Empresas Copec SA
SGO:COPEC
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Good afternoon, everyone, and welcome to Empresas Copec First Quarter '23 Results Conference Call. Today's presentation and the First Q '23 earnings release are available on the company's Investor Relations website at investor.empresascopec.cl. Before we begin, I would like to remind you that this presentation may include market outlooks and forward-looking statements, which are based on the beliefs and assumptions of Empresas Copec's management and on information currently available to the company.
They involve risks, uncertainties and assumptions because they relate to future events, and therefore, depends on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Empresas Copec and could cause results to differ materially from those expressed in such forward-looking statements.
This presentation contains certain performance measures that have been adjusted with respect to IFRS definitions, such as EBITDA. In this opportunity, questions will be received in written form. If you have a question, please write it down in the Q&A session. Please be aware that your company's name should be visible for your questions to be taken.
I will now turn the call over to Mr. Rodrigo Huidobro, Chief Financial Officer of Empresas Copec. Please go ahead, sir.
Thank you very much. Thank you, and welcome, all of you, and thanks for joining this call where we will be taking a look at the results of Empresas Copec for the first quarter 2023. We are joined today as we usually are by people from our Investor Relations department, led by Mr. Cristian Palacios; and also people from Arauco, led by Mr. Gianfranco Truffello, and they will be helping us out in any questions you might have that we will address at the end of the presentation.
Having said that, let me now switch to Page 4, where we will be taking a look at some of the most important highlights that we have seen during the quarter. This is -- this is a quarter where we reported a result and EBITDA that was -- the EBITDA was pretty much in line with the previous quarter. It was lower, though than last year's comparable quarter. The higher results Q-on-Q have to do essentially with some nonoperational factors that affected the performance of the company during the last quarter of 2022.
And the lower results year-on-year have to do with diminished performance in the case of Arauco and Copec, the details of which we will see along the presentation. In the case of Forestry, we had -- Q-on-Q, we had higher other income, basically because we had recorded negative revaluation of Forestry assets during the last Q 2022. And that had to do with -- essentially with the effect of increased interest rates on the valuation of our Forestry assets.
We also had in terms of -- in operational terms, we had volumes and prices decreasing Q-on-Q. Year-on-year, we definitely have an operational decrease that has to do with the drop in volumes and also to lower prices in the wood segments, as we will see going forward. Together with that, in the Forestry division, we had increased other expenses that had to do with forest fires that affected the company during the first 2 months this year and also with temporary stoppages of different mills.
In the Energy division, the same pattern, we had higher Q-on-Q results and lower year-on-year. In the case of Q-on-Q, they had to do basically with lower administration distribution costs. These costs in the Energy division are usually have some seasonality and tend to increase towards the end of the year. So this first quarter, we saw a lower level of SG&A in general. Together with that, we saw volumes increasing, essentially in Chile. In terms of year-on-year, we had lower results in Copec, Mapco and Terpel. And an essential part of that was the fact that during the first quarter of last year, we recorded a nonrecurrent effect because of the sale of some gas stations at Mapco during the first quarter 2022. In terms of the projects that we are carrying forward and other developments, we had -- in April, we had our ordinary shareholders' meeting. where, among other things, we presented the final figure for our CapEx plan this year will -- of which we will be also presenting in this session.
Together with that, we had Arauco publishing an update on the effects of the forest fires that hurt the company during the first few months. And Copec made an announcement in regard to the Mapco subsidiary, the subsidiary operates in the U.S. Copec has written an agreement for the sale of that subsidiary. And we will be taking a look at the details of that as well.
In terms of ESG, we continue to make progress in ESG matters. We published for the first time our integrated report. There's a lot of information there. It's definitely worth a look. Arauco issued sustainable bonds in the local market. And Copec continues to make progress in electromobility and also in some initiatives related to complementing its current business model.
Let me go into the numbers. We recorded an EBITDA of $662 million, which is pretty much in line with the previous quarter, where we had $ 679 million. but it's definitely lower than the $959 million that we recorded in the first quarter last year when we had exceptional conditions in the market. Net income is $155 million, which compares well with the slight loss that we recorded last quarter, but of course, is, at the same time, much lower than the $619 million that we recorded in the first quarter 2022.
The EBITDA is down on a year-on-year basis from $959 million to $662 million. The bulk of that decrease has to do with the Forestry sector, where we saw essentially a drop in volumes in pulp and also a drop in volumes as well as prices in the case of wood products. In the case of the Energy sector, we saw also some decrease in EBITDA, which is linked basically to an increase in administration and distribution costs.
To the right-hand side of this graph, you can see that, as usually happens, our EBITDA is explained to a great extent by Arauco Copec and Abastible, which make up more than 90% of our total EBITDA. In the case of net income, we recorded $155 million, which means a 75% decrease on the figure related to the first quarter of 2022. In this particular case, we see a drop in Arauco, which has to do with operational and nonoperational factors. Among the latter, we see the temporary shutdowns of mills plus the forest fires. And also a decrease at Copec, where the essential explanation there is the sale of some gas stations of Mapco that took place during the first quarter 2022.
Together with those 2 factors, we also had a slight decrease in Alxar Internacional, which is the parent company of Mina Justa. And that has to do basically with a lower operational performance, although it was still very good. So we are comparing ourselves with an exceptional quarter in the first quarter of 2022. We still have very good results at Mina Justa, although a bit lower than last year.
Let's go into some more detail for the income statement. As we saw before, we have a net income of $155 million, an operating income of $339 million, which is down $329 million with respect to last year, and that has to do basically with Arauco, which presents lower volumes in the wood segment and in the pulp segment and also lower prices in the wood segment. Together with that, we have higher costs at Arauco, which essentially have to do with the ramping up of MAPA and with stoppages of mills.
In Copec, we saw higher administration and distribution costs, which explained the drop in EBITDA. However, gross margins were very stable in spite of a negative effect in inventories. We were able to keep stable gross margins on account of growing volumes and also good performance of industrial margins and commercial margins.
In the case of nonoperating income, you can see, as we already mentioned, some increased expenses for -- related to planned stoppages for $140 million at the Arauco level and also the net effect of the forest fires, which is $43 million. Together with that, lower other income due to the sale of some assets in Mapco -- at the Mapco level during the first quarter of 2022. Together with that, we also have $50 million of increased net financial expenses at the consolidated level, and this has to do with debt increasing somewhat, but also with debt that is linked to inflation and some interest expenses that have ceased to be capitalized and are going into the income statement.
In terms of our balance sheet and financial ratios, we continue to show good operating returns. 11.5% of return on capital employed, which is a bit less than last year, but still very good. Leverage has gone up from the low levels of 1.9x and 2x that we were seeing a couple of quarters ago. That has to do with debt increasing to a certain extent. EBITDA, of course, going down, 12-month EBITDA going down. But at the same time, we have some capital -- some working capital effects especially at the Copec level, many of which should be transitory. So -- but still very, very controlled levels of that.
You can see that we have a well-balanced debt schedule for the coming years. So that is distributed among many, many years. However, we have some massive maturities during this year, many of which we have been tackling already with some refinancing operations. As a matter of fact, as I mentioned before, Arauco already issued a local bond in the -- local bond in the local financial market for $250 million.
Then going to the different divisions. Let me start with Forestry. Arauco's EBITDA has gone down to $328 million compared with $595 million in the first quarter 2022. This figure is slightly different from that posted by the subsidiary Arauco because of the definition of EBITDA that we use. In our particular case, we are not including the plant stoppages. The reason for the drop in EBITDA is a drop in pulp, panels and some timber volumes, together with prices in the wood division, a generalized drop in prices, which is all partly offset by higher prices in pulp.
Together with that, we saw increased unit costs for all segments. And as we said before, we have the nonoperational factors that affect results during the first part of the year, which had to do with temporary stoppages at many different plants in Arauco. Neuva Aldea, Constitución, Arauco and Esperanza, all of those mills showed stoppages during the first part of the year with a total cost of $140 million and also the net effect of the forest fires amounting to $43 million. As we saw before, financial expenses have gradually trended to rise. In the case of Arauco, this has to do essentially with some interest expenses in MAPA that had been capitalized. And given that construction is already terminated, they are not capitalized anymore, rather they are going to the income statement.
In the case of the pulp division, and now we're showing the Arauco's pulp EBITDA for pulp figure. It is $78 million comparing very negatively with the $325 million that took place in the first quarter last year. And that has to do as we said before, with lower volumes basically offset to some extent by higher prices. And together with that, increased unit selling costs having to do essentially with plant stoppages and ramping up of MAPA.
In the case of Q-on-Q, we also saw EBITDA coming down. You can see there that production was widely affected by these stoppages of mills. It hasn't been a good quarter in terms of production. And of course, that also has impacted our sales volumes as well have been harder to materialize because of the pulp markets weakening, as you all know, during the first part of the year. As a matter of fact, we have some discussion on the behavior of pulp prices and markets during the first part of the year in this slide that you are seeing now. We have seen a sharp decrease in pulp prices, an increase in inventories, which are up to 52 days in the case of hardwood and 47 days in the case of softwood, which are -- both figures that are above historical levels. The arbitrage among different markets has increased. So we have ceased to see the decoupling of the different markets that had happened during some time because of logistical issues.
So now we have seen higher hardwood production in Europe, for example, that has been placed in Asia. Together with that in China, we have seen paper markets that are weaker than expected. We have seen some increased supply coming from Russia. And of course, all of that has put some downward pleasure on prices. In Europe, we also have seen some decreased demand. However, demand in the tissue market has remained stable. But anyhow, we are also seeing a drop in prices in Europe. Probably the only market that has remained healthy and stable during the first quarter is dissolving pulp, where we have seen stability and prices actually increasing a bit during February and March.
Operation rate is also very healthy with a 70% to 80% for the whole industry. As we said before, production in the case of Arauco has been hurt by several stoppages of different mills, and therefore, we have decreased production. We have started operations in the MAPA project, which is Arauco's Line 3. However, in the first quarter, we have a very low production and no sales at all during the first quarter, coming from MAPA.
You can also see that total demand -- global demand for the year as of March has decreased a bit, in spite of a very sharp increase in China, but that has been more than offset by decreases in Europe, North America and other Asian countries. Going forward, we have seen some signals of increase in paper demand, but probably not enough to offset the lower export of papers. We are seeing buyers still, especially paper makers, still refraining from buying and waiting for improved conditions. They know that more capacity is coming on stream. So many of them are holding on to their inventories and looking for -- coming back to the markets and replenishing them further on during the year.
In Europe, we have seen paper demand gradually increasing. And most paper producers, however, taking downtimes in order to keep their margins stable and avoid dropping prices. And with all that, we continue to see some challenging months ahead. But however, we believe that pulp prices are very close to the bottom since there are many producers that at these price levels are already selling below their costs. So we should gradually begin to see a rebound in the next few months. We can see in the graph in the bottom left corner that the net prices in China have decreased quite significantly. We are now selling at $475 hardwood and $680 softwood. So sharp declines from the levels not many months ago when we were selling at more than close to $900 per ton for hardwood and above $1,000 per ton for softwood. As we commented before, dissolving pulp has been much more stable and it's still at levels of around $900 per ton.
A brief discussion on wood products. You can see here that EBITDA is $136 million for the quarter, which is pretty much in line, I would say, with the previous quarter, but of course, much lower than the exceptionally good first quarter 2022 that we had. What has been happening here is that EBITDA has been trending gradually towards historical levels. This used to be a division that generated between $400 million and $500 million per year. During the years following -- immediately following the pandemic, we saw that figure going up to more than $1 billion per year.
But now we're going down again to the historical level. So $135 million for the quarter. That has to do with the drop in both prices and volumes for the different products. And you can see that basically across the board in the case of panels and in the case of solid wood, we have seen a drop in prices and also in volumes. Some elements for our different markets. In the case of North America, which is by far, our most important market for this division, representing 57% of revenues as of the state. We can see that MDF demand has been declining, which, of course, is linked to an extent with a decreased real estate activity, which in turn relates to the economic situation and the interest rate going up in part.
Together with that, we are seeing higher supply, especially from Brazil, so that is putting additional pressure on the market. In the case of particle boards, we are seeing demand that is going down slightly as well. But in this case, we do not have the effect of additional production from other countries coming in. So it's slightly better than MDF.
In the case of remanufactured, the outlook seems to be better, definitely. We have seen inventories normalizing gradually, and we see that the market could stabilize in the coming months. Same thing in the same -- in the case of plywood, we have seen a stable market with balanced supply and demand. And therefore, we could see the market continuing to strengthen during the coming months. In the case of Latin America, Brazil continues to be a market where we see some causes for concern. Demand has been picking up gradually. We see some signals of demand rebounding, but we are seeing some additional supply of MDF coming on stream at the same time and because of this import, we see more exports materializing. So production within Brazil that is sold to other markets around the world. In the case of Chile, we have seen prices in general continuing to decline for remanufactured products especially and panels as well. And this has to do to a great extent with a decreased activity in the construction sector.
Argentina, surprisingly, has continued to be stable in terms of volumes and prices, in spite of the stability in the country. And then we have other markets, which are less significant for our wood products. Asia and Oceania represent 10% of our total sales and basically the same pattern we are seeing demand slightly going down and some increased supply as well from other countries that are beginning to export their production.
Moving on to the Energy sector. We had -- it's actually quite a strong performance at the Copec level. This is the EBITDA measured in local currency, CLP 217 billion compared to CLP 252 billion in the first quarter 2022. This is a good performance according to historical levels, although it is lower than the first quarter 2022, which was also an exceptional quarter.
We had -- as we mentioned before, we had essentially higher administrative costs due to an increase in transportation costs and also a significant effect of labor costs, which is in turn linked to inflation in Chile, inflation in Colombia and in the countries where we operate. Together with that, we had an unfavorable effect of inventory revaluation in Chile and also in Colombia.
In spite of that, as I mentioned before, we were able to keep gross margins pretty stable. And that import has to do with volumes still growing. We have a 2.7% increase in Chile and 0.9% increase in Terpel as a whole, all of that offset by a drop of 11% in Mapco, which is explained to some extent by the sale of gas stations during the first part of the year 2022. The lubricant segment shows a healthy performance, I would say, especially in terms of margin, offset to some extent by a drop in volumes.
And as we mentioned before, we have nonoperational decrease explained by the sale of the Mapco gas stations during the first quarter 2022. Market share, as shown here, continues to be very stable and in the ranges at which we have been historically with a 58% as of December 2022, which is the latest figure published. The volumes continue to be above pre-pandemic levels, although the rates of growth of the different geographies are lower than that and those we saw immediately following the pandemic.
Together with that, we are seeing real margins, commercial margins under pressure because of high inflation. We have seen this since last year, of course. We continue to be exposed, although this tends to be a business which -- with very stable markets. We continue to be exposed to some factors of volatility among them, the inventory effects and also some variations in the industrial channel.
However, we deem our gas station network and our brand to be in a very good commercial position and that gives us solid competitive advantage. In the case of the volumes, you can see the graph in the upper right-hand corner, it's a healthy level of volumes, which is up with respect to the immediately preceding quarter and also with respect to the first quarter 2022. So we are seeing the industrial channel, especially up by a significant percentage. And in the case of the gas stations we saw in this particular quarter, we saw a decrease.
Moving on to Terpel. It also was a good quarter in historical terms. You can see there the EBITDA is up to COP 333 billion compared to COP 362 billion. Once again, we had an exceptional performance in the first quarter of 2022, but in historical terms, this is a very healthy EBITDA generation.
The drop with respect to last year is explained in part with by inventory revaluation, which was negative this year. But also by an accounting change of criteria, some contributions that are made to franchisees, used to be recorded as an intangible asset and amortized over time, and therefore, that did not impact EBITDA. However, with this change of criteria, we are beginning to record those contributions as expenses, and therefore, they do affect EBITDA. And that accounts for more than COP 20 billion of the difference with respect to last year. So part of the difference -- a large part of the difference actually is explained by this change in accounting criteria.
Liquid fuels are quite healthy in many markets. In the case of Peru, we have grown significantly, having to do with industrial and also aviation volumes. In the case of Panama and Dominion Republic, we also saw some increases. All of that offset to some extent by slight drops in Colombia and Ecuador. Together with that, we saw a healthy performance of the lubricant segment.
In the case of Mapco, EBITDA is $13.2 million for the quarter, which is also quite good according to historical terms, but lower than last year, which was $15.6 million. The drop has to do to a large extent, of course, with the fact that we at the end of the first quarter in 2022, we closed and materialized the sale of this approximately 10% of the total number of gas stations of Mapco that we sold to a third party at the beginning of -- at the end of the first quarter last year.
So the drop in volumes and the drop of EBITDA has to do to a large extent with that sale. Margins continue to be very healthy in this market. Abastible, which is liquid gas, the performance in this quarter was quite healthy. We saw it in line with last quarter, but definitely much higher than the first quarter 2022. So $28 billion at the consolidated level at Abastible compared with $21 billion in the first quarter 2022. This stems basically from an operational performance, which was very good with increases across the board in all geographies, basically. We saw an interesting increase in volumes coming from Chile, Colombia, Peru and Ecuador. So across all geographies, an interesting increase in volumes.
Some more details on the different countries in which we operate. In the case of Chile and Colombia, the behavior is quite similar, a very similar pattern. We've seen volumes in the bottled segment, which have decreased year-on-year. However, we have seen healthier margins. Margins have been hurt significantly previously by the rising propane prices, and now they have been gradually recovering to -- gradually trending to their historical levels, so more healthy margins in the bottled segments. And in both countries, Chile and Colombia, a very good performance of the bulk segment, and this has to do with an increased base of clients both Abastible in Chile and Norgas in Colombia have done very well in terms of expanding their client base in their respective geographies. And therefore, we have seen volumes increase significantly. This is partially offset by a decrease in margins, which has to do essentially with a mix effect. So we have seen more high volume and low-margin clients coming into the client base. So very similar behavior for both Chile and Colombia.
In the case of Peru, the performance here has been quite extraordinary, I would say, with a drop -- with an increase in volumes of close to 20%. In spite of the political situation that hurt the country during the first 2 months this year, where we had a lot of instability with some supply disruptions and some blockades in the different routes around the country. In spite of that, we were able to increase our volumes by 19%. This has to do with a very good performance essentially in the bottled segment having to do in turn with a very successful marketing and commercial strategy. Together with that, we have seen increased margins in both segments. And finally, in Ecuador, volumes continue to increase at the, I would say, very normal rates of 2.8% in this case, very close to historical levels. And in both segments, we have seen this healthy increase.
Moving on to our other investments. The most important investment that we have here is Cumbres Andinas, which is the parent company for Mina Justa, where we saw a decreased EBITDA and decreased net income when comparing it to the first quarter of 2022. Once again, it is a very good performance for the quarter. However, we are comparing it to an exceptional base. So the base of comparison is very, very high. We had exceptional performance in the first quarter 2022, but performance continues to be quite good with an EBITDA generation of $222 million.
We have seen production at a very stable level with -- however, the mix of production between cathodes and concentrates changing a bit. We have seen cash cost going up to some extent with respect to the first quarter 2022. But going down from the levels that we saw at some point during 2022, which reached up to $1.6 million. We are now back to $1.3 million and we expect them to remain at levels somewhere around $1.3 million to $1.4 million for the rest of the year. This operation is doing quite well, and we expect to get to 150,000 tons sold during the year, produced at least and eventually sold during the year. And therefore, we would be reaching our total capacity for the first time during this year. In the case of our other subsidiaries, very stable situation and not a lot to comment for the other subsidiaries.
Moving on to the highlights of the quarter. Let me begin here by addressing the CapEx figure that we published. We had anticipated this in our last conference call, and there are not a lot of news regarding the information that we gave you in that last conference call. So total CapEx for the year is expected to be around $1.8 billion. This represents, of course, a decrease from the very high figure that we had -- $2.3 billion that we had during 2022, which involved, of course, the acquisition of Blue Express and the end of the construction of MAPA, among other exceptional sources of CapEx.
In this case, during the year, the $1.8 billion is explained to some extent with -- by maintenance CapEx, which should amount to approximately $900 million. Together with that, we have some growth CapEx at both the Forestry division and the Fuel division. In the case of Forestry, some of that will be devoted to lands and plantations. A portion of that in Brazil and in relation to our Sucuriú project. Together with that, we are building our Zitácuaro mill, our panel mill in Mexico, and we are acquiring some remnants of equipment for MAPA.
In the Energy division, we are doing some network optimization, building up some new gas station points as we always do, and also contemplating some expenses and CapEx, which is going to be focused in the energy transition and a business model optimization and transformation for Copec for facing the electromobility scenario.
Finally, we have, let's say, $200 million to $300 million of CapEx that will be devoted to a lot of initiatives having to do with efficiencies. Efficiencies at our mills, our logistics. Many of those have been postponed during the pandemic when we had more -- a tighter credit situation. But at this point in time, we should be able to address those projects as well, which are also very promising in terms of lowering costs and increasing efficiency. The bulk of the CapEx goes to -- as expected, goes to the Forestry sector, approximately 70% goes to the Forestry sector and 25% to the Energy sector, pretty much in line with the base of assets that we have in those 2 divisions.
We announced the sale of Mapco, and this has to do with the strategy that we envisaged at some point in time and that we have mentioned many times, actually. Basically, what we -- that we have seen here when we first decided to enter Mapco back in 5 or 6 years ago, we declared that one of the sources of that is that we saw was the fact that it ranked poorly according to many operational measures, which were far below the industry average in the U.S. We had achieved the objective of bringing up to date the operational performance of Mapco to a great extent. And actually, as a matter of fact, we have basically doubled EBITDA since we took control 5 or 6 years ago. Together with that, we also mentioned at that point that we saw opportunities for consolidation in the market. This market is very disaggregated. And we saw some opportunities for consolidating and therefore, leveraging and giving way to synergies among different players.
We still see that but we also see that the scale required for being an efficient player is much larger than the one we have. And therefore, as a matter of fact, we have sold our assets. One of the buyers is a network -- is a company that operates a network in the U.S. that is 20x the network that we operate. So clearly, this is a business in the U.S. that requires a lot of scale that has to do with rising costs, has to do with energy transition. And therefore, clearly, it is an asset that is worth more in the hands of third parties.
With all that in mind, we have announced this agreement to sell the Mapco company to 2 buyers. One of them is Circle K Stores and the other one is Majors Management. As you well know, Mapco is a company that operates gas stations in several states around the U.S., The most important one of them being Tennessee. The transaction price, the EV that was agreed for this transaction, the enterprise value was $725 million and of course, this is subject to customary adjustments for these type of transactions.
Cash held by the company at this point in time is around $40 million -- $40 million to $50 million. So that should be one of the adjustments that should take place. We estimate that the net income before taxes that will be generated by this operation is around $100 million income before taxes. And we expect to close the transaction during the last quarter of this year. It is subject -- still subject to the approval of different authorities, and therefore, we have to wait for that.
In relation to forest fires, Arauco issued an update on the forest fires. This was an intense season during this year, although there was a smaller number of incidents, the number of hectares that was affected -- that were affected by the forest fires is much higher than last year. This was basically a consequence of irresponsible or even intentional actions by third parties, together with certain weather conditions and wind conditions that favor the expansions of fires.
In spite of all the efforts carried out by Arauco, which were very abundant, the damage to the company and to the country was quite significant during the forest fire season. 35% of fires was took place in the -- in third-party properties. As we mentioned before, the net effect of the fires, this is made up of the damage to our biological assets and lands, net of the recovery that we have estimated of wood that could be recovered from those plantations plus the recovery that we should get from the insurance company. All of that, the net effect should be 49 -- the one that we have recorded already is $42.9 million. That is being recorded as of March 2023.
In terms of ESG, we continue to make a lot of progress. This is a mention of the business that has become more and more relevant and which now ranks at the highest strategic level, and we have different highlights to mention here. One of them being the fact that we reported or published our first integrated report for the year 2022. This is a report that follows the standards of the Chilean Financial Authority, together with SASB and TCFD.
We have basically grouped our initiatives and our attainments and milestones along 4 pillars, which are listed there: governance and integrity, climate action and management of natural resources; sustainability and innovation; and social and economic value creation. You can see this report on our website, and it has lots of details, a lot of information on development -- developments, milestones, goals, metrics and so on and so forth for the -- for our different divisions. So you're welcome to have a look at this report.
As we mentioned before the Arauco went ahead with an issuance in the local bond market for a total of approximately $250 million in local currency linked to inflation. So UF is the currency of these bonds. The rates are shown there, 3.3% and 3.2% approximately for the 2 tenures that were issued, which are 9 and 21 years. These bonds have been rated as sustainable, which has to do with the fact that Arauco commits to allocating an amount similar to that raised in the issuance for initiatives related to green and social projects. And this can be done either during the 3 years preceding the issuance or during the lifetime of the bonds. So a good bond placement there by Arauco.
Copec continues to make progress with electromobility and energy transition. We had announced during the last few conference calls that we have progressively been awarded different terminals for charging buses -- city buses. We have actually started operations at 8 of the 10 terminals that we have been awarded, and we expect to have them all up and running by May this year.
In addition to that, we were also awarded the first terminal in Chile for interprovincial buses. So these are buses going from one city to another rather than within the same city. So this was also awarded to Copec. And then on another front, having to do with business model transformation and initiatives that complement our business model, we launched the application for electronic payments. And the rationale for that is basically the fact that we have a very interesting base of clients, 1 million clients visiting our gas station network on a daily basis.
We already had an application for paying at the pump at Copec, and it made a lot of sense to expand that application to offer additional services to those clients. So the first service that we are offering is this prepayment service. That is already loaded into this new app that we have launched. This is all part of the strategy of exploring and developing businesses that allow to add value for our existing assets and complement our business model.
So having said all that, I would welcome you to pose your questions. And we will have Cristian and Gianfranco joining us in this conversation to tackle whatever questions you might have.
[Operator Instructions] Your microphone is open.
Thank you all for joining. I'm going to start with a question from Jens Spiess at Morgan Stanley. This is in Forestry. So Gianfranco, if you can address it. Excluding the MAPA's ramp-up and maintenance shutdowns, have you seen an improvement in costs related to lower raw material prices and lower inflationary pressures?
Okay. Not really. I mean we have seen only in energy and fuels and of course, in freight -- in ocean freight, but not in, of course, in wood and chemicals yet. So our unitary prices and the variable cost in that portion continued to be more or less the same levels as 1 year ago. Of course, inflation is pushing salaries in the countries where we operate and inflation is still high in Chile around 10%. So that is pushing a little bit at the fixed cost. But in terms of variable costs, only in fuel and energy and freight, but we expect at some point that also chemicals will start to go down. Wood we don't see yet some diminishing in the cost of wood because it's a trend that is everywhere in the world that wood is more expensive.
Thank you, Gianfranco. I have another one. Alfonso Salazar at Scotiabank. He has a follow-on question. What in your view should support a pulp price recovery, given the demand is weak and the market expects supply to increase? And based on the past experience for how long do you think the price can stay close to the bottom?
Well, every cycle is different, and it's very difficult to try to forecast the increase in prices. The last cycle we had a sharp increase in price after we reached the bottom, but that the situation was different. We were in the pandemic and not really a lot of supply coming into the market. This time it's different because we have 2 projects ramping up, our MAPA project and the UPM project in Uruguay. So we have 2 mills, adding volume. And the only thing that could change the level between demand and supply is an upturn in demand in China, something moving more the economy there, the demand for paper and some -- that pushing some restocking in the customers so they're willing to increase their stock and that could push prices up. But I think that we don't see big increases in the coming month. I think it will be a slow increase, if any, because of the additional supply that's coming to the market.
Thank you, Gianfranco. I have two questions also from Jens Spiess at Morgan Stanley. Rodrigo, regarding the Mapco sale, if you're contemplating a special dividend or paying down debt?
Yes, we will be, as I mentioned in the presentation, the total profits coming from the Mapco sales should be up to $725 million approximately which is the enterprise value plus the adjustments that should be made towards the date at which we closed the transaction. Of course, part of that will go to pay down debt. Actually, there is a debt that is strictly associated to the Mapco acquisition, which amounts to $150 million to $200 million. And then regarding the other uses of the proceeds, of course, there will be some tax involved but also regarding the other users, still to see. I would say it's still to see and study. In terms of dividends, we have -- we are following our traditional long-term policy of 40% of net income. We have, in the past, paid out extraordinary dividends resulting from the sale of assets as we did when we sold Gasmar and the Forestry assets. But going forward, we should always aim to comply with our financial policy, which basically sets a range for net debt to EBITDA.
And at the same time, we should be able to finance profitable, sustainable growth and face refinancing needs under uncertainty. In this particular year, we're facing a lot of refinancing needs. So all of these factors should be taken into account when decided whether to pay an extraordinary dividend or not.
And also, how much was the FIFO effect in the Fuels division during the first quarter and else equal, what are your expectations for second quarter?
We had a negative effect of FIFO, Colombia and Chile added of around approximately $10 million to $15 million, which compares with a positive effect last year. Last year, we had around $30 million to $35 million of positive effect. So a large part of the -- there was a significant negative effect coming from that source. It is very hard to project this effect. We usually work with FIFO at 0 level because it's very hard to project, and it has to do with the variations of oil prices and the moments at which we buy oil during the year. So we do not basically project negative or positive effects during the year. But so far this year, we do have a negative effect. As I told you, around $10 million of total negative effects, Chile plus Colombia consolidated.
Thank you, Rodrigo. I have Isabella Vasconcelos of Bradesco. If you can comment on examples of potential opportunities in new energy that you would be interested in?
Yes. Well, as we have mentioned before in other conference calls, we acknowledge that we have a long-term threat coming from electromobility and from energy transition. Although it's very long term, we expect markets to continue growing in LatAm at least for several years, but we have decided to prepare ourselves for that scenario as soon as possible.
We are working along different lines. One of them is to be a leader in electromobility in the markets in which we operate. As a matter of fact, and as we have mentioned several times, we believe we are one of the leading players in Lat Am in this front. We are one of the players with the most number of gas stations and electrical charging points, both within and outside our gas station network. We are the most important provider of electricity for buses in Chile. The most important provider of electricity for mining fleets also in the countries where we operate in Chile particularly.
So one objective is to lead electromobility. Another objective is to explore different sources of energies and renewable energies and energies that -- in which our position and our existing assets may give way to a competitive advantage. One of the things we are doing, we have launched a project of distributed generation that we are going ahead with. It's a 150 mega solar panel-based generation model that we are going to be building during this year.
Small distributed projects, more than 20 different projects that add up to 150 megs. And together with that, we are exploring different opportunities related to energy, mobility and convenience basically. And as we have set up a special division basically and a venture capital like structure for tackling all this. So far, we have invested in solar panels, as I said, distributed generation, artificial intelligence-based system for managing and storing energy, new forms of convenience and so on and so forth.
These are all very small investments, which are basically the objective is to open up options for complementing our existing business model. Together with that, as we also mentioned during the presentation, we are complementing all this with other options that may complement our existing assets. The Blue Express acquisition fits in this kind of investments. They are -- in this case, it's a last-mile logistics company, which is expected to have a lot of synergies with our existing gas station network and also the payments application that we have already launched. That kind of initiatives also aims to add value to our existing assets and open up options for transforming our business model. So that's our line of growth going forward, not only in terms of energy, but also in terms of other initiatives that may be complementary to what we already have.
Thank you, Rodrigo. Another one in Forestry. Rafael Barcellos at Santander, asking if Gianfranco can provide a little bit more color on demand in wood panels business and give more color on each region, which one performing better or which one concerns you the most?
Well, in panels, the region that is performing better for different reason is Argentina, but I mean it's completely isolated from what's happening in the rest of the world. But in terms of our biggest market, I would guess that, Mexico is doing very well. United States is doing quite well. I mean, it has decreased, of course, from the record demand that we had in the past, but it's behaving quite well.
And I will say that Brazil is more difficult, historically has been more difficult because of more supply. And Chile, it's a quite small market, more or less dedicated to export. So I would say that North America is doing okay. Argentina for macroeconomic reasons rather than real demand and Brazil has been more challenging. That's why I say as a -- but as a big summary, the panel demand -- the panel market is going back to where it was before these 2 years of craziness demand in -- during the pandemic. So we are back to normal levels. And we know how to behave in that market, how to manage capacity to equalize demand and we know how to behave in this environment.
And a follow-up in pulp, if you can talk more about what are you seeing in terms of pulp buyers' sentiment?
Well, as I mentioned, China is the main market for our pulp. And in that case, the economy is not consuming a lot of paper, basically because the export markets for Chinese products are a little bit depressed. And they use a lot of paper in the export market of the product and also exporting paper. The local demand for paper, it's quite normal. But it cannot compensate the diminishing in demand for exports.
So that is pushing paper production in China, at the same time, pushing down the demand for pulp. So that's a scenario we have right now. The inventories are low, but they're seeing high inventory in the ports or in the hands of producers. So they feel quite comfortable with having low stocks because they know that they can replenish those stocks very, very easy.
So I will say that waiting for some things to change in order to pick up demand, so our clients will feel better to restock again, and that will push back the wheel to the other direction that we hope will help increase a little bit the prices.
And [ Elor Palma ] is asking, I mean, the sort of in the same line to the previous question, but how do you see China's power negotiation considering their pulp inventory currently? And having said that, the Arauco -- power of negotiation of Arauco if you want to add something in that regard?
Well, as a complement to what I already said, I mean the upper hand in negotiation, of course, is in the hands of clients. And in this case, the Chinese buyers, I think they have exercised their power. That's why prices of hardwood went to the levels that we have discussed, I mean, below $500 in a couple of months. So that's an example of how they use their power and -- especially for hardwood.
For softwood, they have a little bit less increasing -- the slow increase in supply. So the situation is different, and that's how we are seeing the spread between fibers in more than $200. So of course, our power of negotiation is lower than before because we have supply coming from our side, and the demand is not pushing enough to have some scarcity of the product. So we hope that this situation changes or will get more balanced in the coming months.
The next one also from Rafael Barcellos asking about capital allocation for the company. If you can provide more color, Rodrigo, on capital allocation for the year? And what are the priorities and what is expected CapEx for 2023?
Yes, I think we addressed that at least partly during the presentation. We announced the CapEx of $1.8 billion, made up of maintenance for approximately $900 million. Some growth projects in both divisions amounted to $600 million to $700 million, and that has to do with plantations, forests, panel mills that we've announced already. Some plantations at the Sucuriú project as well. Some final equipment, some remnants from MAPA in the Energy division, some optimization of our gas station network, energy transition as well.
And finally, some efficiency projects in all of our divisions, which have to do with some projects that have been postponed during the pandemic, which will allow us to bring down costs in several operations and become more efficient. So all in all, $1.8 billion, which compares with $2.3 billion for last year. And then I think that -- that is basically the question, Cristian? CapEx allocation.
Yes, right.
Yes, capital allocation continues to be tackled along the lines that we've announced previously. So in terms of growth going forward and during this year as well, we have defined that we should continue to invest according to our traditional philosophy, which is long-term investments in areas where we have competitive advantages, focused in energy and natural resources, especially forestry. We will be looking for geographies that have good conditions for growing forests as we have done in the past.
Sucuriú and Zitácuaro and the projects we have announced in Forestry fit very well with this philosophy. And in Energy, the philosophy is to trying to add as much value as possible to our existing networks and looking for complementary assets that may help us to do so and also to -- for assets that help us to complement what we have in terms of energy transition and business model transformation. So what we have mentioned in electromobility, in solar power generation and in last-mile logistics and so on are good examples of all this.
Still on CapEx. Alfonso Salazar says that the guidance looks still high at $1.9 billion for the year and free cash flow from the pulp division will likely be impacted by the low price. Is there some flexibility to adjust CapEx based on market conditions? And if may be deployed part of this CapEx in the next year?
Let me take that at a consolidated level, and then I will hand it over to Gianfranco to answer for the Forestry sector as well. At the consolidated level, yes, we do have flexibility, of course. As I mentioned, part of the projects have to do with efficiency projects, which are not being carried out yet, which are not urgent and that were actually postponed during the pandemic. They can continue to be postponed if needed. And together with that, since we announced the sale of Mapco, the portion of CapEx that was allocated to Mapco, which was not -- which was quite relevant actually, around $100 million, we could reevaluate whether we will be going ahead with that or not. So there, you have at least a couple of sources of flexibility regarding the CapEx for this year.
In our case, of course, since we have a negative free cash flow. I mean, we're going to -- in terms of adding CapEx, we're going to postpone some of the projects that we can do. We are prioritizing our CapEx program. I think that we're going to be more close to $1 billion rather than $1.2 billion, which is if you apply the percentage of the $1.88 billion to the percentage shown there. Because execution always lags little bit the budget. So I think we're going to be more close to $1 billion. And I think we're doing an exercise of trying to reduce the CapEx program in order to preserve cash and reduce leverage. So that is an effort that we're already doing in our case.
And Gianfranco -- and this is the final question. If you can provide more detail on the breakdown for CapEx in Forestry this year? And if that CapEx includes the 150 megawatts wind farm project that may be developed?
Well, starting from the end. No, it doesn't include the 150. We don't have plans to spend that amount of money this year. We are still in the process of the environmental approval project and more steps before deciding to commit capital to that. It basically includes plantations. The normal plantations that we do replanting what we harvest and also additional plantation for the growing forest that we are doing in -- for the Sucuriú project in Mato Grosso do Sul. There we are planting about 50,000 hectares a year in order to have the available forest for the project.
So that probably means about $200 million extra than the normal forestry planting budget. Then you have about probably $300 million to $350 million in the Pulp division because of maintenance, small projects and also some legacy payments of MAPA and then you could have another $200 million in the panel division. So that more or less is the breakdown on -- but this year, we have more on Forestry than we used to have and probably next year also as we grow the forest to be able to start the Sucuriú project.
Thanks, Gianfranco. At this time, we don't have more questions. So I hand it over to Rodrigo.
Okay. Thank you all very much for joining us today, and we will be meeting each other at some point during the first weeks of August in order to take a look at the results for the second quarter this year. Thank you very much.
Thank you. This does conclude today's presentation. You may now disconnect, and have a wonderful day.