Mexico Passes Landmark Energy Reform

In the last hour, the Mexican Congress passed energy reform that will fundamentally transform the country by opening up foreign investment in the energy sector for the first time in 75 years. The Atlantic Council’s Adrienne Arsht Latin America Center also will be issuing the first comprehensive analysis of the reform on Thursday, December 19, which will be authored by renowned energy guru, David Goldwyn. Our initial analysis of the reform:
On the Year of Reforms in Mexico: by Peter Schechter
On the Implication for the Energy Industry: by David Goldwyn
On What this Means for Mexico on the World Stage: by Jason Marczak

On the Year of Reforms in Mexico:

What a year Enrique Peña Nieto has had. The Mexican government should do a Harvard Case Study for friends in Europe and the United States. They have much to teach about leadership, partnership, and putting citizenship before partisanship.

During the campaign, opponents called Peña Nieto a ‘puppet of the rich’, ‘unprepared’ and ‘more of the same PRI’.  Instead, the right words turn out to be: ‘bold reformer’, ‘unifier,’ ‘modernizing’ and ‘independent of political debts.’ Peña Nieto began by bringing together the three main political parties to accomplish clear goals. In twelve and a half months, the list of accomplishments is impressive. Education reform institutes national testing and standards and rewards teachers on results. Telecommunications reform expands competition.  Financial reform increases access to capital at lower interest rates and creates a universal pension program. Political reform loosens the reigns of the three parties and strengthens independent oversight. Now, energy reform frees up the energy sector to worldwide investment and unleashes Mexico’s huge job creating potential.

Peter Schechter, Director, Atlantic Council’s Adrienne Arsht Latin America Center

On the Implications for the Energy Industry:

Mexico’s energy reforms are impressive in their scope and ambition, and the political cooperation that brought about their passage is unprecedented. The reforms passed today, if implemented effectively, could put Mexico at the head of the national oil company class (after Statoil) for a combination of competitiveness, transparency, and bureaucratic autonomy.

The reforms also hold the potential to transform Mexico’s economy by magnetizing substantial private sector investment in oil, gas power, and manufacturing. They are permissive in nature and allow for the Congress to act within defined parameters as it legislates the precise terms for private investment, and the legislative phase comes next.

But the constitution will allow for contracts that can enable investors to book reserves. PEMEX will compete on an equal basis for new fields. The hydrocarbon and electricity regulators will both have substantial independence. In this respect — and the implementing details will be critical here — the terms could be more competitive than Iraq or Brazil.

The extent to which these reforms will be capable of attracting such investment will be made clearer in coming months. Sensitivities regarding ownership of Mexico’s hydrocarbons remain high, and bargaining will prove difficult. At a time when industry enjoys several stable locations to invest capital, including the United States, Mexico’s implementing legislation must offer competitive fiscal terms and predictable regulatory practices for the hard-fought reforms to pay off. 

David Goldwyn, Author of forthcoming Atlantic Council report, Mexico Rising: Comprehensive Energy Reform at Last?; President of Goldwyn Global Strategies, LLC; and former Special Envoy and Coordinator for International Energy Affairs at the US State Department

On What this Means for Mexico on the World Stage:

Energy reform shows that the ‘new’ Mexico is open for business. It underscores how Mexico is a leader in getting its own domestic house in order. But it’s also a model for other countries of how to overcome divisions to bring forth necessary policy advancements.

President Peña Nieto took real risks in pushing forward energy reform. But getting this done shows that Mexico is willing to do what it takes to attract investment and create jobs. Mexico has fundamentally changed and its continued ascendance makes it an increasingly valuable partner for the United States, the North American community, and the hemisphere. A more prosperous Mexico also means less and less incentives for Mexicans to migrate to the United States.

Jason Marczak, Deputy Director, Atlantic Council’s Adrienne Arsht Latin America Center

Related Experts: Jason Marczak and Peter Schechter