Align interestsNovember 27, 2017
Giacomo Bonfanti, commercial director of Grupo Desarrollo Infraestructura (GDI), talks to TOGY about the market for energy infrastructure projects in Mexico, which sectors will see the most opportunities in the short term and how aligning with the government and local communities is the key to success.
Founded in 2012, GDI is a 100% Mexican EPC firm involved in the construction of industrial and energy infrastructure. About 60% of the company’s business is derived from the oil and gas industry, while the remainder comes from the mining sector. GDI has more than 1,700 pieces of equipment and has constructed more than 3,500 kilometres of gas pipelines in Mexico.
• On local standards: “Oil and gas standards are very high, so the locals need to further develop their skills. The domestic industry needs to be more competent in escalating its quality standards. Pipeline construction and storage facility projects will give Mexico the necessary infrastructure that any First-World country has.”
• On Mexico’s outlook: “I think that at some point, Mexico will have to export gas or try to plan liquefied gas plants in the gulf to transform the country into an energy hub for Europe and the rest of South America, but this would happen in an eight-year period and it strongly depends on the current NAFTA renegotiations.”
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How can local companies take advantage of further liberalisation in the transportation and distribution sectors?
Oil and gas standards are very high, so the locals need to further develop their skills. The domestic industry needs to be more competent in escalating its quality standards. Pipeline construction and storage facility projects will give Mexico the necessary infrastructure that any First-World country has.
In Mexico, we have three days worth of storage for hydrocarbons. Other places such as Europe have more than three months, but Europeans overreact a lot because of their history. Here, we’d better focus on creating a plan to achieve a month’s worth of storage. We all know what happened the last week of 2016, when the country ran out of fuel. People in Cancún couldn’t fuel their trucks. Strengthening our storage capacity is the future, in order to guarantee and we’ll provide a need to other pipelines for market and security reasons, and achieve a competitive price of petrol.
What near-term infrastructure opportunities is the EPC sector assessing?
Storage is something that we’re taking a look at. I think it’s a great opportunity and for the kind of company that GDI is, this mission of adding value to projects is critical to that area. I think that at some point, Mexico will have to export gas or try to plan liquefied gas plants in the gulf to transform the country into an energy hub for Europe and the rest of South America, but this would happen in an eight-year period and it strongly depends on the current NAFTA renegotiations.
What is the relationship between local communities and companies working on energy projects?
When you’re an EPC company, you are a guest in the community. As a contractor, GDI has always tried to understand how we can collaborate with the community to be seen as a company that is going to provide jobs and bring some economic development.
You have to be respectful of where you are and how you are treating everyone around you. By this, I mean you need to be disciplined with what your people are doing. Your employees need to be focused on working. You need to control communications, because any misunderstanding not addressed at the right moment could escalate into a big issue.
Working anywhere, even outside of Mexico, GDI has to respect the community and try to be seen as a company that is adding value to that place, instead of being seen as a company that enters, constructs and leaves. Many times, EPC companies are seen as destroyers instead of entities that are collaborating with the community for a certain amount of time.
What is GDI’s approach to overcoming social issues that sometimes arise during the development of midstream projects?
I am of the belief that plans are useless, but planning is essential. In Mexico, there is a huge lack of planning. We need to plan more and co-ordinate with all the project stakeholders. Some of those stakeholders are communities, landowners and other entities.
It’s easy to account for and mitigate the risk when you are in control of it. When you’re not, transparency and co-ordination is key in all of the interactions between the contractors, communities and landowners. There is a huge opportunity for operators to develop a plan with landowners and communities and make them part of the project in a very transparent way. In Mexico, the community is facing new problems that they probably hadn’t before, which is the opening of the energy and oil and gas sectors. Everyone went forward and stepped up to the challenge that was developing these kinds of projects.
We need to give the communities the same knowledge for them to be able to understand what is happening and make them aware of the benefits of the oil and gas sector. This has to be done by aligning all the interests in the project. We need environmental, social, political, indigenous communities and indigenous incentives to be aligned. For me, this is key to any infrastructure project. Proper alignment of all the incentives is what could give a push and more velocity towards finishing the project.
Some critical aspects needed for any project are flexibility and analysis for managing decisions when it comes to land acquisition.
What EPC opportunities are available in the power sector?
The renewables sector has a lot of opportunity. With the new electricity reform, once the projects that were tendered by the CFE [Federal Electricity Commission] come on line, and once the market has achieved a level of maturity that allows the private sector to start producing energy and allows private investors to start investing in electricity projects, there is going to be a need to diversify towards that sector. It will be interesting to see Mexico transform in an open electricity market.
Being an infrastructure and mining company, our equipment and people are specialists in earthworks. Solar and wind energy, plus the hydroelectric sector, are the ones that we will be pursuing in 2018-2019.
What areas in the power sector will see rapid growth?
I was astonished at what happened with renewable energy in terms of submitting competitive bids for power generation through the long-term auctions. I want to see those projects developed because the prices are very low, but I think there is going to be a huge opportunity in fibre-optics, cable installation and directional drilling for cables in the power sector.
I am trying to focus more on the electric sector. Maybe I am an optimist, but I think that we will have a large number of electric cars in 20 years, and having them will require the expansion of the current network.
Will the political environment affect the development of the industry over the next couple of years?
We have elections in 2018. I am sure that elections have nothing to do with the country’s oil and gas and energy needs, but still, this creates a standby period for the financial sector. I think that the next political scenario is going to create financial standby.
We’re going to look at the opportunities and assess what we will do in the next few years. To me, project finance is the best way to execute projects because it creates a lot of accountability.
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