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Op-Ed

Mexico’s Energy Reforms Become Law

BROOKINGS.EDU

On August 11, 2014, President Peña Nieto signed into law the 21 component parts of a comprehensive energy reform. Eight months after introducing constitutional amendments to radically transform Mexico’s hydrocarbon and electricity sectors, private investors and Petróleos Mexicanos (PEMEX) can leave the starting gate.

Peña Nieto was among the first to make the dash, announcing that he would speed up the creation of a new power-grid and advance the date for declaring which fields would be available for bidding by private and foreign companies. In signing, he announced that “This is the moment to put the energy reform into action.”

Passage and signature of the secondary, or implementing, laws address critical issues that were important both to PEMEX and to private investors seeking to invest in Mexico’s hydrocarbon potential.[1] Investors now have detailed elements of the new fiscal regime that will impact any contracts with PEMEX, as well as bids for production sharing contracts, known as “asignaciones,” with the Mexican government. The oil industry has responded positively, giving a “fairly pro-market” grade to the new regime. Furthermore, PEMEX acquires a legal framework that enables it to become a competitive and productive national oil company.

Since the secondary laws were introduced into the Senate on April 30, 2014, intense discussions have taken place with both potential investors and PEMEX. Total S.A. demonstrated early interest by agreeing to strengthen its technical cooperation with PEMEX. Pacific Rubiales, Latin America’s largest non-state hydrocarbon producer, noted its intention to be among the first oil companies to sign on. Noble Energy, a U.S. independent with 70 years experience in global exploration and production, expressed interest in contracting with PEMEX for deep-water exploitation in the Gulf of Mexico. Meantime, PEMEX shared with the government the list of projects, known as Round Zero, that it wished to continue developing either alone or in joint ventures with private entities. The Round Zero was due to be published on September 15, but in signing the legislation, Peña Nieto advanced that date to the week of August 18. PEMEX directors are eager to follow up the expressions of commercial interest and begin to contract with service providers for the development of Mexico’s estimated 10.073 billion barrels of proven reserves of crude oil.[2]

The viability of PEMEX is critical to the success of this reform because the government cannot succeed in these radical changes without the buy-in of an institution which holds both national and historical significance for Mexican citizens. PEMEX was created to replace the U.S. and British oil companies of 1938. In the intervening 76 years it has faced constitutional constraints from working with international oil companies and taking advantage of the technology and finance available to owners of significant proven oil and gas reserves.

Two categories of critical issues can be distinguished in the implementing laws, namely the tax and financial obligations; and second, the governance and political responsibilities.

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