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with Tomas Hakala, Vice President Services, WARTSILA

01.09.2011 / Energyboardroom

Fifteen years ago, a lot of companies came to Mexico to take part in one or two bids in the energy sector. Then things didn’t go as they expected and they pulled out of the country and sold their assets. By contrast, Wärtsilä Corporation has been here for 18 years. What is so attractive about Mexico for Wärtsilä?

The operating philosophy of our corporation is to provide our customers full lifecycle support, i.e. after the inital delivery we will provide after-sales services, including technical service. As a result, when we decide to establish a presence in a country it is on a long term basis. We did our first deliveries to Mexico in the 1980s to the offshore and the maritime sector. Afterwards, we established our own sales office in 1993. In 1998 we opened our services office in Mexico with the aim of serving the local customer base. In 2000 we delivered our first land-based generation installation. In 2001 we had our first Power Plant reference in Mexico operating on natural gas. In the early 2000s we started project developing activities. During the economic turmoil in 2005 we did not walk away, so we are still here. Actually the facilities here in Veracruz were inaugurated in 2009.

As you mentioned in 2009 Wärtsilä opened its new office and workshop facilities in Veracruz. What new business opportunities do these new facilities present for Wärtsilä? How has it strengthened your presence?

Our facilities here in Veracruz are primarily aimed for after-sales services we provide to customers, whether they are Mexican or foreign ships visiting Mexican ports, in addition to land-based Power Plants installations. We offer a wide range of services, from providing spare parts and man-power services to cover long-term service agreements, operations and management agreements. We also offer tailored projects where we focus on either efficiency improvements, modernization of installations, or we adapt installations to changing environmental requirements or use of fuel types. Wärtsilä business activities are divided into three divisions: Power Plants and Ship Power projects and after-sales Services. The scope of a Power plants solution can be anything from a single generating set delivery all the way up to EPC contracting. Our Ship Power projects cover various types of ship applications, whether it is power generation, propulsion, automation or design for oil offshore installations, supply vessels, service vessels and tankers, container and bulk carriers.

In Mexico you are focused more on the offshore business? In Brazil or Ecuador are you more into co-generation?

If you look at our current installed base in Mexico, a little more than three quarters is offshore and maritime. Based on this, our after sales emphasis is on the expansion of our offshore and marine services.

Saying that how will you grade power management investments in Mexico?

Why is it not in Mexico and why does it happen in Brazil and Ecuador? It is predominantly driven by market opportunity. You took up an example of Brazil. What was the starting point in Brazil? Basically two things: first of all there was the world discovery of further oil deposits, pre-salt, which resulted in increasing exploration in the Campos Basin. Of course it provided opportunities. The other thing I should mention is that in Brazil the energy is bought through online auctions which provide an opportunity for independent power producers.In Ecuador we started out in early 2000 when the big market driver was increased oil exploration and production in the Amazon (Oriente). There was a market opportunity and our solutions met the technological needs. The energy production in the oil fields was then introduced to be directly consuming crude oil instead of refined light fuel or diesel. Another very important thing is that with the power generation in the oil fields with the associated gas, instead of flaring it, energy is produced by using it in generators.

Will there be other opportunities for this in Mexico?

Flaring of gas is not any worse in Mexico than anywhere else. Still it is a huge global potential. 138 billion cubic meters of gas was flared in 2010 around the world. If that could be tapped, tangled and converted into energy we are talking about supplying 30 percent of the energy need of Europe with gas.

A few of the foreign CEOs told us that Mexico is very important for the growth of the company and that they know things are going to happen, but they are unable to say when. This sometimes makes investments complicated. How do you strategize in what countries to invest and how challenging is for you to convince your HQ to invest in Latin America versus Asia?

Time horizons are a challenge when planning in Latin America. Being a corporation like Wärtsilä we have land-based installations and we have maritime installations. Of course when we look at the world ship-building capacity it is in Asia. Does that mean walking away from Latin America? No, predominantly the tonnage in the marine and offshore sector is built and constructed in Asia, also for Latin America based owners. So to some extent even an Asian investment is paying off for Latin American markets. Of course one thing where you need to make correct assessments in a company like ours is in after-sales services. You need to be able to provide the services locally and for that you need to be in the country. As for the investment I would not say that Mexico possesses any more challenges than most other Latin American countries. You can take the other Latin American countries, which are pretty much hydro-carbon driven, and you see very similar challenges. A big portion of the industry is managed and governed by state-controlled companies. The challenge is that you basically have one customer. The opportunities are a little bit of the same thing. Again you have one customer. As you mentioned, in 2005 we had a lot of challenges in Mexico, when there was a decline in oil production. Consequently we saw the reforms of 2008. I think it is fairly safe to say that we started to see the real impact of these reforms in 2011, just a few months ago. Things move at a pace they do, but oil exploration and energy needs and energy demands are here and this creates opportunities.

A long term vision is essential for developing a strong and efficient energy industry. What is the long term vision that Wärtsilä has for its Latin American operations?

In the energy sector – both in the exploration and in the power generation/power distribution or gas exploration/gas distribution – you cannot work on a quarter-by-quarter or year-by-year basis. You need to work on a longer term basis. For a company like Wärtsilä there is a lot in the Mexican market that attracts us. We have a lot to offer, but our technology is not the most commonly used or known in Mexico. So we have a marketing job to do. With the energy mix, you are looking at renewables, like wind. Like some other energy sources, wind power does need backup generation. Our technologies are well suited for backing-up cyclic energies like the wind. We still consume energy whether we have wind or not. If the wind is blowing or not the AC still needs to work, and factories and municipalities still need to have their energy needs covered. Our advanced and environmentally sustainable solutions guarantee flawless production of power regardless of the weather conditions.Our advanced solutions cover also gas-driven technologies. And what comes to the oil and gas sector, the willingness to utilize flare gases gives us a market potential.

What further contributions would you like Wärtsilä to make to the future development of the energy sector in Mexico?

Wärtsilä’s products fit into the Mexican energy mix. We have technologies for natural gas, oil, liquid biofuel or dual-fuel applications that do meet environmental legislation requirements.We are also seeing that, within the Mexican energy mix– not only talking about gas but also oil – there has been big plans for renewables, not only hydro but also other non-hydro renewable. Hence we have a lot of opportunities there and we are sure we can provide the right technology and solutions.

You have been working in this company for 19 years, and you have spent 10 in Latin America. What is the most pleasing aspect of working in this part of the world?

I spent my first eight years, from early to late 1990`s in Asia – in Hong Kong and in mainland China and from 2001 onwards I have been in South America, Therefore, I would not geographically put myself anywhere. However, the dynamics of doing business and the challenges of it in Latin America are the most pleasing and rewarding experiences of being here.

What advice can you give to foreign CEOs that come to Latin America to do business?

In Latin America you do Latin American business hence point number one would be to take a long-term view. Latin America cannot be done overnight. Also what is very important here is the focus and thorough planning of the whole strategy – everything from market mix, supply chain to manpower and footprint.

What is your final message to our readers?

I would say we are seeing the beginning of changes here in Mexico. Companies like ours have stayed in Mexico for a long time and we are here to continue, we see the potential with this country.



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