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Germain Manchon

MEXICO - Energy & Mining

Competitive Approach

Country Manager, GDF SUEZ Mexico

Bio

Germain Manchon was born in 1956 and graduated from the Ecole Supérieure des Sciences Economiques et Commerciales in Paris. He began his career in 1980 in the aeronautical industry as Corporate Treasurer for SAFRAN. In 1982, he joined the Natexis Group, where he held executive positions as Senior Banker and Head of the Project Finance Department. Before joining GDF SUEZ in 1996, he served as Senior Vice-President of Private Equity Investments in Natexis’ merchant banking division. He was appointed Country Manager of GDF SUEZ Mexico in 2010, previously having worked in the GDF Group as CFO of the company’s Mexican transportation assets, among other positions.

GDF SUEZ has a presence in 70 countries. How important is Mexico for the company? It is very important. For us, Mexico is considered a part of the emerging markets, […]

GDF SUEZ has a presence in 70 countries. How important is Mexico for the company?

It is very important. For us, Mexico is considered a part of the emerging markets, with attractive potential, and it is clearly a country where we want to consolidate and grow our position. As part of North America, Mexico offers the highest potential for growth in the energy sector compared to the US and Canada. In February 2012 the Federal Electricity Commission (CFE) announced its need to increase power capacity by 37,000 MW, which means 70% growth in the next 15 years. Natural gas will compose 60% of the fuel mix used in generation. As such, ensuring natural gas availability and sufficient gas infrastructure to transport this gas will be crucial for CFE in the years to come. For GDF SUEZ Mexico, this represents both a big challenge and a big opportunity to add value to the market. Our group is currently the number one independent power produced in the world. Originally, we started operations in the Mexican market offering our services in natural gas distribution. Then we expanded our business to power cogeneration and natural gas transmission. Now we want to offer integrated energy solutions to our clients, and I believe we are in a truly unique position to do so. Mexico will definitely need to invest in its energy future, developing infrastructure that enables the kind of growth a country this size requires. The tenders we secure in power and gas pipelines in the coming years will provide GDF SUEZ with work for the next five or 10 years. Our main strategy is to stay committed to Mexico and to try to participate in all of the opportunities that the energy sector presents to us. We want to have an energy-based portfolio that reflects the standards of the group. We will reinforce our activities in gas transportation and distribution and attempt to expand our presence in power, as the opportunities available in the Mexican market are massive. We are here to take advantage of our size and dedicate large volumes of our investments to transmission projects across Mexico, which is key to the energy infrastructure of the country.

GDF SUEZ is the leading private company in gas transmission in Mexico. To what do you attribute your success?

The development of our activities is a reflection of the main groups’ capabilities to handle people, time, money, and knowledge, and the ability to bring these factors to the market in Mexico. We are dedicated to being open to the private sector and investors. By combining GDF and SUEZ we won six bids out of 15 or 20 projects in Mexico. We wanted to balance our risk portfolio in Mexico, and consequently we invested in transmission. After the merger, we engaged in more power-directed activities. We have maintained a leading position the entire time.

What are the main challenges to promote the use of natural gas in the local market?

Ironically, the first natural gas transmission in infrastructure in Mexico was designed 25 years ago, mainly to export natural gas to the US. PEMEX’s exploratory efforts have always been targeted toward oil, and natural gas was secondary. With Cantarell’s oil field discovery, associated natural gas became available at a time when local demand was very low, and so exporting it to the US was logical. With the exception of Monterrey, which has been using natural gas for residential and industrial reasons for more than 50 years, industries around the country started to discover natural gas was an economic and valuable energy option, and Mexico became an important market. In 1994, the authorities decided to expand its use. Presently, a lot of industries that have been using alternative energy types are now trying to switch to natural gas. Historically, the market trend has been broken. For the first time in history, the price of natural gas is more and more disconnected from oil. Now, Mexico’s market could switch from being an importer to an exporter, because US reserves will last for up to 100 years, and Mexico is the fourth country in the world in terms of shale gas reserves. We can benefit from the cheapest natural gas prices around the world. The strategy of our infrastructure has radically changed, and now everything is focused on pipes and infrastructure—how to move natural gas from the US to Mexico. As natural gas enjoys secure, low-cost, steady prices, local consumers such as the CFE have moved to a long-term strategy. The CFE has decided that more than 60% of power production will be based on natural gas. If you combine the different factors, such as availability, sustainability, security, competitive transportation methods, the implementation of natural gas in the chemical or agricultural sectors, and the potential to convert old power plants from heavy fuel to natural gas, the need for natural gas is strong, and the future is bright. Mexico has a favorable environment, but the change may take years.

What role can the private and public sectors play in the development of infrastructure for natural gas distribution in Mexico?

Today, there are two main players that could establish the framework for private investment in natural gas transmission: PEMEX and the CFE. The market is not mature enough, based on the demand of industrial customers who could invest in a large-scale pipeline. In terms of return on investment, to reach a certain level you have to be patient. For the past 15 years, the CFE has promoted private investment in transmission and LNG terminals. Both state-owned companies are playing a new role in promotion, and that is a good thing. At a presentation, the CFE announced its intention to convert its power plants to use natural gas. All of this is based on kilometers and kilometers of new pipelines. PEMEX is also promoting a new pipeline from southeast Texas to Mexico. The main players in Mexico’s energy sector are involved. If there is natural gas available in the area, industrial managers will choose areas to build new plants. We have witnessed this already in the center of Mexico, in which US and Japanese automakers have switched to natural gas where we have built a pipeline. Nissan built a $1.2 billion plant where energy is available, in Aguascalientes. This movement will consolidate the competitiveness that Mexico has gained against China, especially in the last three years. Add this to the low cost of production and proximity to the US, and it means that this shift will be a good one for the Mexican economy.

What does Mexico offer potential investors in the energy sector?

If you combine the size of the market, the level of education, the structure of the population, and the business environment, it’s clear that Mexico is going to be in the top 10 largest economies in the next 40 years. It’s likely that we could be ahead of Spain, Italy, and even France. In the long term, everyone expects Mexico’s potential to be something like that of Brazil. In terms of the macroeconomic approach, Mexico has one of the highest potentials in the world. Consumption per capita is very low, and there is a strong correlation between GDP and electricity. As GDP grows, electricity per capita also grows in emerging countries. Projects relating to energy and environment are within GDF SUEZ’s portfolio, and match the needs of the country. We have long-term perspectives, and a huge growth potential in business that the country can sustain.

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