Don’t forget Latin America in your company’s Asia Pacific strategy
16 September 2013
“Ten years ago, I didn’t know that we needed South America, and they didn’t know they needed us,” says Rob Grant, Pacific Hydro CEO.
These days, Latin America accounts for half of Pacific Hydro’s business, people, revenues and profits. And for the past two years, Rob has been living in Sao Paulo, overseeing new wind, hydro, solar and geothermal projects across Australia, Brazil and Chile..
“Our corporate strategy of investing in renewable energy exists because there’s a coherent macro-economic story,” says Rob, pointing to global trends: over the past 30 years the world’s middle class has grown by 700 million, and is set to grow by another three billion people over the next 20. ‘’All of them are going to want the same style of living that we have. Both Australia and South America sit on top of the mineral resources that are needed to fuel growth in India, China and South East Asia, and have the capacity to grow the food the rest of the world is going to want to eat.” Yet that growth intensifies global warming, which Rob says, jeopardises that prosperity.
It’s not a story that always gains traction in Pacific Hydro’s home base, where the global warming debate is politicised and there is much uncertainty over future energy policy, scepticism about the ability of renewables to contribute to baseload power generation, and some local opposition to wind farms.
But in Latin America, “We never have a conversation about whether it’s right to be putting wind farms in. They’re passionate about clean energy: they know clean energy is part of their competitive advantage, in a carbon-constrained world and future.”
In 2001, the safety, political stability, regulatory regimes and upward mobility of Brazil and Chile put them on the company’s radar in 2001, where Pacific Hydro had previously ruled out some Asian emerging economies. Brazil is now the world’s fifth-largest economy, and Chile is on track to attain developed nation status by 2018.
It nevertheless took the company two years to commit to its first Chilean hydro plants. “Time and reconnaissance is never wasted,” Rob says. “It’s just as good not doing a bad deal as it is doing a good deal. Argentina was supplying a lot of gas to Chile at the time, so we were told hydro would never be competitive.”
Patience paid off. In 2004, Argentina plunged into an energy crisis as it came out of recession. It cut gas exports to Chile to ensure its own domestic supply. Chile realised it needed to reduce its dependence on its eastern neighbour. Now, 60 per cent of the nation’s energy needs are sourced from renewables, including four Pacific Hydro run-of-river hydro power plants. And Pacific Hydro had first-mover advantage.
According to Rob, Latin American economies can learn a great deal from Australia’s rapid economic growth over the past 50 years. “Chile’s per capita GDP is where Australia’s was 20 years ago. Australia has a lot of lessons to contribute about shorter economic growth and what it means to have arrived as a developed economy. We can find opportunities in and share solutions to a lot of the issues that South American countries are going through at the moment as they go on a very similar journey to Australia’s over the past 50 years.”
In turn, companies looking to invest in Latin America need to come to grips with the local environment. “You need to bring more than just dollars and capital to a country. It can’t just be a case of FDI in, dividends out.”
In Chile, Pacific Hydro has contributed a football team – “los Santos” named after Rob’s beloved AFL Saints – but more importantly, a very successful sustainable communities fund in 2007 that finances health and education projects in rural Chile. “It was an industry first in Australia in 2005, never been done in our sector, and in 2007 we ‘exported’ the concept to Chile. The benefit has been very good for recruitment and retention, we get the local management team involved in the assessment of the fund recipients.”
He reflects on the firm’s Latin American journey – uncertain at the outset, but in hindsight, “it all seems to make perfect sense.”
The original version of this article first appeared in the Melbourne Business School newsletter in September 2013.