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Interview

with Pablo Videla, Techint E&C Peru

26.04.2011 / Energyboardroom

On July 2010, after many years of hard work, Techint finalized the project that involved the world’s highest pipeline, taking natural gas from Camisea to Melchorita. On a personal note, what main lessons this experience gave you?

Regarding the gas pipeline Techint Engineering and Construction in Perú did for Hunt Oil, feeding the LNG plant in Melchorita, it was quite a challenge for us because it consisted in a 400km long gas pipeline crossing the high altitudes of the Andes with 34 inches wide, a huge diameter. One of the major challenges was to work in such an environment where topography, sight, and weather conditions are very tough. We had to cross altitudes of above 5000m, mainly during winter, with conditions very tough for our people and even equipment – the company had to do a special set-up for the equipment in order to perform. The second major challenge was that the pipeline was crossing many communities and Techint E&C had to conduct a lot of social works with them in order to complete the project both in an efficient and smooth way.

In a country like Peru, if you don’t prepare yourself in advance to deal with the social aspects of projects, you will never succeed.

All policy-makers we have interviewed have promoted the reforms Peru has implemented in order to become an investors-friendly market, but we have also seen the challenges and hurdles companies face in order to take projects from paper to reality. How did Techint E&C managed to overcome this?

Actually, the major challenge to get things done in time in Peru is the lack of qualified local staff. Hence, Techint in Perú trained a lot of our local people; the company has an extensive training program that started well in advance, in the time we were commercially discussing the Melchorita pipeline with our clients. Techint in Perú has a very extensive welding and operators’ school as we need very well-trained heavy equipment operators, not easily found in the Peruvian market.

When you’re building a pipeline you’re welding all the time, 24/7; you need to find very well qualified API welders and you just don’t find them in the local market. There might be some, but the industry in the last 10 to 20 years was not big enough to support the continuous training of this people. So Techint E&C needs to help them to get the adequate skills necessary for the complexities of our projects.

If you see in the case of Melchorita LNG plant, they had to bring welders from overseas because the local market was not able to provide them. In Techint’s case, we mainly sent the supervision from other countries where we are in, mainly in Latin America, for instance from Argentina, Brazil and Colombia. The peak of personnel for the “Melchorita pipeline”, Perú LNG, specific project was about 5000 to 6000 employees at the peak, out of which 500 were ex-pats mainly in supervision or management, all others were Peruvians. Of course that for unskilled workers the company can get the support from the local communities, but for skilled local work we normally had to train in-house.

As you know, Techint was first established in Peru more than 30 years ago, since then we tried to be constantly active in the market. As an E&C company, we rely basically on people and you need to train properly a lot of local resources to be competitive in the market, that’s why we have a very efficient school of engineers. Techint has also its own young professional programs and in-house management project. In the last 10 years we have trained a lot of Peruvian senior managers. Most of the managers who report to me are Peruvians and that is part of the effort Techint has done in the last five to ten years, since we started with the development of Camisea in the late 90s.

The number of financially backed E&C companies that have used their financial strength to win bids in the local market have increased considerably. How well positioned is Techint in this front?

Techint is a financially sound group, with the support of most of the high performance banks worldwide. However, most projects get their financing directly from the clients because it is easier for them, they don’t require any project-financing from the contractors. But if you go to the public sector, financing indeed is a tool to get some contracts and to be more competitive.

One of our sister companies responsible for the core business of producing pipelines is Tenaris. So in some projects we had a chance to finance a certain amount of the project that is related to the provision of pipes. This is a good leverage for Techint Engineering and Construction because at the end of the day if you need to build a $1.5 billion contract, 50 or 40% of it goes to the provision of pipes. If you are an E&C company that has your own means of manufacturing pipelines, you have a great leverage.

Techint is active in different markets here in Peru, in oil and gas sector we are in upstream, midstream and downstream, as well as petrochemicals. We are also in other sectors such as energy and mining. Naturally, the advantages of being part of a bigger and integrated group are decisive for our success.

How do you coordinate with the different branches of the Techint Group?

The Techint group has a committee in every country we operate where we discuss the strategy of how to approach the business and iestablish long-term planning and strategies. If we can offer our clients a complete solution from A to Z, delivering packages that are very convenient from the economic and financial point of view normally, they will be more than happy to join us.

From President Alan Garcia to the leading presidential candidates, they all seem to agree that the lack of appropriate infrastructure is one of Peru’s main challenges and should continue to be a priority in the next 5 years. As a company present in many different areas and with a well rooted presence in the country, what do you consider to be the most promising areas and projects in Techint’s pipeline in the coming years?

Before the 90s, Peru had no gas available. Right now the consumption is growing and the reserves are following suit because exploration is booming and most companies that have exploratory blocks will soon confirm new findings, bringing the need to transport them and upgrade the existing infrastructure.

Techint in Perú is very optimistic about the prospects of the Peruvian market. We think that Camisea, where we did the conceptual design, implanted the whole project and are the operators now, is just the first stone. We have great expectations for the next years.

Furthermore, if you go to the north of Peru you will find mainly crude, especially heavy oil. There are new facilities being built and there are new investments in E&P at the moment. The challenge there is that the crude is too heavy; it is very expensive to extract and transport it, requiring a lot of investment to make it technically viable. Techint is always talking with all its clients in the region, such as Perenco, Repsol, Pluspetrol. We are ready to help them with the developments they have in the moment. This is our work.

Where do you see the core business coming from, the government or the private sector?

It’s a mix. The government has the social pressure to deliver gas to some cities that don’t have enough scale to economically justify investments from the private sector. These investments will happen because the social pressure for energy accessibility is quite strong in Peru.
Therefore, there is a broad space for new projects both from the private and the public sector.

Techint in Peru had quite a positive 2010. After such a unique year, what are your main ambitions in the coming years?

Indeed, last year Techint in Perú had a turnover, when we were very busy with a number of major projects, though I don’t believe this will be the norm for the coming years. We are talking about of huge numbers for the Peruvian market. We talk a lot that the Peruvian economy is booming, but the market is still small.

Techint is planning to level its turnover to around $250-300 million in the coming years. We believe that 60 to 70% will come from the oil and gas sector. The remaining will come mainly from mining and energy sector. Techint is also evaluating whether to enter the infrastructure business in Peru, for the moment we are not locally active in that, thought the potential is huge.

What’s your final message to prospective international investors that are now trying to replicate Techint’s success in Peru’s fast-growing market?

Peru is advancing on a very positive direction and we don’t envision that this will change in the near future. There is a good political will to continue with economically sound policies and the country offers an excellent environment to investments. As a result, more players will be required in the market because right now not all companies are able to attend the demand of investments that are coming over and the projections for the future are even better than the present.

Even with the most conservative projections, the amount of work that we expect for the coming years in Peru is enormous, which means that E&C companies need be prepared for the surge in demand, I’m sure there is room and space for everybody. Anybody who wants to invest in Peru will be more than welcomed. Techint Engineering and Construction in Perú will be here to open you doors and make your projects reality.

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