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Interview with
Alfredo Elias Ayub,
General Director of Comision Federal de Electricidad
January 20th, 2000
| What has been the development of the Comisíon Federal de Electricidad in the last five years, with emphasis on the most recent changes within the Organization?
The C.F.E is a Government owned Company that has the responsibility of providing Electricity to the whole of Mexico. The major challenge is that Electricity demand grows between 5 and 7 % per year, even with slower economic growth. for example, in 1995 where Mexico had a 4 % negative growth in GDP we had 4% positive growth in Electricity demand. This year we will expect to grow 3.7-3.8%, Electricity demand is growing at a rate of 6% and we foresee for the next several years a growth of 5.5 and 6.5 % in electricity demand which is an enormous challenge. We grow at rate of approximately about 1 million new users each year.
How does the CFE sustain itself with this constant growth and development?
We are now using a new formula which means that we buy electricity from independent power producers.The 1992 law allows the participation of these independent power producers with the restriction that we are the only buyer. We have several suppliers: EDF, Mitsibushi, Intergen, Iberdrola, they all own plants. This is how we are sustaining growth at this point in time. We request investments of these companies of 4-5 Billion US$ per year.
What is the investment of these companies as a percentage?
Most of the independent power producers are now foreign companies.
With a view towards the upcoming elections, and the developments within the Privatization Process, What will be the most significant changes for the CFE?
The Elections will have little or no effect whatsoever on the sector. If, for example, the Spanish company Iberdrola starts a new project, as it is in Monterrey, this project will begin producing electricity in 2003. The truth is that all the companies are investing towards the long- term success of Mexico. These projects require a large investment. If you start a 400 million dollar project that will take 3 years to build, this demonstrates that you have long term confidence and commitment in the country that you are investing in. Also, these projects are a minimum of 20- 30 year investments. What is however, becoming a major issue are the changes in the reform of the Electricity sector. What we would like to do but requires a constitutional change is to have an open market where not only CFE is a buyer but anyone can be a buyer of Electricity. We are now in the process of organizing CFE into 13 Distribution Companies, 7 Generator Companies and 1 Transmission Company. The Disribution Companies will be able to buy Electricity from whoever offers a better price for the Electricity. Therefore, Consumers will be able to obtain Electricity at a better price. At CFE, what we are doing is offering an open market approach. With the constitutional changes what we will have is a real market and that is what we are aiming for.
How are you communicating this message? What is the strategy that you are using to create awareness to the International Community?
The Strategy is two-fold: Firstly, it is better for the Government to use all of the resources that are required for all of Electricity flows from other social uses. The second is if we have a competitive Electricity market we will be able to attract more industry and therefore create more jobs. I think that what has happened in many other countries is that they really benefit with Electricity reform, and I am convinced of this. Not only that you gain more investment in electricity but that you get more investment overall in the economic growth of the country. Now with Global development, a lot of industries overlap with the work, especially coming from the international community. The local costs then combine i.e. Labour, Real Estate and Electricity. If you build a car in Mexico, you are bringing in parts from 50-60 countries. Many industries are doing this as Mexico is very well situated strategically surrounding the worlds largest market, the United States. Mexico provides a solid infrastructure to reach the booming market. This is why we have privatized the ports and the railroads so that we have a much more efficient infrastructure and electricity, so far major businesses and companies have had only one choice with Electricity suppliers and at one official price, which up until now has not been negotiable, if these bulk buyers could negotiate the price, the market would become more competitive.
When conducting the interview with the Secretary of Energy, Dr. Luis Tellez, he mentioned that there has been an incredible Image change in the Energy Sector for the whole of this region, and many have been watching Mexico to see what is going to happen in comparison to its neighbours. What can you tell us about the image of the Energy Sector and more specifically the CFE?
Interestingly enough, one of the things that has made the change much harder is that CFE has an excellent image among its users, in the last poll taken 87.5% of our users said that they were more than satisfied with the service we provided and that moreover, the service had improved. Some countries in the region have had competitive prices but one day a week they have no electricity! The real reason for change is the change of industry and the emergence of the global business community which has created a more competitive market for the supply of Electricity. The Image of CFE is very good and highly respected. Also, we have an interesting program which demonstrates the close relationship we have with the people at our offices. Privatization always attracts many varied responses and reactions but if you look at the Telecom Sector 10 years ago you will find that users had to wait 6 months for a line, now they advertise with television to get more lines as there are a million extra lines for use. Telecom privatization has brought many benefits and this was a sector which had problems. The Electricity sector has much less obstacles to overcome. By privatizing the big industrial users are given a more competitive choice.
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How autonomous and independent are you in your decision- making process from the Government?
We are not at the moment. The targets for example, are set by the Treasury. The prices are set by the Ministry of Finance. Nor do we decide our expenditure, the Ministry of Finance decides its budget allocation based on the Annual Government Budget. These issues have been key in the decision to become more competitive and have more control over the budget and its spending. These elements create greater competition which in turn create more flexibility. We need to attract more investors!
The Forbes Global readership is comprised of the International elite decision making community, with this in view, what can you say about the International participants in this sector?
I would like to clearly underline that we are proud of our collaboration with leading International Firms: Electricité de France(France), with 2 major projects; Mitsubishi(Japan),with 2-3 major projects; Iberdrola(Spain),with 2 major projects. Added to the various representing U.S and International firms but we still need to attract more players into this increasingly competitive market.
You are presently witnessing an exciting moment of change for CFE in its development. Could you underline 2 essential factors that you forsee in aiding a smooth transition with the opening up of the sector?
The first is a basic fact that the Electricity demand will continue to grow which is very important for the process as it will attract a lot 0f interest. The second is that we are able to go through a transition period where we learn from what has happened in other countries with the development of the Electricity Sector. There have been many different experiences. By this we can learn and move carefully through the transitional period without harming the existing system. Neighbouring Countries have given us a wealth of experience in deciding our approach. What we are doing is being meticulous with every detail of the process. We are starting at a later stage and therefore have the advantage of learning.
We are now in the Year 2000, 5 years from now Forbes Global will be back in Mexico to elaborate another extensive International Multi-media Report, What are your expectations for the next 5 years?
During the next 5 years, NAFTA and the positive direction that it is taking and with the Treaty with the EUROPEAN UNION, the Manufacturing industry, distribution, the Gulf of Mexico and the north of the country will all prosper, especially the gulf with the European Unions´ Treaty. In 5 years the economy will be looking much stronger and as long as we monitor changes in infrastructure everything is set towards an interestingly bright future!
The European Union, as you know is looking very closely at all the developments, how much effect, in your opinion will this have on the sector?
We have a lot of interest from European Companies. A lot of our new projects are in the Gulf of Mexico and the majority will be run by European Companies.
Are you actively seeking or approaching directly the potential international companies?
We are in the process of finalizing a host of European road shows. This will be valuable in seeking new investors in countries such as the United Kingdom, Italy and Germany who as yet are not present in the Mexican market but have had successful privitizations in the same sector. We are extremely active in our search for new participants.
Forbes Global is the universal leader acting as a platform for transforming the business world, with our worldwide readership and direct contact with the top 15,000 Forbes VIP subscribers, What message would you convey to our readers?
We have a constantly growing market that is growing year after year. Thanks to the European Unions Treaty and NAFTA we will continue to expand and create opportunity.
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© World INvestment NEws, 2000.
This is the electronic edition of the special country report on Mexico published in Forbes Global.
July 3rd 2000 Issue.
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MEXICO
