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Mexico energy reform: fulfilling expectations

Sunday, August 17, 2014


 

It’s early to think about the reversal of a plan, launched last week, which opens Mexico’s oil-gas sector to private companies.

Mexicans will benefit, assuming that productive new investments generate revenue and reduce energy costs.

At the same time, failure to produce results could result in a rejection of the reform, one of the most controversial in modern Mexican history.

For now, private companies, either national or foreign, will be able to develop oil and gas projects, as well as related operations, such as pipelines, following the signing into law of new rules by President Enrique Peña.

Various companies, including Royal Dutch Shell and Exxon Mobil have expressed interest in investing in Mexico, which has 14 billion barrels of proven reserves, but where output has declined by a quarter during the past decade, mainly because of a lack of funds.

Some of the more promising options, including offshore sites in the Gulf of Mexico are particularly expensive.

Mexicans will within two years feel the benefits of the reform, including broader access to energy services, and lower prices for electricity and natural gas, along with better-quality gasoline, said Emilio Gamboa, senatorial coordinator of Peña’s Institutional Revolution Party.

Food prices will likewise decline, thanks to production of fertilizer, derived from increased volumes of local feedstocks.

State-owned Petróleos Mexicanos for its part faces financial problems.

On one hand, governments have historically deprived it of revenues, which could be used for investment.

Instead, Pemex has been a cheap source of funds for other initiatives.

In addition, Pemex’s has a bloated, often inefficient workforce.

But Pemex might not look bad to a future government, if the results of the reform are less impressive than the claims currently made for it.

For all of its defects, Pemex – a public monopoly for three quarters of a century - remains an icon for many Mexicans.