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Interview

Juan Carlos Fernández – CEO, IMPSA, Argentina

20.10.2016 / Energyboardroom

juan-carlos-fernandez-impsa

The CEO of IMPSA Argentina highlights that their recent restructuring deal will not change the business philosophy of IMPSA but merely change the shareholding structure. Moreover, he reviews the strengths of the company, emphasizing their technological advantage within the global arena of hydropower generation.

Could you please give us a brief overview of IMPSA’s global footprint today?

“We are active in over 45 different countries and can proudly pronounce that we have installed over 45,000 megawatts of energy generation across the globe.”

We are a company with a history of over 100 years, over which time we have been mainly involved in capital goods across multiple different sectors. For instance, a couple of years back we were one of the main supplier of port cranes; at first mainly in Asia with our center being Malaysia, soon after ranked number two worldwide! Today, we are mainly focused on the energy sector, nonetheless from our past we have had great learnings which we still apply today. Our past is also what contributed to our strong global presence today, we are active in over 45 different countries and can proudly pronounce that we have installed over 45,000 megawatts of energy generation across the globe. To put that number in perspective: that is 1.5 times the generation of Argentina! Our strong global footprint helps us tremendously in maintaining the pole position in the hydropower market in which we compete with GE, Andritz and Voith Siemens.

Would you consider IMPSA’s global footprint to be its main strength?

We have many strengths and our global footprint is one of them, however, our technology is our main strength which enables us to stay ahead of competition. In the past, we have successfully proven that we are the genuine technology leaders across the globe, which led to the global footprint. We remained global by being able to adapt to the individual market needs, therefore flexibility is our second most important strength. Flexibility, for instance, means that early on in our company history we have send people to places such as the Philippines or China –which in the 90’s was not what it is today—who then set up our operations from complete scratch. This entrepreneurial business philosophy meant, that we had to invest for a minimum of two years without receiving any returns; this however was worth it, as today we are splendidly positioned in these markets and enjoy an excellent reputation.

Asia and Latin America are traditionally the largest markets for renewable energy at large, to what extend are these regions the most significant regions for IMPSA?

We should divide renewable energy in the different business lines we are engaged in as there are significant differences of the development of these segments per region and country. The first, hydropower plants, has been historically an excellent segment for us, most recently, Argentina and Venezuela are becoming highly attractive markets for this segment. Europe, on the other hand, is not as attractive as greenfield projects usually do not take place in the European countries anymore, the demand there is mostly for maintenance of existing hydropower plants. In wind generation, we experienced significant success in Brazil; 1.5 years ago we were not only acting as developers but also as investors in Brazil! We had reached a deal with the largest Brazilian pension fund with which we set-up an assembly plant for wind generators. What’s more, our home country Argentina is currently becoming a highly attractive market for wind generation. Most recently we set up a plant in Mendoza which enables us to produce up to 150 wind generators of the latest generation! We are confident that Argentina will develop into wind generation just as Brazil did; the current plan of the Argentinean government is highly similar to the plans the Brazilian government had ten years ago.

Does this mean that Argentina has highly attractive wind resources?

One opinion is, that only Patagonia—a southern province of Argentina—has good winds, however, the winds in Patagonia are typically too strong to be effective for wind generation plants. In other provinces, such as the Buenos Aires province, we have a constant stream of wind which, if harvested, generates a steady flow of power. La Rioja – a province in the north of Argentina—is currently home of the largest wind generation plant in the country generating up to 100 megawatts and we are currently enhancing its capability by another 50 megawatts.

Most recently IMPSA succeeded in negotiating a financial restructuring deal with its major creditors, how will this restructuring deal change IMPSA’s operations?

The restructuring deal does not change IMPSA, it merely changes the shareholder structure. This will benefit IMPSA in the sense that the financial debt will be smaller and the creditor pressure will be reduced significantly to almost zero. We negotiated a debt deal which is creating a sustainable future for the company: the creditors have become partners. The family’s share of the company will be reduced by 65 percent which will be controlled by an equity trust—the management and ownership changes, everything else remains. The Pescarmona family –still owning 100 percent of the company— with Enrique Pescarmona as its head decided that the priority should be the continuation of the company instead of their own personal benefit. Therefore, the family decided to give 65 percent of the family share to the creditors. After three –almost four—generations as family run business it was clear to the family that IMPSA’s survival is above all.

The international energy agency predicted that, over the next five years, green energy will represent the single largest growing source of electricity around the world. From your perception, how feasible is this projection?

The market clearly exists; the world needs green energy as we gradually must slow down the installations of fossil fuel plants. On the other hand, we must be aware that the world cannot possibly solely run on green energy generation, hence why we are of the opinion that a healthy balance should be aimed at by the individual nations. Venezuela, for instance, has a combination of hydropower and wind power generation for the simple reason that when it is dry, Venezuela has good winds, however these decline rapidly as soon as the rain starts. By combining both technologies, Venezuela achieves great energy generation results; Brazil or Spain are countries which are highly similar in the context of creating the right balance. Our philosophy therefore is, that every country should strive for energy generation on a multiple source basis.

Another big topic around the world is power generation via solar technology, how does IMPSA position itself in this arena?

IMPSA as such, has not made developments into solar energy generation as of yet. However, ICSA –one of our subsidiaries, specialized in electronics— is currently working within a license agreement, in which it is developing new inverters for the photovoltaic panels. I personally believe that solar energy generation is the future. Although solar is more expensive than wind, it is easy to install and requires almost no maintenance throughout its life span. This is also the reason why we are not entering this segment; it is too easy, hence why competition is fierce. Chinese companies have flooded the market in recent years as, generally speaking, the Chinese industry was the early mover into this segment and today it is highly difficult to compete in this segment.

Juan Aguero, Regional Manager for IMPSA Malaysia, highlighted in his interview with EBR, that the cutting edge technological coming from IMPSA’s research and development center in Argentina provides him with a clear competitive advantage. In this context, just how significant is the research center to your global operations?

IMPSA has worked with licensers from around the world until the mid-80’s, at that time we decided that we should take what we have learned from past partnerships and improve it. Due to this development, we established our own research and development facility which today produces the cutting edge technology of the industry! We are continuously investing time and money in R&D and today resemble the boutique of the industry. Our competitors typically offer everything related to energy, whereas we focus on our core business lines and simply create better solutions—in hydropower generation, for instance. Our research center is equipped with state of the art equipment with its computer system belonging to the best in the world. This emphasis on focused research and development is the key that made us the best provider of hydro turbines in the world. Efficiency wise, our turbines are 1.7 percent more efficient than the turbines of the closest competitor. In percentage, this may sound marginal, however, this percentage translates into more energy generated worth USD 7 million with the same amount of water in the same time. In our industry, efficiency translates directly into money.

What is the key driver behind this vast innovation capability?

For more than three decades we have integrated people from all over the world into our Argentinean innovation power house; from Europe, Russia, Malaysia—you name the country, we have brought the brainpower here. What’s more, it is important to understand, that Argentina has excellent Universities which year-on-year produce excellent young professionals, which we successfully attract to our operations. So much so, that despite the global inclusion of talent in our Argentinean operations, most of our R&D team today are Argentineans!

Many of the oil and gas majors consider a move into renewable energy as feasible, if not necessary. What will be your competitive advantage over these oil majors diversifying into your segment?

The green energy market is unbelievably large. Getting a small portion of said market is truly enough; there is food for everyone. The latest Argentinean tender was for 3600 megawatts; we can produce 300 megawatts. Even if we would duplicate or triple that, there would still be enough left for many other players. To maintain what we have, we will stay technologically competitive, remain flexible and will stay efficient in the production of our equipment. Nowadays wind generators are commoditized, hence why we need to start producing at a lower cost base; we will do so and fully come back to the energy sector, while continuing to be developers.

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