Exclusive Interview: Raphael Barreau, Chief Business Development Officer, Head of Innovation and Strategy, ENGIE Brazil

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  • Exclusive Interview: Raphael Barreau, Chief Business Development Officer, Head of Innovation and Strategy, ENGIE Brazil
11 December 2019

Raphael Barreau is a member of the Executive Committee of ENGIE Brazil, recently promoted to Chief Business Development Officer and Head of Innovation and Strategy. A Belgian who has worked in the energy sector across Latin America, Asia and the Middle East, he has been involved in a range of energy, infrastructure, gas and water development projects around the world throughout his career.

Before moving to Rio de Janeiro in 2017 as Head of Acquisitions, Investments and Financial Advisory, Raphael was Head of Business Development in Mexico for ENGIE and a member of the Mexico Executive Committee. He led ENGIE’s investment in Mexico’s 300km Ramones II South pipeline and earlier this year won the competitive bidding process in Brazil to acquire a 90% shareholding in Transportadora Associada de Gás (TAG), the largest gas transmission network owner in Brazil.

Here, Raphael talks to Andrew Watson, Head of Latin America at Human Capital, about the challenges and opportunities facing the energy sector in the region.

AW: Given your experience in the energy sector across Latin America, are there any general trends you are currently seeing in the region, good or bad? Which countries are on your radar currently?

RB: Latin America has seen quite a lot of turmoil in the last few years, particularly in its three biggest countries of Brazil, Mexico and Argentina. This has created opportunities but also question marks as to where the sector would evolve. In smaller markets like Chile and Peru, which have been more stable, ENGIE has continued to grow and operate. So far, we haven’t scaled back in any of the countries where we have operations, and we look at the sector on a long-term basis, so while there may be medium-term changes in governments that impact the way we see the energy and infrastructure opportunities, in the long term we believe in the region and it makes sense to stick around.

For the last three years I have been focused on Brazil in particular, where the country really has come out of a period of no growth at all to a point where we are now seeing new hope. With the new government, investors are coming back and there are a lot more projects available. There is a renewed interest in the energy sector, particularly in transmission, which the country needs. There is a little bit less activity on the new build side for energy generation, but that is picking up because demand for B2B power purchase agreements and energy efficiency contracts is growing. Renewables will continue to be very strong and there is even an expectation of some large hydro projects being built, alongside a new set of gas-fired plants, which hasn’t been the case for a while.

Brazil is probably the country that offers the most opportunity for growth right now and where investors are most interested.

AW: How has the government of President Andrés Manuel López Obrador in Mexico affected the energy sector there?

RB: In Mexico we are waiting to see how the government wants to move forward in respect of energy and infrastructure, particularly towards renewables. We are still very present in the country in electricity generation, gas distribution and transportation, serving almost half a million clients and building various wind and solar farms. We are keen to expand but we are yet to see how AMLO’s government will proceed with the energy reforms passed by his predecessor. Investors will look closely at contracts being honoured and stability in market rules.

AW: What were the specific challenges regarding the Ramones pipeline deal?

RB: That was a very strategic deal for the country and the industry, because the Ramones pipeline is bringing gas from the US down to the centre of Mexico, contributing a lot to the flow of the gas network in the country. When the opportunity came up to take part, we immediately saw that there was value in owning that asset. We tendered and came out as the winner after a highly competitive process, eventually implementing the project, first with PEMEX and later with BlackRock when PEMEX sold its interest on to them.

AW: How did the process and the opportunity compare to the TAG deal in Brazil? Did you face a similar set of challenges?

RB: The same was the case in Brazil. In Brazil there are essentially three large pipeline systems. We passed on the opportunity of Petrobras´ Southern Gas Network sell-down three years ago and it sold to Brookfield Asset Management, but when Petrobas decided to sell TAG we felt it was the right time for us to move into the gas sector in Brazil. Gas is part of ENGIE´s DNA so it made sense for us to get into this business in Brazil, where ENGIE was already the largest private electricity producer.

TAG was a very competitive auction process that was interrupted by multiple injunctions and court decisions, but we always felt it was likely to come through because it was important for the country to unbundle. So, we hung in there and continued our negotiations with Petrobas, and after two years there was a final rebid and we came out first; we hit the bullseye. Now, the focus is on integrating the company into our own business in Brazil and growing it.

The Ramones pipeline was a greenfield asset to be built whereas TAG was a privatisation, and the scale was much larger in Brazil, with a deal worth $9bn compared to around $1bn to build Ramones. But in terms of similarities, it came down to the resilience that we needed to go through the process, leaving no stones unturned. Like most infrastructure deals, both auctions came down to aligning all the parameters of the deal, the due diligence, the financing, the partnership and the understanding of the value of the asset in the overall network and sector – that is how you win these processes.

Volatility is something that impacts the deals in Latin America perhaps a bit more than it does elsewhere. You have to pay a bit more attention to the economy, interest rates, exchange rates and politics, and you have to both time your acquisition well and look to the long term to make sure you make the right decision in the face of short term volatility.

AW: In which countries in Latin America do you anticipate further privatisations?

RB: There has been some talk about privatisations occurring in Colombia, and I think those will be large deals. But really it is in Brazil where there is a huge pipeline of privatisations, where the state-owned entities are selling their stakes in large utility companies. Those will likely attract financial investors from across the spectrum and the globe, because those are potentially very interesting positions to hold, being mostly minority positions. Those are not necessarily appealing for players like ENGIE, but they will no doubt attract a lot of attention. As far as majority positions are concerned, ENGIE will continue to assess deals opportunistically, always maintaining a rigorous investment discipline.

AW: From a talent perspective, what difficulties do you face in finding talent in Brazil and across the region, and how challenging is the market?

RB: There is generally very healthy competition for talent in the region so it’s about demonstrating to potential candidates that ENGIE is the company that can offer them the most opportunities. There are a lot of companies in the region that are growing and we have been fortunate at ENGIE that our growth has been very steady and we have maintained a very stable team, so we are able to attract talent where people want to participate in energy in this country.

We have been able to attract some really good people – both locals and foreign nationals. As well as recruiting local talent we also try to bring people here from within the group who can share knowledge and experience from other countries and regions. We have also sent some of our Brazilian colleagues abroad so that they can learn from elsewhere, share expertise, get the rest of the group to know Brazil better and then eventually come back or move onto other countries, depending on their interests.

If you have the right name in this market you can attract the talent, so we are lucky not to find it too difficult. With more growth we will no doubt face more pressure, but the best names will always have the first pick so hopefully we won’t be too badly impacted as the markets pick up.

AW: What do you think will keep you busy in 2020?

RB: In Brazil, there’s really a sentiment that the market is picking up and there is a lot of activity already on the M&A front, with a lot of new entrants coming into Brazil. I expect a lot of deals and fierce competition, so it will be important that everyone sharpens their pencils to take a share of that growth. We hope to see a healthy development of the gas sector over the years to come, as has been the case in the electricity sector over the last 20 years.

In addition to the really large infrastructure deals, ENGIE has also tried to look at more of the smaller projects and be a precursor in that part of the market, particularly around energy efficiency. Being able to address the needs of clients who want to buy cleaner energy and want to reduce their carbon footprint is important, and we have been doing a lot of work to address that. We’ve created a Client Solutions business in Brazil where we are trying to address those challenges and accompany our clients in their transition to reducing their carbon footprints and selecting better sources of energy. That’s a growing business and I think we will see further growth in that market, looking at projects involving everything from electric mobility to public lighting.

That is a sector that is going to require a lot of innovation, not just around technical solutions but also around how we do business with our clients. The implementation of digital platforms that aggregate customer data and help them reduce their energy consumption and improve consumption patterns through remote support and analysis is in full swing. Across Latin America generally there are a lot of opportunities to be close to clients and participate along the journey to reducing carbon. It is an issue globally and Latin America is perhaps lagging a bit behind certainly Europe and the US, so there is a lot that can be done for those willing to be involved and ENGIE is certainly keen to assist.