Tender Loving Care

What motivated your entry into the Peruvian market?

Red Eléctrica de España entered the Peruvian market in 1999 with Red Eléctrica del Sur (Redesur), our first local investment. That was a $74 million initial investment and we were in charge of the development of the transmission grid in the south of Peru, making the connection between Arequipa, Tacna, Moquegua, and Puno. Since then ours has proven to be an excellent operation and we enjoy a fruitful relationship with our customers, local agencies, the government, and the municipalities. In 2007 there was an amendment of the electricity laws in Peru that enabled new concessions through the Private Investment Promotion Agency (ProInversión). Since then we have taken part in all tenders opened by ProInversión. In 2010 we entered and won the tender to construct the Tintaya-Socabaya line, which has been in operation now since April 16, 2014. It was another successful project for us, free of any environmental, social, or security issues. We are now looking to build other new lines for the Peruvian government and are involved in new ProInversión tenders. Our ultimate aim is to become leaders in the operation of electrical systems in the south of Peru.

What was the motive behind increasing your holding in Redesur with a Peruvian partner in 2013?

Our Peruvian partner, AC Capitales, joined us in 2005, and since then we have been increasing our participation in the electrical market. Red Eléctrica de España owns a 55% stake and is also the strategic operator. Another 45% stake is owned by AC Capitales, which manages funds for investment in energy and natural resources. Together we have good experience and have been consolidating our investments in Peru. Now we are eager to carry our successful partnership on to future projects. We have a strong presence in the south, and good knowledge of the communities, geography, climate, and conditions, enjoying solid relations with governments and municipalities. Having said that, we also want to expand beyond the south throughout Peru, and today have the capacity to do so. Meanwhile, we are also keen to develop transmission lines for other agents besides the government, such as mining companies, generation utilities, distribution companies, or whatever might be required. We can also construct, operate, and maintain any transmission grid. We are interested in helping the government in other initiatives too, such as PPP projects.

What time frame do you envisage for growth in Peru?

The optimum growth path in Peru involves participation in the periodically arising tenders and projects. The government and systems operators give you an investment framework for the next five years or so, based on a 10-year electricity transmission plan. The government then mandates ProInversión, which initiates the concession process. That is the chief manner in which we realize investments here in Peru.

How will the government’s new infrastructure projects handled by ProInversión, especially the two new gas-fired power plants being built in the south, affect your business?

These new power plants will ensure much greater energy supply for the south of the country, which is an excellent prospect. These also mean that we will need more transmission grids to match the electrical offer with actual demand. The energy generated by gas generators has to be transmitted after all, which requires a grid in place, not just for the south of Peru, but also for other regions or else for export. Exporting energy is part of the government’s plans. Once you have the transmission lines in place you can export and import on the same lines. That is what the Inter-American Development Bank (IDB)-financed Andean Electrical Interconnection System (SINEA) Project aims to do; namely establish connections with neighboring countries, such as Ecuador and Chile, and eventually expand those connections to include Brazil, Colombia, and Bolivia. These are long-term investments that will do much to improve the electricity transmission and generation grid throughout the continent. Moreover, the cost of energy will be reduced leading to more efficient usage. And the system also works in reverse, whereby surplus energy is sold abroad, while during times of shortage it is imported. Red Eléctrica de España already has a strong pedigree in this field in Europe, where we have connected Spain, Portugal, Morocco, and France, including the use of submarine cables.

Some players in the power industry have expressed concerns about the government-directed tender process for new power plants, particularly in that the market has not determined the pace of development. What are your views on this issue?

It is a transparent process that is open to numerous players. The tenders have been determined based on the demand for power in the south, where diesel reserve power plants are being converted to gas turbine facilities based on government projections for future demand. These are long-term investments, both for the generators and the transmission lines. They take six or seven years to build, and are used for many more than that. The government, accordingly, has a long-term plan under which it determines what investments to undertake and what tenders to present to the market. In Peru, per capita energy consumption is 15 times below that of Spain. But the population is expected to increase their consumption, and industrial facilities are also planned. Peru is essentially a primary resource economy, but in the future the manufacturing industry and services sectors are expected to expand as the economy diversifies, which in turn will result in higher energy needs.

© The Business Year – January 2015