State control of the electricity sector may mean fewer customers, but it also can mean clearer expectations.
Working with the Comisión Federal de Electricidad (CFE) can be a difficult, yet financially rewarding activity. In the past 15 years the Mexican electrical sector has gradually attracted an increasing number of international players, often to the detriment of local companies.
Becoming the CFE’s Preferred Partner
Felipe Ochoa, founder and president of Felipe Ochoa y Asociados, a consulting company specializing in strategic planning for national and international clients, believes that the influx of foreign companies has been a major challenge for local firms, many of whom now have difficulties in winning bids with the CFE. He says, "We need the international participation of these companies for their investment and expertise; however, we also need to promote our domestic industry. Our country needs to have a strong engineering base complemented by the presence of these international firms. At this point in time most of the [independent power producer] contracts have gone to international firms. I believe that we need a stronger local content on these projects. So far there haven’t been many joint ventures or extensive collaborations."
The problem for small companies is that they do not have adequate access to finance, unlike many multinationals. This hinders their ability to scale up and bid for large-scale projects that the CFE and Petróleos Mexicanos (PEMEX) normally tender out. They can tender to be a subcontractor for a specific part of the original contract, but that is considerably less profitable.
Santiago Barcón is director, Power Quality and North America for Arteche, a Spanish multinational designing and manufacturing quality instrument transformers, relays, and substation-integrated protection and control devices. The company is also known as Inelap in the local market. Barcón argues that there are two main drivers behind the lack of local participation. First is the difficulty of accessing competitive financing for local companies. Second, the evolving nature of the Mexican legal framework makes it difficult for the CFE or PEMEX to take legal action against their suppliers. As a result, they require very detailed, complicated contracts to ensure that they are appropriately protected, but that can put off potential entrants to the sector.
According to Arturo Carillo, general manager of Cimaltec, a Mexican engineering company, "The main challenge to serve global markets is the lack of financing. The Mexican industry has the capabilities, talent, and knowledge, but there is no funding, and that is a big problem." He goes on to argue, "In order to get the necessary resources, we need the international banks to strengthen their confidence in Mexico, and this is a problem."
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