Waiting for the Downstream Path to Clear

Q: How have you maintained your operational volumes during the COVID-19 crisis?

A: We have transitioned and now we are operating a home office modality and using videoconferences. We only visit the office for specific processes that must take place there such as Council meetings, complying with all sanitary measures. We do go to the office if a task involves so much paperwork that it is impossible to do it from home. On a day-to-day basis, however, the office is empty. We are headquartered in Spain and operations are managed through personnel stationed there.

In terms of COVID-19 timeframes, Mexico is two or three weeks behind European countries. Our workforce in Spain is slowly reintegrating itself into a kind of normality as employees return to the office.  The closure measures were much more stringent in Spain than in Mexico; the company had to issue certificates to workers where they could prove to authorities that they were part of an essential activity that forced them to leave their houses. If you did not have that certificate in your pocket, penalties could be imposed. It is less stringent in Mexico, where lockdown measures have been applied to commercial spaces, such as malls, stores and restaurants but not a prohibition on leaving the home, but rather a recommendation

In Mexico, most of our personnel is working on the two construction projects that we are hoping to conclude in a short period of time. We are now addressing the last details and minor guarantees. Obviously, we are experiencing delays, but this is normal given the circumstances. For example, since one of these projects is a plant for CFE, we have to bring in specialists from Europe to address some issues in one of the steam turbines. The logistics involved in getting those specialists to Mexico under these circumstances represents mandatory quarantines, which invariably leads to delays.    

Q: How have your modified operations due to the reorganization of Mexico’s energy market involving CFE and CRE?  

A: I would rate it as an important and significant impact. I receive a daily press briefing that synthesizes Mexico’s most important media outlets, and 90 percent of those briefings for the last two weeks have been entirely related to this issue. It is all we talk about in the electrical sector. This brake they are trying to impose on renewable energies through policy changes at CRE and also at SENER will come with grave negative consequences for investment and investors in Mexico. We understand that the government is trying to strengthen the position of PEMEX and of CFE, but we do not believe this should happen at the expense of limiting private investments for the development of renewable energies. This will lead to more power being generated through the burning of inefficient, expensive and ecologically damaging commodities such as fuel oil. This might give more power to CFE than to private players, but the truth is that private players are enacting their own legal protections against these policies. Renewable energy continues to be a very interesting market for us, but if there are no projects then the is no way to be a part of the market.

Q: Has the uncertainty that you mentioned last year dissipated?

A: From our perspective, to no degree at all. We could even go in the opposite direction and say that certain fears that we had at the beginning of the year are coming true. Unfortunately, the renewables sector was a big part of our diversification strategy, either through photovoltaic power stations or wind energy, micro-hydroelectric dams and even hydrogen plants. Now, all of this has become a lot more unlikely. However, we still have a positive outlook for the energy generation tenders that CFE is putting out.

In the oil and gas sector, our attention is centered on the Dos Bocas refinery. We are contributing to that project by offering them a lot of our available equipment directly through PEMEX’s early procurement and purchasing requests. We own a PEMEX-certified workshop that focuses on the manufacturing of reactor vessels, tanks and heavy boilers, where we export customized units to refineries in the US and in the Middle East. We are offering this workshop’s services to the Dos Bocas refinery both through PEMEX and through its EPC contractors, such as ICA Fluor and Samsung. We know the EPC companies that were awarded major Dos Bocas contracts and are now negotiating for the refinery’s secondary equipment supply contracts, and we are supporting them with quotes for that equipment. We have not yet been awarded any contracts in this matter, but we know they are being awarded to companies from all over the world. Our interest in Dos Bocas also extends to the revamping and reconfiguration projects taking place in the rest of Mexico’s existing refineries, but we are waiting for the publication of the exact conditions for those projects, which, of course, has been delayed due to COVID-19.

When taking on these projects we need to consider PEMEX’s current situation in terms of payments. We have heard from other companies that are struggling with their financing structures because they have been waiting for PEMEX to pay them for previous projects that have already been concluded. A good example of this are projects surrounding PEMEX’s clean diesel DUBA (ultra-low-sulfur diesel). For this project we had equipment ready that could not be delivered after projects were interrupted at the end of the past administration. At the same time, it is true that Dos Bocas is one of the flagship projects of this government and thus is likely to be appropriately budgeted. Payments would probably be guaranteed.  

Q: What are your plans for the rest of 2020?

A: We are continuing to pursue work and offer equipment to private projects for the fuel storage and electric power generation sectors. We hope to be awarded a contract or two in those areas and projects. On the other hand, we are also interested in participating in some of the tenders being offered by CFE under the financed public works scheme. As I mentioned, we also remain interested in offering equipment for projects in Mexico’s refineries. This includes reactors, pressure vessels and storage tanks, among other options. We hope that the controversy surrounding renewable energy projects will be resolved sooner rather than later, so that we can begin extending our involvement into that sector too. Overall, we continue to bet on Mexico and to believe that this government will find its way forward through these crises.        

Duro Felguera is a Spanish ESCO contractor focused on turnkey project development for the energy sector. It has ongoing projects for the construction and operation of facilities that affect the Mexican mining, energy and oil and gas sector.