Unlocking nearshoring with smart infrastructure

Mexico

José Pablo Rinkenbach, co-founder and AUM & ESG executive director of AINDA, talks to The Energy Year about the funds the company manages in Mexico and Colombia and its most important investments in Mexico’s energy sector. AINDA is a private equity investor focused on energy and infrastructure in Latin America.

Tell us about AINDA and the funds you manage in Mexico and Colombia.
AINDA is a private equity fund manager focused on the energy and infrastructure sectors in Latin America, with a critical focus on ESG integration. Currently, in Mexico specifically, two-thirds of the potential projects we currently have in the pipeline are in the energy sector.
While our first fund in Mexico holds USD 300 million, our second fund has a total amount of USD 320 million and is expected to increase to USD 500 million in the coming months.
As part of our expansion, in our second fund, we structured a parallel vehicle to raise up to USD 200 million in Colombia. We believe Colombia has a solid institutional base and see interesting opportunities there, especially in the development of infrastructure such as freeways and interurban roads.
We have also considered projects in Peru and Chile, but today our focus is on Mexico and Colombia, and it is important to note that, since we began, our reputation has allowed us to cherry-pick our projects, so we only go for the very best. For example, in our first fund we analysed 97 projects and invested in only 5. That is the level of selectivity we are talking about.

What recent important investments have you made in Mexico’s energy sector, and what is your strategy when deciding to invest?
Firstly, I would highlight that for us politics plays no part in our decision making. For us the colour of the administration is irrelevant, and we base our decisions purely on the merit of each project we consider. Secondly and most importantly, we look for projects that are a win-win for both us and the other parties involved, whether it is the government or communities we are working with.
This strategy ultimately makes it much easier for us to operate, as it gives the government and the regions in question an incentive to help us obtain the permits and complete all necessary processes. Our investments essentially fulfil development needs in different regions. For example, with the Hokchi field, we’re filling the need for gas in the southeast of Mexico, and we’re supporting the need of Mexico for light oil production needed in its refining infrastructure.
This strategy helps us carry out projects successfully.

What can you tell us specifically about your infrastructure investments in Mexico?
A key project of ours in this space was our investment in finishing the most important highway in the country for exports, which goes from Monterrey to Nuevo Laredo. This highway project is key to Mexico’s nearshoring goals. 4 out of every 10 pesos exported to the United States passes through Nuevo Laredo. Our investment has contributed massively to Mexico’s ability to export efficiently to the US.
Finally, we should highlight our investment in Neology, a technology for the automation of toll applications, which we have in Mexico and are also introducing in Colombia. This technology is already used in cities such as London and Copenhagen, and it is an important part of our portfolio, as it removes the need for physical toll stations, which improves circulation on highways.

Tell us more about the opportunities you see in nearshoring.
The main limiting factors in the development of nearshoring are electricity and water. Electricity is a limitation due to both issues with the transmission network and the sources of electricity.
There are many finished industrial parks in Mexico which have no clients because they are not connected to the grid.
Regarding water, no significant investment has been made in this sector for decades. The big aqueducts are either from the 1970s or 1980s. President Sheinbaum’s Mexico Plan plans to invest USD 3 billion dollars into the sector, but according to our estimates, to overhaul this system in just Mexico City alone will require the country to invest USD 13 billion.
In both of these areas, we have identified important areas of opportunity. However, with the government in a deficit, public-private and profit-sharing schemes with the state as a partner, not a counterpart, will be key. Namely, the state will need to efficiently provide permits and regulatory assistance.

What can you tell us about AINDA’s commitment to ESG and how this informs your investment strategy?
In Latin America, we are the fund that has the most knowledge and commitment to ESG. We believe that our responsibility is to make responsible investments, but this does not mean we buy the thesis that oil is cursed.
We look to make investments in fossil fuels responsibly, and for example, we take issues such as flaring and gas recovery very seriously. The limit is 3%, but we are even lower at 0.6%.
With this in mind, our strategy is to build a portfolio that is sustainable in the long term but does not prohibit fossil-fuel investments. For example, we are currently considering a MXN 4 billion [USD 195 million] green and blue methanol project.
This is one of the largest, if not the largest methanol project, that is going to be built in Mexico, and it will use the latest technology. The methanol will ultimately be used as clean energy for the production of petrochemicals and bunker fuel for ships.
This highlights how we are committed to our ESG commitments without leaving behind fossil fuels, as it is not realistic to purely rely on renewables at this time.
The industry’s focus should not be purely on either oil or renewables. Take the USA and Europe as examples. Europe has focused on installing renewable energy, whereas the US has focused on transitioning from carbon to combined-cycle technology for energy generation. Between these two, it is actually the US which has lowered emissions the most. This is the common sense route to take, which we are committed to.

What are your activities in the battery-storage space, and what opportunities do you foresee?
Battery storage is now mandatory in Mexico, which is a trend we have been anticipating and are now seeing come to fruition. Batteries are now good enough to the point we can commit to this technology with long-term contracts.
Moreover, we are analyzing to form a partnership with a company that is providing storage as a service, both at utility scale and behind the meter. Behind the meter, we would go to a company and help them introduce batteries into their operations. At a utility scale, we would work with the big energy producers to store the energy they produce.
We cannot yet reveal who this partnership will be with, but they are one of the most important players in Mexico and have experience working with Chinese, Finnish and German batteries. This work at a utility scale would allow Mexico to overcome the serious problems it has with its transmission network. These batteries could be used to almost replace these networks.
For example, if you want to supply a certain region with electricity, a viable alternative would be to transport these batteries to the region in question, providing another way to supply cheap electricity produced in thermoelectric and combined-cycle power plants to less well-connected areas.

What are AINDA’s strengths that differentiate it from the competition?
Our added value isn’t that we have money but that we are a partner that truly generates value. We have worked with companies such as Pinfra, CRRC, Panamerican, NEOLOGY, PASE and ZUMA. I would also like to highlight our ethical code. Regarding the law and ethics, we accept no grey areas, and we do not hesitate to report people. This level of integrity is rare in Latin America.
Furthermore, the experience we have working both in the private and public sector, and our background in strategic consulting differentiates us. This allows us to understand how to operate in different scenarios and means we know how to position ourselves in advance and to invest in projects with a long-term outlook.
Finally, I would highlight our company structure. When you look at investment funds, the personnel turnover is very high. This is because, in most funds, around 90% of the shares belong to the equity partners, and only 10% belong to industrial partners.
At AINDA, we have a different approach. We commit 40% of our shares to our employees. This strategy makes them partners in the business and allows us to retain talent long term. This means we guarantee the quality of our service and personnel not just now but also long into the future, which is important for investors.

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