Shannon K. O'Neil

Latin America's Moment

O'Neil analyzes developments in Latin America and U.S. relations in the region.

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Mexico Energy Talks

by Shannon K. O'Neil
June 2, 2014

Pemex Engineers Two engineers with Mexico's state owned oil company, PEMEX (Petroleos de Mexico), watch work on an oil platform in the Sen oil field, in the swampy south eastern state of Tabasco, September 20, 2000 (Andrew Winning/Courtesy Reuters).

I recently had the opportunity, along with Vianovo’s James Taylor,  to chat with Mexican Congressman Javier Treviño, one of the country’s energy reform leaders. We focused on what investors and analysts can expect from the secondary legislation currently being hammered out in Mexico’s Congress—touching on the development of Mexico’s new energy model, national content requirements, the role of state and local governments, and environmental and security considerations.

You can read the beginning of our talk below:

1.  If you could list the key elements present in the secondary legislation that international companies and investors should know about, what would they be? Why?

Mexico’s energy reform is historic, real, and transformational. We are defining an innovative Mexican model for energy viability in the twenty-first century. There are several key elements:

a)  Transforming Pemex and CFE (Mexico’s public utility company) into true productive enterprises, not bureaucratic agencies, but efficient and competitive companies.

b)  Opening the energy sector to private domestic and international investment, to benefit the whole Mexican economy and the Mexican people by providing certainty for investors with clear rules for the types of contracts considered: production sharing, profit sharing, licenses, and the existing services contracts.

c)  Strengthening the regulatory framework of the Mexican government and giving new enforcement responsibilities to the Secretary of Energy, the National Hydrocarbons Commission (CNH), and the Energy Regulatory Commission (CRE) to oversee and manage the energy sector.

d)  Ensuring the benefits of the reform for present and future generations of Mexicans by creating the Mexican Petroleum Fund for Stabilization and Development, to be managed by the Central Bank (Banco de México), including a mechanism to channel resources for long-term savings and investments.

e)  Safeguarding environmental protection, by creating a new Industrial Safety and Environmental Protection Agency, which will design and implement specific public policies.

f)  A firm commitment to transparency, accountability, and the rule of law.

These are the most important elements of the reform. It isn’t only about oil, gas, and electricity, but also about developing a Mexican model for industrial competitiveness in the twenty-first century. A model that takes into account the energy revolution we are witnessing in North America and that Mexico will now be able to join. It is about a reindustrialization process that relates to competitiveness and job creation in all of North America and about lowering costs to make Mexico more competitive. Ultimately, the energy reform is about increasing competitiveness and creating more jobs.

You can read the rest of the interview here.

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