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Sr. Mile Cacic - CEO, Luz del Sur

  Mile Cacic
  Mile Cacic
CEO Luz del Sur

Press Tribune: It seems that Peru is one of the countries in South America that learnt from the experiences of the past. I would like to know your opinion regarding the main reforms that the President Alan García has put in place to allow Peru to be on the right track?

Mr. Cacic: Well it is very simple, during the last 10 years the reforms in Peru are turning away from the directions in which we have taken economy and politics. To be more precise, the fiscal deficits, that were very common in some Latin-American countries, have been eliminated because it is clear that the governments are very inefficient in handling these types of assets. If the governments can't handle them efficiently it is necessary to transfer control of these assets to the private sector.

Therefore the privatization didn't have an ideological basement it was just the reaction caused by the inefficiencies that were happening in the public sector for the past 15 years. The debt was precisely the result of a lot of spending that was taking place in the government: a lot of spending without any results. We were just spending in things that were not productive, and due to that fact we had a debt as there was no money to finance that kind of spending.

What we have done now is put an end to that, we are not going to spend more. The government is not going to spend more because most of the productive activities in which they were involved now are in the hands of the private sector.

Take for instance inflation. It is the worst kind of tax that you could put on the population; it is the best way to make people poorer. We had to stop it. The inflation was the way in which we lived so many years, and that was one of the most critical factors to produce 180 million poor in Latin America: inflation, reduction in public deficit, privatizations, foreign investment attraction… Finally we have decided that the best way to grow and to eliminate poverty is through investment.

However, since these are poor countries, our internal savings are not very high and therefore we depend a lot on foreign investments. Once that you have decided that the foreign investment is the way trough which we are going to grow, it is necessary to provide these foreign investors a legal framework that guarantees and gives them stability. It's necessary to produce a legal framework to protect these investors, which is the main thing that we have been doing here.

I think that for president García it is very clear that the way to over cut poverty is by growing. The only way in which we can grow is with foreign investments and therefore we have to protect those investors, give them the confidence that they can do their business within a legal framework that is going to be respected.

However, there are still lots of things to do. Even with the existing legal framework, the judiciary is still a problem, maybe one of the biggest problems that still need to be tackled. We have to do something, sooner o later to solve this problem that should guarantee the outcome of a legal process in which you may be involved somehow. The problem today is that the perception most of the people and the investors have of this country is that when it comes to the judiciary, the outcome of the process is difficult to predict. There are a lot of cases in which truth and laws are on your side but you may lose the case, or in other cases you don't have the grounds to win. This is something that we have to solve. If you ask me which are the two most important problems that we have to solve in order to give a better environment to the foreign investors I will say first is the judiciary, the second is the security. We need to fight common violence here, especially in the big cities.

Press Tribune: Since 1994, Luz Del Sur is a good example of a successful foreign investment in Peru. In the following years, what are your ideas and strategies to expand your activities in Peru?

Mr. Cacic: Over the last two years the growth that we have experienced is an average growth of 8%, which is huge. That growth is kind of a problem. It is a nice problem to have, but in order to be able to cope with this kind of growth we have invest to reinforce the network, to introduce more capacity of transformation, more protection systems to our grid… Therefore we need to invest more this year, so our investment plan is growing. This year we are going to invest about 35 million dollars in the reinforcement of the electrical grid alone.
What we are forecasting is that growth is going to be there for at least the next two years and at similar rates, therefore we will be forced to invest no less than 35 to 40 million dollars a year to be prepared for such a kind of growth.

We are satisfied in terms of results, actually as you said we have been economically very successful. This company is a blue chip in the local stock exchange, the shareholders are very happy with the results and with what we have done with their investments. We are particularly proud of having been able to fulfill one of our goals, which was to take energy to each house that is located in our area of concession.

Now we have 100% electrification which is one of our goals. We cannot grow more, probably the only way to grow is to get new concessions and expand, so we will be considering that possibility during this year and the next one too by talking with the authorities.

Press Tribune: What is your main objective for 2007?

Mr. Cacic: We are today at the level of 790,000 clients so we hope to reach 800,000 by the end of this year. These 800,000 clients mean that we are serving about 2.6 to 2.7 million people which are our main objective. We want to give our customer the best quality service possible and take the merchandise that we are commercializing with all kind of security measures, all kind of safety mechanisms to the houses, that's what we are working on now, to increase our safety, not only for our workers but also for our users.

Press Tribune: If we look at your portfolio of customers, most of your customers are residential customers. Are you planning to provide services to more industrial and commercial consumers?

Mr. Cacic: The only reason why we are not growing in the commercial or industrial consumers is because we have a limitation in terms of supply of energy; our group owns only a small generation plant, which is too small for the size of our concession. Most of the energy we have to buy is coming from other generating companies and it is very difficult for us to get all the energy that we would like to have in order to commercialize and to take this energy to the industrial commercial consumers.

This is something that we hope will be solved in the next couple of years when probably new companies are going to come into the market and therefore the supply of energy is going to increase. In an environment like that it would be much easier to get that supply of energy in order to grow in those areas where actually the profits are better. However to be concentrated in the regulated market for us is also a very nice situation because it is a market with a lot of stability, so we can predict very accurately our income, our net income, our profits, everything, because this market is very stable. The other markets, the commercial and industrial markets are more volatile.

That's why our income and our profits are so predictable, because 90% is concentrated in that part, which is not bad.

Press Tribune: The Camisea project is one of the largest gas deposits in South America, how would you describe the importance of this project for Luz del Sur?

Mr. Cacic: Well I think it is very important because in Peru, the main gas consuming source is obviously electrical generation. I don't think that in Peru you would expect a lot of gas consumption coming from the houses or from the people for heating purposes, air conditioning, or things like that. The weather is not that bad here, so the domestic consumption of gas is going to be very limited from certain industries like cement, steel, and some others, but the most important user of gas are the companies that burn gas in order to produce electricity therefore for us the Camisea gas is very important, because it has added one way to produce electricity which was not there 3 or 4 years ago. Most of our energy was coming from hydro electrical power plants and thermal power plants that were burning fossil fuel. Today gas is a very interesting alternative because it is cheaper, it is cleaner, and it is much easier to construct a thermal power plant with turbines that burn gas than to build a hydro electrical power plant that will take probably twice as much time as a thermal power plant. The possibility to increase the energy supply is much better now that we have gas, it is very important for us.

Press Tribune: There is a lack of electricity outside of Lima, are you planning to provide electricity outside of Lima?

Mr. Cacic: We are still in the situation of coverage in terms of electricity. Still 24 % of the population doesn't have the electricity services. This 24% of the population are obviously out of the areas that are close to the capital city or the bigger cities in Peru. These are rather rural areas; however 24% is a lot of people without such a basic service. We are still working to have a very structured plan to develop those areas in which the government is still working on and probably the outcome of that process will cover this 24%. I think it is necessary to have some kind of joint-venture between government and private companies to reach this objective. I also think that crossed subsidies between the people concentrated in areas like Lima would be very useful. People in Lima have very good quality of electrical services and could somehow pay a little bit more in order to allow this other 24% of people that belong to the base of the income pyramid to have the same kind of service too. It is not just the fact that you can have lights at home, I think that electricity today is the way through which you have access to modernity, to comfort, to education, to information, which is very important to the people. There is a strategic importance to deliver electricity to this 24%, which would allow these people to have much better information on what is going on in the country how to vote in the next elections, what are the candidates offering etc…

Press Tribune: Do you think that a public-private joint partnership will be the best way to tackle this problem?

Mr. Cacic: Yes, I think so, because a private company alone cannot do it because it is not profitable. The government alone cannot do it because it is too complicated for them, they just do not have the expertise.

Press Tribune: Now I would like to move on rumors that Public Service Enterprise Group is about to sell shares, is it something correct to say or is too soon, as one of the shareholders of Luz Del Sur, can you elaborate on that or comment on the constitution of the group ?

Mr. Cacic: As you know PSEG was in the process of a merger with Exelon, this process lasted about 2 years and finally failed because there was no possibility to reach an agreement between these companies. Also due to the regulators and due to that failure PSEG had to redesign their business establishment. I think they are still in that process because up to yesterday there was no kind of announcement regarding what was going to be the business plan of PSEG. They are going to consider their engine to grow as PSEG, what kind of core business are they going to be in, or what kind of business are they going to leave, what areas are they going to concentrate on the United States or are they going to be operating on foreign markets. All these kind of questions are still on the table and it is necessary to wait for announcement of what is the business plan of PSEG. For the time being, we are continuing with the business as usual, just waiting for the news, which by the way should happen very soon, because Wall Street is also waiting for that kind of announcement.

Regarding our other shareholder, Sempra Energy, they have a clear strategy. They are concentrated in the gas business so they are in the process of canalizing the investments towards the pipelines that they are building in California. Probably they are considering the possibility to buy gas from closer sources like Camisea instead of bringing them from some other parts of the world. I think they are very well positioned in the markets like Chile and Peru, they have a couple of nice assets there, so I think they will have a more clear picture of what they are going to do in Peru and in every sense.

Press Tribune: You have been appointed since 1999 as CEO of Luz del Sur, How would you describe you management style and how did you make your success story since you started at Luz del Sur?

Mr. Cacic: Basically I would say that what I have been trying to do all these years is to improve and help the decision making process in all the levels of the company so I think that a company is successful only when the adding of the good decision in all levels globally are good. If you have a process in which the decisions in the different levels of the company are wrong the final result will be obviously bad. In order to encourage the right decision making process what I have been doing is to try to give each decision maker the most accurate information possible so everything in this company within management is open. Everybody will have access to the information in such a way that wherever they are working they would have the right to know what is going on this area or on that area. When you have the whole picture I think your ability to make the correct decisions that are aligned with general objective is much better. That is what we have been doing. The other thing is the style of management here is very open so we can discuss all kind of problems in an open way and we do not have any kind of complexes to make mistakes. We know mistakes can be made, but what we also know for sure is that once we have made a mistake we have the ability to recognize it fast and correct it immediately. The decision making process has to continue so nobody can stop making decisions because they think they can make a wrong decision, there is no problem with making a wrong decision, the thing is that you have to realize it is wrong and correct it, so that's the style I have been encouraging. Telling my people to make decisions every time they have to do, to act fast and to check the results of their decisions, so here we act very fast, also we are very lucky because we have very talented people.

Press Tribune: How would you characterize the working force in Peru?

Mr. Cacic: Here I would say 99% are Peruvians, Peruvians are very hard working people, you don't need to ask these people to stay and finish their tasks, they will stay until they finish, they don't care if its going to take hours, they are very responsible, they are hardworking people, I would say Peruvians have experienced hard times before, and those hard times have produced a sense of responsibility on the people, so they know how it looks like to be about to fall into hell, so now everybody is trying to stay as far from that situation as possible, and most of the people know the only way of staying away from that situation is to work in a very responsible and productive way and that's an example in this country. I am very happy with the people.

It seems like now in Peru people want to take an investment approach, 75% of the Peruvians are taking interest in the stock exchange, that's pretty impressive. Besides that the stock exchange, is shot proved. It is amazing; we also are thinking we should do something about that.

Press Tribune: What aspects of Peru and Luz del Sur would you like to highlight for our audience?

Mr. Cacic: I would just tell them that among emerging markets and countries around the world, I think the next successful story is Peru, and therefore if they should take advantage of the kind of a bullish market here that is going to last for a long time. This is the moment to invest, I would tell you that this is a company where 80% is owned by foreign investors and this is an example of what they have to take into account is that our shareholders have investments in Eastern Europe, Middle East, India, China, Argentina, Brazil, everywhere, and I am sure without any doubt that they will say that the most successful investment they have had is in Peru.