with Cai Hongxian, State Grid Brazil Holding S.A.
State Grid Brazil Holding is China’s main investor in Brazil, and only in three years’ time you have become the fifth largest transmission line company in the country. What has been your mission since you initiated the company’s operations in Brazil?
State Grid Corporation of China’s first attempt to enter the Brazilian market was in 2010. To capture the transmission market serious investment was clearly required. Therefore we decided to take over seven concessionaries from Plena Transmissoras and in 2012 acquired a further five from ACS Actividades de Construccion y Servicios. In 2012, more than 1 and half billion dollars were invested in three greenfield auctions with local partners including Copel and Furnas. We are majority stakeholders in the Teles Pires transmission project with Copel and this project alone represents 2010 km of transmission lines at 500 kV.
Transmission lines represent our core market in China but as a utility company our strategy has been to slowly diversify into other markets. From distribution to generation the possibilities in Brazil are immense and with our financial capabilities it is only a matter of time before we move from being considered simply a transmission company to a reputable diversified international utility company.
Given that we are a Chinese company entering a foreign market, we knew we had to adapt to the local cultural and operational climate. We decided right from the beginning to bring 20 Chinese employees to Brazil to give us support through the process of adapting our Chinese culture to the Brazilian way of business. Such first steps are always tentative but we are here to stay and we are ready to do what is necessary to accomplish our targets. As the CEO of this company it is my duty to fulfill the expectations of our Chinese parent company. I am confident in our human, financial and operational assets.
Ever since the creation of the hybrid power model in 2004, energy prices have been defined by the competitive landscape of auctions, yet many times the initial offering price is already too low to compete. How is SGBH planning to increase its portfolio through these auctions while ensuring a safe return on investment?
Energy auctions are by nature competitive and the price depends on the level of competitiveness. We believe that by having a collaborative strategy with local partners, creating joint ventures gives us additional leverage to become the best candidate at auction and win the contracts we need to grow our business. From our Chinese mother company, we inherit expertise, understanding of the transmission line business and financial credibility. With our local Brazilian partners we gain local content and regulation background as well as their long term expertise in creating value in this market. Collaboration is the first step towards building synergies and given our success at energy auctions we have confidence in our strategy to diversify and maintain growth at a fast pace in Brazil.
According to Albert de Melo, president at Cepel, the success of Brazil’s transmission lines is defined by its level of innovation and technology especially in the field of High Voltage transmission lines. What experience as a Chinese company can you bring in this field?
China is the perfect example of an emerging country that has achieved rapid growth and expertise in many different domains. From small and medium sized solar and wind projects to very large hydro power dams like The Three Gorges – World’s largest dam – China has superseded and stepped ahead, technically speaking, from the other emerging countries. China is well known for producing at a low cost and also with very high technology standards. Hence, most of the dams in Brazil utilize Chinese technology and turbines.
My perspective is that China and Brazil are great countries to collaborate on innovative projects, may they be on high voltage transmission lines or simply on smaller niches like smart metering systems. We have been collaborating with Cepel – Eletrobras’ Research center – as well as ONS and EPE to discuss new 800 kv DC transmission lines into the grid. This technology could see light soon with Belo Monte’s connection to the grid at the end of this year.
Furthermore, we have started new R&D programs with Eletronorte and State Grid is leading committees overseeing this research to establish the highest technological standards possible. Our involvement in the technology sphere defines our belief that China can bring the best technologies to foreign markets.
Sharing information and experiences is fundamental when moving to a new country, especially in terms of technology. My belief is that our innovative drive combined with our local partners’ technology assets will help us become the preferable option at auctions.
SGHB is bringing Chinese partners – Nari Technology Development and Xuji Group – to become active players in the field of smart grids and energy control systems. What are your plans to grow in this niche?
Nari and Xuji are both subsidiaries of State Grid Corporation of China (SGCC) and have been appointed to the Brazilian market to provide special automation and smart metering solutions. Nari is the biggest manufacturer of automation systems in China, and is currently opening a new manufacturing facility in Sao Paulo. This company is aware of the potential for automation systems in Brazil and we expect them to rapidly become one of the main players in this sector. In the same way, Xuji Group, the largest smart metering system manufacturer is entering Brazil with high expectations. With our local support and their manufacturing capabilities, we predict high financial performance from them.
SGHB currently owns 12 transmission companies and is aiming to diversify into hydro with Sinop, Sao Manuel and large transmission line projects such as Belo Monte. What is the company’s strategy to expand in Brazil’s energy market?
We do not see ourselves either as investors or as a transmission company; we are a holding company in the energy sector. State Grid Brazil Holding has an investment strategy, plans to stay in Brazil for a long time and will diversify from the transmission business to distribution and generation.
In 2012, our holding had invested USD three and a half billion on the Brazilian energy sector, which represents double our investment when we arrived in 2010. In 2015, our investment level should reach around USD five billion. Our financial capabilities will clearly enable us to take outmatch the competition.
Brazil clearly has true potential among the BRIC countries, and although its GDP has been severely declining since 2010, from 7.5 percent to 2 percent currently, the demand for electricity is still increasing. This ongoing demand represents a great opportunity.
Nevertheless, Brazil needs to improve its service quality and transmission facilities. It is shocking to see how such an economically powerful country is still relying on overhead electric lines. Even Sao Paulo, the richest city in the country does not yet have an underground electricity system.
If the government invests in the right infrastructure projects and companies support these investments with the right technology and services, both citizens and investors will profit from this venture. Companies must assist the government in the quest for excellence and considering the stakes at hand in the coming years with the World Cup and Olympic Games, there is a high degree of urgency to this issue.
If we were to come back in five years’ time, where would you like us to find SGHB?
In five years State Grid Brazil Holding will be a distribution operator and a generator as well. We will also have a state of the art research center, focusing on new high voltage technologies and automation systems to improve energy efficiency for our projects and our clients’ as well. We will collaborate with Cepel and other local players seeking active participation on the technology side. We feel that sharing experience is one of the most important aspects of going international and we intend to create synergies in this way.
Our expectations are high for Brazil and our investments show our belief in this market. Once again we are here as long term players and we intend to become a reputable diversified company with assets in transmission, distribution and generation. This is our goal.