Tenaris S.A. (NYSE: TS), Ternium S.A. (NYSE: TX) and Tecpetrol International S.A. have entered into a memorandum of understanding to jointly build and operate a combined cycle natural gas-fired power plant in Mexico, which would supply Tenaris's and Ternium's respective Mexican industrial facilities. Together, both companies are one of the largest private energy consumers in Mexico. Tecpetrol is a wholly-owned subsidiary of San Faustín S.A., the controlling shareholder of both Tenaris and Ternium.
The power plant would be built in the Pesquería area of the State of Nuevo León, and would have a power capacity of between 850 and 900 megawatts. The project would be undertaken through a joint venture vehicle named Techgen, S.A. de C.V., which would be owned 30% by Tecpetrol, 22% by Tenaris and 48% by Ternium.
The memorandum of understanding contemplates, among other things, that Techgen would enter into power supply and transportation agreements pursuant to which Tenaris and Ternium would contract 22% and 78%, respectively, of Tecghen's power capacity.
The commencement of the project would be subject to execution of definitive documentation and other customary conditions, including receipt of regulatory approvals by Mexico's Comisión Reguladora de Energía and Secretaría de Medio Ambiente y Recursos Naturales (Mexico's energy and environmental regulatory authorities, respectively) and specific agreements with Mexico's Comisión Federal de Electricidad (Mexico's Federal Electricity Commission).
The total investment required for the project is estimated in approximately US$1 billion, and would be partially financed with debt. The combined cycle electric power plant is expected to be operational in the fourth quarter of 2016.
Paolo Rocca, Tenaris's CEO and Chairman and Ternium's Chairman, commented, "This project contributes to the long term competitive position of our industrial activities and strengthens Mexico's electricity system. The recently announced Energy Reform would enhance the benefits of this significant investment."