Can you give our readers a brief historical background of GRUPO DRAGADOS and DYCVENSA in Venezuela?
We started working in Venezuela in the late 1960's in some projects related to the petrochemical sector. After three years working here as a foreign construction company we decided to found ourselves as a Venezuelan construction company, that is the reason why DYCVENSA was created. The company has been working in Venezuela for more than twenty-five years. Our initial idea was to have several Venezuelan partners incorporated in this company. After the crisis in the eighties the Venezuelan partners lost their participation and today DRAGADOS OBRAS Y PROYECTOS, a subsidiary of Dragados Group, has almost 90% of its shares.
Dragados Group is a Spanish Services company that started as a construction company. There are five major groups. One is the construction (Dragados Obras y Proyectos S.A.), which remains the largest; about 55 % of the business comes from this area. We have the industrial sector (Dragados Industrial S.A.); this is in charge of all the construction of industrial plants, refineries, and power plants. We have a service company named URBASER that includes services like water management, waste management and electricity management. Right now it is the leader in port facilities management in Spain. In Venezuela URBASER takes care of the waste management of two large cities, Valencia and Barquisimeto. We have a real estate business (Dragados Inmobiliaria S.A.), but it only operates in Spain. Then finally there is the Transportation Infrastructure Concession Company (AUREA) where Dragados is a world leader.
In Venezuela, we were first involved in the petrochemical sector helping Kellogg build the first nitrogen fertilizer plant and then expanded on other areas. We were one of the companies that worked in the excavation of the Guri dam. We then decided to create DYCVENSA, and with it we have done several civil projects here in Venezuela. An example of this is the Cota Mil highway , as well as most of the highways tunnels around Caracas including the two newest tunnels coming from the airport, among many other projects. We have had very good turnovers over the last thirty years with the exception of the recession period between 1990 to 1999.
DYCVENSA and DRAGADOS OBRAS Y PROYECTOS used to work all the time together in large civil projects. When the government cut investment in the civil works infrastructure sector in the 1990´s (from 4% to less than 1% of GDP) the business decreased significantly. We decided to stay however and in 1997, when I was sent here, we changed our approach. We separated the DYCVENSA business and the Dragados Obras y Proyectos business. The DYCVENSA business is the medium-size construction market in Venezuela, which differs from the largest projects that in most of the emerging markets like Venezuela are handled by the largest international companies. We created better links between DYCVENSA and Venezuela's construction industry.
Our approach has changed; we are trying to get involved in the Venezuelan business environment.. We are working with the Venezuelan Construction Chamber (CVC). We do not want to play the role of a foreign company in Venezuela, but actually participate as a local one.
You mentioned before that the main reason why construction companies in general were so heavily hit by the recession was the fact that they are too weighted on the public works. Do you think that in Venezuela you can change that strategy, could you perhaps balance more your portfolio trying to make more business for the private sector, have you done it?
Several governments have been imposed over to the participation of the private sector in the infrastructure business. They have established several new laws, but the experience of it all has not worked out well, because the Venezuelan government is not convinced that this is the right direction to take. We believe that Venezuela is one of the major markets in Latin America for BOT types of projects. The legal framework, even though it has been improved recently, still has to change. When you compare the Venezuelan legal framework of concession and the government's will to impose this kind of business with Colombia which is where we have several BOT projects as well, you notice that the government here still believes they have the funds to build. They are convinced that this is their responsibility and that they should provide all the projects.
There are some changes taking place. This government like the previous one is trying to improve some of the conditions in order to convince companies like ours to invest in the BOT projects. At this moment our major obstacle to invest in the Venezuelan market is that we do not see yet the necessary political determination, and as mentioned by many local and foreign companies, the legal systems needs to be improved to guarantee a major legal security.
Could you give us some facts and figures of both Dragados Obras y Proyectos in Venezuela and DYCVENSA such as the main projects you are currently carrying out, number of employees and turnover?
At this moment Dragados Obras y Proyectos has several major civil works projects in Venezuela. One is the Caruachi power plant, a 520 million-dollar project where we have 45% participation, we are partners with ICA from Mexico, and Vialpa from Venezuela. We are the leaders of that project. We are involved in the construction of the Valencia metro system ($ 72 MM contract), where we are partners of Ghella Songene, and a local construction company called Otipsa. We are ready to begin the construction of the trolley bus in Merida ($ 108 MM) even though there have been an understandable delay, because of the recent change on the local authorities. We have a large contract here that has been very difficult to start, it is an earth dam in the Cojedes sector. It is a 150 million-dollar project. There have been some problems with the financing of this project. The Spanish government finances half of the project and the Venezuelan government should finance the other half. We signed this project in 1993 and are still trying to get this project started. This project depends on the Ministry of Environment and there have been a lot of changes going on within this organism since 1993. The new government is working with us in order to start this project no later than the first quarter of the next year.
Dycvensa is involved in some of the projects mentioned above and is performing several medium size civil and building works around the country.
Our contracts here amount to 600 million dollars. Our turnover is not as good as we would like it to be, because of some inconvenience related with the labor problems. I believe that our annual turnover is approaching 100 million dollars this year. This is including the two large contracts we have in waste management.
In DYCVENSA the annual turnover is of 10 to 15 thousand million bolivares. This is around 16 to 20 million dollars. We want to reach the 50 million dollars in the next two years. | In which of your business groups do you forecast a major growth within in the next few years?
I think that would be in the industrial sector. This has to do with all the new investments being made in the gas and the oil sectors. That used to be handled by the construction group and DYCVENSA, but because at this moment we have Dragados Industrial it takes care of that. The problem we have here, though it may be changing, is that the American companies dominate the oil and petrochemical sector as the major contractors. Until this moment Dragados Industrial and DYCVENSA have been working in these projects as subcontractors and we want to be major contractors. Most important of all is that we have had a continued growth. In the infrastructure sector we expect to see a growth as well, at least in the next two years. We do not see the BOT projects in the near future expanding, so we are focussing mainly on the standard construction contracts and EPC contracts in the public infrastructure sector and the industrial sector.
You are facing several labor problems in some of your major projects, such as the Caruachi power plant or the trolley car in Merida, what is the real issue behind that and do you expect these problems to be settled in a reasonable amount of time?
I think that one of the main problems we have in Venezuela is the labor framework and the power that the labor unions have here. In Caruachi we have had severe labor problems. We have suffered several strikes, which resulted in a situation of immobility most of the time. This basically means that we are not allowed to fire anyone, even if his or her job it is not been performed correctly, it is not necessary anymore, or if the employee misbehave badly, until the labor authority approve our decision. Since the beginning of this year we still waiting for more than eight hundred lay off qualifications. The labor laws are very inflexible, and do not bother with productivity. For example, you can justify and understand an expensive labor contract that PDVSA might impose in a refinery everyday labor force, which is totally different than the construction, the latter being a temporary job not a steady job. In order to accomplish the amount of work that could be done with one worker in Spain, here you need two and a half workers. The labor cost is too high. When one reviews how the labor contracts handles productivity, it does not seem convenient for the worker to be more productive.
What do you believe is the reason why productivity and efficiency are not part of the labor culture in Venezuela?
It is a cultural problem. I am Venezuelan; I lived here until I was 25. My father was involved with several governments in the past forty years. In the beginning of the seventies it was very easy to make money here. The idea that Venezuela is a rich country still lingers in the head of many people. This is not true. We have potential to be a rich country but we are not.
I think we have problems taking care of the common issues. We assume all the time that when we delegate responsibility on someone they will eventually let us down. Good examples of this are the condominiums here in Venezuela because we are careless with what we do not consider to be ours. One goes to a building condominium and people take care of their apartments from the door in, but from the door out things are totally different. This is something that we must change. It is going to take some time. This can be seen in the government too.
In this environment you just described, what is Dycvensa doing in order to make a difference?
In order to make a difference we have a clear strategy to take the projects that we know count on the support of the regional and central government. We work together with the regional and central government before and after the bidding process. We do not work in all the projects they might want us to. For example, there is the Valencia metro where the government asked for a finance offer and we provided it. The bureaucracy made this difficult. But the government is trying to change that.
I believe that the main difference between the standard Venezuelan construction companies and us is that they belong manly to one person or a family. We belong to a large group and this group is a publicly owned company. We have a management culture that most local construction lacks. We can not take the same risk as the rest of the Venezuelan companies. We do not have the same policy regarding assets management. Our approach is that Venezuela is not the problem, is data. One has to work acknowledging the possibilities to work in certain places. We are trying to change things through the construction chamber and the oil chamber.
What are the main projects you are already planning to bid for, and what are the partners either local or international you would like to incorporate?
We are now in preparation for several biddings for the infrastructure of CVG "Corporacion Venezolana De Guyana" together with Venezuelan companies. The ministry of infrastructure is promoting an ambitious plan. There are many projects around the country that have not been completed. They are trying to solve that, so we are in the process to select in which of those projects we would like to be involve and which Venezuelan partners we need to do so. This will be done through DYCVENSA. For Dragados Obras y Proyectos we are looking for major civil works that the government will set for international participation. Like the highway to the east, the line four of the metro Caracas, water treatment plants, some industrial plants, and the new concentration plant in Puerto Ordaz for Ferrominera. We are waiting for the gas aperture.
Could you tell us more about your professional background?
I graduated in Venezuela in the Andrés Bello Catolic University as a civil engineer. I worked here for a period of two years in a geotechnical firm. This firm is an adviser of Edelca, so I had the chance to work in several projects such as El Guri and Caruachi power plans. I decided to do a master in the United States on geotechnical engineering. I studied in Virginia Tech and did another master in construction engineering management. Then I worked with Professor James Michael Duncan, who is one of the major geotechnical engineers in the world at this moment. We worked on the studies of the Kansai airport in Tokyo. At that time my father was working with Electricidad de Caracas to find a different approach to generate electricity, he was working together with an engineering company that belonged to Dragados. He asked me if I was interested and he sent my resume. I went to Spain for three years and liked it very much; therefore I decided to stay. I began working in geotechnical projects and by the end I was working only in construction projects in south America and in the preparation of different bids around the world like Poland, Turkey, Thailand, Chile or Mexico. In 1997 Dragados gave me a challenge in my own country because they wanted to increase their presence in Venezuela. They did this because they saw great potential in Venezuela. Dragados has always thought that Venezuela, Argentina, and Brazil are the most important infrastructure investments in south America. We hope to be one of the five leading construction companies in the country.
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