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CAPECHI Trade: “I See the Peruvian Electric Market Optimistically,” said Xilai Yuan, General Director of EGH

Acquired in 2019 at a cost of $1.39 billion by China Three Gorges Corporation (CTG) through the Huallaga Holding Company consortium (which includes Hubei Energy Group, the Clean Energy Investment Fund Ace, CNIC Corporation, and CTG), the Chaglla hydroelectric plant represents the largest investment in the Huánuco region and is classified as strategic infrastructure for the sector. It generates energy with two turbines of 225 MW each, the largest in the country, and a small turbine of 6 MW.

Present in 47 countries and regions worldwide, by the end of 2019, the giant CTG had over 174.45 billion RMB in assets. The general manager of Empresa de Generación Huallaga, Yuan Xilai, responded from his office in Lima after a patient participation in the required photo session.

How do you evaluate the situation of the Peruvian economy for the electric market and particularly for power generation?

Currently, the Peruvian economy is recovering and growing slowly. The national economic context, like the global economic context, is being affected by the appreciation of the dollar and inflation. However, I have a positive outlook because there is greater economic interaction between Peru and China. Peru is notable for its mining, fishing, and agricultural industries, and in recent years, trade in these sectors with China continues to grow. Additionally, Peru’s monetary policy, compared to other countries, is much more stable, and there is free circulation of currencies. Therefore, in a certain sense, it remains an attractive country for investing companies or countries.

Due to the growth of the Peruvian economy, I view the Peruvian electric market optimistically. Moreover, the Peruvian legal regulatory system [for the sector] is very comprehensive, and any conflicts between parties can be resolved through the laws. This increases investor confidence. I was walking around the Plaza de Armas in Lima and encountered some schoolchildren who greeted me, and some of the bolder ones approached to take pictures with me. Using the little Spanish I know, I asked them their names, and the children responded. This touched me a lot. It shows there is great friendship between Peruvians and Chinese people.

What does the operation of Chaglla represent in the context of CTG’s global activities?

CTG is a very large corporation with many companies. One of its subsidiaries is Hubei Energy Group (HEG), which is a shareholder in our company. HEG is listed on the Chinese stock exchange, and the Huallaga Generation Company S.A. (EGH) consortium is the only participant. Therefore, it holds significant regard for this consortium, and for the same reason, CTG values us highly. Among the 46 companies CTG has, we are outstanding and perform well. We have the highest installed generating units in the country and the dam is one of the tallest in the world. According to statistics from a few years ago, it is among the four highest concrete-faced rockfill dams in the world. The other three are from HEG.

THE CONTRIBUTION OF CHAGLLA

What is Chaglla’s contribution to national electricity generation, and what is its goal?

We provide clean energy to the Peruvian electric market. With EGH, we have transformed a river’s flow into lights that brighten thousands of Peruvian families. That is our goal. At the same time we convert water into energy, we clean the course of the Huallaga River.

How would you define the contribution, in business terms, to the operation of the hydroelectric plant?

Before taking over the operation, EGH’s financing rate was very high because the previous shareholder’s credit record was not as good as CTG’s. Therefore, the company was incurring losses. Once CTG came in, the consortium took on the debts.

Recently, CTG sent a team of Chinese specialists to evaluate the safety of the dam. Additionally, CTG uses its extensive experience to support local management and gradually, starting with reliability, improved EGH’s performance. This reliability allows our role in the Peruvian electric system to keep improving.

What has been the impact of the pandemic on Chaglla’s operations?

We are a power generation company; the units must continue operating. When the pandemic started, many of those involved in the operation had to sacrifice their family lives to be at work. Our motto is "to light up Peru," and we have done so during the pandemic despite the challenges.

CTG’s operation at EGH began on April 24, 2019, and by the time the pandemic arrived, our IT system was already in place, allowing remote work for Lima-based employees. We took scientific preventive measures, received support from Chinese doctors to interact with Peruvian doctors, and had CTG’s backing, which included connecting us with the Beijing hospital and sending a plane with prevention materials.

Walter Vilchez’s team, representing EGH, has made various donations to the community. With our resources, during the toughest times, we were able to secure a mechanical ventilator to donate to the Regional Hospital of Huánuco, as well as masks, oxygen tanks, and oxygen production machines. In addition to protecting our staff, we have been able to assist the communities in our area of influence.

PERU, A GOOD MARKET FOR INVESTING

Chaglla is not the only operation CTG is involved in within the country. CTG is also present in San Gabán and Luz del Sur. Are you looking to create any kind of coordination in the sector?

All these projects CTG participates in belong to different companies, each operating within the Peruvian legal framework and never violating any regulations. Outside of work, we are very good friends, but within each company fulfills its functions according to Peruvian law.

Apart from the acquisition of the company, have there been other investments in Chaglla?

We are very eager to continue investing in new projects here. Peru is a good market. The investment area of the parent company is seeking more projects. I am confident there will be a second, and even a third Chaglla.

And regarding new investments in Chaglla’s operation?

Yes, certainly. Depending on the condition of our units, we will update them. For example, in 2019, we replaced a runner [rotor that drives the fluid] in our Small Hydroelectric Power Plant, which was necessary due to quality and engineering reasons. We have also helped the local communities: we have dug two fish farms for them and taught them how to raise fish.

There has been concern about the company’s alert system. How has that concern evolved?

Our dam is safe. It has been designed to international standards, and we have a professional team that monitors it daily. We collect this information and share it with the Brazilian company Intertechne, which did the engineering and has a specialized team to process the data.

Locally, we have a technical team specialized in this work. Additionally, CTG has a professional team that also performs data analysis. Recently, as I mentioned, a team of Chinese auditors visited for a month-long evaluation of the dam’s condition. In other words, we have scientific control and many specialists from Peru, China, and Brazil constantly monitoring. On the other hand, we have an emergency plan that we are currently updating. In case of any event, we act according to this plan.

You can view the full interview conducted by CAPECHI TRADE, the magazine of the Peruvian-Chinese Chamber of Commerce, at: https://www.capechi.org/revista/edicion-11.pdf