Energy Business Ambassador for MexicoWed, 02/21/2018 - 12:58
Global energy players are taking notice of Mexico’s efforts to provide a liberalized energy market on par with the country’s energy requirements and its place in the global economy. A newly created market, operating under new rules, can be challenging to tackle for outsiders, despite their successful track record in other locations. “Understanding the magnitude of the inherent nontechnical risks like permitting and community engagement requires constant focus in the big picture of Mexico’s revamped energy sector,” says Anna Raptis, Founder of market-entry consultancy Raptis Group.
As the rules of the game are evolving to foster a level playing field in Mexico’s energy market across the value chain, so are the ways in which Mexico was used to doing business in the sector. “Before, projects were financed with state-owned utility CFE, through long-term PPAs for power projects and 25-year contracts for gas pipelines. It is highly unlikely we will continue to see the same terms going forward,” Raptis says.
Raptis Group has built a successful track record of helping to develop energy infrastructure and natural gas projects, particularly LNG. “We provide consulting services to foreign companies that want to invest in Mexico’s energy sector, from private equity investors to power marketing companies and infrastructure developers.” Raptis’ vision entails being part of the solution and not the problem. “Much of its work lies in addressing the negative discourse present outside Mexico, working to fostering economic development in Mexico by developing its energy sector,” she says.
Raptis says the industry is witnessing greater creativity in financing structures as a direct result of this sizable shift. “There is opportunity for more innovation, particularly on the risk management side when structuring deals,” she says. A young market often calls for disruptive, ambitious and effective financing schemes. “Previously, most of Mexico's power projects and gas pipelines were project financed. Given the reform and auctions, there is a lot of corporate finance as the market is new and developing. Recent financing operations showcased more participation from development banks and less from commercial banks,” Raptis explains
.The consulting company expects this will change over time as risks are better understood. Risk mitigation is part of Raptis Group’s role with newcomers. Raptis believes that understanding these risks, nontechnical in particular, and providing the tools to manage them is critical for success.
Raptis points out some of its clients are interested in developing LNG in Mexico, given its strategic geographic position. Sharing a border with the US provides a golden opportunity to access cost-competitive natural gas from shale. “Given how competitive gas production is in the US we are anticipating Mexico will increase its domestic gas production in the long term, providing interesting business opportunities for this particular market,” Raptis says.
But infrastructure may be a sticking point. Raptis says the country’s spectrum goes from providing inefficient and costly energy to highly efficient, competitive prices and low-cost energy as a result of infrastructure differences across regions. “The challenge is to find an effective migration process for Mexico’s infrastructure to lean toward more efficient, cleaner, low-cost energy, which is not always self-evident, particularly in the context of new regulations and a young energy market operating under variable costs,” she says. “Some areas in the country have no access to natural gas, and generation is still primarily done through fuel oil or diesel. Both public and private players must figure out how to get natural gas to those parts of the country,” she adds, emphasizing it is not just beneficial in economic impact but also environmental terms.
For Raptis Group, a core component of business development strategies in Mexico’s energy market is related to sustainability. “For us, it is a holistic concept. It does not just mean creating environmentally friendly business but also using the tools for economic and environmental and social sustainability in the long term,” Raptis says. The group is committed to continue supporting Mexico’s Energy Reform as an ambassador for foreign investors interested in participating. “We want to prolong and deepen the success of the reform. NAFTA talks generate a lot of nervousness but we see it as an opportunity for Mexico to look outward and diversify its global business partners.”