OPPORTUNITIES AND FINANCING OPTIONS FOR THE MEXICAN ENERGY SECTOR The perspective of an international financial institution NICOLÁS JARAMILLO SEPTEMBER 25TH, 2018 MEXICO CITY Nicolás Jaramillo September 25 th, 2018 Mexico City
2 WHO WE ARE
A MEMBER OF THE WORLD BANK GROUP The International Finance Corporation (IFC), a member of the World Bank Group, is the largest global multilateral for the private sector in developing countries. Consistently rated AAA/Aaa. IFC fosters sustainable economic growth through investment products and advisory services. We bring industry expertise, and worldwide presence, with 100+ offices around the globe. As of 1Q 2018, IFC had a US$56B investment portfolio globally, representing more than 2,000 firms in over 100 countries. IFC in Mexico: 7 th largest exposure for IFC. Current invested portfolio of US$2.5B+ 50+ projects
CHINA-MEXICO FUND ( CMF ) CMF Rationale: initiative by the Chinese and Mexican governments to support potential investment opportunities derived from the economic reforms in Mexico. Objective: achieve long term capital appreciation by seeking to invest in minority positions. Investment Mandate: equity and mezzanine investments, with a special focus on Oil & Gas, Power, Infrastructure and Telecommunications. IFC s Experience and Network: CMF co-invests with IFC, drawing on IFC s significant expertise investing in emerging markets, global network, industry knowledge and IFC s standards. Dec 2014 12 years US$1.2B US$320M Inception date Fund life AUM Invested 4
5 THE INVESTMENT ENVIRONMENT IN MEXICO
INVESTMENT CLIMATE A REGIONAL LEADER Doing Business 2018 (WBG) 190 countries Global Competitiveness Index 2017-2018 (WEF) # Economy Global Rank 1 Mexico 49 2 Chile 55 3 Peru 58 4 Colombia 59 5 Costa Rica 61 6 Puerto Rico (U.S.) 64 7 Jamaica 70 8 El Salvador 73 9 Panama 79 10 St. Lucia 91 19 Argentina 117 23 Brazil 125 33 Venezuela, RB 188 Economy Mexico Starting a Business 90 Construction Permits 87 Getting Electricity 92 Registering Property 99 Getting Credit 6 Protecting Minority Investors 62 Paying Taxes 115 Trading across Borders 63 Enforcing Contracts 41 Resolving Insolvency 31 Business registration reforms: simplified registration resulted in 14.9% of informal business owners shifting to the formal economy. Getting electricity Mexico (Mexico City): smart meters, extending the medium-voltage network, and a new system to remotely restore power service. Problematic factors for doing business: corruption, crime and theft, inefficient government bureaucracy (1) 4 th best ranking: after Chile, Puerto Rico and CR (1) Source: World Economic Forum, Executive Opinion Survey 2017
FDI BY SECTOR AUTOMOTIVE SECTOR IS VITAL Announced Cross-Border Inbound Investments Cumulative 2013-June 2018
8 THE ENERGY CONTEXT & THE OPPORTUNITY
SUPPLY & DEMAND DYNAMICS FOR OIL PRODUCTS Mexico is a net and growing importer of oil refined products ( RP ) PRODUCTION Pemex Crude Oil Production (mmbbl/d) 3.5 1.9 Local market Light 43% Heavy 57% REFINING Processed Production (mmbbl/d) 1.3 0.8 Low efficiency <50% 2005 2018 Refining bottleneck: Under-utilization of the 1.6 mmbbl/d capacity 2005 2018 90% US 900 800 700 Local production vs. Imports (mbbl/d, 2016) TRANSPORT & STORAGE Distribution Midstream bottleneck: Infrastructure is old, limited and not aligned to demand 600 500 400 300 200 100 0 61% 39% 46% 54% 44% 12% 46% 88% Gasoline Diesel Jet fuel Fuel oil COMMERCIALIZATION Local consumption +11,000 gas stations As of 2016 (excludes LPG): 8,915 km of pipelines 74 storage terminals 5 maritime terminals 10 port facilities 67% vol. transported by pipelines Local production Imports Source: PEMEX, SENER, CRE 9
OIL OUTPUT AND PUBLIC FINANCES Oil Output & Trade Millions of barrels per day; billion US$ Fiscal Revenues Percent of total revenues Source: EIA, Pemex Source: Datastream Restructuring and foreign partnerships may revive PEMEX s finances Oil production has plummeted due to underinvestment and exhaustion of once productive fields. Public finances are hit by the decline in PEMEX transfers. The company accounts for approximately 20% of government revenues. In 2016, PEMEX announced expenditure cuts equivalent to 0.5% of GDP. Two thirds of the cuts are to come from investments. As such, new foreign entrants into the oil industry and partnerships with PEMEX are crucial to raise output and lower operating costs, reviving PEMEX s financial health.
THE OPPORTUNITY AN ATTRACTIVE OUTLOOK One of the most attractive energy markets. There are unique investment opportunities driven by the structural reforms. Oil &Gas World s 4 th largest gasoline market and the 9 th largest Natural Gas ( NG ) market - a monopoly until now. NG consumption at a 1.7% CAGR until 2030. ~60% of NG is currently imported. power and industrial sectors Gasoline consumption to grow at a CAGR of 1.9% until 2030, to 1,000+ mbbl/d. Availability of low-cost NG and RP in the US stresses a clear need to unlock infrastructure bottlenecks in Mexico privileged location. Minimum requirements for days of storage for refined products. 10-13 days of sales by 2025. E&P national tenders, and PEMEX s farm-outs. Expected investments of +US$160B (79% in deep waters). Power Mexico is in the top 10 of most attractive countries for renewable energy investments (No. 9 in 2017 according to EY). 2 nd largest energy market in the region (74 GW). Energy Transition Law ( LTE ): clean energy goal of 35% by 2024. CELs requirements are also increasing, from 6% now to 14% by 2022. Wind and solar represented only 8% of the installed capacity in 2017, and are expected to increase to 22% in 2030 expected 11GW in the next 5 years. Over 7,000 of potential Qualified Consumers that can be attended under new market rules. Large investments in transmission required to interconnect remote regions of the country. Mexico needs about US$200 billion in infrastructure over the next ten years to boost its competitiveness and meet demand for energy, water, transport, and telecom. Source: EIA, SENER, SIE, CNH, Global Infrastructure Hub
MIDSTREAM PROJECTS - ANNOUNCED 45 storage projects: +29 mmbbl, US$2.6B; 5 pipeline projects: +400 mbbl/d, US$2.0B Tuxpan Manzanillo Veracruz (1) Source: SENER, CRE, ASEA
13 IFC AS A PARTNER IN MEXICO
ONE-STOP FINANCIAL SHOP FOR THE PRIVATE SECTOR INSTRUMENTS MEZZANINE / QUASI EQUITY MOBILIZATION EQUITY SENIOR DEBT & EQUIVALENTS THE IFC PRODUCT OFFERING 6-8 years investment Common or preferred equity Minority shareholder Passive partner depending on companies needs Subordinated loans Income participating loans Convertible loans Corporate loans: reserve based lending, straight corporate debt, partial credit guarantees for bonds Long-term project finance: greenfield, expansion Debt mobilization from other lenders. Equity mobilization through self-managed funds and other co-investors. Over 60-cofinanciers: commercial banks, funds, DFIs MAIN CONDITIONS Up to 20% of the capital but can also bring self-managed funds to reach stakes of up to 49% Up to 25% of project cost in greenfield investments (IFC s own account) Up to 50% of project cost in modernization investments (IFC s own account) Including mobilization, debt financing can go up to 100% Fixed and floating rates MXN & US$ currencies Up to 20-year tenors 14
A VALUABLE PARTNER Stamp of Approval Brand strengthening given high IFC parameters Catalytic role as IFC can bring other investors to the table Relationship with local governments, World Bank affiliate World Bank as Long Term Partner Synergies with the World Bank Global business relationships Access to conferences and events Mobilizing Resources Equity firepower through AMC managed funds mobilization Mobilized loan funding form local and international banks, funds, insurance companies and other development institutions IFC s ADDED VALUE Risk Management Country risk mitigation (+ MIGA) Social and environmental risk management Countercyclical role during crisis periods Network of Experts Expertise and experience needed to make a difference Global knowledge through our specialists Global relationships with key business players Technical Assistance Corporate governance best practices clean production, safety and risk management Informal counseling and advisory on any sectorial issue 6
IFC IN MEXICO: SELECTED TRANSACTIONS (1/2) Selected transaction over the last 5 years: APM Terminals Lazaro Cardenas - US$335m: first automated container terminal in Latin America which will reduce bottlenecks and improve cost efficiencies in transportation on Mexico s Pacific Coast. Port of Tuxpan - US$75 million: greenfield multipurpose cargo terminal to provide the shortest access route to the major production and consumption areas of Greater Mexico City. IFC mobilized additional US$149m. Etileno XXI - $63m: the country s first major private sector petrochemicals project in more than 20 years. Aura SolarI- US$25m: Mexico s first large-scale solar power plant (30-megawatt). Structuring of another US$50m. Eurus - $375m: financial structuring of one of the largest wind farms in Latin America. EURUS OAXACA ETILENO XXI VERACRUZ APM TERMINAL - MICHOACAN
IFC IN MEXICO: SELECTED TRANSACTIONS (2/2) VINTE Housing $13mn loan $10mn equity $8mn guarantee $18mn loan Alta Ventures Mexico Fund Venture Fund $15mn equity MIFEL Commercial Bank $25mn equity ETILENO XXI Petrochemicals $285mn loan $350mn syndicated NORSON Animal Protein $40mn loan 2008/2011/2016 2010 2011 2013 2013 PROTEAK Forestry CALIDRA Lime Processor VIRGIN MOBILE Telecom SALA UNO Vision Centers CAMESA Niche Bank $10mn loan $40mn syndication $50mn loan $22mn quasi-equity $2mn equity $14mn loan 2013 2013 2014 2014 2014 PUERTAS FINAS Wood Products $13mn loan 2015 CEMEX Cement $120mn loan 2016 CITLA ENERGY O&G $60mn equity $140mn mobilization 2016 ALTAN Telecom $40mn equity $160mn mobilization 2016 SOLEM I & II Solar PV Generation $45mn loan 2017 19
18 THANK YOU