Mitsubishi Corporation

Applying MC's Credibility and Track Record to IPP Businesses

Applying MC’s Credibility and Track Record to IPP Businesses

The Tuxpan Project in Mexico  Meeting an “All-Japanese” Challenge

In 2004, Japan and Mexico signed a Free Trade Agreement (FTA). During the press conference that followed the signing, a reporter asked then Mexican President Vincente Fox if the FTA would truly result in more investment from Japan to Mexico. The president responded by alluding to the Tuxpan power plant, a facility that had been built through a joint investment by Mitsubishi and Kyushu Electric. “The Tuxpan Plant”, said President Fox, “is probably the best evidence that Japanese companies are making a firm commitment to investing in Mexico.”

Construction of the Tuxpan II and V power plants was funded by investment from MC and Kyushu Electric Power Company, with the infrastructure provided by Mitsubishi Heavy Industries. The now complete, combined-cycle thermal facilities are powered by gas turbines, and supply electricity to the nation’s capital, Mexico City, some 250 kilometers away.

Meeting a New Challenge – Acquiring Working Interests in IPP Projects

In the past, power generation business in Mexico was monopolized by the government operated CFE (Comision Federal de Electricidad); however, in the 1990s, Mexico followed the trend set by the Americans and privatized its power sector. The IPP business presented a new framework for ownership of power plants, and from that point forward the CFE began purchasing electricity from these independent producers.

MC had by far the largest share of power equipment deliveries to CFE. In Mexico’s IPP business, however, we found ourselves in an unfamiliar position. In order to promote privatization, the CFE has companies bid for working interests in IPP projects. With all the bidders eager to establish themselves as independent power producers, Japanese companies must compete with French and Spanish power companies to supply electricity at the lowest possible cost. Unless MC is successful in gaining interests as an independent power producer, it will be the end of the company’s power generation operations in Mexico. Times have changed, and so has the key to success in Mexico’s power market; the CFE is no longer the only organization we need to think about.

American companies have invested jointly with MC in some of our US-based IPP businesses, and the gas turbines used are manufactured by GE. None of these projects was entered into with the intent to export power equipment from Mitsubishi.

The situation is a little different, however, with the Tuxpan II and Tuxpan V projects, for which MC gained working interests in April, 1999, and December, 2003 respectively. While we were keen to work as an independent power producer on these businesses, we also wanted to continue providing Mexico with Mitsubishi-produced equipment.

An All-Japan Endeavor The Tuxpan Project

Both the IPP projects undertaken by MC in Mexico have been “all-Japan” endeavors. Kyushu Electric invested alongside MC in the Tuxpan power plants. In order to beat out the European power companies competing for the business rights, MC had to form an alliance with a technically-proficient Japanese power company. The participation of Kyushu Electric gave further impetus to the development of a financing scheme with the Japan Bank for International Cooperation and other banks.

There are a number of ways to get involved in the IPP business. One way is to acquire assets, meaning to invest in a partial stake of power plants that are already operational, and build up one’s equity capacity. Another way is to take on entirely new developments, meaning one starts from the beginning, preparing the site and building the facilities. MC’s projects in Mexico are typical examples of the latter. We began by gaining approval from the government offices to build the plants, engaged in dialogues with local committees, and met with banking syndicates to obtain the necessary funding. We also held negotiations with equipment manufacturers. Many people worked tirelessly on these preparations, both in Mexico and Japan.

Learning the Skills to Succeed in IPP Businesses Applying the Know-How Gained in Mexico to Projects around the World

MC has leveraged the experience gained from its projects in Mexico to take on challenges in Europe, namely solar PV power generation.

MC led the way in the Tuxpan projects, covering every aspect of IPP operations and applying the full extent of our company know-how and expertise: from gaining approval from the authorities, to negotiating the financing contract, and further still to building, operating, and maintaining the plants. There were many successes and failures along the way, but by immersing ourselves so deeply in these projects, our company grew as a result.

Through its Mexican operations, MC has learned a great deal about the IPP business. The knowledge gained has proven instrumental in our subsequent IPP endeavors in Southeast Asia and North America, both of which are significant regions for MC. Since Tuxpan, we have produced more and more professionals in this field, who have left the nest and gone on to fine careers in these other markets.

Solutions to Diversifying Power Needs

Contents Produced in Cooperation with Nikkei Business Online Special / Cross Architects, Inc.

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