Expert Insights
Virtual Round Table Addressing
Capital Raising and Energy Opportunities in Mexico
With
Antonio Borja Charles, Partner-Energy, Galicia Abogados
Adi Blum, Managing Director, Blackrock
Luis Villalobos, Chief New Business Officer, EXI Energy and Infrastructure Fund
Alex Fabrega, Director – Investments, CKD Infraestructura México
Carlos Isorna, Vice-President, Macquarie Infrastructure and Real Asset
Jeff Thomas Pavlovic, Power Market Expert, Bravos Energia
Paul Centeno Lappas, Mexico General Manger, Neoen
Manuel Rodriguez Arregui, Chief Executive Officer, Ainda Energia y Infraestructura
Moderator: Alexandra Ashikhmina, Managing Director, Americas, Energy Council
May 2020
Capital Raising for both hydrocarbons and renewables projects is changing shape in Mexico.
With 275 projects anticipated from 2020 to 2024, ranging from power generation, to storage and transportation, to exploration and production of natural gas, the $91.5 billion package will significantly influence the government’s national energy plan, due very soon.
What are investors afraid of and what are they looking forward to in Mexico? These are the next big questions, and 2 recent virtual roundtables discussed the investment climate and trends in Mexico.
Below is a summary of the virtual round table discussion which took place 15 April 2020.
What immediate effects of COVID-19 are you seeing?
- Supply chain disruption. Even though construction is an essential service, some equipment and service providers aren’t and that prevents construction from going ahead as planned
- Delays in approvals as some government bodies do not respond to communication attempts
- Toll roads have been the most immediately affected
What keeps investors awake at night?
- We focus mainly on the balance sheets of our assets. COVID-19 and demand drop is like an illness in itself that is going to damage any company that isn’t 100% healthy, so we need to do some maintenance and work on building immunity
- Government response. In some instances, the pressure is still on to pay salaries, taxes and other fees in full without the ability to operate which is a worry
- It now takes longer to get any permits or approvals that require the government’s input
- What is the next big opportunity? All investors will be more risk-averse and even more selective
- We are busy with financial modelling: designing all sorts of scenarios for $30 oil price (we don’t want to go lower than that)
- Security issues on our assets is a concern. Poorer communities don’t have many protections and as more disruptions to their lives are coming up, violence and looting will follow. It happened before when fuel prices hiked
Where are the biggest opportunities that you are seeing right now?
- Logistics, storage and shipping – we invest in them and we are happy
- I think this will be a massive trend for all. From an investor perspective with regards to evaluating risk and from operator’s, not having to rely on one source of energy anymore.
- Divestiture, A&D, M&A, restructuring, litigation. Litigation lawyers are very busy right now
- Saving on travel and accommodation. This is a behavioural change where people won’t need to fly as often or have a better objective when travelling. Jet fuel demand will stay low even after we return to normal. It will be interesting to see how life can and will change for the better and what lessons companies will learn as a result of this crisis
What can the government do to assist?
- Create emergency teams. There should be a Plan B for these kind of situations: pandemics; natural disasters; and the likes
- Intelligent tax breaks
- There is hope that the government will go back on restrictive regulations and free up government money that is coming in from those sectors that are performing well, like food and telecoms, and that they redistribute that cash to help those industries that are struggling
- Form alliances, associations, working groups to share information faster and create best practices. We need to rely on one another now more than ever
- Listen to the private sector. Build a closer relationship with those who actually grow your economy
- The sector is uncertain about contracts with CFE. Will they stop paying the agreed prices citing force majeure? Are there any other dangers regarding payments?
Discussion summarized by Alexandra Ashikhmina, MD, Americas, Energy Council.
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