Energy reform: will Mexico’s newest revolution boost renewables – or just fossil fuels?
by Garrett Hering – June 2, 2015
For the first time since 1938, the world’s largest oil companies are preparing to invest in Mexico. The last time they were there, things ended badly: President Lázaro Cárdenas seized their assets, created state-owned oil monopoly Petróleos Mexicanos – or Pemex – and sent foreign competitors packing.
Now, 77 years later, Mexico is inviting them back. As part of its far-reaching hydrocarbon and electricity reforms, the country is reopening its largely untapped oil and natural gas reserves to foreign investors and competitors. The process will begin in earnest in mid-July with an initial auction of 14 oil exploration areas in the Gulf of Mexico.
More than two dozen companies, including global energy giants ExxonMobil, Chevron and Total, as well as Pemex, are lined up to bid next month after Mexico’s oil regulator prequalified them last week.
But as the country moves forward, questions remain. Will the breakup of Mexico’s decades-old monopolies and the arrival of new oil, gas and power players lead to renewed growth and investment across the economy? And will they cause a new host of problems, including increased environmental damage?
‘Building a better country’
Mexico’s momentous policy shift was enabled by several controversial new laws and constitutional amendments that were approved over the last year. “Reforms are the foundation for building a better country,” said Mexican President Enrique Peña Nieto, speaking last month at the World Energy Forum on Latin America, held in Quintana Roo. “They are a platform for beginning a new stage of development.”
Not everyone is excited about the new development, however. Environmental groups including Greenpeace have expressed concern over increasing oil and gas exploitation in Mexico. In March, Greenpeace blasted the UK government over a $1bn investment involving Pemex and other fossil fuel companies.
But the energy business can have a positive impact, says Eduardo Reyes Bravo, a Mexico-based director of infrastructure and energy strategy with PricewaterhouseCoopers. “One of the key elements of the reform is to enable competition in the market,” he said. “Competition should bring better prices to industry, which, in turn, can be more competitive, increasing exports, generating new employment and reducing prices in the local market.
The reform measures aim to boost competition, and the government and energy companies claim they can improve Mexicans’ economic opportunities, environmental protections, health and trust in their institutions.
“If we really want to achieve change in these [corrupt] practices, then this has to be a structural change throughout society,” Peña Nieto said. “We have to be the government that knocks down the walls that are in the way of our achieving a more equitable and just society.”
‘Change does not happen overnight’
Joseph Stiglitz, a Nobel laureate and professor at Columbia University who co-chaired the World Economic Forum on Latin America, called Mexico’s reforms – which also encompass education, telecommunications and finance – “very impressive”. He said: “I’m very optimistic that these really will spur economic growth.”
Stiglitz also said he was pleased that energy reform included a development trust, funded with petroleum income. Banco de México, the country’s central bank, will manage the fund, which will support pensions, science and technology, infrastructure investments, and scholarships. It could become a substantial development asset if managed properly, Stiglitz said. Mexico expects $62.5bn of new foreign investment into its energy sector in the next three years.
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