IEnova, one of the first private companies to invest in the Mexican energy sector, has made significant investments in the country’s infrastructure for hydrocarbon transportation, distribution and storage, as well as electricity generation. Present in Mexico since 1996, the company’s mission is to contribute to the country’s development by constructing and operating energy infrastructure. Check out this week’s interview of the week with CFO of IEnova, Nelly Molina.
Q: IEnova has been in Mexico since 1996. How are you positioned today?
A: We see ourselves as first movers in Mexico. From being the first private company working in the midstream sector for both liquids and gas, to being the first energy company listed on the Mexican Stock Exchange, our commitment to Mexico is clear. Today we are one of the largest private energy companies in Mexico.
After being awarded the first permit for natural gas distribution in Mexicali, which represented an investment of US$20 million for the company, IEnova has grown its total assets to US$8.4 billion as of March 2018. We have added a significant amount of investment by developing greenfield projects and through acquisitions. As a matter of fact, acquisitions have represented around 30 percent of our growth during the last three years. Our entire portfolio of projects provides an unleveraged IRR of 9-11 percent, nominal, in US dollars and after taxes. The diversification of our portfolio, in terms of both assets and customers, has been a key element to our success since it has ensured that our total IRR remains in our target range. In addition, IEnova went from depending on a single asset for more than 50% of its Adjusted EBITDA generation to now having a broad portfolio, of which transportation represents around 50 percent. This has allowed us to grow Adjusted EBITDA from US$300 million in 2013 to US$759 million in 2017.
Q: What is the potential IEnova sees in the development of pipelines and storage terminals for liquid fuels in Mexico?
A: We see a great market opportunity in the development of liquid product pipelines. There is need of infrastructure to serve the growing demand of a 120-million-person market and an inherent necessity for an open and economically viable liquid fuels market in the country. Beyond the clear need for pipelines to distribute and transport gasoline, we also see a large market opportunity in jet fuel delivery to airports. This fuel is only delivered via pipeline at the Mexico City International Airport, and many airports still need a reliable and secure source of jet fuel. I think we may have the opportunity to take part in the development of that infrastructure, similar to what we are now doing in the gasoline and diesel markets. Since January 2017, we have executed five contracts for liquid fuel storage: three with Valero Energy, one with Chevron, and the last with another world-class company.
Nevertheless, it must be pointed out that for liquid product pipelines to be effectively developed in Mexico, regulation may need to be adjusted to recognize who absorbs the inherent and associated risks of those projects.
Q: How important is the Sur de Texas-Tuxpan submarine pipeline for the country?
A: We won this project in a transparent and competitive CFE auction, and we are developing it in a 40-60% JV with TransCanada. The pipeline will provide the country with additional direct access to natural gas from the US. Natural gas demand has been increasing over the past five years, and we expect it will keep increasing as power generation becomes more dependent on this fuel. TransCanada is in charge of the development of the project, and we expect it to start operations by the end of 2018.
Q: Why did IEnova choose TransCanada as its partner for the project?
A: Our partnership with TransCanada is creating positive synergies due to the fact that we have invested similarly in the country and have a long-term commitment to the economic development of Mexico, as well as its energy industry.
When we look for partnerships, our objective is to find complementary skills that we may not yet have developed ourselves. In the case of the Sur de Texas-Tuxpan pipeline, a clear need was a partner that had previous experience in building marine pipelines. TransCanada is bringing an excellent set of skills and abilities to the partnership as the technical operator of this pipeline.
Q: Beyond the Sur de Texas–Tuxpan pipeline, what other opportunities in terms of natural gas does IEnova see in the country?
A: There are important projects coming to the country that will strengthen Mexico’s energy supply, distribution, and reliability. One project is the potential conversion of our liquefied natural gas import terminal to a liquefaction and export facility. Natural gas underground storage is another large opportunity created by the Ministry of Energy’s new public policy that aims to enhance reliability.
Q: How can regulators reduce environmental and social risks associated with the development of energy infrastructure?
A: The formation of a trust that includes the parties involved in the development of CFE’s pipelines – meaning CFE as the sponsor of the project and the authorities at the federal and state levels – has been a very effective way of decreasing risks involved in social and environmental matters. It facilitates communication channels and improves the management of these aspects of the projects.
Q: How will IEnova ensure its strong position in Mexico?
A: To continue growing and diversifying our portfolio of assets and customers, we proactively assess and address new market opportunities. We will also maintain our disciplined approach to developing, executing, and financing projects. We actively manage our balance sheet to ensure that we can attractively fund projects, and we are innovative about financing, accessing both commercial and development banks where appropriate. We also continue evaluating other market instruments, such as the Fibra E among others, to see when it might be efficient to use them.
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