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Interview

with Pedro Fernandez , Vice President, DuPont

23.04.2012 / Energyboardroom

When you used to be the president of ANIQ you had strong views about the slow developments and level of investment in the Mexican chemical and petro chemical sector. For example how high duties on the sector can put the Mexican industry in disadvantage of other Asian countries or how the Fox administration didn’t manage to push forward the Fenix project. Saying that can you please comment our readers how does the chemical and petrochemical sector have evolve in the past 6 years?

After the Fenix project, I think the industry had to go back to the drawing board and look for opportunities to really accelerate the growth of the petrochemical sector. By working together and looking for alternatives to boost our sector interesting projects like Etileno XXI came out. This is an important step since it proves that we, as an industry, meaning Pemex and us the private sector, can work together to really reopen opportunities in the petrochemical industry.

Within these years, other thing that also created a very positive dynamic has been all the discoveries and technological advances around Shale gas. With the boom of shale gas, once again, the US has become a very attractive place to work on petrochemicals and us being so close the USA we have to take advantage of the inherent benefits of being the neighbours of the largest producing market in the world, USA.

In the other hand, another trend that is positively impacting are the public-private partnerships (PPP) ,now authorized by law, where Pemex Petrochemical is trying to take advantage by having the private sector working together to reopen some of the old petrochemical plants that were idle. Some examples are what they are doing with Unigel, a Brazilian group. As well as what they are trying to do in Coatzacoalcos with Mexichem and Pemex Petrochemical around the poly-vinyl chloride monomers.

These projects are very important and they are just the start of a very positive trend that will surely impact our industry. Under this context we see that a lot of opportunities will arise.

Having said that, I still believe there is a long way to go in terms of really opening up the industry, and in order it happens there is a need to change the model in Pemex. Since the way Pemex is taxed, the way it is used to finance the government activities is not sustainable. The latest information reveals that about 60% of the gross billing of Pemex goes straight to the government even before using any of it for operations or investment and as said this can’t be sustainable. Therefore I think that this has to change and Pemex needs to stop being the cash cow for the Federal government.

There is more to come and opportunities are there. Nevertheless the only way to do that, since the government does not have the money, is to open the petrochemical sector to private petrochemical enterprises. In deed we have advice them to use as reference the Gulf markets for raw materials on how they trade ethane or gas, and using similarities in those markets, they can open up pricing in a way that they can create a lot of incentives for companies to invest in Mexico.

Mexico have all to succeed, we have a well established, and decent infrastructure and a well-trained sales force. We have 2 strong petrochemical poles, one down in the south in Coatzacoalcos the Veracruz area, and the other in the north in the Tampico area.

As a company we believe in this market that is why, we have just announced a $600 million investment in Altamira for titanium dioxide, which is a very important element. As a global company, we were competing with other potential sites around the world and Altamira ended up being the best alternative, the most attractive. So Mexico has the assets to succeed.

As we have mentioned Pemex Petrochemicals has a new business model (PPP s) that involves working with the private sector. Do you think this will be enough to revamp the petrochemical and chemical industries in Mexico?

No, it is just a starting point. However I think that it made investors turned their heads and made them look back at Mexico since openness with public private partnerships are critical.

We thinks is very positive that Pemex Petrochemicals is working to reopen their own existing assets since it will lead to some activity which will be the trigger point for investments. However I think the days where the industry will launches its true growth is when we have more Etileno XXI projects coming in. But then again for this to happen you need to take the Secretariat of Finance policy of setting prices out of the equation otherwise it will be very limited.

Part of the legislators seems to understand that they have to implement reform and be more open regarding the energy sector but others are very reluctant to push these things. What do you think is going to happen in 2012?

That is a crystal ball. All the political parties in Mexico realize the need to give more freedom to operate Pemex. I think that is a common denominator and all the candidates have mentioned that. They might differ in their methods, but they also understand that they have to detach this, fiscal role that Pemex has, and move to one that is based more around economic development. They need to make it more like some of the other NOC like Petrobras or Statoil in Norway where they still have government control but also the freedom to operate with a more professional management and processes. And I think there are probabilities that this happen since the three candidates have specifically mentioned that they need to detach Pemex from that fiscal role.

Whatever will be the situation as you have mention a couple of times during the interview DuPont is committed to this country and we can see it with the investment that you mention earlier in Altamira. Can you comment to our readers about the project and why was Mexico chosen?

Basically it was our track record. We had one of the most productive plants in the world, with a well-trained sales force and a great relationship with the Union, which is a very progressive one that understands productivity. Therefore there is competitiveness.

Furthermore I have to say that the government has been very active in creating the proper incentives to ensure that we can do the investment in Mexico. Thus with that track record, and the economics of it, link on being close to the largest market in the world, it helped us to get the best alternative. We were competing with Asian countries and European countries, and Mexico came out on top. As a Mexican I am very proud that we manage to get the investment in the country.

It was a hard fought battle since like any other multinational company, everyone wants investment in their own places but you put the money where the best return is and Altamira turned to be the best investment for the company.

Saying that how important are the Mexican operations for DuPont worldwide?

DuPont is going to be now 210 years old. It was founded in the US in 1802 and the first subsidiary out of the US was Mexico established in 1925, we have been in this country since then an we are proud to say that these 87 years DuPont in Mexico, the company has turned a profit every single year.

Today DuPont is a $45 billion company and Mexico stand for about 1.5 of that. However the number is not that impressive, it is interesting that a lot of the facilities we have here are used for export purposes. Exports represent 40-50 percent of the capacity. We export paints and other chemicals to the US, and even to Europe. Saying that you might not see the revenues directly impacting here but you perceive them in other DuPont subsidiaries around the world.

Hence as you will see during our time in the Mexican market we have been able to work with partners, by ourselves, and with the government, to continue operating. We are in a continuous flux of investments and we are committed to stay here.

How important is Pemex as a client and what projects is DuPont working on with them?

Pemex is important as a partner, as a customer but also as a supplier since natural gas for us is a critical energetic source in our plants.

In the other hand, at DuPont we have a large consulting business on safety and environment, which I happen to head, and we do a lot of work with Pemex around improving their standards in safety, health and environment. In fact last year, Pemex Exploration and Production beat all-time records in terms of performance at par or better than all the major oil companies around the world. Maybe you haven’t hear about it because people do not want to brag about what they are doing in health and safety but as the head of DuPont s consulting business on safety and environment I can tell you that Pemex exploration and production has world-class standards in that regards.

Did this safety and environment business that you are talking already existed or is a new endeavour?

It already existed but we transformed it. We started with safety first but then we did a holistic approach with safety, environment, occupational health, and capital management. So from the original concept which was just safety, we now have a much fuller array of services.

In brief what we did was to take all the best practices that we created and tested and share them all with our customers in different sectors for example in the mining industry we can help them in plant management for corrosive or dangerous materials.

Can you please comment to our readers how are you working and helping Pemex, other NOC s, IOC s and companies related to the oil & gas industry with this consulting business in safety and environment ?

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Looking into the future if we come back in five years what would we see in DuPont Mexico?

I would say you would see a very dynamic company that is growing and looking for investments and opportunities, whilst taking advantage of what the country has to offer.

We are convinced we will continue to grow since for example, last year we grew almost 30 percent in an environment that was not good, and that was without investments. We will keep in the growing path since our products are going to industries such as the automotive, oil and gas, mining, energy in general are very strong and will keep booming in Mexico.

Do you expect the same 30% growth for this year?

We expect to grow around 18 percent, which is still very solid.

It is well know that in the past years Chinese and Indian companies have been booming in the chemical sector, as a final message what could you tell our readers about the Mexican petrochemical sector and why they should better consider it?

If you see what happened in Asia, they did a great job. For example, they did a very good on developing their industries in Korea and Singapore without having oil. However, they have a major weakness, at least in the short term, they are mostly nafta based. And nafta based means you have to live and die by oil prices, which these days are sky-high, and this is an inherent disadvantage.

Apart of Asia we also have the Middle East coming with huge investments but still lacking the technology to bring them up to speed and rate they need.

What I have just mention give us a lot of advantages particularly in regards North America. Among Mexico`s inherent competitive advantages are: proximity to the largest market in the world, closeness to very competitive raw materials, decent infrastructure to develop new projects, a well-trained sales force, and the ability to operate in the country. Furthermore different to some Asian countries we are ethane-, or natural gas-based, which is creating a huge advantage for the industry in the mid-term and short-term. Therefore, we need to take advantage of all these opportunities to further boost our sector.

Sir you have work for DuPont for more than 30 years. What makes DuPont such a great company and in a more personal way what do you like about working here?

The way the company look at core values is a key to its success. Our 4 core values which are: respect for the environment, transparency and compliance, respect for people, and safety for people and operations are the foundation of this company.

We are true to our words so when you have a company that is consistent and coherent in the way it operates and the way it sells itself, it provides a huge advantage and this is what happen in this company.

Secondly, DuPont truly mean it when they talk about developing talent and developing people. We look for the best talent and spend a lot of time and investment in developing future leaders that continue the traditions and heritage that DuPont has had. The consistency, that staying power and the honesty in living our core values is what makes the company different.

I started as a junior engineer here and since then every time I had the opportunity to develop they gave it to me. Also, every time I wanted to try a new challenge they gave me the opportunity to face it. They even give me the opportunity of doing some peculiar assignments like running some of the chemical businesses for North America, sitting here Mexico not in the US. Which was an unusual situation, because you had people in the US reporting to me in Mexico and it was a shock at the beginning. However, when a company is trying to prove that it is truly global, you should be able to run the businesses no matter where you are. It is talent and diversity that counts, and the company has been true to its word in that regard. That is why I am here after 33 years and still very happy to be part of it.

What is next for you?

Stay here. I was named the head of the safety and environment consultancy about four months ago and it has been very interesting for me since after so many years of selling products now getting into the consulting business where you are selling a lot of intangibles is very challenging. It has been a very interesting job since we have to extend out all the knowledge that we have accumulated over the years and put it into the service of the companies.

Within this consultancy part we have been very active working with the major s in the oil and gas industry like Pemex in Mexico, Petrobras in Brazil and BP in the USA. Even we are working with all this companies I can say that the one I feel most proud of is this turnaround we have had with Pemex E&P. In the times we have been working with them you can see the performance and even more important, you can see the commitment that people have had to make Pemex E&P a better place to work. It has been a great project.

So far this new job it has been a great experience and even we have very demanding customers we are getting the results. We are very proud of it since at the end as in any business all is about delivering and I think we are reaching our expectations.

What would you like to be the final message for our readers of OGFJ?

DuPont is committed to continue in Mexico helping the industry to grow. Every time we have an opportunity, and the environment is right, we will definitely invest in this country.

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