Market Comment 013: Ten Bold Steps Not Taken

in Energy Reform

MEXICO’S 2013 ENERGY REFORM

THERE ARE AMPLE GROUNDS TO CELEBRATE the passage on December 12, 2013 of an energy reform package in Mexico, one that is unexpectedly broad in its scope.

DOWNLOAD the final text of the 2013 Constitutional Amendments to Articles 25, 27 and 28, relating to energy reform (English bookmarks added to facilitate document navigation).

There are also ample grounds for concern: The Senate debated the concepts and language of the constitutional amendments; but in the Chamber of Deputies the PRI leadership pushed the senate version in an up-or-down, fast-track protocol, essentially without debate. Similarly, the majority of state legislators that by December 18 had approved the constitutional amendments did so in a hurry, again without debate. In democratic societies, laws need social legitimacy, and it remains to be seen if society will accept this rushed-through energy reform.

With this caveat, the reform goes a long way to correcting an imbalance between constitutional precepts and commercial frameworks. The reform moves commercial language out of the constitution in order to put it in a space subject to law, policy and regulation.

In this 2-page report, we offer criticism of the management of the energy reform and identify more ambitious measures that represent policy and political challenges for future administrations.

  1. Rationale. The government lost control of the rationale for an energy reform, and, by inattention, allowed the foreign media to define the purpose in unfavorable terms. According to the WSJ (and many other franchises), the purpose is “to Open Energy Market.”  Why?  Basically, because Pemex has failed to keep up oil production.  So the rationale for reform is defined in terms of correcting past policies and acknowledging the poor performance of Pemex. The government, we are informed, is pivoting from failure.

An alternative rationale, which the government should have adopted, is that the State needs the flexibility to respond to evolving technologies, market conditions and business models; for this, there needs to be a clear separation between constitutional and commercial considerations and restrictions. As matters stood, commercial restrictions had been put into the constitution as far back as 1960 which needed to be removed in order to achieve the flexibility to devise public policy in a responsible manner.

To purchase Ten Bold Steps Not Taken in Energy Reform in its entirety and to request other reports regarding topics of interest to you, e-mail sales@energia.com or call (text) 832-434-3928.

Written by

Baker & Associates offers niche-market consulting services and business intelligence related to Mexico's oil and gas, power and chemical industries. Subject matter expert and publisher George Baker, who spearheads the firm, carried out consulting assignments starting in the late 1970s at the height of the Oil Boom in Mexico. His knowledge and familiarity in these industries runs deep.

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