Photo credit: Gas Prices at Their Lowest Levels Since January by KOMUnews
Petróleos Mexicanos (Pemex) has decided to cancel the $10 billion refinery it had planned to build in Tula. According to the Mexico City newspaper El Universal, the government’s oil and gas monopoly has not included the refinery in its 2014-2018 business plan despite announcing that it would in March 2008. The publication pointed out that the indefinite delay was due to insufficient funds. Pemex had already invested around $370 million but required more to continue.
Earlier this year, speakers at the BNamericas Mexico Energy summit pointed out that the lack of investment was affecting the growth of the energy sector. According to CRE commissioner Francisco Barnés de Castro, “[Investment in refining] has fallen behind year after year, decade after decade, and we now have a phenomenal accumulated gap in investment.” As a result, the Mexican national refining system hasn’t been updated to produce up to its full potential.
Critics blame Pemex for the lack of investment as its entire budget goes it to its subsidiary PEP. Of Pemex’s $23.9 billion budget, only 9.28% has been invested in the Pemex Refiacion, causing the facilities and equipment to stay outdated. As a result, only two out of Mexico’s six refineries can process heavy and ultra-heavy crude while the rest are striving unsuccessfully to match NOM-086 standard for sulfur levels in gasoline and diesel. This has driven Pemex to import gasoline and diesel despite Mexico being the ninth-largest oil producer. Officials even predicted that Mexico would become an energy importer by 2020.
This has driven the Mexican government to negotiate more ambitious reforms with the opposition party. Mexico had opened up its energy sector to foreign investors in August, the first move of its kind since 75 years. Officials from both the Institutional Revolutionary Party (PRI) and the National Action Party (PAN) are starting to agree that the state should determine the terms of the contracts offered. This is a change from the parties’ previous plans, which revolved around profit-sharing agreements and disappointed many investors in August. An anonymous official stated, “At the end of the day, Mexico will allow ‘contracts’ in the constitution which will give enough flexibility for a whole range of projects.”
With support from PAN, the ruling PRI has the votes it needs to change the constitution and expand the energy sector’s financing options. President Enrique Peña Nieto is especially interested in attracting investments from oil majors like ExxonMobil, BP and Shell. However, the fate of this decision is yet to be determined. The voting session is expected before December 15th, which is when the Christmas recess starts. As for the terms and conditions of the reform, a secondary legislation is expected to pass in early February next year. The first contracts will be ready early in 2014.
The reform will have a bigger effect that surpasses oil. Once it goes through, investment opportunities in oil sector could open new investments in other sectors bringing many factories along.
Photo credit: Black Rock Solar photovoltaic array at Food Bank of Northern Nevada by BlackRockSolar
Mexico’s geographic location and solar resources have made it one of the top candidates for solar energy development. However, till 2012, the number of investors in this industry and government support was limited. Now, despite its thriving oil industry and an upcoming offshore drilling treaty with the US, Mexico’s solar energy is growing steadily and strongly.
Up till recently, most of Mexico’s clean energy was produced by hydroelectric stations while wind and solar energy combined produced less than 1.5% of the power. With local and foreign companies receiving permits for 215 megawatts of solar plans, over 40,000 homes in the country’s sunnier northern regions will receive ample power and Mexico’s solar capacity will increase by fivefold.
By opening its energy sector to foreign investors after 75 years, Mexico has lured in more than American oil companies. US-based First Solar Inc. along with German Saferay GmbH and Spanish Grupotec Tecnologia Solar SL have bought projects in Mexico. As for local efforts, local investor Gauss Energia has opened a photovoltaic plant in September, which is the largest in Latin America. Through it, Gauss Energia plans to “open the way for the development of the photovoltaic sector”.
Gauss Energia’s plans appear to be successful as Mexican states Coahuila and Oaxaca have started pushing solar PV projects of their own by the end of October. The state legislature of Coahuila passed a resolution to sign a 15-year power purchase agreement with Parque Solar Coahuila to create a solar park that will cover the energy needs of the state government and Torreon and Matamoros’ municipal governments. Private and local firms will fund the entire project.
As for Oaxaca, Chinese company Hareon Solar plans to invest $250 million in a solar park and solar panel factory. “The production of solar panels would be done in the Tehuantepec Isthmus,” said Oaxaca’s Minister of Tourism and Economic Development Jose Zorrilla de San Martin Diego. “From there they would take the product to other countries and power generation would happen in Costa Chica.” The project is currently waiting for approval from the Comision Federal de Electricidad. Once initiated, it will generate 1,000 jobs in the Tehuantepec Isthmus, which is where a majority of Mexico’s wind power is generated.
Experts believe that more funding and power purchase deals are required for the market to take off. With deals in hand, price points will be established and investors will be given the confidence required for the market to boom. However, local Gauss Energia has introduced an alternative funding model called self-supply. Through it, developers can sign long-term power purchase contracts with non-state companies to buy electricity at a fixed price. This model has already attracted a few parties, including Ford Motor Co., which in June signed up to purchase 3 megawatts from a future 20 megawatt solar plant in Sonora.
Mexico is expected to generate 35% of its energy from clean resources come 2026. The Energy Minister predicts the production of 2,170 megawatts by 2020.
Photo credit: Lille, France May 2005 by Hunter-Desportes
Mexican president Enrique Peña Nieto announced in the beginning of October that his government would be spending $300 billion on infrastructure to increase the country’s GDP’s growth. A week later, the government issued a statement announcing its plans to tender $7.4 billion on three passenger train projects in 2014.
Tendering opportunities abundant The projects, which are expected to start in the beginning of 2104, aim at connecting the country’s capital with the cities of Toluca and Queretaro. Another train is also expected to connect tourist destinations across the southern Yucatan peninsula. The Mexico City to Toluca route will cost $2.9 billion, the Mexico City to Queretaro route $3.3 billion, and the Yucatan route $1.2 billion. Notably, Mexico’s transport ministry commented that it would use both public and private funds to build the projects. Those providers of railroad technology from around the world – and any other related infrastructure or financial services – are well placed to participate in these projects. Since 2011, Mexican rail has been rising in popularity. The country’s largest railroad, Ferrocarril Mexicano or Ferromex has increased its carload volume by 6.6% and its revenues grew by 13.9%. Similarly, the second largest rail carrier Kansas City Southern de Mexico (KCSM) reported moving 15.9% more carloads in the same year than it did in 2010. With these numbers in mind, the Mexican government wants to accommodate the growing demand of rail transportation within Mexico.
Connecting US-Mexico economies The Mexican government also plans to extend its rail services to connect with it neighbor in the north. This is because the US market is shifting its attention to Mexico. With oil prices on the rise and wages in Asia increasing by the day, the strong economy, proximity and low costs of Mexico are driving US corporations to build factories in the country and then ship their goods back home. With the help of the rail industry, raw goods will be shipped south from the US and finished products will be transported north from Mexico. With the upcoming improvements to the railroad infrastructure, the service will be more reliable and shippers will shift their operations to trains, especially intermodal, as it’s less expensive. Though intermodal has been used in the past only to be discontinued, experts are positive that thing will change thanks to the government’s new measures.
Safety a priority One measure in particular has received ample praise: improving security. The Mexican railroads have partnered with their US partners to ensure that shipments moving within the country or across the border arrive at their destinations undamaged and free of smuggled goods. KCSM and Ferromex have started using x-ray machines to examine contents, dogs to search for hazardous items, and high tech cameras to monitor cars. Of the two, KCSM has a stronger security record; Patrick Ottensmeyer, the executive vice president, sales and marketing at KCS commented, “In 2010, the customer claims rate for theft, vandalism, or accidents for all shipments moving on KCS in Mexico was 0.02 percent. That means 99.8 percent of all loads we transported were moved without a customer claim.” According to government data, Mexican trains are responsible for 12% of freight cargo while cars and trucks carry half of freight. 42% of shipments are carried by rail to the US while 60% reach Canada.
The evidence that railway projects are happening fast Rail has not got too much press in comparison to the energy or telecom reforms. Nevertheless, this lack of apparent PR has helped the Government to work in small projects to support the industry growth. For example, the recent proposal for amending the Customs Law includes a provision that enables railroad as a vehicle for importing or exporting merchandise. Even though it is still no clear the complete regulation for implementing rail clearance, shows the administration interest in increasing traffic for the freight rail industry. Another one is the freight project in construction for the Honda Plant in Guanajuato, which would be in operations for transporting out of factory, delivering to trailers for crossing the NAFTA road to export. Construction of this railway will be finished by end of year to serve the plant starting operations by 2014. The upcoming expansions for the Ports of Veracruz, Lazaro Cardenas, Guaymas and Manzanillo are announced as intermodal friendly. At least Lázaro Cárdenas was announced to have an airport and an industrial park adjacent, which increases possibilitis for railway connection at some point.
There is still no confirmation whether these projects will be operated by private parties or under a PPP. Mexico has been encouraging the formation of PPP, as the US$316bn infrastructure plan is not easy to achieve in a 6-year term.
Furthermore, under the PPP Law, any party can pitch a project to the Governments (federal, state and local), even if they are not into their plans. This gives flexibility for projects to happen and opens the door for innovation and turn-key projects.
If you had the chance, what would be your elevator speech for Mexican Government? Let me know.
Photo credit: Currencies of the world by Images Money
Up until two decades ago, Mexico had been suffering economically, driving many among its population to seek opportunity North of the border. However, trends have changed with the arrival of the new millennium. as the growing foreign-born population between 2000 and 2010 demonstrates. One of the reasons behind this shift is that Mexico’s international trade is booming.
Why Mexico’s Trade is Thriving
The first reason behind Mexico’s successful international trade is China’s rising wages and higher transportation costs. Due to these, countries like the U.S. have decided to shift their operations there. In addition, the Mexican population now has more skilled laborers in its midst. Executives, filmmakers and entrepreneurs from Europe and North America are shifting to Mexico to speed up its growth and ultimately reap the benefits of their efforts. With skilled labor and cheap natural gas found in abundance, and Mexico’s 44 trade agreements in place as of February 2013, this growth was inevitable.
Due to these reasons and more, countries across the world have begun to acknowledge Mexico’s increasing attraction as an investment destination. One of the first to do so was China. Chinese president Xi Jinping has met three times with Mexican president Enrique Peña Nieto this year alone to ensure a cooperative relationship between the two countries. Underscoring their commitment to the relationship, China lifted a ban on some of Mexico’s most famous products such as blue agave tequila. The countries are also in discussions to establish a China-Mexican investment fund and build a China-Latin Cooperation Forum.
Is Mexico Going to Pull Through This Time?
Though many economists believe that Mexico’s growth isn’t going to decrease in the coming years, there are others who wonder if history will repeat itself. Mexico has failed to live up to its economic potential before, such as in 1994 when the currency hit its lowest ever after signing North American Free Trade Agreement (NAFTA).
However, even those skeptical about Mexico’s growth believe that it has another shot. Despite domestic political challenges, Peña Nieto has successfully spearheaded the country’s three major political parties signing of the Pact for Mexico, which enables them to reform the energy, telecom and teacher monopolies which have held the country back. In addition, with more foreigners and highly educated Mexicans joining the workforce, Mexico may easily grow to the same level as the U.S. and outgrow its third country status.
The Bottom Line
Mexico appears likely to be growing into an economic giant to rival other major national economies. With manufacturing moguls like China and the U.S. acknowledging by working to deepen ties with Mexico, there’s a good chance Mexico will not relapse and its economy will continue to grow strong enough to give first world countries a run for their money.
In addition, the sum of all reforms happening in Mexico, such as telecom, energy, education, tax, financial and others, could boost economy enough to keep Mexico attractive among global economies. Do you think that is accurate?
Photo credit: Amazon Android1 by melenita2012
I am recovering a July post from Homo Zapping, an independent news blog in Mexico, which reported that President Peña Nieto is trying to set up a big data project that would bring together information from government files and social networks. This project could be in charge of Google, Inc., EMC Computer Systems and Kio Networks with an annual cost of 100 million USD.
On the other side, Amazon announced today that Kindle Store will be available to Mexico. In fact, Amazon has been selling Kindle ebooks since the beginning to Mexico, but they localised the costumer experience.
In addition, announced that it has a deal with Ministry of Education to host content in indigenous languages like Nahuatl and Mixteco.
Amazon is also negotiating contents with major local publishers like Fondo de Cultura Economia (a Government funded book-house), Porrua (the major and oldest publisher of legal textbooks and many classics) and Ediciones Era (a publisher of many big name Mexican writers).
And finally, Amazon declared to be open to sell other “categories”. Mexico’s installed capacity for manufacturing would allow Amazon integrating one North America retail operation under NAFTA. Under recent Telecom Reform, Amazon could also render cloud services, as law allows 100% of foreign investment in telecom licenses, and have a cross-border Ad platform.
Just to add on the landscape here, Mexico has 47 M internet users, 4 M internet mobile users, 33.5 M registered taxpayers and 40 M social network users. That is big time big data to have it analysed and a critical mass for launching an e-commerce platform.
Forbes calculates a potential market of e-commerce in Mexico of 1 B USD. Somebody has to awake this market from its slow growth and certainly you can trust credentials of Jeff Bezos.
This Administration is updating the National Digital Agenda focusing on deploying a better and more efficient eGovernment infrastructure and reducing the digital divide. So far, the agenda still in discussion in the Congress and diverse fora, but always on the line of defining an open public policy for using ICTs.
However, the fine line of success for internet services and e-commerce is to grow trust into users. The users are those who impulse the internet with their purchases and interactions. They are the ultimate creators of jobs. The secret to bloom is updating commercial laws in parallel with public policies. It is urgent to simplify registrations of internet services companies and to provide for a detailed regulation on social media and data mining. After all, trust is the foundation of the internet and users perceive otherwise.
Finally, there are no coincidences in the world of the internet companies. They step on each other´s backyards all the time. So, whether Google and Amazon dream of Mexican market or just electric sheep, it is pretty clear there is going to be big business.