March 2020

What is your main goal for 2020?

Participate in the structuring and investment of energy and infrastructure projects that contributes to achieve the investment goal of the fund.

Can you give a brief overview of AINDA's recent investments in Mexico? 

Acquisition of a 20% stake in a concession to build, operate and maintain a highway in the north of the country, as well as recondition, preserve and operate the free federal highway.

What is your criteria for investment? Limitations? Size?

AINDA applies ESG processes to identify and manage investments, aligned to best practices (ILPA and UNPRI) and supported by a proven systems platform. We pursues investments with financial returns above market levels (risk/yield), by identifying and managing risks, and developing opportunities to increase the value of projects in the medium term:

• • Execute actions that trigger increased returns in the medium/long term
  • Optimize fee structures in order to maximize returns
  • operative and commercial efficiencies
  • Improve and optimize the financial structure
  • Creating platforms that facilitates the exit of investments
  • Launch adjacent businesses that create synergies

Investments are to be made in activities that relate to planning, designing, constructing, developing, operating and preserving energy and/or infrastructure projects, as well as in adjacent businesses to the project. These projects must show competitive advantages, such as: (i) income flow either fully regulated or backed up by concessions, licenses, permits or agreements, and (ii) inelastic demand, considering the new conditions of the Mexican legal framework for energy and infrastructure projects.

Some of the limitations are:

• The investments should be in projects located in Mexico.
• AINDA may not hold more than a 49% participation in Greenfield projects, unless approved by the Stakeholders' Meeting. For brownfield projects it is limited for up to 80%.
• At least 2/3 of the Issue Amount must be invested in projects in the energy and infrastructure sectors, and the remaining amount may be used to make investments in other sectors (for example, telecommunications) or in businesses related with the investments made.
• Any Investment representing an amount equal or greater to 20% of the Issue Amount may not be made unless (1) it is made with resources resulting from optional co-investments (Series B Certificates), or (2) it is approved by the Holders' Meeting.
• The investments may not be made with the same operating partner, or any of its Affiliates or Related Parties, whose aggregate amount exceeds 40% of the Issue Amount, unless approved by the Shareholders' Meeting.

Do you feel that the cancellation of the energy bid rounds have affected you? If so, how?

Not really, as AINDA has been focused on energy projects with private PPAs and/or merchant risk. However, the cancellation of the auctions has complicated the possibility of signing long-term contracts with a qualified offtaker that make the project bankable. Furthermore, it primarily affects CFE Suministro Basico and few other big consumers since energy was offered at record breaking low prices. The regulatory and investment uncertainty the cancellation brought about was the first step in an ongoing process to change course in the energy sector with regards to private investment and participation.

What do you see as the main opportunity from the cancellation?

If the only change had been the auction cancellation the opportunities for other generators betting on the market and selling merchant would be significant since demand continues to grow and the system’s reserve margin is low (some estimates put it at 6% or less) giving new capacity additions a relative advantage. However, regulatory uncertainty and the regulator’s  inaction and lack of clarity has made it very cumbersome and risky to invest in power assets for the past 4 to 6 months.

What do you feel is the main challenge investing in infrastructure in Mexico?

Financing infrastructure projects which depends on a strong regulatory environment and a robust institutional framework that are essential to developed projects in a sustainable and efficient way, attracting private investments.

AINDA invests in all energy sectors. Have you seen growth in any specific type of energy investment in the past 12 months?

There still a lot of opportunities but we have seen a shift in the origination and structuring of projects within the electricity, upstream and midstream sectors. This demands participants to be more creative and flexible to achieve expected returns. Furthermore, it is expected that in the upcoming weeks the government will present a public-private investment plan for the energy sector, which will include projects with Pemex and CFE.

What do you feel is the biggest misconception about doing business in Mexico?

It is not possible to do business and be successful in Mexico if you follow a strict Code of Ethics with high standards with regard to corruption, labor rights and social environmental responsibility.

What advice would you give to someone thinking of entering Mexico's energy market?

It is important to understand that there is a solid legal framework supported by the Mexican Constitution and specifically by the secondary laws. Furthermore, current administration has proved to be extremely disciplined with respect to fiscal matters, more focused on controlling budget deficits. Therefore, there will be a need to involve the private sector but it is crucial to perceive possible changes in public policies.  On the other hand, we believe that there will be investment opportunities that should be in line with the current environment, in particular derived by: (i) deficiency of knowledge and technology to improve recovery factors, decrease the decline rate and reduce the development and production costs, (ii) lack of infrastructure for hydrocarbon transportation and storage, and (iii) generation goals and consumption of clean energies, and a need to satisfy the growing demand and increase reserve margins.