10 tweets trying to explain the Mexican Energy Reform

10 tweets trying to explain the Mexican Energy Reform

Photo credit: A Twitter Banner Draped Over The New York Stock Exchange For Twitter’s IPO by Anthony Quintano

Originally posted in my Twitter Account @DoBusinessMX on June 24, 2014, this is a collection of tweets trying to explain the Energy Reform in detail. Well, as much detailed as possible within the 140 characters constrain. Flexibility on style and spelling is understood. One tweet per topic block, as presented by the Executive Branch to the Congress. Currently under discussion. I welcome any RT, fav and reply.

 

Im making a 9-tweet analisys of 21 energy laws under discussion @ the Mex Congress (659 pgs) HT #EnergyMX RT please. Thx.
1 #EnergyMX PEMEX w/o monopoly on hydrocarbs or ducts. Keywords>1st refusal Sep21 DFI contracts profit/prod sharing MexicoEagleFord!!!
2 #EnergyMX Electricity opens. Pub&priv: Gen, Trans/Dist, Supply (priv>big users / pub>basic users), Trade. CENACE to admin the grid.
3 #EnergyMX Geothermal opens for recon (8mo permit), exploration (3+3 yrs) and exploitation (30 yrs + renewal). Big data analytics biz.
4 #EnergyMX Industrial Security and Environment Hydrocarbons Agency gets more powers to oversee PEMEX, CFE, oilers and gas companies.
5 #EnergyMX PEMEX & CFE 2yrs to become gov corps under private law. Leave gov proc laws. Flexible contract&JVs. +Governance.
6 #EnergyMX Hydrocarbs (upstream) and Energy Commisions (mid-downstream) regulate in coord. Res challenges in court. No suspension.
7 #EnergyMX hydrocarbs incomes from licenses (explor quota, royalty, signing bonus, consideration) and contracts (explor quota, royalty).
8 #EnergyMX sovereign fund will receive all oil&gas incomes for savings, investment and protect public finance.
9 #EnergyMX if sovereign fund is 3%+ of DGI can be applied to universal pension, renewables, infra and ed (% spending rules apply).
The Final Step of the Mexican Energy Reform

The Final Step of the Mexican Energy Reform

Photo credit by: Three energy saving light bulbs by Anton Fomkin

Mexican Congress opened a new chapter in the country’s oil, gas and electricity sectors when it opened all three to foreign investors. Supported by two thirds of the congress and most of Mexico’s states, the reform also allowed private companies to invest after the country nationalized the sectors over 70 years ago. However, as tempting as the offer was, most investors had their doubts.

This is because the opposing PAN party intervened to create the last form of the legislation. In addition, the PRI and Mexican companies have reserved space for national providers and investors. A third concern was the lack of transparency by the managers of the section. Finally, the last concern was the government’s ability to provide regulatory bodies with autonomy to carry out their duties and create frameworks for the energy sector. Addressing these concerns gradually, the government has started taking many steps, starting with becoming involved in government-funded projects.

In addition to 21 laws related to oil and gas contracts, regulatory agencies, and taxes, the Mexican government is encouraging joint ventures between foreign and national firms and even financing the former. Among these 21 laws, 9 are new. The topics of the laws are divided in: hydrocarbons (includes foreign investment, mining and PPP), electricity, geothermal energy (includes water regulation), energy security (includes environmental), government companies (includes PEMEX, CFE, government procurements and works), regulators (includes coordination among regulators), taxes (includes taxes on hydrocarbons and duties), sovereign fund and federal budget.

Mexico has been reorienting its federal procurement system around principles of delivery for results and away from compliance and overarching procedures. The process has been taking place since 2009, allowing the country to save USD 1 billion over three years. Moreover, it helped the World Bank interact better with other sectors like Poverty Reduction while improving the Bank’s engagement in public procurement reform in Mexico

However, the biggest effect is of course the Bank’s interest in continuing to support Mexico, especially as the latter has set objectives to align its public procurement system with expenditure policy to ensure value for money, transparency, efficiency, and quality of procured goods and services. As a result, Mexico will have ample funds to establish government-funded projects and profit SMEs that can profit local and international investors.

The reform is expected to be approved by mid June by the Congress. Can Mexico grab energy momentum until then?

[INFOGRAPHIC] The US$590 Bn Mexican Infrastructure Plan in a Nutshell

[INFOGRAPHIC] The US$590 Bn Mexican Infrastructure Plan in a Nutshell

Photo credit by roads and railways series #3 by woodleywonderworks

Last April 29, 2014, Mexican Government published its Infrastructure Plan to be executed from 2014 to 2018. The total budget is US$590 bn in 743 projects. This infographic shows a brief of the content. Some examples of projects are listed for reference only. There is still plenty to review and discuss.

MexicanInfrastructure20142018low

 

 

Mexico Reforms Attract U.S. Investors

Mexico Reforms Attract U.S. Investors

Photo credit: Senado Lleno… by Eneas De Troya

Mexico’s transformation from an inward-looking, oil-dependent country to one of the planet’s most dynamic and open economies in twenty years has been, according to experts, astonishing.   While U.S. investors have always been interested in playing a role in Mexico’s economy, reforms in traditionally “closed” sectors will be attracting even more interest, with international fund managers stating that investors should continue to put 30 percent of their Latin American allocation into Mexican stocks and bonds.

The reforms that are of most interest are those that have recently been announced in the education system, the telecommunications sector and perhaps most importantly, the energy sector, which has been dominated by, state-owned PEMEX (Petróleos Mexicanos) for decades.

The goal of the reforms is to allow competition in the market, allow affordable choices for consumers, and thusly allow growth.  The telecommunications sector, according to Daniel Castro, senior analyst at the Information Technology & Innovation Foundation, has cost the economy of Mexico 1.8 percent of GDP per year due to poor performance.

Castro further claims that according to OECD data, “much of this has been driven by unfortunate regulatory policies that restrict foreign investments and discourage competition from new entrants. The proposed reforms would create a new independent regulator charged with ending monopolistic practices and increasing competition within the telecom sector.  In addition, the current caps on foreign investment would be raised so as to encourage more investment in telecom networks.”

But it’s not only telecoms where foreign investors are interested; American oil companies along with other international oil companies are hoping for reforms in Mexico’s energy sector to go through.  Mexico is currently the world’s seventh largest oil producer and one of its largest export markets is the United States.  Proposed reform to the sector is to encourage private investment in order to increase production.  Investment in infrastructure and technology upgrades is sorely needed for the country to take full advantage of its vast oil and gas reserves.  Mexico is currently importing gas from the United States in order to meet the needs of its growing manufacturing sector.

Other factors contributing to American investment interest in Mexico include the cut in benchmark interest rates, which are now at a record low of four percent.  Standard and Poor’s´ has lifted the nation’s credit rating from stable to positive.   Investment and economic experts have stated that a stronger peso should not be of too much concern to investors unless it drops below 10 pesos per U.S. dollar.  Currently it is valued at 12.42 per dollar, and some international fund managers predict that by the end of the year, it will be worth 11.75 per dollar.  Most people involved in the financial industry say that it is highly unlikely that the peso will strengthen to the point where it will hinder Mexico’s growth.

Even without the reforms in the telecoms sector, Mexico is growing.  However, because the country wants to see as much growth as possible, politicians and businesses want the reforms to go through, which will be of as much benefit to American companies as they will be for Mexico’s citizens.

Mexico Energy Sector Investment Opportunities: Gas Imports

Mexico Energy Sector Investment Opportunities: Gas Imports

Photo credit: Oil Pump by C2C Balloon

Mexico, although it has what are potentially large amounts of shale gas and oil in its territory, isn’t producing nearly enough natural gas to meet the country’s growing demand for energy.  The result is that for now and the foreseeable future, Mexico will be needing to import natural gas from the United States.  While this might at first encourage companies to invest in American facilities and energy infrastructure projects north of the border, there are actually boundless opportunities to invest in Mexico’s energy sector as the Spanish-speaking north American country scrambles to provide energy for its expanding economy.

According to the U.S. Department of Energy, the amount of gas extracted from U.S. resources bound for Mexico will most likely double in the next year.   There are several pipelines that will be constructed between the two neighbors and these are expected to transport an additional 3.5 billion cubic feet of natural gas per day by 2014.  Last year, exports of natural gas from the U.S. to Mexico reached their highest levels in four decades, and there seems to be no sign that the level of exports will be slowing down.

According to the Energy Department’s Energy Information Administration, “Natural gas consumption is rising faster in Mexico than natural gas production, and as a result, Mexico is relying more on natural gas imports from the United States.”  Although Mexico has traditionally relied solely upon the United States as a source of natural gas when its own resources were insufficient to meet demand, since 2006 Mexico has been looking for other overseas suppliers in a move to diversify its domestic energy sector.

As mentioned above, Mexico is sitting upon a tremendous amount of shale gas, and Pemex, the state oil monopoly, has reported that there are possibly 1 trillion cubic feet of natural gas – but production is idle.  Presently, chances are that this resource will go undeveloped because private investors are not allowed to develop or implement projects dealing with the natural gas.  However, Pemex has announced that given certain financial conditions, 24 shale gas wells may be drilled in the next eight or nine months.

So where do the investment opportunities exist for those who want to be profitably involved in Mexico’s energy sector?  Are there any ways in which investors can benefit from Mexico’s natural gas crisis?

The good news is that while there might not be any opportunities in the natural gas extraction industry, there are ample opportunities in pipeline projects.  In order to meet demand, several pipelines will need to be constructed for United-States/Mexico natural gas transport.  Furthermore, the Mexican state power company Comisión Federal de Electricidad (CFE), who has recently awarded billion-dollar plus pipeline construction contracts to the Calgary-based pipeline giant TransCanada Corp., might be looking for more pipeline construction companies to help meet its energy needs.

Speaking of his company’s 25-year natural gas transportation contract with the CFE, TransCanada CEO and president Russ Girling stated: “Mexico’s government is engaged in a comprehensive plan to expand the nation’s electrical grid and generating capacity and much of that generation will be natural gas fired.  This award is another example of TransCanada’s commitment to help develop Mexico’s energy infrastructure in a sustainable and cost-efficient manner.”

To summarize, if the government decides to break the monopoly Pemex currently enjoys in Mexico, there will be great opportunities for early investors in natural gas extraction.  However, even if this monopoly continues on for years, profit can be made from Mexico’s natural gas shortage.  Pipeline infrastructure will be necessary and the CFE will possibly be financing many more projects in the years to come.

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