POWER May 2010 - 82

POWER IN MEXICO
Interview with Alfredo Elias Ayub,
Director General of the CFE
Q. The Comisión Federal de Electricidad
(CFE) is widely complimented as
a world-class organization. What measures
have you taken during your 10year
tenure to better the CFE?
A. We have taken a number of measures.
Firstly, to modernize and improve our infrastructure.
About one-third of our infrastructure
is new and one-third has been
recently refurbished. Thus around 70% of the
infrastructure incorporates the latest technologies.
Secondly, all of our operations are
now under SAP [Systems, Applications and
Products in Data Processing] control. Thirdly,
and most importantly, we have reached
agreements with our union on training. We
have increased our number of training days
from 6 to 11 per year, which is above the
national average. We have even opened our
own university, situated across 14 campuses,
where we train our staff to be better engineers
and better managers. The universities
started some time ago; they are mainly distance
courses on technical subjects. We have
around 1,500 people training for engineering
degrees as well as 1,000 studying for master's
courses. So better infrastructure, better management,
and better people have been three
key reasons for our success.
Q. Over the course of our research we have
seen the difficulties of local companies
participating in CFE projects via both the
OPF [Obras Publica Financiada] and IPP
[independent power producer] schemes.
What steps is the CFE taking to promote
the participation of local companies?
A. We talk a lot with Mexican companies. We
certainly want them to play a role in the sector,
but we see that it is difficult for them in
terms of financing. We are encouraging them
to go to the stock market to raise equity. For
transmission lines under OPF we do have a
requirement to source 40% of final output
with Mexican participation.
Q. The CFE was created to provide energy
to the whole population regardless
of the profit motive. What steps is
the CFE taking to provide service to the
6,000,000 Mexicans currently without
access to electricity?
A. I don't believe that it is 6,000,000
people; here in Mexico 97.5% of the population
have access to electricity. Once you
reach that number it gets very difficult
82
to increase the percentage, as there are
constantly new people starting new homesteads
in very remote areas. It is very difficult
in any country, even in Europe or
the U.S., to reach that 100% figure. In the
last 10 years we have undertaken a lot of
electrification for rural and ethnic minority
communities. We have gone into more
than 3,000 small towns in this period.
Q. Renewables are seen as a great
growth area, especially wind resources
in Oaxaca; however the CFE's mandate
demands that it supply energy at the
cheapest price. What have been the
CFE's main activities in renewables?
A. We are increasing our installed capacity
in renewables; for example, we are working
on a large hydroelectric project as
we speak. Just today we will announce a
100-MW wind project in Oaxaca. We fully
intend to continue on this front. We will
continue looking for good projects and
continue developing them. We will even
support some private projects within the
renewables sector.
Q. What are the main new projects the CFE
are constructing and what effect will they
have on the generation matrix [mix]?
A. We have several projects which could
potentially be constructed, principally
combined-cycle coal plants and thermoelectric
projects. We are also deciding
whether we should develop another nuclear
plant, a decision which will be taken
soon. We have noticed in the U.S. a choice
has been made to develop some nuclear
plants, so it is certainly something which
we have to consider.
Q. The liquidation of Luz y Fuerza del Centro
had a great effect on the Mexican electricity
sector. What does this move imply?
A. Operations are working well within
this area. We have started to rehire certain
people, including ex-LyFC workers.
In the central region we have connected
more than 110,000 users, and we expect
that to increase in the future. We will start
making the investments this year to bring
the central region up the level of the rest
of the country. In my opinion, it is going
well, and I remain optimistic about the future.
We intend to introduce new concepts
in the central region, which we hope will
bring our service up to the next level.
www.powermag.com
tion projects whereby the project developer
receives a payment upon completion when
ownership is passed to the CFE. Due to the
high cost of such projects, most companies
cannot manage this off their balance sheets,
meaning that they need access to financing to
bid for an OPF.
Unlike some contracts issued by Petróleos
Mexicanos (PEMEX), the CFE generally
issues contracts in U.S. dollars. One of the
main criticisms of the PIDIREGAS process
is that the CFE sets very high tender conditions
for entry, so although it has been successful
at attracting world-class companies,
it has been considerably less successful at
attracting local companies to bid or even in
encouraging joint ventures. Critics also argue
that the same problem emerges with general
contracts with the CFE, which is that there
is a selection of " preferred bidders " who remain
close to the CFE, and it is difficult for
outsiders to join them.
The OPF only generates assets for the bidder
once construction of a specific asset is
complete, so a very strong balance sheet or access
to credit are required. Ygor Guilarte, managing
director of Yokogawa Mexico, argues
that " The CFE is extremely strong financially
speaking. Its strength allows it to execute its
own projects without resorting to external
funding from suppliers. " The CFE's financial
strength allows the company to dictate very
tough terms to its would-be suppliers.
Subsidies: A Sacred Cow
The Mexican federal government provides considerable
subsidies on the final consumer cost
of energy. This strategy was designed to share
Mexico's oil wealth among the population.
Traditionally, the resulting CFE deficit on the
federal budget has been financed by the huge
profits of PEMEX, the state monopoly in the
hydrocarbons and petrochemicals sectors.
Electricity tariffs are set by the Secretaría
de Hacienda (Treasury Department). As the
tariff is set so close to the government, it is
also very difficult to lower or cancel this tariff
due to the political cost associated with
doing so. As Figure 1 shows, these tariffs
have fluctuated with the price of oil anticyclically.
The prices for household and for
agricultural use, both of which directly affect
voters, are the lowest.
Potential Reform
While investment opportunities in the energy
sector may be limited by the role of the large
state monopolies (CFE and PEMEX), there
remain opportunities to invest-providing that
the investor understands the Mexican market.
Diana Sasse and Alberto Silva, lawyers
at Goodrich, Riquelme y Asociados, a fullservice
legal firm with more than 75 years of
POWER | May 2010
http://www.powermag.com
POWER May 2010

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