Befesa - Presse

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01.11.2006

Bravo for Befesa´s golden year

Three years ago, the name Befesa was hardly Known in water sector outside Spain. Today, it has the biggest backlog of contracted membrane desalination capacity in world, with 500,000 m3/d signed during the past year. This meteoric growth has been predominantly driven by Guillermo Bravo, CEO of Befesa Construction and Environmental Technology (Befesa CTA) whose Codesa water treatment business was bought by Befesa in 2004.

It may sound a short time to influence the direction of a world market leader, but Bravo was on the case before he even joined Befesa. While running Codesa, he pulled together the Geida consortium of Spanish business including ACS Cobra-Tedagua, Sadyt and Befesa to bid for the first wave of large-scale desalination plants in Algeria. At that stage, Codesa had revenues of just 25 million euros and needed to work with larger partners in order to take part in the proposed 2.8 million m3/d expansion of Algeria´s desalination capacity.

"I made Geida myself because at that stage Codesa was a small company and we needed more financial credibility to go to Algeria", Bravo explains. Besides being large companies, ACS Cobra and Sadyt are run respectively by the chairman and treasurer of Real Madrid club- which is well known in Algeria because of its star mid-fielder, Zinedine Zidane.

At that stage, Befesa was already a mayor player in the Spanish desalination sector as a result of its involvement in four mayor plants ( the 50,000 m3/d SWRO facility al Almeria; the 120,000 m3/d SWRO Carboneras facility; the 165,000 BWRO facility at El Atabal; and the 65,000 m3/d SWRO Cartagena facility). After working with Bravo and Codesa on bds for 100,000 m3/d plant Skikda and the 150,000 m3/d Beni Saf in Algeria, Befesa acquired Codesa and put Bravo in charge of its construction and environmental technology division. The combined company then won the tenders for Skikda and Beni Saf, and was successful in securing the 150,000 m3/d Tlemcen plant (also in Algeria), and the 100,000 Metropolitan Water Supply and Sewerage Board.

Bravo is in no doubt as to the reason for Befesa´s success. "Overall, in every one of the projects which have won in the past few years, we have been the cheapest. We have a very strong financial culture in Abengoa (Befesa´s parent company) and we are always thinking of ways to make things cheaper." It was this approach that enabled Befesa to undercut Hyflux- the Singapore- base desalter which currently holds the record for the lowest desalinated water price achivied anywhere in the world- for the Chennai Metro project.

Befesa´s price (in conjunction with its partner IVRCL) on the Chennai project was 1.07 euros/m3, which raised more eyebrows for high it was rather than how low. Bravo points out that after technical prequalification, the bids for the project were opened live on television in Chennai, and with the lowest bid, Befesa consortium was declared the winner then and there.

"The cost of designing and building a desalination plant, with some differences related to the location, intake and main water parameters, are very similar from one side of the planet to the other. Taking this into account, the price of the project becomes determined by its financing (interest rates, commissions and other variables)and the cost of operation, and in particular the energy cost per kWh. In Chennai we did a good job in this three levels and we won the lowest price in the tender."

The price was higher than that achieved by Geida Consortium in its Algerian projects because the cost of financing was nearly double that which could be achieve in Algeria, and the electricity cost 0,07 euros/ kWh (versus 0,04 euros/ kWh for those in Algeria).

"Our objective is to reduce the price of water, because it is a way to be in the market and a way for the market to grow", Bravo comments.

Although Befesa has a strong record of winning, building and operating desalination plants , so far it has not worked alone on any major projects. Although the company may have a backlog of 500,000 m3/d of contracted capacity to install, this is shared between its consortium partners. On an equity basis (i.e. multiplying the capacity by Befesa´s share of the project company), the backlog is just 200,000 m3/d. "I prefer to have 50% of a big group which has 100% of something than 100% of a group which has nothing", Bravo explains, adding that Befesa no longer needs to team up with other companies to pursue large projects.

"From a technical and financial point of view we have enough capabilities. We can participate alone according to our experience. Sometimes a project requires alliances because a consortium may be better placed to meet the customer´s needs. In India we feel very comfortable alone just with the local contractor, but now in California we are sure we need American companies in the consortium.

Befesa is working with Clark Construction and URS to bid for the engineering, procurement and construction contract for Poseidon´s Huntington Beach and Carlsbad projects. Befesa CTA is also pursuing projects in the Gulf (it has prequalified for Sur in Oman, and would be interested in Shuwaikh in Kuwait if the project were to be retendered). Abengoa Has a strong presence in Beijing for 10 years, which will be used to pursue water projects in China.

Despite this broadening international focus, Befesa CTA is not turning its back on Algeria, notwithstanding the political risks that many companies associate with the country. "We believe in Algeria," Bravo says, explaining that the gas pipeline that supplies much of Spain´s energy need financial warranties, and we went to the financial market and we explained the projects to them and the financial markets believe in the Algerian markets as well".

Besides desalination, Befesa CTA is also eying the industrial water sector. ?I think that all the industry around the world is having to change because to be sustainable there must be more environmental efficiency in industry?. This will bring it into competition with industrial giants such as GE and Siemens, but Bravo believe Befesa has three specific advantages in the market. First, Befesa CTA has strong references in industry sectors such as pulp, and paper, food and beverage, power and steel. Bravo maintains that understanding the processes of and individual industry sector is more important than strength across industry as a whole. Second, Befesa CTA has good management contacts in the industrial sector as a result of the group´s involvement in solid waste management. Third, Befesa CTA can offer integrated solutions which draw on its experience in all areas of the water sector. ?Civil engineers take measurements to the nearest centimeter. Industrial engineers take measurements to the nearest millimeter. We can put the two together?, Bravo observes.

Befesa CTA´s stradegy in industrial water sector is to be selective. ?If we think there is a thing in pulp and paper that we can export, then the next year we decided which project we go for and then the whole company get behind it?.

Despite the fact that there are more than 30 desalination project on the drawing board in Spain, Bravo regards Befesa CTA´s home market as mature. ?Spain is a mature market for wastewater (it has developed over the past 30 years) and for desalination (which has developed over the past 10 years). The design and build contractors have been in the arena for a long time and all of them know their business very well and very competitive. This is a tremendous barrier for any company which tries to come to Spain to compete. It is a very, very low margin market. If you go in with the margin an the costs that you have in the international market, you are not competitive in Spain, because there are so may players.?

The size of the projects in Spain are also relatively small: Befesa CTA can contract as much capacity in one of its international deals as it does in six or seven Spanish deals. Unless one believe that it is possible for one company to win every project that is tendered, Bravo believe that it is essential to look outside Spain for growth. ?There are two kinds of economies of scale in desalination. There are the econmies of sale of the company which permit you to be the cheapest, and that is the only way to win. The other thing is that if you have the experience to built plants of 100,000 m3/d- 120,000 m3/d, there are economies of scale in operations?

The target for Befesa CTA is to growth the business to 300 million euro revenues within five years- half of which should be outside Spain. This might have seemed a challenge and the end of 2004 when the unit´s revenues were scarcely 90 million euro, but with 300 million euro in backlog contracted since then, it is beginning to look decidedly unambitious.