Gas Natural confirms US$221mn investment plans thru 2007

Bnamericas Published: Monday, February 10, 2003
Spain's Gas Natural has reaffirmed plan to invest 800mn reais (US$221mn) in its Rio de Janeiro natural gas distributors CEG and CEG-Rio through 2007, more than double the 350mn reais invested since acquiring the companies in 1997, according to Jornal do Comercio. Gas Natural is investing in three major projects at the companies: it aims to convert the entire network to use natural gas and not manufactured gas, to expand the networks and to improve the quality of service. Of this total, 610mn reais will go to CEG, which distributes in the metropolitan region of Rio de Janeiro. About half that investment figure will be spent on network expansion, and the company plans this year to start servicing the cities of São Gonçalo, Niterói, Itaboraí and Nova Iguaçu. The company is awaiting environmental licensing to begin work in Niterói and São Gonçalo. The other half of the investments will be spent on converting customers to natural gas use instead of manufactured gas. CEG still has 400,000 customers consuming manufactured gas in Rio de Janeiro, but these should convert by 2006 and the São Cristóvão gas plant closed down. CEG-Rio will focus primarily on expanding its network to cities where there is no distribution grid, such as Petrópolis and Cabo Frio. The two CEG's have a combined customer base of 607,000, expected to rise to 800,000 customers by 2007. By end-2007, Gas Natural expects natural gas sales to reach 4bcm, up 48% from 2.7bcm in 2002, boosted primarily by sales to thermoelectric power plants and vehicles, Gás Natural Brazil president Daniel Jorda said. Despite disappointing sales to date, sales to thermoelectric power plants are expected to rise to 1.8bcm in 2003, up from 854mcm in 2002, Jorda said. For 2002, CEG expected to sell 900mcm of natural gas to thermoelectric plants, while CEG-Rio planned to sell 1.3bcm. In the event, CEG sold just 169mcm while CEG-Rio sold 676mcm. But the collapse of the thermoelectric power plant sector has not had a major impact on the companies' activities, Jorda claimed. Although sales to thermoelectric plants are high in volume, they are low in profit margin, he explained, saying it is usually around 10% of profit margin with other industrial customers. This level is even lower than most residential and commercial profit margins, he added. "Thermoelectric plants are just one more opportunity. It is not a very critical problem for the company. The thermoelectric plants project was never the solution for CEG and CEG-Rio. We have other opportunities for growing in the market, such as co-generation and VNG [vehicular natural gas]," he said. VNG sales are now three times higher than the residential and commercial markets together, Jorda said. The two companies sold a total of 400mcm to vehicle owners in 2002, expected to rise 50% to 600mcm in 2003. The industrial sector accounts for almost half of current sales, at 1.3bcm, but it is expected to rise slowly in 2003, to 1.4bcm. Sales to residential customers were 160mcm in 2002 and should also rise slowly to 180mcm this year. Nor is Gas Natural worried about the other major problem affecting Brazilian energy companies: the volatility in the exchange rate. Around 80-85% of CEG and CEG-Rio's investments are financed from cash flow. The two CEG's buy natural gas from Petrobras in Brazilian reais, which are adjusted every three months in line with the exchange rate variation and a basket of oil prices, Jorda explained. "Specific moments of crisis we will go through, but we don't believe this situation can last very long. Recent history shows that these crisis are brief, that they last around six months," he said. Gas Natural's investments in infrastructure are long-term and cannot be judged solely on immediate returns, he added.

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