Sergio Luiz da Silva, Vice President, Comgas, Brazil
Sergio Luiz da Silva, Vice President of Comgas, discusses Brazil’s 1999 privatization process and how it has affected present day opportunities within the sector. He also gives his insight on gas, ‘the fuel of the future” and why this is so important for Comgas.
Comgas represents the best example of the opportunities privatization has offered Brazil. When this process took place in 1999, the conditions and rules were clear, especially for our concession contract. Any successful business needs to operate in a safe environment, with clear rules, and a long-term vision perspective to perform; this has been the context Comgas has been working within.
Therefore, the state of Sao Paulo provided us with an independent regulating agency for sanitation and energy (ARSESP) to help us accomplish our targets. This agency decides on tariffs, and conditions and goals to achieve for the concession company every five years. At the beginning of every cycle, we announce our investment plans, around USD 1.5 billion, and forecasts for new customers to firmly establish our strategic plan.
Two investments periods define our greatest achievements. The first between 2000 and 2005 targeted industrial customers today representing more than 80 percent of our client portfolio and the second, since 2006 has prioritized residential customers, representing only 4 percent of our client base today.
Part of our success in connecting a large number of clients was achieved through technical innovation. Instead of placing our pipelines on the roads, we decided to use the sidewalks and this turned out to be very efficient. We used a directional drilling technique and through this process our cost to connect a house became 10 times less than any other distribution company here in Brazil. In the last five years we have received an award for best practice companies in terms of health, safety and environmental standards from AGA, the American Gas Association. Capitalizing on this success, we increased our yearly connections since 2006 from 30,000 to 100,000 new clients
In 2013, we are planning to invest USD 435 million, which is a record investment for our company. We will install 5000 km of the new network, connect 500,000 new customers and maintain high efficiency rates as planned with ARSESP. The journey is still long as many new customers are yet to be connected, but we work safely towards ongoing future success.
Regarding Brazil’s energy matrix, hydropower represents more than 70 percent of its electricity generated, and gas comes in second position with 10.5 percent. According to the Brazilian government, gas represents ”the fuel of the future”. What is needed to take gas to the next level?
Since 2007 in Brazil, the balance between the supply and demand of gas is tight. To avoid power shortages, Brazil increased heavily its dependency on thermal power plants. Therefore between today and 2020, we will witness a high dependency on gas-fueled power plants for the electric sector. In fact, 40 percent of the gas consumed in Brazil is imported from Bolivia. Our national production of gas is around four million cubic meters per day, Bolivia around 30 million cubic meters per day, and the rest is LNG. In the future, gas will mainly be used for the power generation sector, and this is why it is crucial to start planning ahead.
The problem today is not about the potential of gas or current resources; the real issue is infrastructure. When exploration companies find large offshore gas resources they can extract it. Bringing gas to our cities via pipelines is a difficult challenge however, and for this we must implement a sustainable infrastructure plan.
Brazil’s research company, EPE, is not planning to report on any potential large pipeline distribution system in the future and according to Petrobras, all pipeline projects across the country have been fulfilled. However, the reality is that much must be done to take our pipeline network to the next level. For instance, in the South of Brazil, developing a pipeline system with Comgas technology would revolutionize areas such as Santa Catarina, Parana, Rio Grande do Sul. In Sao Paulo, we receive 30 million cubic meters of gas per day in our pipelines. However, when transporting the gas to the south of the country, our pipeline configuration can only give five million cubic meters of gas per day; this is highly insufficient. We must think about efficient alternatives to this problem for the sustainability of these regions.
In 2012, Comgas celebrated 140 years as a very successful Brazilian company, despite many transitional periods with several acquisitions. How has Comgas managed to perform so well during these transitional periods?
Since our privatization period, we invested financial resources to develop the pipeline network. We went from 2000 km of pipeline to nearly 10000 km (next year’s goal). Our customer base also expanded, from 200,000 to 1.3 million, meaning that each year we are connecting around 100,000 new residential customers.
Our business is separated into five segments: cogeneration, thermal generation, industrial, residential, and transportation and this allows us to diversify our risk and focus on key segments to develop our market. Our concession area represents 26 percent of the Brazilian GDP, and 36 percent of the total energy consumption of natural gas in Brazil.
Over the years we have established really strong connections with the industrial sector and this is why we are highly recognized today. In fact, we have been at the center of all energy discussions and as a proactive player we have managed to anticipate their concerns. This is why our B2B area is so strong.
Moreover, since Cosan took part of 60 percent of Comgas’ capital, our performance rates have increased. Cosan has introduced to our company a detailed agenda in terms of innovation practices. Five years ago, Cosan’s EBITDA was around USD 150 million, whereas today they have surpassed USD two billion. Their appetite for growth is clear and we feel their innovative spirit and energy.
Our collaboration with Petrobras is fundamental and based on respect. Petrobras is Brazil’s largest E&P player, and their presence and influence in Brazil is fundamental to the stability of the power sector. Their human resources and managers are among the best in the country and their R&D capabilities challenge all the best innovation companies in the world.
Of course Petrobras is still dependent on the government and cannot perform as a fully privatized company. However, the future of gas and our pipeline network is dependent on them and we must collaborate with them to ensure the future of gas in our country.
What are your ambitions and key priorities to drive Comgas in the next five years?
In the future we will become the best gas distribution company in the world. As pretentious as it may seem, our past performance and strategic vision allows us to believe in this goal. To accomplish this, not only will we have to meet the financial targets, it is our customers who will have to recognize us as the best distribution and service company as well. In fact, we are planning to open a new marketing area highly focused on providing our customers with a unique service and value addressing their concerns. Today we have connected 1.3 million customers, and we still have a potential to connect nine million more. Figuratively, we are still crawling on the road of success, but tomorrow we will be running.