Don H. Lee, President, Lafarge, Philippines
Don H. Lee, President of Lafarge Philippines, a leading provider of construction materials and asset management services, introduces the concept of fly ash recycling in which the pollutant bi-products of coal fired power plants are converted into concrete. He also unveils creative ideas for capturing unused power and selling it back to the grid, and explains how his company has transformed building design through holistic and integrated solutions.
You have previously worked for Lafarge in China and Vietnam, and since 2010 have been located here in the Philippines. What have been the main changes that you have implemented based on your previous experience and what is the strategic direction of the company today?
Lafarge is a publicly listed company and as such has already announced that the company will be increasing its capacities in aggregates and cement. Lafarge has also recently become the only company in the building materials industry, which is engaged in selling fly ash products. On the commercial side, Lafarge uses Mass-housing Integrated Offers (MIO), which is aimed at home builders, and Building, Road and Power Integrated Offers (BIO, RIO & PIO). Lafarge is moving from selling only cement as a building material to working with customers to provide integrated solutions. In the power industry, the type of concrete, particularly for heavy load-bearing purposes such as mounting boilers and turbines, must be high strength and exceedingly durable. In addition, because many power stations are built near ports (granting access to heavy fuels transported from overseas) the concrete used must be sulphate resistant, as salt water is damaging to building foundations. The industry also needs aggregates when constructing transformers as grass represents a risk; sparks landing in dry leaves may create fires in dry weather and for this reason transformers must be separated from combustible material.
Lafarge can engage in the construction of a power plant, supplying concrete for jetties and a plethora of other requirements, but is also able to offer total asset management services. To illustrate, a coal-fired power plant will generate significant quantities of ash and Lafarge is able to remove this ash from the power plant system, negating the usual requirement for ash ponds. In this way, Lafarge offers far more than concrete, it also offers environmental services and health and safety training. It is a fact that Lafarge’s executive committee in the Philippines is likely the only management team that is US Occupational Safety and Health certified. Lafarge’s in depth service is one element that attracts customers to our business. Lafarge produces green roofs and gives assistance in gaining certification for environmentally friendly buildings for example. Lafarge has a strategic ambition to increase the depth of its engagement with the whole construction process.
This move to integrated service provision has occurred primarily since you arrived in 2010. What motivated you to pursue this course of action?
There are many paradoxes in the Philippines. The country has a low GDP, of about USD 2,500 per capita, yet the National Capital Region is a developed metropolitan area with high quality building construction practices, comparable with higher standards across the world. The rest of the country however, is rural and poor with a poverty rate of 28 percent. There is a split in the economy of the Philippines where high-end construction services contrast with efforts to provide affordable housing. Both demand opportunities for renewable energy, recycling concrete and for environmental services. Businesses offering efficient solutions can assist in both these markets.
What proportion of your overall portfolio is made up of PIO contracts?
With PIO, Lafarge is going beyond merely supplying materials to the construction industry. Now, conscious of what our company can offer, the next objective is communicating to the market the opportunities that Lafarge offers. PIO is designed for the next coming wave of investments in the power industry. Lafarge undertook the cement supply and construction supply for GN Power and our company has learned extensively from this contract—we are very much ready for further projects.
Lafarge has six cement facilities here in the Philippines. In terms of the company’s coverage, what does the power industry in the Philippines represent for Lafarge?
The Philippines is still relatively undeveloped and is an emerging market. The MIO sector is the largest aspect of our business here, followed by the BIO offer. RIO is now taking off, but PIO is a project under development: it is expected to grow substantially as the next series of power plants go under construction.
Lafarge will supply 20 million tonnes of cement this year, and this is likely to grow eight to ten percent each year for the following four years. The Philippines needs this supply because infrastructure is not currently at the level is should be. Indeed, the recent tragic typhoon highlights the countries requirement for solid, robust building materials. There are over 7,200 islands and the port facilities here need upgrading, quickly.
With regard to the supply of power in this country, what impact has the open-access policy had on Lafarge’s operations?
Lafarge views this development in a positive light; this year, Lafarge will require 90MW of power from the Luzon grid alone and 125MW across the Philippines. This Philippines is one of the most complex energy markets that Lafarge has had to deal with, globally speaking. Lafarge is a significant power consumer and is now able to speak directly to suppliers and with the right strategy should be able to access cheaper power due to the open-access policy. The contracts, however, have to be carefully considered. The content of these contracts will affect the final price paid, depending on how it refers to base load, load following, peak and off-peak considerations. These elements go beyond simply generation, to transmission charges amongst others. With Lafarge equipped with the right strategy, lowering power costs should become a competitive advantage for the company.
The situation is so complex that Lafarge in the Philippines has four full-time employees monitoring the power supply situation to ensure that the company is getting the best value energy that money can buy.
Another consideration in the next few years is the blackouts that Luzon is likely to face. Has Lafarge made any direct investments in the power sector to mitigate the effects?
Lafarge has already started to install backup power technologies in all of its plants, which are mostly bunker fired. There is still one plant that requires the installation of a genset, but this will have arrived by the end of 2014. Beyond supplying Lafarge’s power needs, there are further opportunities in Lafarge’s opinion to sell excess power back to the grid. The company does not think about energy production as a reactive choice to the problems in power supply in the Philippines; it is a revenue raising opportunity. In two locations we are now able to sell power back to the grid.
Lafarge is obviously seeking to assert its green credentials. What are you doing about CO2 emissions?
Lafarge was the first in the country to introduce a heat-recovery system, which is a 4.5MW system on the Teresa plant, saving 12,000 tonnes of CO2 annually. Secondly, we produced blended cements, incorporating fly ash into our cements. This reduces the requirement for clinker in our production processes, which in turn lowers Lafarge’s CO2 emissions. Lafarge is the only company in the Philippines that undertakes this process and in doing so we lower CO2 emissions by around 23 percent.
Lastly, the use of rice husk and alternative fuels, including municipal solid waste, also lowers emissions. We employ 100 pickers to remove anything of thermal value, including plastics. Once this material is shredded and bailed, it is used at a capacity of around 150 tonnes daily to power our cement plants, in turn reducing the amount of coal required for our plants—another step towards lowering CO2 emissions.
What was the reasoning behind Lafarge acquiring Republic Cement group, and which qualities does Lafarge look for in a partner?
Lafarge today has built itself through acquiring other companies. During the Asian financial crisis, Asia was ‘for sale’ as it were, and Lafarge was able to enter the market in the Philippines by taking control of singular plant. Republic Cement and another cement facility in Batangas were owned by Blue Circle, which was then acquired by Lafarge Group at a global level. Continuing to look for opportunities to gain further assets, Danao and Universal Cement were acquisitions as was Ilagan, bought from Alsons Consolidated Resources.
As for partners, the first element that Lafarge looks for is shared values. Working with a partner, we need a body that will undertake business in an ethical, straightforward and transparent fashion. Any business relationships require trust, otherwise they are merely transactional; problems must be resolved together, or business relationships will have no longevity.
The second consideration is lasting win-win value. If the benefits of the partnership are not equitable, one party is likely to take advantage over that power difference. A relationship can start lop-sided, but there then must be an aim of moving the relationship to a more stable basis. The power industry, (which can invest billions of dollars in new plants) has frequently viewed the cement industry as a poorer second cousin, but both the cement industry as a consumer, and the power industry as a producer will need to work together towards mutual goals, such as reducing environmental impacts.
Where would you like to see Lafarge and its power projects in five to ten years?
Lafarge definitely has a significant role in reducing the impacts of big industry on the environment; the company will need to operate with like-minded partners in the power industry. Communication is starting between power companies and Lafarge—our first partner, GN Power, is now sending substantially less fly ash to landfills. This saves GN Power money and also reduces environmental impacts, as ash ponds are no longer a requirement. The fiscal and social opportunities that Lafarge offers its business associates are great. Lafarge is ready, with its six plants, to help the other large energy companies in the Philippines to take similar conscientious steps forward.
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