MEXICO CITY Ternium SA and Tenaris SA have entered into a memorandum of understanding with Tecpetrol International SA to jointly build and operate a natural gas-fired electric power plant in northern Mexicos Nuevo León state.
The plant will supply energy to both Ternium and Tenaris, which have steelmaking operations in Mexico.
Luxembourg-based Ternium will own 48 percent of the joint venture, called Techgen SA de CV, while Buenos Aires, Argentina-based Tecpetrol will hold 30 percent and Luxembourg-based Tenaris the remaining 22 percent.
Techgen, which is estimated to cost about $1 billion, partially financed with debt, is expected to be operational in the fourth quarter of 2016 with a power capacity of between 850 and 900 megawatts. "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 percent and 78 percent, respectively, of Techgens power capacity," the companies said.
The power plant will be built in the Pesquería area, where Ternium has been completing the installation of a 1.5-million-tonne-per-year cold-rolling mill and a 400,000-tonne-per-year hot-dipped galvanizing mill in a joint venture with Japans Nippon Steel Corp.
Ternium has Mexican capacity to produce 3.9 million tonnes of crude steel and 7.1 million tonnes of finished steel annually, while Tenaris can produce more than 1.2 million tonnes of seamless steel pipe per year at its TenarisTamsa subsidiary.
Both companies have been mulling crude steel expansion projects based on direct-reduced iron (DRI) units fed by natural gas.
Ternium has recently suggested that it was getting closer to such an expansion, while TenarisTamsa had previously said that a DRI project involved negotiations with the Mexican government to secure the supply of natural gas from state-owned oil giant Petróleos Mexicanos SA de CV.
Tecpetrol, a company operating in the energy sector in the Americas, is a wholly owned subsidiary of Curaçao Netherlands Antilles-based San Faustín SA, the controlling shareholder of Ternium and Tenaris.
The joint-venture power plant will "contribute to the long-term competitive position of our industrial activities and strengthen Mexicos electricity system," Paolo Rocca, Terniums chairman and Tenaris chairman and chief executive officer, said in a statement. "The recently announced energy reform would enhance the benefits of this significant investment."
Mexican President Enrique Peña Nieto earlier this month presented a proposal for a major energy reform aimed at opening up the industry to private capital.
A version of this article was first published by AMM sister publication Steel First.