Mexico Energy Intelligence®

Introduction to our recent reporting on energy reform

Houston, December 29, 2013

George Baker
Publisher

2013 MEI Reports on Mexico's Energy Reform

PERHAPS, AS AN HISTORICAL AVERAGE over the past five or ten years, we have issued two MEI reports in any given month. During the period November 3 to December 27, 2013, we issued fourteen (14) reports, all but one focused on the emerging story of energy reform. (The other report was about the significance, if any, of the 20th anniversary of the signing of NAFTA.) Over the same five or ten years, the length of an average report would be 10-15 pages. The total number of pages of the 13 reports issued during November-December was 47—so the pace of reporting clearly picked up.

For being “long in tooth” (mucho colmillo) in the subject matter, as a matter of principle, we did not want to jump on the bandwagon of triumphalism in relation to energy reform, as did many consultants and media stories. On the contrary, in our Market Comment 013 we identified bold policy items that were not included in the energy reform; and in Market Comment 014, we gave attention to the arguments of Sen. Manuel Bartlett against the reform package.

Repeatedly, we faulted the government for not offering a credible explanation of its goals; and, in our participation in a panel on energy reform at the Baker Institute at Rice University on October 31, we had to do the explaining ourselves: The government seeks to separate out commercial issues from constitutional ones in order that in 2014—and the decades ahead—it may have the flexibility to respond to evolving technologies, business models and market conditions.

In crafting the reform, two truly big steps were not taken:

      1. The creation of what we have termed Pemex 2.0, which would be a mixed-capital company with majority state ownership and a minority of unrestricted shares in the NYSE. It is this Pemex 2.0 that will legally be able to operate outside of Mexico and will be able to enter into joint ventures inside Mexico; but none of the benefits of such an arrangement will be possible with Pemex as a more efficient agency of the federal government of Mexico. The same arguments could be made for a CFE 2.0.
      2. A rewriting of the National Energy Narratives in such a way as to soften, if not eliminate, the xenophobic theme of us-versus-them. The existing narratives for oil and power completely miss the point that innovation takes place globally, not nationally; and that you have to fully participate in global commerce in order to receive the benefits of innovation.

The benefits of the reform package, as negotiated, must be understood in two dimensions: commerce and public oversight. So the questions going forward concern not only the commerciality of the terms and conditions that will one day be offered to companies other than Pemex and CFE; the questions equally concern the ability of the State to build those institutions that would regulate the oil and electric industries in such a way as to promote both competition and cooperation, while simultaneously carrying out environmental stewardship.

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Written by

George Baker

Baker & Associates offers niche-market business and policy intelligence related to Mexico's oil and gas, power and chemical industries. Over 1,000 reports have been issued in the last 20 years. Subject matter expert and publisher George Baker, who directs the firm, has carried out consulting assignments starting in the late 1970s at the height of the Oil Boom in Mexico. He brings bilingual and bicultural skill-sets to understanding and responding to challenges of business and public policy, coupled with a deep familiarity with the history and idiosyncrasies of the Mexican operating environment.

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