Three Pillars to Energy Project Success

(In order of appearance, left to right)
Moderator: José Prado, Partner at Holland & Knight
Panelist: Giacomo Bonfanti, Commercial Director of GDI
Panelist: Jaime Martínez, Business Development Director of ERM
Panelist: Salomon Amkie, VP of Power & Alternative Energy at Citibanamex
Panelist: Enrique Lara, Director of Energy at Banobras

Social management, permit acquisition and industry understanding are consistently recognized by financial institutions, EPC companies and consulting agencies as the key elements that determine the success of an energy project, panelists at the Mexico Energy Forum 2017 said on Wednesday at Mexico City’s Hotel Sheraton Maria Isabel.

“Success factors for energy projects are power generation, technical aspects, proper financial assessment and nontechnical risks. Proper planning is key because prior evaluations might help determine the feasibility of a project at its earliest stages,” said Jaime Martínez, Business Development Director of ERM.

Since project development involves working with different communities and in many cases trespassing their property, Giacomo Bonfanti, Commercial Director of GDI, stressed the importance of maintaining good relations with the community where the project will be developed through proper social management. “A common mistake is to believe the communities’ concerns will only be about money,” Bonfanti said. “But sometimes the value of the land is not just financial.”

ERM’s Martínez, however, reminded his colleagues that companies shouldn’t be afraid of reaching out to communities, saying the positive impact that energy projects can have goes both ways, especially in the case of renewable energy projects. “Developers must involve the community because many times it can contribute and add value to the project,” he suggested.

On the second success factor, permit acquisition, the most outspoken panelists were the representatives of financial institutions, as they are the players most impacted by permits or the lack of them. “Permit acquisition is critical for successful project completion. The requirements at the first two long-term power auctions were not strong enough since owning the permits prior to the bid was not mandatory. That in the end hindered the feasibility of the winning projects and led to uncertainty about their likely success,” said Salomon Amkie, VP of Power & Alternative Energy at Citibanamex.

On that point, the development bank agreed. For Enrique Lara, Director of Energy at Banobras, the offered prices at the auctions generated uncertainty regarding their ROI, thus complicating their financing and risking their construction. One of the main problems he found is the short time period in which companies are obliged to comply with the requirements for the projects they intend to build. For both commercial and development banks, developers need more time to comply with the requirements requested to give certainty to their projects and brand them as feasible.

Toward the end of the panel, moderator José Prado, Partner at Holland & Knight, brought to light a pressing issue for the audience and panelists: US commercial policies toward Mexico. The panelists agreed that given the long-term orientation of energy projects, even if commercial policies do not favor commercial exchange in Mexico, projects will remain competitive. “Projects have to be developed with whoever is president and whoever comes after,” said Prado.

In the short-term, the general concern is the volatility created in financial markets by US President Donald Trump’s statements. “Investment decisions are always long-term oriented. Even though there is a volatility factor it mainly impacts ROI curves and dollar exchange rates, but there are financial structures to mitigate these issues,” said Lara.

But for some, like Martínez, Trump’s policies create an opportunity, as possible capital repatriation can be absorbed by the growing Mexican energy industry. For Amkie, the opportunity lies in the market dynamism that the aura of risk resulting from Trump’s policies is currently generating.