The Cemex Request-for-Proposal:
An Auto-Generation Energy Project
Emerging Markets
February 24, 2003
Salsa by Sunday
Andrea Fernandez
Jason Haight
Michael Philipse
Doug Rodriguez
Cesar Villaseñor
AGENDA
• INTRODUCTION—THE SETTING
• CEMEX
• MEXICO & THE MEXICAN ENERGY SECTOR
• POWER GENERATION IN EMERGING MARKETS
• THE TEG PROJECT
• FRAMING THE DECISION TO BE MADE
2
/TEG
International Tender for the
Development, Engineering, Financing, Construction,
Ownership,Operation and Maintenance of the
TERMOELECTRICA DEL GOLFO PROJECT
BIDDING RULES AND PROCEDURES
1998
Strictly Private and Confidential
3
CEMEX
• The company
– 1906 founded
– 1985 International Expansion
– 1996 diversification thru M&A
• Entering markets whose economic cycles operate independently
and which offer long-term growth
– 1998
• World's third-largest cement company
• Mexico 45% (Sales & Assets)
1996
Sales (MUSD)
Operating Income (MUSD)
Operating Margin
Free Cash Flow (MUSD)
D/E
3,577
853
24%
434
1.29
1997
3,872
915
24%
389
1.18
1998
4,300
1,174
27%
405
1.04
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PEMEX & CEMEX
• Cemex
– Has a contractual, 20-year relationship with Pemex to take high
quantities of petroleum coke
• Petcoke: low-value by-product of petroleum refinery
– Guarantees petcoke price and quantity supplied
– Win-Win contract
• Termoelectrica del Golfo (TEG) Synergies
– Electricity generator using petcoke as fuel source
– Demand=Supply, 1.75 Millions Tons of petcoke per year
– Cemex guarantees petcoke supply for its cements plants (50%) and for
the power plant (50%)
– Cemex buys all energy produced by plant
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ENERGY, ENVIRONMENT & CEMEX
• Cement production is an energy-intensive process
– 50% of its manufacturing cost related to energy
• 60% thermal energy, 40% Electricity
• Rationale for project:
– Guarantees the energy supply for cement facilities
– Reduces financial and operation risk by minimizing the volatility of
energy prices
– Leverages access to petcoke for cement and energy production
– Minimizes environmental impact thru a eco-efficiency program
6
Energy Supply and Demand
• 98% of Mexico´s energy is generated by two stateowned companies
– Demand: growing at 6%
– Public utilities do not have the resources to expand
energy production
Note:
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
Energy Deficit (historical and projected)
1 Petajoule=
10^15 joules
(PJ)
0
-500
-1000
1 barrel of crude =
6,000 mega joules
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Remedies and Power Politics
• 1917 Constitution: All energy for “public use” must be
produced by State.
• 1992 Amendment: Changes definition of “public use” to
exclude self-generation and independent producers
• 1999 Reform Efforts: failure
– Self-generation licenses issued (politics clouds legality)
• Electoral Politics: politics creating uncertainty
– PRI: old party line
– PAN: limited private sector involvement in energy
– PRD: ???
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Uncompetitive Prices are big disad
for Cemex
• Average electricity prices for industrial use:
– World Average: US$.056 per KWHr
• Uncompetitive relative to NAFTA partners:
– Mexico: US$.0475
– USA:
US$.0427
– Canada: US$.0386
• Cement production is energy intensive (50% of variable
costs).
• Cement production consumes 3% of Mexico’s energy.
.
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MEXICO´S ENERGY SECTOR
Natural Gas
Gasoline
Petcoke
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POWER GENERATION IN EMERGING MARKETS
• Structure of independent power projects
–
–
–
–
–
Non-recourse (off-balance sheet)
High leverage
Construction, operating, some fuel risk with sponsor
Take-or-Pay feature
Regulation contained in contract
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TEG PROJECT
• Termoeléctrica del Golfo is the legal entity with
a self-generation licence.
• DFCOM of 230 MW petroleum coke-fired power
plant
• Project will generate electricity for thirteen
cement plants
• Surplus power will be sold to the Comisión
Federal de Electricidad (“CFE”), the public
electricity utility.
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TEG PROJECT
• Funding of $369 million
– Debt:
• Coface:
• IDB:
$100 million
$75 million A loan
$102 million B loan
– Equity:
• Cemex:
1%
• Successful bidder(s) 99%
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TEG PROJECT
• SBS, S.A.
– Extensive track record in power plant construction
– Extensive operations experience as an operator
(Africa, Asia, South America)
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Discussion
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•
•
•
•
Sovereign risks
Operational risks
Financial risks
Environmental risks
Social risks
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