Building a Culture of Shared BenefitsWed, 02/21/2018 - 19:36
Mexico’s ongoing energy projects introduced by the conclusion of the country’s three long-term electricity auctions have all hands on deck as they reach the critical phase of financial closing and begin construction. While some first auction projects have already reached this phase, some others are at risk, given the rise of social conflicts inherent to a project’s location, says Alfonso Caso, Director General of ANAF Energy, a multidisciplinary company specialized in designing strategic solutions for Mexico’s energy market.
“Social impact and financial closing are two sides of the same coin that need to be better linked,” Caso says. “A project can face an impasse from lacking a good social negotiation and time is the worst enemy of this particular component,” he adds. Mexico’s projects must adjust to the reality of pairing these two notions as multinational and development banks are aligned with the Equator Principles, a framework for the financial sector to determine, evaluate and manage a project’s social and environmental risks.
Authorities and regulators have an important part to play in this regard. “Grey areas on tasks and responsibilities still remain between CENACE, CRE and the Ministry of Energy,” says Caso. In Mexico, companies are not used to communicating what they want or what they do, while communities are not used to asking for what they need but are accustomed to receiving payments to fast-track solutions to the immediate risks of social conflict. “On average, a Director General will dedicate two days per month to the company’s marketing strategy, under the guidance of a consulting team. Social communication strategy is looked at on average once every three months.”
Organizations such as ANAF Energy that guide companies throughout this process have built a successful business model around listening. “We listen to our client’s needs, listen to communities’ needs and problems and work to find common ground to ensure a project’s durability,” Caso says. The preliminary work, he adds, is of the outmost importance. The status of the social diagnostics of the project’s location is at the core
of this work. “If there is a long-lasting and unresolved land tenure problem, an energy project can intensify this conflict instead of solving it,” Caso adds.
Private companies investing in projects also have specific economic profitability margins, especially considering the low tariffs obtained during the auctions. Social benefits need to be managed within this margin, which is where ANAF Energy’s flagship concept, shared benefits, comes in, finding the convergence of mutual interests and effective communication within a relationship based on mutual respect between the project developer and the communities involved. “Creating a social success project is fundamental to signal the success of the Energy Reform, both from its electricity and hydrocarbon sides. To date, there is no benchmark project that can attest to this,” says Caso. One consideration could be the social benefits of legacy projects, when the development of the Isthmus of Tehuantepec began, yet Caso believes mistakes were also made in that process. ANAF Energy is working toward showcasing the first electricity generation project as a social reference before the end of 2018.
Caso also says it is vital to develop a financing scheme under new market rules for electric generation projects outside the auctions. It would become a model for financial entities to provide certainty to the market. ANAF Energy is successfully closing three energy trading contracts with private companies and designing financial mechanisms for small-scale power-generation plants, referenced under market prices. Qualified users deal with sizable associated costs when transitioning to a free market model, considering the modified regulatory framework requires thorough analysis of electric consumption per node, analyzing coverage systems if energy purchases are done in US dollars, electricity demand-pattern estimates, among other in-depth, time-consuming analyses. In short, several variables are starting to gain increased importance. That leaves open an important window of opportunity for companies like ANAF Energy that can provide advisory services to assist the decision-making processes of qualified users.