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Research Report

Mexico Rising: Comprehensive Energy Reform at Last?

David L. Goldwyn
Copyright Date: Dec. 1, 2013
Published by: Atlantic Council
Pages: 31
OPEN ACCESS
https://www.jstor.org/stable/resrep03586
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Table of Contents

  1. (pp. 1-1)
    Peter Schechter and Jason Marczak

    What a year for Mexico. Since taking office in December 2012, President Enrique Peña Nieto has successfully tackled a daunting list of issues—many of which bedeviled his predecessors for decades. Education reform institutes national testing and standards and rewards teachers for results. Telecommunications reform expands competition. Financial reform increases access to capital at lower interest rates and creates a universal pension program. Political reform loosens the grip of the three main political parties and strengthens independent oversight. Now, energy reform frees up the energy sector for worldwide investment and further unleashes Mexico’s huge job-creating potential.

    It is fitting that...

  2. (pp. 5-7)

    With a masterful—and enviable—show of cross-party compromise and cooperation, Mexico has launched a revolution in its energy industry. The scale of the reform is breathtaking in its scope and ambition. If it succeeds, Mexico will evolve from a major supplier of oil to a strategic one by 2025.

    First, Mexico proposes to introduce private investment into the exploration, production, and transportation of oil and gas, as well as into the refining and marketing of hydrocarbons, and the generation—and in some cases transmission and distribution—of electricity. This ends the monopoly role of Petróleos Mexicanos (PEMEX), the national...

  3. (pp. 8-8)

    The need for reform of Mexico’s energy sector has been well understood for decades. Both the PRI and the PAN unsuccessfully pursued reform while holding the presidency since the 1990s. Despite its impressive reserves of oil and gas, oil production has declined, falling by 1 million barrels per day since 2004 [see figure 2]. Mexico imports natural gas and petroleum products and there are shortages of natural gas. At the same time, power generation is expensive, highly carbonintensive, unreliable, and operating well below capacity.

    It was clear to legal experts that changes at less than the constitutional level would not...

  4. (pp. 9-15)

    Mexico’s Congress approved changes to Articles Twenty-Five, Twenty-Seven, and Twenty-Eight of its Constitution on December 12, 2013.⁴

    The change to Article Twenty-Five provides a basis for reforms to PEMEX and the CFE.⁵ The change to Article Twenty-Seven reverses nationalization to allow for contracting with private entities. It also provides for “entitlements”—a legal item similar to a license—to be granted to stateowned productive enterprises or governmental entities.⁶ The change to Article Twenty-Eight protects PEMEX’s and CFE’s abilities to be dominant (not monopoly) market players and establishes a Mexican Petroleum Fund.⁷

    Mexico’s energy reform document⁸ explains the government’s clear understanding...

  5. (pp. 16-19)

    We expect Mexican oil and natural gas to be open for business for international oil companies and other private investors in twelve to twenty-four months. Three major opportunities are identified below.

    The earliest openings for private capital will be in partnership with PEMEX as it migrates its existing fields retained in round zero to joint ventures. Subject to SENER’s approval on policy, CNH’s approval of partner, and the Finance Secretariat’s terms, PEMEX will be able to enter into all three models of contracts with partner companies for its fields. PEMEX will be able bolster its income flow by keeping those...

  6. (pp. 20-22)

    Leaders of both the PRI and the PAN have boldly faced the reality that Mexico’s current energy regime is failing. Weakened oil production, natural gas shortages, inadequate infrastructure, product import dependence, and overdependence on PEMEX for government finance are just a few markers of inadequacy. Garnering political will for meaningful reform, however, requires more than pointing at failure; it requires a picture for prosperity that can only come with reform. That picture is bright.

    This ability to deal with structural problems (education, labor, fiscal affairs, and electoral reform) may make Mexico the emerging market to watch. Compared to Brazil, Russia,...

  7. (pp. 23-23)

    Mexico has taken dramatic and historic steps to reform its energy sector. The scale of its ambition is unprecedented in both the speed of intended change and the scope of its transformation. The fact that the challenges of executing on this promise are formidable should not diminish or obscure this remarkable cross-partisan act of leadership and vision. Mexico is rising, first in political courage, and next, we hope, in prosperity, global stature, and domestic tranquility.

    We title this “Energy Reform at Last?” because this impressively permissive constitutional scheme is a necessary but not sufficient precondition to real reform.

    The implementing...