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Latin America poses various challenges for companies involved in the water industry, some related to the dominance of the public sector in the market. At the same time, large gaps in potable water and sanitation coverage that exist in the region represent significant opportunities for companies to participate in public tenders and collaborate with governments on a wide range of projects.
BNamericas spoke with Aurelio Ignacio López Mier, business development director for the Americas at Acciona Agua, the water division of Spanish conglomerate Acciona to talk about the opportunities and challenges for the water treatment firm in Latin America.
BNamericas: What are the main challenges and opportunities that Latin America offers to companies in the water sector?
López: I think that the challenges for water sector companies in Latin America are related to trying to reduce the gap in access to potable water, sanitation and water treatment. Governments must continue allocating enough funds to reduce this gap.
This also leads to opportunities, which in some countries are linked to political cycles. For Acciona Agua, the Latin American market is strategic because of the opportunities we foresee for the next four years, although we hope that other opportunities go beyond that timeframe. Historically, we've had a very active presence in Latin America, although it has grown significantly since 2008. There are important investments in many countries that provide different opportunities for investment in the water cycle.
BNamericas: Which countries in Latin America are currently your most important markets in the region?
López: I think it's kind of cyclical and is related to the investments being made in each country. Except for Bolivia, a country that we'll consider including in our corporate strategy in 2018, we're present in practically every Latin American country.
Obviously, the most populated countries are a priority for us, as that's where our offices are located, which we consider as 'platforms'. These are the countries where we believe there are most opportunities for investments, such as Brazil, Mexico, Colombia and Chile. However, it also depends on cycles. For example, there was a very important investment cycle in Panama in 2016 and 2017. In 2018, we expect important investments to be made in Argentina and Peru.
Nevertheless, we're focused on the mining industry sector in Chile and Peru and the public sector in countries with the biggest populations in Latin America.
BNamericas: What are the main projects that are currently underway in the region?
López: One of the biggest projects is the wastewater treatment plant in Atotonilco, Mexico, which is the largest of its kind in the world and is already operating under a public-private partnership [PPP] model. The Bello wastewater treatment plan in Medellín, Colombia is also very important. We also have four important potable water treatment projects under construction in Panama.
BNamericas: This year there will be elections in various countries in the region. Do you believe that this is having or will have an impact on the development of water and sanitation projects?
López: It usually does. The usual trend in countries with upcoming elections is that the launch of tenders is halted for about a year. It's common for election years to see lower activity. In the case of Brazil, the market seems to be active, as opposed to Mexico, where there seems to be fewer investments.
BNamericas: How difficult is it for a company like yours to operate in a market like Latin America where most of the water sector is dominated by state companies?
López: From an investment perspective, we aim to execute water infrastructure projects and participate in tenders launched by public companies. Our objective is to serve as one of the providers those companies turn to for building the plants and the water infrastructure they need. From the perspective of comprehensive water cycle management concessions, the fact that public companies dominate the market does limit opportunities for building infrastructure.
BNamericas: In spite of that, you're already operating important comprehensive water cycle management concessions, one of them was recently awarded in Boca del Río, Mexico. Which are the most important contracts of this kind that have been awarded to you in the region?
López: We currently hold concessions in two big areas. We have the concession in Boca del Río, whereas in Lima, Peru, we hold five maintenance contracts for the city's sewage and potable water systems. You could say that we're a service provider for [Lima's] state water utility Sedapal.
At the moment, we're looking for other concession opportunities in the region, either comprehensive or partial ones. Perhaps the countries where we could find more of those types of opportunities would be Mexico and Peru.
BNamericas: Do you expect any such opportunities in 2018?
López: In Mexico City, for example, it's expected that [water utility] Sacmex will renew its commercial management contracts by putting them out to tender. In Colombia, we also expect to see the launch of a PPP project in Santa Marta, while in Peru, the maintenance contracts we hold are due to be renewed this year. Brazil offers plenty of opportunities and we expect to see some of them being launched this year.
BNamericas: You previously mentioned Chile and Peru as countries that offer opportunities for integral water cycle management and for waste water treatment plants. What are the most important projects related to those opportunities?
López: The mining industry is currently going through a revival in Chile and there are ongoing tenders to build desalination plants for that industry. In Peru, important wastewater treatment investments are expected. Tenders for the construction of wastewater systems, which are projects included in the current government's investment plan, are also scheduled to be launched.
Meanwhile, a major package of water projects is also expected to be developed in Argentina, either through PPPs or directly financed by the government. In December, Acciona was one of the companies that submitted an expression of interest to participate in a government program consisting of 38 water management and treatment projects. We don't know what the timetable is for the 38 projects and how many of them will be launched in 2018, but we think that at least five or six could be launched this year.
BNamericas: What has been Acciona's experience in Latin America with PPP projects?
López: It's been good. We're involved in two PPP projects that are currently operating; one in Atotonilco, and the second is the wastewater treatment plant in Lima that began operations in 2016. Our experience with PPP projects has been very positive, as with working alongside public institutions. We understand that this is a mechanism that speeds up the implementation of investment plans and which has delivered positive results to government entities.
BNamericas: Do you think that most Latin American countries offer favorable conditions for these projects to be successful?
López: The guarantee mechanisms aren't working properly in every Latin American country to ensure that they have a more defined PPP project pipeline. Perhaps the most consolidated market when it comes to PPPs is Peru, whereas in other countries the guarantee mechanisms currently in place don't provide international investors with enough certainty to invest.
The guarantee mechanisms and the regulation of water resources are interlinked. Regulations help investors decide whether or not a project is attractive to participate in. The combination of both factors makes a project bankable.
BNamericas: What's the potential for desalination technology in the region in the short and medium term?
López: Desalination in Latin America is already a reality. It's a consolidated solution for water-stressed areas. Latin America is following the lead of other regions such as Europe and Australia. Given their geographical location, mining projects need access to new water sources and those sources increasingly have to increasingly be desalination processes. In Mexico, desalination is already being implemented in Baja California and Sonora. Chile and Peru are also implementing desalination technologies, particularly in the northern regions.
BNamericas: Is desalination being used mostly for industry or also for human consumption?
López: It depends. In Chile, desalination is mostly being used in mining projects, but in Mexico desalination process are being developed to supply drinking water to public operators. Chile also has a desalination plant exclusively to supply water to a particular operator.
The technology can be used simultaneously both ways. For instance, Acciona Agua built a desalination plant in Venezuela in 2015 to supply part of the water to a local refinery, and the other directly supplied a local potable water operator for users. The so-called CRP facility is located on the Paraguaná peninsula.
BNamericas: What can Acciona offer in terms of technology and services to consolidate its progress in Latin America?
López: Our strategy is to continue being a comprehensive water management service provider. We adapt the best technologies available in the market to the specific needs and requirements of each of our clients. We invest a significant amount of funds each year in research and development, through our excellence center in Barcelona, which provides support to our business.
The center's goal is to innovate and work with the world's biggest players in improving our technology. We're technology providers and we're going through continuous development to be well positioned vis-à-vis the advance of new market technologies.
BNamericas: What are the company's short and medium term goals in Latin America? How do you envision Acciona's future in the region?
López: Our objective is to consolidate the company in Latin America and establish a local subsidiary with local engineers in as many countries as we can. Our consolidation will depend on whether we're able to internalize the knowledge we have about each of the countries and clients we do business with. We've progressed a lot in the 10 years that we've been in the region. We're pretty much consolidated, but our goal is to be considered as local players in the markets where we have a presence.
About Aurelio Ignacio López Mier
Ignacio López joined Acciona as head of projects in 2000. He has been project manager at a number of desalination projects, such as the Tampa desalination plant in the US and the IDAM CRP in Venezuela.
López became commercial director for Latin America in 2009 and in 2015 was promoted to business development director for the Americas region.
López is an engineer with a MBA in sustainable economy from Spain's EOI Business School.
About the company
Acciona Agua designs, constructs and operate potable water plants, desalination facilities, wastewater treatment plants and tertiary treatment plants for water reuse.
The firm also offers end-to-end service management covering each step of the full water cycle.