Sinohydro in Latin America

By staff reporter AN XINZHU

AS a champion of hydropower, China has the most advanced hydroelectric technology in the world. China’s Sinohydro Corporation Limited (Sinohydro) represents the highest level of water conservancy and hydropower construction in the country. The company’s business covers all areas of infrastructure, including electricity, communications, hydraulic power, mining and construction. By virtue of this diversity, Sinohydro is able to explore the international market. So far, it has projects under construction in more than 70 countries and regions and has established offices in more than 80 countries and regions, most of them developing or moderately developed.

Sinohydro has become China’s most widespread construction company in Latin America, with total contracts amounting to US $7 billion.

Opportunities and Challenges

Sinohydro made some early investment attempts in Belize and Cuba in 2002, but it was in late 2008, as the global financial crisis began, that the company took decisive action and made bold steps to enter the Latin American market. The company has achieved good development since then, leaving footprints from Central America to South America.

At present, Sinohydro invests the most in Ecuador and Venezuela, covering hydroelectric, thermoelectric, agriculture, and communications sectors. Sinohydro’s first project in Ecuador is its largest one to date in Latin America.

In Jamaica, Sinohydro modernized and upgraded several tourist projects. The company also has electric power projects underway in Belize, Honduras, Costa Rica, Argentina, and Bolivia.

“In the past, we were dedicated to construction, but now our development in Latin America focuses on investment,” said Song Dongsheng, president of Sinohydro. “Such projects take place in Brazil, Colombia, Chile, Peru, and Mexico, where the market economy prevails.”

For Sinohydro, the Latin American market has great potential. Their demand is huge, but there are more difficulties and challenges compared with the Asian and African markets. The company wants to explore the market through innovation in operation models.

With an installed capacity of 1.5 million kW, the Coca Codo Sinclair Hydropower Station in Ecuador can be considered a large-scale project in any country. “We have paid great attention to this project since 2004. However, when the Ecuadorian government decided to open bidding for contractors worldwide, we hesitated to participate because we lacked confidence and felt that the Latin American market was too difficult for us to crack,” Song recalled.

Song and his colleagues traveled to Ecuador in December 2008 to explore a route into Latin America. They met officials of Ecuador’s Ministry of Electricity and Renewable Energy and relayed their goals. “Faced with an unfamiliar market, we had few advantages,” said Song.

Four months after the outbreak of the financial crisis, Latin American countries began to realize their great need for funds. The Export-Import Bank of China saw this as a good opportunity to enter Latin America. Thus, Sino-Ecuadorian financial cooperation kicked off.

Venezuela is another of Sinohydro’s investment recipients. One notable project there is the gas power plant with an installed capacity of 1.2 million kW. During the eighth meeting of the China-Venezuela High-level Mixed Committee, Venezuela’s energy minister Rafael Ramírez expressed hope that Sinohydro could build it in short order. Before that, he had sought help from several countries, but all had rejected him. Making use of its global resources, Sinohydro completed the project. So far, the power plant has generated more than 10 billion kWh, relieving much of the power shortage in Venezuela.

Honduras has no diplomatic relations with China. “How to use Chinese capital to construct in Honduras was, undoubtedly, a great challenge to us,” said Song. “We researched countless financing plans by numerous foreign banks. But in the end, we took out insurance from Sinosure (China Export and Credit Insurance Corporation) and loans from the Industrial and Commercial Bank of China. With the support of the Chinese government, we were able to make an essential breakthrough in Honduras.”

To enter a foreign market, Chinese companies often encounter obstacles, sometimes even outright bans. Sinohydro is not immune to these problems. During the construction of a hydroelectric plant, with funding from Canada, in Belize, Sinohydro suffered a tremendous boycott from local non-governmental organizations.

“Whenever the environment is concerned, it is common to meet with dissent,” said Song. “But the international community and experts are changing their opinions on the effects of hydroelectric plants on the environment. Ten years ago, the World Bank did not support the construction of power plants on riverbanks, but now it has changed its mind.”

Respect Local Laws

and Business Practices

Cultural and institutional differences between China and Latin America are greater than those between China and Europe, or between China and North America.

“We must get to know the real situation in Latin America and learn to adapt our business practices accordingly. What we do must correspond to local laws and realities. This is a key element for success,” said Song. “Moreover, we need to change our mentality, to become ‘localized.’ This is not without its challenges. We are sparing no effort to achieve this.”

Administrative localization is of great importance to Sinohydro. “For example, we adopted a Brazilian administrative system in our Venezuelan road project because we were working with a Brazilian company. Our team in Latin America is very young. Most of them have overseas academic backgrounds, so they learn and progress quickly.”

Putting the onus on local employees to resolve difficulties has been a valuable experience for Sinohydro. During a project in Costa Rica that was sponsored by Enel, Italy’s largest power company, Sinohydro encountered discrepancies in how the Health, Safety & Environment (HSE) system was managed between the European and local staff. In the end, we delegated everything related to HSE to a team of specially hired Costa Rican engineers and thus, the problem was solved,” said Song.

Competition from local and European counterparts sets a high standard for Sinohydro.

Foreign experts in China are all convinced by the quality of the country’s engineering projects and its effectiveness. However, in the overseas environment, Chinese enterprises cannot always perform to their full capacity. “China’s technologies can compete in Latin America and the world at large. What we need to do is to meet local demand and respect local customs,” said Song.

China’s perceived lack of corporate social responsibility was a topic that was often criticized by the Western world. But now this situation has changed, as Chinese companies pay more attention to social responsibility. “In our projects in Ecuador, we maintain a very good relationship with the local community and wider municipality. We help in building schools, clinics and roads. Moreover, the Chinese manager responsible for the project has been named an “honorary citizen” for his contribution to the local community for three consecutive years,” said Song.

Sinohydro offers training courses for local employees. In countries with sufficient labor, Sinohydro’s Chinese workers account for no more than 15 percent of the total employees.

More Open

and Transparent

At present, there is a great demand for global infrastructure construction. All developing countries need to strengthen infrastructure construction, while developed countries need to upgrade infrastructure.

In this regard, Chinese enterprises have a complete industrial chain. Their technology is also first rate in the world. In addition, China has nearly US $4 trillion in foreign reserves. And the Chinese people are industrious, good at learning, able to adapt to different environments, and have good intentions. These advantages will open further overseas cooperation routes for Chinese enterprises.

According to Song, Chinese enterprises need an open mindset and communication skills. “In construction, technology is universal. We must combine openness with the ability of expression and communication,” said Song.

In his opinion, for better cooperation, the two sides should fit one another’s needs and peculiarities. Neither side should try to take the upper hand. We need to find common ground. Chinese companies and banks have to make changes; but so also do local counterparts.

He suggested that both sides should jointly probe innovation in business models that are acceptable to companies and banks in China, as well as local governments and businesses. His idea is shared by many in the industry.