Reformed Mexico Energy Sector Could Be in Place by Early 2014

The Partido Accion Nacional (PAN) center-right political party announced a separate reform proposal July 31. In its proposal, PAN proposed a concessions-based system in which the private sector and foreign companies would compete with PEMEX. The state would continue to own reserves, but private firms would be able to book reserves. The Comision Nacional de Hidrocarburos (CNH) would be strengthened in its regulatory functions, and would be able to award contracts and concessions.

PAN’s proposal is modeling off legal frameworks developed in Brazil and Colombia, said Gabriel Salinas, a partner with Mayer Brown. PAN’s proposal raised the bar of expectations, helping the Partido Revolucionario Institucional’s (PRI’s) proposed amendment. Though it maintains the legal framework in place since the 1950s, the initiation of profit-sharing discussions marked a huge step forward in the energy reform debate, Salinas noted.

PRD, which opposes constitutional reform or private sector investment, has proposed change through secondary laws and the removal of PEMEX from government and union control by removing union representatives and the Minister of Finance from PEMEX’s board. PRD also has proposed lowering PEMEX’s tax obligation to the government so it can invest in exploration and production technologies and uniting PEMEX again into a single entity.

Efforts for previous presidents to reform Mexico’s energy sector stalled in Mexico’s political process; the last attempt at energy reform in 2008 resulted in only modest results. However, the message got through to all three political parties and Mexico’s citizens that the nation’s energy sector faced problems.

In shaping his proposal, Nieto looked to announcements earlier this year by the PRD and PAN to see what goal posts the government had to aim between, Wood said. Nieto’s proposal seeks to bring everyone under the same tent by not being too extreme. The PRD and PAN’s proposals showed Nieto “what would be acceptable to the middle.”

Nieto made clear that, even after reform, hydrocarbons would belong to the state, and that the government was not granting recessions. Nieto’s efforts to pacify the other political parties worked to a certain extent. PAN will likely vote in favor of the proposal, and PRD reacted less violently than expected to Nieto’s proposal. PAN will likely vote in favor of the proposal, Wood noted. This likelihood will increase if PRI is willing to negotiate over the strengthening of the CNH and reforming PEMEX’s board to reduce the union influence.

Lazaro Cardenas’ son Cuauhtemoc Cardenas threatened to lead a national campaign for a referendum on the issue of constitutional change – while PAN argued the proposal was too timid. However, protests in Mexico don’t seem to have much impact on the legislative process, and Cardenas influence has waned.


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