZ with work for the next 5 or 10 years. Our main strategy is to stay committed to Mexico to try to participate in all of the opportunities that the energy sector presents to us. We want to have an energy-based portfolio that reflects the standards of the group. We will reinforce our activities in gas transportation and distribution and attempt to expand our presence in power, as the opportunities available in the Mexican market are massive. We are here to take advantage of our size and dedicate large volumes of our investments to transmission projects across Mexico, which is key to the energy infrastructure of the country.

GDF SUEZ is the leading private company in gas transmission in Mexico. To what do you attribute your success?

The development of our activities is a reflection of the big groups' capabilities to handle people, time, money, and knowledge, and the ability to bring these factors to the market in Mexico. We are dedicated to being open to the private sector and investors. By combining GDF and SUEZ we won six bids out of 15 or 20 projects in Mexico. We wanted to balance our risk portfolio in Mexico, and consequently we invested in transmission. After the merger, we engaged in more power-directed activities. We have maintained a leading position the entire time.

“Mexico is considered a part of the emerging markets, with attractive potential."

What role can the private and public sectors play in the development of infrastructure for natural gas distribution in Mexico?

Today, there are two main players that could establish the framework for private investment in natural gas transmission: PEMEX and CFE. The market is not mature enough, based on the demand of industrial customers who could invest in a large-scale pipeline. In terms of return on investment, to reach a certain level you have to be patient. For the past 15 years, CFE has promoted private investment in transmission and LNG terminals. Both state-owned companies are playing a new role in promotion, and that is a good thing. At a presentation, CFE announced its intention to convert its power plants to use natural gas. All of this is based on kilometers and kilometers of new pipelines. PEMEX is also promoting a new pipe from southeast Texas to Mexico. The main players in Mexico's energy sector are involved. If there is natural gas available in the area, new industrial managers will choose areas to build new plants. We have witnessed this already in the center of Mexico, where US and Japanese automakers have switched to natural gas where we have a pipeline. Nissan built a $1.2 billion plant where energy is available, in Aguascalientes. This movement will consolidate the competitiveness that Mexico has gained against China, especially in the last three years. Add this to the low cost of production and the proximity to the US, and it means that this shift will be good for the Mexican economy.

© The Business Year - April 2012