Q-1: Mr. Lagrosa, you are the new CEO of Perez Companc since one month, could you give us a brief personal record of yourself and elaborate on your primary goals you want to achieve in this position?
A-1: I am working in this company since 1977 and I know it very well. I was mainly involved with the financial area until the year 1990 when the privatization process started in Argentina. This process meant a significant change and a possibility of growth for Perez Companc. We had a place of preference beside the other international players that came to our country and competed with us. The telecommunication sector was one of the areas that were first privatized. Perez Companc was part of one of the consortiums that won the bid and I represented the company as Finance Director. Then, I became the CFO of Telecom Argentina from 1990 to 1995. Afterwards, I returned to the corporate structure of Perez Companc as the Planning and Control Manager from 1995 to 1997. Then, I became the CFO of Perez Companc and since last April I am the new CEO of the company. Regarding primary goals, I think that in this new commercial world based on concentration, globalization and deregulation it is necessary to be very open to the different markets trying to achieve a significant position in the perception of the final customers. That is why I think that it is necessary to give clear messages to this world. Perez Companc messages are integration, communication, teamwork and professionalism. We are taking part of several business segments of what we call the energy sector: oil, gas, refining and petrochemical and electricity. We have also a key position in the forestry industry of Argentina, which will give us the chance to think about a significant industrial project in 10 to 15 years time. We manage the company in long-term projects. Our core business is the energy sector. This sector of the economy is growing significantly even during difficult periods of the economy. We are focused, in a first stage of our expansion, on the strategy for the whole Latin American region.
Q-2: As you stated already, the company’s core business is in the energy field. But in the 70’s and 80’s, Perez Companc was involved in several business areas, as a result of a diversification strategy. What happened during the 90s? Why did you focus on the energy sector?
A-2: Our development depended on the opportunities that the private sector could see in the economy. In the nineties, the private sector grew with the privatization process. We participated in several businesses. In 1995, we realized that we were a conglomerate with medium and long-term capital market perspectives. So it was the time to write our own future and present a clear strategy to the capital markets. That is why in 1995 we decided to focus on the Latin American energy sector trying to get a new premium for the market, a specific sector of the economy and a specific region of the world with a huge potential for growth.
Q-3: Since the 25th January of 2000, the Perez Companc Company holds 98% of Pecom Energía, compared to the 29% it had before.
A-3: It is more complicated than that. We want to continue being an independent company. Global players have bought a lot of companies. The Latin American energy sector has state owned companies or international players. We think that we have all the knowledge, the human resources and the good projects that are necessary to continue growing as an independent company. The Perez Companc family, which owns close to 60% of the economic interests, also controls this company. The other 40% is publicly held by local and international shareholders. Pecom Energía (the new name of our operating company) needs more financial flexibility to continue growing. The family does not like to limit the access to new capital. So, last year the Perez Companc family did an exchange offer to maintain its control on the company asking the minority shareholders to have more power in the voting process. So, they obtained an 80% of the voting power instead of the 60% they had in relation with the economic interest. That means that Perez Companc Corporation is a holding company that owns 98% of Pecom Energía. We have enough flexibility to access to new capital and to continue being an independent company.
Q-4: And the company is listed as well at the NYSE.
A-4: Yes, we are listed in the New York Stock Exchange since January 2000.
Q-5: How do foreign investors perceive Perez Companc?
A-5: They can see that we are a very good company with a great future. Anyway, this perception is influenced by the present bad image of the emerging markets. It is very difficult to differentiate the company from the country risk. We want to communicate them that we are participating in a very specific sector of the economy that grows even in recession periods. The future of the company does not exclusively depend on the results of the overall economy.
Q-6: I would like to take a closer look into your main segments of activity, as there is the exploration and production of gas and oil; the transport and commercialization of hydrocarburants; the petrochemical area; electricity. Beginning with electricity, what does the Pichi Picun Leufu hydroelectric plant represent for the company?
A-6: We started to participate in the electric business with the privatization process. So, we are relatively new in this business. The businesses around this sector are three: generation, transmission and distribution of energy. We participated in the privatization process for transmission and distribution. We have positions in Transener and Edesur. We know the business mainly because we had a company that was related to that sector. Its was an engineering and construction company. We sold it in 1998. At the same time, we are working for a further integration in this sector. In that sense, we have a significant position in Argentinean and Latin American oil and gas reserves. We want to be closer to the final customer. The new business of the electricity sector is the generation of energy. We have two projects: Pichi Picun Leufu and Genelba. The first one is a hydroelectric plant and the Genelba project is a combined cycle power plant. Genelba is bigger because it generates 660 megawatts and Pichi Picun Leufu 260. Both projects produce the 6% of the whole country generation capacity. We aim to produce at least the 10%. We recently did a swap of assets with YPF. We sold our participation in Bolivia and we got more reserves in the austral basin of Argentina. We want to build a new combined cycle power plant in Buenos Aires. This project will be called Genelba 2. It will have more than 800 megawatts. At last, with this project we will achieve our goal of 10% of the whole country generation capacity.
| Q-7: Does the swap of assets between Perez Companc and YPF in Bolivia mean that the company will focus more on the domestic market in the future?
A-7: We were born as an Argentinean company. We know the country very well and we have higher possibilities here than in other countries. At the same time, we are focused on the region and not in specific places. When you are analyzing each project, you have to look at the risk involved and also at the opportunities that each country use to give to a company like ours. We are more integrated in the Argentinean energy sector. It is very difficult to do the same in other countries. Each country has its own regulations. The opportunities are mainly in the exploration and production division. We have positions in Bolivia, Brazil, Peru, Ecuador and Venezuela. Argentina is a very mature market in terms of reserves. So it is difficult to find new reserves in Argentina. That is why we are moving to other countries of the region. Venezuela and Ecuador will be the biggest producers in the next future.
Q-8: On the field of petrochemicals, Perez Companc is very active in Brazil.
A-8: Yes, we have just finished a petrochemical project in Brazil. We are concentrating our efforts on this kind of activities because we think we are strong on them. We have access to raw material. It is also very important to analyze which is the best market of the region. The Mercosur is the most important region for us, specially the South of Brazil and the North and Central part of Argentina. We built a new petrochemical plant in Porto Alegre. It is a project of 180,000 tons of styrene (tested capacity of 250,000 tons) and 120,000 tons of polystyrene. We invested 230 million dollars. We are competing with international players in this specific zone but we have a significant market share close to 40%. The goal in our refining activity is to integrate our domestic production with our own refining activity. We have a small refinery in Santa Fe province. We merge this refinery with Pecom Energía to improve the operational, tax and economic efficiency. We are trying to integrate our domestic production of oil with our own refinery to develop the retail activity throughout the gas stations. This movement will give us a chance to compete with the leaders.
Q-9: Mentioning the objectives on the field of transportation and commercialization of hydrocarburants, Pecom Energía is trying - as you say - to develop the retail activity, but it decided to postpone its plan to increase the number of gas stations. Why?
A-9: No, it was not postponed. Our plan is to increase our gas stations from 75 to more than 400 in the next five years. We are also looking at some assets that are probably on sale in Argentina.
Q-10: On the field of exploration and production of gas and oil Perez Companc is competing as well with other global players, with strong assets in this industry. How does Perez Companc see itself, compared to its main competitors?
A-10: We have competitors in all the industries. The investment banks are always asking us how can we compete with the international players. I ask the same question to them. There is a concentration of companies in a lot of industries. In my point of view, a company can be the biggest one but this does not mean that is the best one. We are trying to be the best Energy Company of the region. Our key performance indicator is the return on capital employed. We want to grow with profitability. There are a lot of international players that are coming to the region to make big commercial deals but it is difficult to get good results from that projects. We are small but we can be more selective. The portfolio and risk management activities are important for us. We want to have the best portfolio of the whole Latin American region. That is the way in which we can differentiate from other companies that compete only in scale.
Q-11: Finally, I would like you to tell us more Pecom Agra, which represents the company’s agricultural industry activities. What do you foresee for the agricultural division, in particular regarding the forestry industry?
A-11: Forestry is a core business because it could be relevant for the future of the company. On the other hand, the agricultural industry is not a core business for us. We decided to continue with this industry because we reorganized the necessary resources for this activity. This answer is related to the strategy of the company that is to focus on the energy sector and in specific regions. The agricultural industry is not included in this plan. So perhaps we will not continue with this sector in the near future.
Q-12: As you know our readers are businessmen and top executives. What is your final message to them?
A-12: Argentina and the Latin American region are a good place to do business. On the other hand, you have to be very selective with the projects you want to do. If you want to be part of a specific segment of the economy like the energy sector, you have to invest in Perez Companc. The combination of energy and Latin America is a great idea because Latin America is the place where the energy sector will significantly grow in the near future.
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