Ties that Bind: Reform Reignites Japan InterestWed, 02/22/2017 - 09:58
The friendly ties between Japan and Mexico date back to 1888 when the countries signed the Treaty of Amity, Commerce and Navigation, the first equal treaty Japan signed with a non-Asian country. The economic and cultural relations between the two have become stronger over the years leading to positive collaborations in different sectors, including energy. Takeshi Tada, Chief Representative of the Mexico City’s Office of Japan Bank for International Cooperation (JBIC), says Japan continues to play a role in the construction of Mexico’s energy infrastructure through its development bank, financially supporting Japanese companies to export power technologies to Mexico and investing in the construction of landmark projects in the national power system. “We have been supporting Japanese investment across different economic sectors in Mexico, with energy being one of our strategic segments,” he says. “In the past, we mostly supported Japanese electric equipment manufacturers willing to export their products to Mexico, such as Mitsubishi Heavy Industries, Hitachi and Toshiba. As a result, most of the power generation sector in Mexico was using Japanese technology in the 1980s. Now, competition is fiercer but Japanese companies continue to hold an important share in this market.”
JBIC also supports Japanese technologies for Mexican customers by providing loans to companies willing to acquire the country’s equipment. “Export loans are one of the most popular services used to support Japanese companies that want to export their products overseas. Import loans also support Japanese companies indirectly by providing funds to borrowers willing to acquire strategic products from Japan, such as CFE in Mexico. We issued our first credit line to CFE 50 years ago, consisting of a power loan that tightened our relations with the only Mexican utility at the time. Since then, JBIC has been involved in the financing process of several CFE projects, including the gas combined cycle power plants of Saltillo, Rio Bravo, Merida, Valladolid, Tuxpan and Chihuahua,” Tada says. Japanese companies have also shown interest in investing here since the IPP scheme was introduced in Mexico in the mid-90s. This was the case for Mitsui & Co. Power Americas, now the second largest operator of power generation assets in the country.
“We provide overseas investment loans in these cases, 183 supporting the overseas operations of Japanese firms as well
as the establishment of merger & acquisition (M&A) deals with foreign companies. This type of loan is very common in the automotive sector but is also used in the energy industry. Moreover, we offer special conditions in the case of energy-related projects, such as lower interest rates and longer repayment periods with the purpose of increasing the competitiveness of Japanese companies in this sector.”
He goes on to describe an overseas investment loan used to build the Electricidad Sol de Tuxpan project, a joint venture between Japan’s Mitsubishi Corporation and Kyushu Electric Power. The loan was co-financed with Mizuho Corporate Bank with political risk guarantees also provided by JBIC. “In general, the financial conditions of an overseas investment loan are better that an export loan, making them the preferred option for Japanese companies in the energy industry,” Tada says. “We also provided finance for the Cerro Prieto geothermal power plant through a build-own-lease transfer scheme, which was also the case of Chihuahua’s gas combined cycle power plant and Cozumel’s subsea transmission line, all of them operated by Mitsubishi Corporation.”
Tada says the implementation of the Energy Reform has reignited the interest of Japanese energy companies and investors in the Mexican power and oil and gas industries. “The previous regulation limited private participation in the energy sector, which was a barrier for Japanese businesses. For this reason, Japanese companies were mostly focusing on establishing IPP projects in the case of the power sector, while JBIC’s role in the oil and gas industry consisted mostly of providing untied loans to PEMEX. However, these initiatives also served as an entry point for Japan into the Mexican energy sector, being the start of a good business relationship between both countries on energy-related matters. The Energy Reform has opened a new set of business opportunities for Japanese investment in Mexico.”